Canadian craft brewers turn passion into profit

It has long been the lament of small business owners that so-called big business controls too much of the economy, and there remains little room for effective competition. This sentiment would seem to ring truest in the Canadian beer industry, but small players are making surprising headway with innovative approaches to marketing and operating their craft breweries.

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For more than half a century, the lion's share of the suds Canucks have poured back has come from two breweries: Labatt, founded in London, Ont., and now owned by Belgian mega-brewer Anheuser-Busch InBev; and Montreal-based Molson, the country's oldest brewery, which is now part of the Molson Coors Brewing Company. But in the 1980s, a number of independent craft brewers began setting up shop across the country with hopes of offering consumers an alternative to Canada's big breweries, a duopoly since the merger of Carling-O'Keefe and Molson in 1989.

Among those independent brewers was Peter McAuslan, who that same year founded the McAuslan Brewery in Montreal. Twenty years later, McAuslan Breweries has blossomed into a Canada-wide business with $20 million in beer sales from brands like St. Ambroise Pale Ale and St. Ambroise Apricot Wheat Ale.

He says instead of competing directly with the big brewers, it was always his intention to offer consumers something different. "Our whole plan was to never compete head-to-head with them. We would make beers that would appeal to an emerging consumer group that was interested in more flavourful, authentic, local products.

"So we always saw ourselves as being in a different beverage category than the beers made by the big brewers," he adds.

In Quebec, there are now upward of 70 craft breweries catering to an increasingly diverse client base. McAuslan says the choice for consumers has never been more robust.

"The emerging specialty beer consumers are much more numerous – there is a younger clientele than when we started," he said. "The beer landscape is totally different now than it was and consumer attitudes about beer have changed as well."

Community connection

A key facet of any micro-brewery is its connection to the local community, something that Toronto-based Steam Whistle Brewing co-founder Cam Heaps says harkens back to the time when local breweries dotted the country and were synonymous with their communities.

"The breweries used to be located in the centre of [a town] and be active participants within those communities," he said.

Heaps comes from legendary Canadian brewing stock. His father, Frank, founded Toronto's first micro-brewery in 1985, the Upper Canada Brewing Company. The younger Heaps was working for Upper Canada when it was purchased in 1998 by Canada's third-largest brewer, Sleeman Breweries, itself since bought out by Japanese mega-brewery Sapporo.

He was fired from the company in the following year along with Greg Taylor and Greg Cromwell. The so-called "three fired guys" went on to found Steam Whistle in 1999, deciding to focus solely on brewing a beer in the European pilsner style.

"We chose the pilsner style, which is dominated by the oldest European breweries in the world," Heaps said. "If we're going to compete with that style, one of the most challenging in the world to perfect, we'd better just do one thing so we can be masters at it."

McAuslan says he attributes part of his success to maintaining an active connection with the thriving arts community in Montreal, sponsoring a number of art exhibitions and concerts.

"In the beginning we did a lot of small, supportive things for various arts and community groups," he said. "That helped us establish a reputation as good brewers and good members of the community, a position we still maintain – we just sponsored the free Arcade Fire concert at Pop Montreal in September."

He adds that the marketing strategy plays off the weaknesses of his larger competitors. "The big breweries have changed, becoming even larger and less locally focused which is good for small, local breweries."

Chipping away at a big rock

Gary Lohin, master brewer and co-owner of Central City Brewing Co. in Surrey B.C., says the Canadian brewing industry is unique because, as a small business offering a first-class product, he feels no pressure to compete with a huge multinational corporation like Molson Coors. His marketing approach is differentiation.

"I'm making such full-flavoured and full-bodied beers that the big breweries don't make," he said.

Lohin is responsible for the wildly popular line of Red Racer beers, which have been flying off shelves so swiftly that Central City is expanding its facilities to handle the increased demand. Indeed, the craft brewing industry in B.C. is the country's most thriving. Through March, craft beers accounted for 12.7 per cent of all beer sold in the province and sales have skyrocketed from $56 million in 2007 to $111 million in 2010.

Lohin says there remains immense room for further growth. "Nearly 90 per cent of people are still buying a case of big-brewery beer," he said. "We just have to keep innovating and offering the customers something they can't get from the big breweries, and we've so far been successful with that formula."

In Ontario, where craft beer represents six per cent of the province's total beer sales, the public's appetite for independent brews is growing despite the fact alcohol consumption on the whole is flat.

"Generally, people aren't drinking as much as they used to — per capita consumption is flat or down," said Gary McMullen, president of Muskoka Brewery and chair of Ontario Craft Brewers. "So if people are only looking to have one beer, they want something special to enjoy."

Heaps says the dominance of the big brewers has worked in Steam Whistle's favour.

"It's somewhat similar for any industry that's dominated by one or two major players – you know what you're getting into," he said. "Because their market share is so huge, you can just chip away a little piece and survive off it."

Big brewers taking notice

McAuslan says the growing challenge for small brewers is that the changes in the beer industry over the past two decades have led the big breweries to take an interest in what craft brewers are doing.

"They themselves are in the specialty beer business now, whereas 20 years ago they had no interest in doing that whatsoever," he said.

In May, Molson announced the creation of its new Six Pints Specialty Brewing Company. According to a press release, Molson's intention for the company is to "nurture and grow specialty and craft beer brands." Molson has been quite active in the craft brewing segment in recent years, purchasing Ontario brewer Creemore Springs in 2005 and Vancouver-based Granville Island Brewing in 2009.

Heaps says Molson's foray into the segment must mean the brewers are doing something right.

"I think it's great, because it's an open acknowledgement by them that the craft industry is legitimate and has something to offer that's different than what they offer," he said. "But I don't think the consumer likes opening the paper and seeing another craft brewery bought up.

"Ultimately, as the craft segment gets stronger, there will be more people who have the resources and ability to stay independent."

Peter McAuslan, who has seen it all in his two decades as a craft brewer, says in order for the segment to continue to thrive, brewers must do all they can to continually reinvigorate their businesses.

"We have a policy at the brewery to come out with at least one new beer each year, if we can," he said. "You've got to get out there and do new things in order to keep your key constituency interested in what you're doing.

"Between the small brewers and consumers, we've made this pact and we've changed the beer industry forever."