Archive for August 2018

What is “Buck a Beer”? I’m glad you asked

August 8, 2018

Although I now live in BC (the western-most province of Canada), until a year ago I lived in Ontario. So I was very interested by the news that the new premier of Ontario, Doug Ford (brother of the late mayor of Toronto Rob Ford — yes, THAT Rob Ford) has just announced he is re-instituting “buck-a-beer” in Ontario. “Wuzzat?” you might ask.

Take yourself back to the early ’00s. Ontario, under the banner of “social responsibility”, had mandated a “floor price” for beer — the lowest possible price at which beer could be sold. In 2002, that minimum price was $1 for a 341-mL bottle. However, this was not the price at which brewers HAD to sell their beer, it was the MINIMUM at which they COULD sell their beer if they wanted. It was notable that no brewer, not even Molson or Labatt, chose to actually sell their beer at the floor price.

Along came Lakeport Brewing of Hamilton, Ontario. Lakeport had been founded in 1992 as a purveyor of premium beers, but in the blue collar city of Hamilton, they were unable to find an audience, and went bankrupt. The brewery was rescued by an investment firm that brought in a new manager to turn things around. And turning things around literally meant doing a 180 on the type of beer Lakeport would make. Instead of premium, they would focus on super-cheap discount beer.

Someone also came up with the brilliant idea of actually selling the beer at the floor price of $1 per bottle, and this struck a chord with Hamilton drinkers. However, Lakeport only made a few cents profit on each bottle, so they needed to sell way more beer to make the same profits as other breweries. In order to do that, they needed to expand beyond Hamilton and become a player at the provincial level. Luckily someone dreamed up the memorable advertising slogans “twenty-four for twenty-four” and “buck-a-beer”. Ontario drinkers of industrial yellow quickly abandoned Molson and InBev for Lakeport’s “buck-a-beer”. In less than five years, Lakeport increased their Ontario market share from less than 1% to more than 11%. By 2006, it was the largest discount beer producer in Ontario.

This annoyed the brewing giant InBev, which, to remain competitive, had to drop its Ontario prices (and reduce profits) on its beers. To solve this problem, InBev bought out Lakeport, then closed the brewery and laid off all the workers. Blue and Bud returned to their normal price. End of “buck-a-beer” in Ontario.

But even though the market was now wide open for someone else to take Lakeport’s place, no one did. At $1 per bottle, you just couldn’t make enough money.

In 2008, the provincial government raised the floor price of beer to $1.06, again in the name of social responsibility. Even with the increase, no brewers opted to sell beer for the minimum floor price. Over the past decade, the provincial government regularly continued to nudge the floor price up; it currently stands at $1.25 per bottle.

So why would Doug Ford reduce the floor price of beer back down to $1? It’s certainly not because brewers were clamouring for a lower floor price. There is no brewer in Ontario that can possibly make beer for $1. Given that inflation has risen by 18% since Lakeport last brewed their buck-a-beer, even Lakeport could not make money today at $1 per can.

Case in point: the cheapest beer available in Ontario today is a case of 24 bottles of Molson Canadian 67, at a special sale price of $36.95. Subtracting $2.40 for bottle deposit gives you $34.55, which works out to $1.44 per bottle. Ya gotta believe that if MolsonCoors is selling their cheapest beer for $1.44 per bottle, that’s probably as low as they’re going to go. [Edit: Someone has pointed out that a case of Lucky Lager in Ontario is currently on sale for $35.50, which after deposit is subtracted, works out to $1.38 per bottle.] Indie craft brewers, of course, do not have the ecomonies of scale that the big guys enjoy — their price per can is going to be a lot more.

If you still doubt me, consider this:

  • With the recent aluminum tariffs laid on us by our American friends, the cost of one aluminum can is 20 cents.
  • The cost of designing and producing shrink-wrap labels, then adding them to the cans is about 40 cents per can
  • The provincial and federal taxes and environmental fee on each can add up to about 40 cents.
  • Can (20 cents) + label (40 cents) + taxes (40 cents) = $1.00

You’ve already spent $1 on each can — and you HAVEN’T MADE THE BEER YET.  Or paid your workers, or the electricity and water bills, or the mortgage, or the loan interest on your brewery equipment.

So why did Doug Ford lower the floor to $1 when it is obvious that no brewer can make money at that price? The answer is that Ford, not an astute businessman, made a spur-of-the-moment nostalgia-driven election promise to bring back “buck-a-beer”.

But no brewer interested in staying in business is going to be able to sell “twenty-four for twenty-four”. So “buck-a-beer” is not going to reappear anytime soon. In fact the only way Ontario is going to see cheaper beer is if Doug Ford reduces provincial beer taxes. And I wouldn’t hold my breath waiting for that.

 

 

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