A very interesting article in the Globe and Mail's Business section by Derek DeCloet this morning on the pressure to drop prices in the Canadian macro-brewing industry. The factual highlights are these:
Just before Christmas, John Sleeman, the man who runs Canada's third-largest brewery, committed an act he'd once hoped he would never be forced to do. He slashed the cost of his beer...So mega-beer producers suffer from unhealthy images; equal advertizing opportunities granted to the competition; homogenization and standardization of product; and none of the breaks in taxation micros get. In his very interesting article, DeCloet goes on to analyze which brewers are going to be the best bets for investment over the next while. A good read.
Mr. Sleeman says part of the change can be traced back to a 1991 story by 60 Minutes that documented the so-called "French paradox," which suggests the French live longer and suffer less heart disease because of their love of a fine Beaujolais. Wine sales began to climb "the next morning," recalls Mr. Sleeman, and they haven't stopped. In 2003, the average Canadian of legal drinking age consumed about 14.4 litres of wine, up 31 per cent from a decade earlier. Average beer consumption fell 5.5 per cent in that period. If the wine makers had CBS on their side, liquor manufacturers benefited from changing laws and social mores. In 1995, the Federal Court of Canada struck down as unconstitutional a regulation banning hard liquor advertising on TV...
Some industry watchers argue that brewers have themselves to blame for their downbeat image. Accountants may love the Canadian brewers' deal to use the same, long-necked brown bottles for most of their brands because it saves millions in packaging costs. But since every bottle looks the same (with few exceptions), and the liquid often tastes the same, who can blame beer drinkers for concluding that most beers are the same, and buying the cheapest one?...and
It's not that Lakeport is more efficient than the mega-brewers. Rather, it is small enough to qualify as a microbrewery under Ontario law, and gets preferential tax treatment. A micro that ships about 1.2 million cases a year in the province will pay a basic production tax of $3.1-million. Sleeman, Molson Coors and Labatt pay nearly $5.6-million to sell the same number of cases.