31212ca breweries in canada industry report

Breweries in CanadaMay 2015 1

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Going flat: Changing drinking patterns and lowinternational demand will limit revenue growth

IBISWorld Industry Report 31212CA

Breweries in CanadaMay 2015

Nick Petrillo

2 About this Industry

16 International Trade

2

Industry Definition

18 Business Locations

2

Main Activities

2

Similar Industries

20 Competitive Landscape

32 Industry Data

3

Additional Resources

20 Market Share Concentration

32 Annual Change

20 Key Success Factors

32 Key Ratios

4 Industry at a Glance

31 Industry Assistance

32 Key Statistics

20 Cost Structure Benchmarks22 Basis of Competition

5 Industry Performance

22 Barriers to Entry

5

Executive Summary

23 Industry Globalization

5

Key External Drivers

7

Current Performance

25 Major Companies

9

Industry Outlook

25 Anheuser-Busch InBev

11 Industry Life Cycle

26 Molson Coors Brewing Company

13 Products & Markets

28 Operating Conditions

13 Supply Chain

28 Capital Intensity

13 Products & Services

29 Technology & Systems

15 Demand Determinants

29 Revenue Volatility

15 Major Markets

30 Regulation & Policy

33 Jargon & Glossary

www.ibisworld.ca | 1-800-330-3772 | [email protected]


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About this IndustryIndustry Definition

The Breweries industry primarilyproduces beverages, such as beer,malt liquor and nonalcoholic beer,using malted barley, hops, yeast and

Main Activities

The primary activities of this industry are

other occasional adjuncts.Manufacturers of wine, spirits andother alcoholic beverages are notincluded in this industry.

Canned beer productionBottled beer productionDraught beer productionNon-alcoholic beer production

The major products and services in this industry areBottled beerCanned beerDraught beer

Similar Industries

31211aCA Soda Production in CanadaEstablishments in this industry bottle, cap and market carbonated and uncarbonated soft drinks. Soft drinkmanufacturers often operate in the market for bottled water production.31211bCA Bottled Water Production in CanadaEstablishments in this industry purify and bottle water for resale.31211cCA Juice Production in CanadaEstablishments in this industry manufacture fruit and vegetable juices. This industry excludes producers offunctional drinks, ready-to-drink teas and flavoured water products.31214CA Distilleries in CanadaEstablishments in this industry distill ingredients such as grains, potatoes and sugars into spirits. These spiritsare then bottled and sold.44531CA Beer, Wine & Liquor Stores in CanadaEstablishments in this industry include government outlets and specialized stores licensed specifically to sellalcoholic beverages for off-premises consumption.


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About this Industry

Additional Resources

For additional information on this industrywww.beercanada.comBeer Canadawww.brewersassociation.orgBrewers Associationwww.brewers.caBrewers Association of Canadawww.bmbri.caBrewing and Malting Barley Research Institutewww.homebrewers.caThe Canadian Amateur Brewers Association

IBISWorld

writes over 400 Canadianindustry reports to help you makebetter business decisions, faster. Tosee all reports, go to www.ibisworld.ca

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Breweries in Canada May 2015

4

Industry at a GlanceBreweries in 2015

Key StatisticsSnapshot

Revenue

Annual Growth 10-15

Annual Growth 15-20

Profit

Exports

Businesses

$5.7bn

1.8%

0.7%$515.6m $212.9m 216Per capita disposable income

Revenue vs. employment growth

Market Share

Anheuser-BuschInBev 41.5%

20

43

% change

Molson CoorsBrewing Company26.8%

% change

1001020

Year 07

210

09

Revenue

11

13

15

17

19

21

1

Year

09

11

13

15

17

19

21

EmploymentSOURCE: IBISWORLD

p. 25

Products and services segmentation (2015)

9.7%


Draught beer

Per capita disposableincomePer capita alcoholconsumptionWorld price of wheat

47.4%

World price of aluminumCanadian-dollar effectiveexchange rate index

Canned beer

42.9%

Bottled beer

p. 5SOURCE: IBISWORLD

Industry Structure

Life Cycle Stage

Mature

Regulation Level

Heavy

Revenue Volatility

Low

Technology Change

Low

Capital Intensity

High

Barriers to Entry

High

Industry Assistance

Low

Industry Globalization

High

Concentration Level

High

Competition Level

High

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 32


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Industry Performance

Executive Summary | Key External Drivers | Current PerformanceIndustry Outlook | Life Cycle StageExecutiveSummary

Breweries suffered from declining percapita alcohol consumption andescalating competition from substituteproducts over the five years to 2015. Dueto changing taste preferences,consumers have shifted away from thetraditional light and premium beerbrands that currently represent the vastmajority of sales for the industryslargest brewers. Consumers areincreasingly electing to buy less beer inexchange for higher-quality brands or,in some cases, reducing purchases of

alcohol altogether. As a result, industryrevenue is projected to experienceminimal growth of 0.3% in 2015.Industry revenue is projected to grow atan annualized 1.8% rate over the fiveyears to 2015, reaching $5.7 billion.As has been the case for several years,Anheuser-Busch InBev (AB InBev) andMolson Coors are expected to generatethe overwhelming majority of industryrevenue in 2015. Merger and acquisitionactivity by the two companies is expectedto limit the number of new entrants tothe industry, causing the number of

enterprises to grow only marginallyduring the five years to 2015, at a 1.3%annualized rate to reach 216 companies.These major companies are particularlypressured because they depend onhigh-volume sales of their respectiveflagship value products, Budweiser andMolson Canadian, in which consumershave demonstrated declining interest. Asindustry players continue to innovate andmarket new products, profit is expectedto account for 9.1% of revenue in 2015.IBISWorld forecasts the price of wheatwill remain relatively steady during thenext five years, increasing at anannualized rate of only 0.1%. However,brewers may lose some profit due to aprojected 1.7% annualized increase in thecost of aluminum.International trade has also challengedthe industry as the Canadian dollarstrengthened relative to major tradingpartners currencies. The rising value ofthe dollar has made Canadian beerrelatively more expensive for consumers,which has depressed exports. Thecontinued strengthening of the dollar willcontribute to poor trade performance foran industry that is already experiencingwaning interest among consumers in theUnited States. Consequently, theindustrys revenue is forecast to expandat a slow 0.7% five-year annualized rateto $5.9 billion by 2020.

Per capita disposable incomeDisposable income growth is animportant indicator of industry revenuebecause it bolsters the purchasing powerof consumers. During periods ofeconomic growth, rising disposableincome may encourage consumers topurchase either more beer or highermargin brands. Per capita disposableincome is expected to increase in 2015,representing a potential opportunity forthe industry.

Per capita alcohol consumptionThe average consumers alcoholconsumption patterns can serve as anindicator of demand for industryproducts. Consumers cultural andtaste preferences can reduce drinkinghabits and impact sales of beer. Forexample, many people drink only inmoderation due to personal preferenceor for health reasons, which reducesalcohol consumption and, therefore,total sales volume. Per capita alcohol

Due

to changing preferences, consumershave shifted away from traditional light andpremium beer brands



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consumption is expected to decreaseslowly during 2015, posing a potentialthreat to the industry.World price of wheatMalted cereal grains such as maltedbarley and malted wheat are the primaryingredients required to produce beer.Sudden increases in the price of wheatand barley will therefore impose asignificant cost burden on industrybrewers; increases in the global price ofgrain erode industry profit margins. Theworld price of wheat is expected todecline sharply in 2015.World price of aluminumAluminum is a very popular method ofpackaging beer. Aluminum cans havehistorically been the most cost-effectivecontainer for holding beer and blockingthe beers exposure to flavor-eroding UVrays. An increase in the world price of

aluminum will lead to higher costs forbrewers who predominantly ship theirproducts in aluminum cans instead ofglass bottles. Consequently, risingaluminum prices hamper industryprofitability. In 2015, the world price ofaluminum is projected to increase.Canadian-dollar effectiveexchange rate indexThe Canadian-dollar effective exchangerate index (CERI) is a weighted averageof bilateral exchange rates comparing theCanadian dollar with the currencies ofthe countrys largest trading partners.The CERI uses the US dollar, the Euro,the Japanese yen, the UK pound, theChinese yuan and the Mexican peso in itsindex. Depreciation in Europeancurrencies will likely encourage fasterappreciation in the US dollar. As a result,the Canadian dollar and the CERI areexpected to decline over 2015.Per capita alcohol consumption

Per capita disposable income4

108

3

106

2

Litres

% change

Key External Driverscontinued

1

102

01

Year

104

09

11

13

15

17

19

21

100

Year 06

08

10

12

14

16

18

20

SOURCE: IBISWORLD


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CurrentPerformance

Changing consumer preferences haveslowed industry growth over the pastfive years. Per capital alcoholconsumption among Canadians hasdeclined an annualized 1.0% over thefive-year period to 2015, and this trend,combined with declining interest intraditional light and premium beer

An evolving industry

The entire North American market forbeer has experienced drastic changeover the past five years. Majorinternational brewing companies suchas Anheuser Busch InBev (AB InBev)and SABMiller have either acquired ormerged with large North Americanbrewers that historically represent alarge group of domestically owned andoperated brands. In recent years,however, many small-scale,independently owned breweries haveentered the industry. Although this hasnot resulted in any significant industrydecline, a significant disparity existsbetween large international brewers andtheir smaller domestic competitors.Profit, for example, is projected torepresent 9.1% of revenue for theaverage brewery in 2015. Both AB InBevand Molson Coors, however, boast profitmargins that substantially exceed thisaverage. Due to the economies of scalethat come with major brewing

Uncertain input prices Industry profitability has historically

been erratic. Due to both the fickle natureof consumer drinking patterns and thesignificant price volatility of theindustrys key inputs, industry profit isprone to sudden fluctuations.Perhaps the most substantial threat toindustry profitability occurred early in thefive-year period to 2015. In 2011, theindustry faced immense pressure fromrising raw material costs that ultimately

brands, has resulted in minimal revenuegrowth in recent years. IBISWorldexpects industry revenue to increase anannualized 1.8% to $5.7 billion in thefive years to 2015, although much of thisgrowth happened early in the period.Industry revenue in 2015 is projected toincrease a slim 0.3%.

In

recent years, manysmall-scale, independentlyowned breweries haveentered the industryoperations across the country, theindustrys largest players haveaccumulated tremendous market share.Aside from these structural changes tothe industry, the number of breweries inCanada has increased mostly in line withthe industrys revenue growth in recentyears. The total number of brewingenterprises is projected to increase at a1.3% annualized rate to 216 in the fiveyears to 2015. Industry employment isexpected to fall an annualized 0.7% overthe same period to 9,342 workers in2015, including a single-year drop of6.9% in 2012. Generally, the industry isexperiencing slow but consistent growth.

led to declines in both establishments andindustry employment the following year.The world price of wheat increased 41.4%over 2011, while the world price ofaluminum shot up 10.5%. Some brewerieswere fortunate enough to have agreed tolong-term fixed-pricing contracts on thesematerials long before their pricesescalated, but breweries requiring newcontracts with upstream input supplierswere not as fortunate. The number of


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Uncertain input prices industry establishments fell 4.5% in 2012,while industry employment declined 6.9%continued

the same year.The escalation in the price of wheatwas ultimately attributed to severedroughts in Russia, and proved to be onlya temporary obstacle for the industry.Nevertheless, this incident demonstratesthat breweries are continually prone tosudden shocks in input prices that,although temporary, can have significantconsequences. The world price of wheathas since stabilized, and has in fact

Declininginternational sales

Although Canada has historically been anet importer of beer, the industry hasgenerated several prominentinternational brands. Canadian staplessuch as Labatt, Molson, Sleeman,Rickards and craft brand Dieu du Cielare widely accepted in Canada and haveachieved some popularity throughoutNorth America. Over the past five years,however, the value of Canadian beerexports has steadily declined at anannualized rate of 6.4% to $212.9million. This has occurred during aperiod in which total imports haveremained mostly stable; in the five yearsto 2015, the value of industry importshas increased at a slim 0.1% annualizedrate to $715.4 million. Much of thedecline in exports may be attributable tochanging US taste preferences. TheUnited States overwhelmingly

declined each year since. Similarly, theworld price of aluminum declined 15.7%in 2012, effectively negating the spike inprice that occurred the year prior.Input price uncertainty creates asignificant degree of fluctuation inindustry profit margins. The industrysprofit margin declined to 8.4% in 2014,despite reaching 10.9% in 2011. In 2015,industry profit is expected to account for9.1% of total revenue, representing agradual improvement in the years sincethe industrys sudden price hikes.

Industry

exports havedeclined due to changingpreferences among USconsumersrepresents the largest market forCanadian beer exports, and recentconsumer preferences for craft beerscould largely explain this decline.Additionally, the majority of Canadianexports to the United States consist oftraditional premium and light beerstyles. With the Canadian dollar holdingsteady against the US dollar, consumersmay perceive imported Canadian beersas being too expensive, considering therange of less-expensive US-based lightbeer alternatives.


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Slow and steady

Industry operators will likely facesignificant challenges as consumers shiftaway from traditional light beerconsumption and internationalcompetition increases. The consumermove toward premium beverages,known as premiumization, is expected toparticularly hurt major companies thatdepend on high-volume sales of valuebeers, like Labatt and Molson Canadian.Beer is increasingly perceived as lesshealthy and exotic than wine and spirits,and substitution has slowed industrysales even as consumers havedemonstrated significant interest incraft beer. Consequently, industryrevenue is expected to grow at amarginal annualized rate of 0.7% duringthe next five years to $5.9 billion in2020; revenue is projected to increase0.5% in 2016 as marketing spending bymajor companies bolsters industry

performance. Premiumization is alsoexpected to lead to increasedcompetition from foreign brands,especially as the Canadian dollarremains strong and makes foreignproducts relatively less costly.

With input prices stabilizing and theindustrys largest companies slowingtheir merger and acquisition activity,the industry is not expected to undergoa structural overhaul similar to that ofprevious years. The world price ofwheat, which has been steadilydeclining since its massive spike in2011, will likely remain stable over thenext five years. The world price ofaluminum is projected to increase overthe next five years, but at amanageable 1.7% annualized rate. The

industry will likely remain in a holdingpattern in the years to come.IBISWorld projects the number ofindustry enterprises to increase anannualized 0.7% to 224, while totalindustry employment will grow anaverage annual 0.6% to 9,640 workers.Barring significant input price shocks,average profit in the industry isanticipated to slip slightly to 8.9% ofrevenue in 2020. The gradual influx ofsmaller breweries will slightly erodeaverage industry profit.

Industry revenue84

% change

IndustryOutlook

048

Year 07

09

11

13

15

17

19

21

SOURCE: IBISWORLD


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Craft brewing andforeign competition

The craft brewing phenomenon that hastaken the US beer market by storm hasnot been as significant in Canada. This islargely due to the greater difficulty ofentering the Canadian market. Sincenearly every province regulates anddistributes beer through provincial liquorcontrol boards, the regulatory costsassociated with establishing a newmicrobrewery are far greater forCanadian breweries than their UScounterparts. US brewers have witnessedthe gradual loosening of statedistribution regulations in recent years,which has facilitated the surge in thenumber of US microbreweries.Additionally, the market for craft beeris not as large in Canada as in the UnitedStates. The United States has many moremarkets across a diverse range ofclimates that make many styles of beersuitable for brewing. Different types ofsurface water containing different pHlevels and minerals play a key role inbrewing variant styles of beer. Inaddition, the proximity between manymajor US commercial areas enablessmall-scale breweries to retail theirproducts to a large market. There are farfewer metropolitan areas in Canada

The

market for craft beer isnot as large in Canada as inthe United Statescapable of sustaining small breweries,and the transportation costs associatedwith delivering small-scale batches ofbeer to remote locations across Canadaare prohibitive. Although small-scalebreweries will continue to play a largerole in shaping the Breweries industry foryears to come, a resurgence in localbreweries akin to the craft beerrenaissance currently emerging in theUnited States is unlikely.The Breweries industry is alsoprojected to experience continueddeclines in total exports. IBISWorldprojects industry exports to decline at anannualized rate of 4.7% over the next fiveyears to $167.4 million in 2020. Industryimports, which stagnated over the pastfive years, are expected to pick up inresponse to a strong Canadian dollar andcontinued demand for foreign brands.Total imports are expected to increase atan annualized rate of 5.0% to $914.0million over the five years to 2020.


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Industry PerformancePer capita alcohol consumption hasshown steady signs of decline

Life Cycle Stage

The industrys largest companies areconsolidating to achieve greater market share

% Growth in share of economy

The brewing process has experiencedlittle technological change

20

Maturity

Quality Growth

Companyconsolidation;level of economicimportance stable

High growth in economicimportance; weaker companiesclose down; developedtechnology and markets

15

Key Features of a Mature IndustryRevenue grows at same pace as economyCompany numbers stabilize; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalization of low margin products & brands

10

Quantity Growth

Many new companies;minor growth in economicimportance; substantialtechnology change

5

Sawmills & WoodProductionBeer, Wine & SpiritWholesaling

0

Breweries

Flour MillingSoda Production

Bottled Water Production

Decline

-5

Shrinking economicimportance

-10-10

-5

0

5

10

15

20

% Growth in number of establishmentsSOURCE: WWW.IBISWORLD.COM


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Industry Life CycleThis

industryis M ature

Consumer shifts in preferences towardpremium beverages and away from lightbeer is a major factor behind theindustrys performance during the pastfive years. With consumers trading up intheir alcoholic beverage choices, they arereaching for higher-priced beer as well assubstitutes like wine and spirits.Although this has enabled brewers toboost prices for their higher-endproducts, overall sales volumes havestagnated and in some cases declined.Lower sales volumes and substitutiontoward high-end products is posing achallenge for major companies likeMolson Coors, since their operations arelargely based on heavily marketing valuebrands. Molson Canadian and CoorsLight, despite recent declines in

popularity, currently represent more thanhalf of the companys domestic beersales. Industry consolidation is forecastto result in only a 1.0% annualized10-year increase in industry enterprisesto 224 by 2020.Additionally, declining volume has ledto higher per-unit production costs.Breweries are raising their prices as aresult, and these price increases are alsotaking into account volatile input pricesfor wheat, hops and packaging materials.Consequently, industry value added(IVA), which measures the industryscontribution to the economy, is expectedto increase at a steady 0.7% annualizedrate during the 10 years to 2020, whileGDP rises at a projected 2.2% averageannual rate during the same period.


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Products & Markets

Supply Chain | Products & Services | Demand DeterminantsMajor Markets | International Trade | Business Locations

Supply Chain

KEY BUYING INDUSTRIES41322CA

Beer, Wine & Spirit Wholesaling in CanadaWholesale distributors are a vital link in the supply chain for alcohol. Most beer manufacturersare required to sell their products to private or provincial wholesalers, who then deliver theseproducts to retail locations and drinking establishments.

99CA

Consumers in CanadaIndividual consumers ultimately are the final purchaser of industry beverages, although somemay purchase beer directly from small-scale brewpubs and establishments that are licensed tosell beer for on-premises consumption.

KEY SELLING INDUSTRIES

Products & Services

31121CA

Flour Milling in CanadaBrewers purchase malted grains from mills. Malt comes from barley or other grains that havebeen germinated by soaking them in water and then kiln-drying them in order to develop theenzymes needed for fermentation.

32111CA

Sawmills & Wood Production in CanadaWooden pallets are used to transport the final product to end users, such as retailers, bars andclubs.

32221CA

Cardboard Box & Container Manufacturing in CanadaPaperboard containers are used to package bottles and cans of beer for transportation.

32311CA

Printing in CanadaBrewers adhere printed labels on their products to both market their production and to fulfillgovernment labeling standards.

32721CA

Glass Product Manufacturing in CanadaNew and recycled glass bottles are purchased in bulk for bottling.

42451CA

Corn, Wheat & Soybean Wholesaling in CanadaMalted barley, wheat, corn, hops and other flavor adjuncts are purchased from industrywholesalers.

According to the latest industry surveyconducted by Beer Canada in 2014, theindustry has experienced a sharpincrease in the number of licensedbreweries as well as higher productionvolumes. Over the past five years,canned beer surpassed beer bottled inglass for the first time, representing asurprising change for an industry thathas typically benefited from significantglass bottle recycling programs.

susceptibility to flavour-spoiling UV light.Although glass bottles are the standardpackaging material for most brewers, therelative heaviness of glass ultimately addsto their transportations costs. As a result,some brewers have replaced some bottledbeer production with forms of cannedbeer packaging. This has caused bottledbeer to decline as a share of the industrysproducts over the past five years,representing an estimated 42.9% in 2015.

Bottled beerBottled beer has for decades been thestandard packaging for the industrysproducts. Beer bottles are made of glassand often come in brown or green hues.Clear bottles are rare, due to their

Canned beerAn estimated 47.4% of industry productsare packaged in aluminum cans,representing a robust increase over thepast five years. There are many reasonsfor the sudden surge in popularity of


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Products & Markets

Products & Servicescontinued

Products and services segmentation (2015)

9.7%

Draught beer

47.4%Canned beer

42.9%

Bottled beer

Total $5.7bncanned beer. For producers, aluminum isa far lighter material than glass thatreduces the overall bulk andtransportation costs associated withshipping bottled beer. Additionally,compared with glass, aluminum isrelatively inexpensive to purchase frommetal manufacturers.Consumers have also taken to cannedbeer over the past five years. Althoughcanned beer may once have beenperceived as consisting exclusively oflight, subpremium and bottom-shelfvarieties, canned alternatives of manypremium craft beers have entered themarket in recent years. Because cannedbeer is more cost-effective forproducers to manufacture, they canpass along some of the cost savings toconsumers. Aluminum cans have givenconsumers far greater exposure tohigher-priced brands without anynegative consequences to flavor. In fact,craft beer producers regard aluminumcontainers as a much better packagingmaterial than glass. Although darkamber glass bottles generally reduce thelikelihood of UV light exposure and thepotential skunking effect it has on

SOURCE: IBISWORLD

beers, aluminum cans block virtually allpossibility of the products taste beingcompromised due to UV exposure.Many breweries have also usedaluminum cans as an opportunity tocreate elaborate product labels anddesigns, since cans provide greatersurface area for printed labels thantraditional glass bottles.Draught beerBeer Canada reports that a slim 9.7% ofthe beer produced in Canada is packagedand distributed in bulk. Draught beerproduction includes beer that is servedfrom barrels, such as standardpressurized kegs or more traditionalcasks. Kegs are commonly constructedfrom aluminum or steel, are forcecarbonated using nitrogen or carbondioxide and are sold in bulk sizes rangingfrom 20.0 to 58.6 litres. Conversely,casks are constructed using metal orwooden housing and carry beer that isneither carbonated nor pasteurized.Draught beer is most commonly sold toprivate drinking establishments andindividual consumers hosting events andprivate functions.


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Products & Markets

DemandDeterminants

Demand for beer varies depending onmany factors. Customer demand for aspecific brand may fluctuate dependingon the perceived attractiveness of otherbrewers products. Additionally, beersubstitutes such as wine, spirits andnonalcoholic beverages can increase inpopularity and negatively impact sales ofbeer. Over the past several years,demand for beer has steadily increasedcompared with these close substitutes,and the industry has responded togrowing demand by expanding itsofferings of seasonal, premium andspecialty beer styles.The publics demand for beer is alsoinfluenced by marketing. Majorcompanies that brew very similar, mildlyflavoured products typically dedicatelarge portions of revenue towardpromotional campaigns. High-profilecelebrity endorsements, majoradvertising campaigns, novel packagingmaterials and complex bottle designs allheavily contribute to the industrys highmarketing costs, and these campaignshave a major impact on consumerspurchasing decisions.Government intervention caninfluence demand through regulation and

taxation. The most common forms ofgovernment regulation of alcoholicbeverages pertain to retail sales.Minimum drinking ages, limits on hoursof sale, limits on the size of alcoholpurchases, mandatory minimum retailprices and excise taxes are all designed tolimit overconsumption and control thesale of alcohol. Throughout much ofCanada, the distribution and sale of beeris controlled by provincial regulatorybodies rather than private wholesalersand merchants.Demographics also play a significantrole in determining demand for alcohol.Demand for alcoholic beverages tendsto be higher among households withhigher levels of disposable income.IBISWorld estimates that householdsearning the top 20.0% of income spend60.0% more on beer from retailers thanthe average household and 80.0% moreon beer at licensed drinkingestablishments. Age may alsodetermine the taste preferences ofconsumers. Per capita consumption ofbeer is higher among 18- to 34-yearolds than other age groups, whilepurchases of wine remain strong amongconsumers aged 35 and older.

Major Markets

Beer consumption among menMen continue to dominate Canadian beerconsumption, drinking an estimated 59.5%of beer in terms of volume. Men aged 19 to30 years old will drink an estimated 19.9%of beer sold domestically in 2015, becausethey are more likely to purchase beer inhigh quantities and buy a variety of craftbrews to sample. Men in this age range arenot only the most likely to drink beer, butalso typically drink a greater volume of beerthan other age groups. Men between theages of 31 and 50 consume 15.6% of theindustrys products.Meanwhile, men aged 51 to 70 areexpected to drink 14.3% of the beer

produced in 2015, as many in thissegment substitute purchases of beerwith wine or spirits due to higherdisposable incomes and shifting healthoriented attitudes. Similarly, men agedolder than 71 years are estimated to justdrink 9.7% of the beer produced in 2015.Beer consumption among womenBecause women consume beer lessfrequently than men, they represent asmaller market for the Breweriesindustry. Although consumption bywomen has increased during the past fiveyears, women are estimated to drink only40.5% of the beer sold in Canada.


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Products & Markets

Major Marketscontinued

Major market segmentation (2015)

7.9%

9.7%

Women aged 71years old or older

19.9%

Men aged 19 to 30 years old

Men aged 71 years old or older

10.1%

Women aged 31 to 50 years old

15.6%


10.4%

Women aged 51 to 70 years old

Total $5.7bn

International TradeLevel & Trend xports in theE

industry are L owand D ecreasingImports

in theindustry areMediumand S teady

12.1%

14.3%


Women aged 19 to 30 years oldSOURCE: IBISWORLD

Breweries are innovating products gearedtoward women, such as sweeter beers likeMolson Sublime or Labatt Blue LightLime. Low-calorie products are alsoincreasingly marketed toward women asbrewers seek to tap this growing market.Women aged 19 to 30 are estimated todrink 12.1% of the beer sold in Canada in

2015, surpassing 31- to 50-year-olds asthey try newer products. Women aged 31to 50 are expected to consume 10.1% ofthe beer produced in 2015. Forcomparison, women aged 51 to 70consume 10.4% of beer, and women aged71 or older are anticipated to drink 7.9%of beer.

The Canadian market for beer isrelatively self-sufficient, with domesticbrewers fulfilling most of the domesticdemand for alcoholic beverages.However, Canada does participate in theinternational market for beer and is anet importer of beers from Belgium,Mexico, the Netherlands and the UnitedStates. After a brief decline in beerimports following the recession, beerimports have steadily increased in recentyears. Conversely, Canadian beerexports have gradually fallen in recentyears due to increasing competitionfrom foreign breweries.

sales have held steady, increasing at a0.1% annualized rate since 2010 to $715.4million in 2015. Canadian beer importscome from many different countries,although imports from the United States,the Netherlands, Mexico and Belgiumconsistently rank as the most popularforeign beer brands. Brands such asBudweiser, Bud Light, Coors Light, MillerLite, Heineken, Grolsch, Modelo, DosEquis and Duvel are popular importedbrands that are widely available acrossCanada. Continually expandingadvertising campaigns and consistentconsumer approval of these brands willlikely lead to continued growth in beerimports over the next five years.

ImportsDuring the past five years, the continuedstrength of the Canadian dollar has madeforeign products relatively inexpensivefor Canadians. As a result, imported beer

ExportsExports were weakened by a strongCanadian dollar during the past five years,


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Products & Markets

which made industry products relativelyexpensive in foreign markets. Foreigndemand for Canadian beer also largelydepends on US taste preferences, since theUnited States represents the overwhelmingmajority of the industrys export market. Inrecent years, US taste preferences haveshifted away from foreign and domesticpremium brands toward local and regionalcraft styles, thereby reducing overallinterest in Canadian exports among USdrinkers. When combined with theincreasing strength of the Canadian dollar,this trend is expected to cause industryexports to decline at an annualized rate of6.4% to $212.9 million in 2015.

Exports To...

Industry trade balance600300

$ million

International Tradecontinued

03006009001200

Year 07Exports

09

11

13

Imports

15

17

19

21

BalanceSOURCE: IBISWORLD

Imports From...

9.9%

Belgium

1.9% 0.7%Other Japan

0.8%

Australia

1.1%

32.1%

12.2%

Other

Mexico

Ireland

21.3%

Netherlands

95.5%United States

24.5%

United States

Year: 2015

Total $212.9m

SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA

Total $715.4mSOURCE: USITC


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Products & MarketsBusiness Locations 2015

Establishments (%)Less than 5%5% to less than 20%20% to less than 40%40% or more

NT

YT

NU

NORTHERN TERRITORIES0.4

BC

26.3

AB3.8

SK0.4

MB1.3

ON40.7

NL

QC

1.7

21.2

NB1.3

NS

PE0.4

2.5

SOURCE: IBISWORLD


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Products & Markets

Distribution of establishments vs. population5040302010

Saskatchewan

Quebec

Ontario

Prince Edward Island

Nova Scotia

Newfoundland

Northern Territories

New Brunswick

Manitoba

Alberta

0British Columbia

Due to the high transportation costs ofshipping a heavy product such as beer,breweries are commonly located near themajor markets they serve most. As aresult, industry establishments areoverwhelmingly concentrated inprovinces with densely populatedmetropolitan areas: Ontario, Quebec andBritish Columbia. Ontario holds a leading40.7% of industry establishments due tohigh demand for beer from Toronto andsurrounding suburban areas, and evenfrom US distributors across the borderthat may wish to import Canadian brandsfor US consumers. Quebec holds 21.2% ofindustry breweries, falling closely in linewith the provinces 23.1% share of theCanadian population. Large populationsin Montreal and Quebec City helpstimulate demand for beer in theprovince, and shipping activity to andfrom the cities of Hull and Gatineausupport the steady trade of alcoholicbeverages throughout the province.British Columbia holds 26.3% of industrybreweries despite representing only13.3% of the Canadian population. This islargely due to the commercial dominanceof Vancouver as well as the provincesconvenient ground transportation accessto Washington state and California.Access to raw materials is anadditional factor that determines thelocations of industry businesses. Thereare only three breweries located in New

%

Business Locations

EstablishmentsPopulationSOURCE: IBISWORLD

Brunswick, for example, due to lack ofaccess to fresh inputs like barley, hopsand properly treated water. Althoughsuch areas may have an increasingnumber of nanobreweries, homebrewersand pubs that operate outside the scopeof the industry, regions such as NewBrunswick, Prince Edward Island,Manitoba, Saskatchewan and the Yukondo not possess sufficient means oftransportation or large enoughpopulations to sustain a significantnumber of industry breweries.

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20

Competitive Landscape

Market Share Concentration | Key Success Factors | Cost Structure BenchmarksBasis of Competition | Barriers to Entry | Industry GlobalizationMarket ShareConcentrationLevelConcentration

inthis industry is H igh

Key Success FactorsIBISWorld

identifies250 Key SuccessFactors for abusiness. The mostimportant for thisindustry are:

The three largest breweries in Canadaare expected to generate 72.0% ofindustry revenue in 2015. Foreigninvestment over the past decade has ledto fundamental restructuring of theindustry in the form of intenseconsolidation and rising market sharefor international beverage behemoths.Major international brewers havedeveloped significant market sharethrough economies of scale inproduction, which allow these companiesto produce large quantities of beer at alow per-unit cost, heavily market these

products through a variety of advertisingchannels and generate operating marginsthat are significantly higher than themargins of the industrys independent,regional brewers. Consequently, theindustry continues to be represented byboth a large number of small brewersand a select few major internationalbrewers. As these major internationalbrewers continue to acquire theproduction facilities of popular Canadianand foreign brands, industryconcentration is anticipated to continueincreasing during the next five years.

Economies of scopeBrewers that produce a wide variety ofbeer styles can achieve a marketingadvantage by appealing to a greater rangeof customer tastes.

fermentation occurs uniformly and finalpackaging is consistent.

Establishment of brand namesSuccessful branding through label designand heavy marketing is critical to successin a brand-centric market.Effective quality controlBrewers operating large batches mustensure that their product is made in asanitary environment, all ingredients aremeasured consistently and precisely,

Cost StructureBenchmarks

ProfitIndustry profit, defined as earnings beforeinterest and taxes, fell slightly over the fiveyears to 2015 to 9.1% of revenue. Theindustrys largest breweries typically yieldmuch higher profit margins as a result ofsignificant economies of scale, whilesmaller breweries are often unable tospread large fixed costs over similarlylarge product output. This differentiationamong companies profit is the result ofhigh variable costs and the bargainingpower that larger players have over

Economies of scaleBreweries that can manufacture beer onthe largest scale possible can purchasewholesale ingredients at a cheaper bulkcost and sell their products at a lowerretail price.Having a cost effectivedistribution systemBreweries are typically more efficientwhen streamlining distributionagreements with provincial entities anddownstream wholesalers.

suppliers and distributors. Largercompanies with greater economies of scalecan typically produce higher quantities ofbeer at a far lower cost per unit, especiallywhen these companies brew mild stylesusing low-cost adjunct ingredients.PurchasesRaw ingredient purchases represent thelargest component of brewers expenses,and purchases are estimated to represent36.7% of the industrys revenue. Basicmaterials include packaging, principally

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21


glass, aluminum and corrugatedcardboard, and these costs have increasedsignificantly over the past five years as aresult of rising commodity prices. Majorpurchases of barley, sugar, malt, corn,rice, wheat, hops and preservatives, whichare critical ingredients for brewing, havemostly declined over the past five years inresponse to falling global grain prices. Theprice of hops can experience significantvariation each season depending onsource region. Fluctuations in price oftenhave a significant impact on a brewersoverall costs and may even impact thefinal retail price. Over the five years to2020, prices of raw ingredients areprojected to decline overall.WagesDuring the past five years, wages haveremained relatively steady as a share of

revenue, accounting for an estimated8.8% in 2015. Both industry employmentand average industry wages havestagnated over the past five years, whichis consistent with the industrys minimalrevenue growth in recent years.OtherMarketing costs have escalated to anestimated 4.2% of revenue in 2015 dueto rising advertising spending by theindustrys largest companies. Brewersare competing against not only newindustry entrants but also against anincreasing number of wine, distilledspirit and soft drink manufacturers.Other costs, such as rent, utilities, taxes,fees, administrative expenses andgovernment licensing, have been stableand will continue to represent asignificant component of revenue.

Sector vs. Industry CostsAverage Costs ofall Industries insector (2012)100

80

Percentage of revenue

Cost StructureBenchmarkscontinued

9.010.6

9.18.836.7

60

60.040

20

Industry Costs(2015)

2.93.0 1.912.5

Profit Wages Purchases Depreciation Marketing Rent & Utilities Other

4.44.27.029.8

0SOURCE: IBISWORLD

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22


Basis of CompetitionLevel & Trend ompetitionC

inthis industry isHighand the trendis I ncreasing

A recent influx of small, local breweriesinto the industry has created additionalcompetition for the few major breweriesthat have dominated the Canadian beermarket in recent decades. The industryconsists of a small number of majorinternational alcoholic beverageproducers, many domestic and regionalbrewers and a new class of upstartbrewers throughout the country. Majorimported brands, such as Heineken,present the largest source of competitionto all of the industrys domestic brewers.Internal competitionBecause the Breweries industryproduces many types of beer that caterto a wide range of customer tastepreferences, many small-scalebreweries emphasize seasonal flavours,limited-edition styles and new brandsrather than competing exclusively onprice. Conversely, the industrys largerbeer brands, such as Molson,Moosehead and Sleeman, are producedand marketed with the brands costeffectiveness in mind, and competitionfrom major beer manufacturers is oflittle concern to local microbrewerswhose products are geared towardconnoisseurs and those who prefermore intricate styles of beer. Therefore,industry competition is based primarilyon brand, quality and retail pricing. Ingeneral, marketing efforts typicallyfocus on male consumers aged 19 to 25years, because this demographicrepresents the market in whichconsumers are most likely to try newbeer products. Alternative marketingtechniques like beer tastings and

Barriers to Entry

Different barriers exist depending onwhether a new operator wishes to enterthe Breweries industry as a small localbrewer or as a large regional producer.Entry for craft brewers, for example, can

brewery tours have become commonamong both small and large brewers,while major brewers tend to focus theiradvertising efforts toward celebrityendorsements and primetime TV spots.Consumers show significant brandloyalty, making it difficult for newentrants to capture market share fromestablished brands. Competition forbrand loyalty has intensified on aregional level and, as a result, manyregional players have aggressively soughtto expand their geographic market reach.Competition has also increased with therise of the craft-brewing segment in thepast five years. Internal competition isanticipated to continue growing over thenext five years.External competitionCompetition from other beverages andforeign producers is escalating. Importsincreased over the five years to 2015, asconsolidation among the industryslargest beer brands compelledconsumers to increase purchases ofmajor foreign brands.Other beverage industries are alsoposing a major threat to the industry,offering drinks that compete directly withbeer. Not only is wine becomingincreasingly popular among 18- to35-year-olds, but there are also new adultdrink categories emerging that are aimedat consumers in this age range. Theseinclude low-sugar sodas that aremarketed as healthy alternatives,relaxation drinks and exotic juices thatretailers, restaurants and otherestablishments are increasingly sellingalongside beer.

be facilitated by the option to purchaseturnkey facilities, but starting a large-scaleproduction will require significant cashinvestments and substantial purchases ofcapital equipment. Before a new brewer

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23


Barriers to EntrycontinuedLevel & Trend arriers to EntryB

in this industry areHighand S teady

IndustryGlobalizationLevel & Trend lobalizationG

in thisindustry is H ighandthe trend is S teady

can even enter the industry, however, itmust fulfill major regulatory obligations.The manufacture and distribution ofalcohol in Canada is highly regulated, andmost provinces require that all breweriesdistribute their products throughprovincial liquor boards. Licensing fees,audits and excise taxes on production alsocompound the total costs breweries incuron a regular basis.Barriers to entry include the sunk costsand other high ongoing capitalrequirements necessary to operate largebrewing operations. Many major brewerscan ship large quantities of beer becausethey have preexisting agreements withdistributors. Establishing relationshipswith distributors is an importantcomponent of achieving success in theindustry, and new entrants will face thechallenge of developing theserelationships from the bottom up. A lackof major relationships in the industry is asignificant issue for new breweries; sincedistribution is heavily regulated andlimited on a regional basis, distributionopportunities are scarce. Shelf space inretail outlets is limited and majorbreweries are the first to claim retailspace as a result of their largedistribution contracts.Brewers benefit from establishingeconomies of scale throughout thebrewing process. As fermenting tanks,bottling facilities and ingredientcontracts expand, the cost to produce asingle bottle of beer substantiallydeclines. As a result, prospective entrants

Both of the industrys largest companiesare foreign-owned and engage in asignificant amount of international trade.Anheuser-Busch InBev, headquartered inBelgium, is the largest brewing companyin the world, while Molson Coors, theworlds seventh-largest brewer, is aUS-based subsidiary of MillerCoors with

Barriers to Entry checklistCompetitionConcentrationLife Cycle StageCapital IntensityTechnology ChangeRegulation & PolicyIndustry Assistance

LevelHighHighMatureHighLowHeavyLowSOURCE: IBISWORLD

may struggle for success in the industryunless substantial upfront investment ismade on large brewing equipment.Although the industry has experiencedsteady growth in small-scalemicrobreweries over the past five years,many of these breweries cannot supportnational distribution and thus achieve farsmaller profit margins than largerbrewers. Entering the industry is costlyfor new breweries of all sizes, andincreasing competition among theindustrys smallest brewers has made iteven more difficult for new entrants toachieve success.Economies of scale enable greaterprofit margins, which the industryslargest breweries direct toward majoradvertising campaigns. The majormarketing activities of the industryslargest companies make it difficult fornew entrants to set themselves apart fromestablished brands. Brand recognition isdifficult to establish by word of mouth,and this poses an additional challenge tosmall-scale brewers.

a financial stake in many of the countrysBeer Store retail locations.However, exports have declined as apercentage of industry revenue over thepast decade. The United States, which isthe leading purchaser of Canadian beer,has reduced overall purchases ofCanadian beer brands in response to

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24


Exports offer growthopportunities for firms.However there are legal,economic and political risksassociated with dealing inforeign countries.Import competition canbring a greater risk forcompanies as foreignproducers satisfy domesticdemand that local firmswould otherwise supply.

Trade Globalization200

Going Global: Breweries 2004-2015Global

Export

150100500 Local0

demand for beer have historically been low.In 2015, the value of imports will reach aprojected $715.4 million, which represents11.6% of domestic demand for beer. Withtotal imports projected to increase over thenext five years, IBISWorld anticipatesimports to satisfy 13.8% of domesticdemand for beer by 2020.

200 Export

Exports/Revenue

International trade is amajor determinant ofan industrys level ofglobalisation.

unfavourable exchange rates and waningconsumer interest in Canadian brands.As a percentage of revenue, exports havefallen from 5.7% in 2010 to an estimated3.8% in 2015.Imports are projected to steadilyincrease over the next five years, althoughimports as a percentage of domestic

Exports/Revenue

IndustryGlobalizationcontinued

Breweries40

80

Import120

Imports/Domestic Demand

160

Global

15010050

20040 Local 20150

40

Import80

120

160

Imports/Domestic DemandSOURCE: IBISWORLD


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Major Companies

Anheuser-Busch InBev | Molson Coors Brewing Company | Other Companies

Major players(Market share)

Molson Coors Brewing Company 26.8%

31.7%Other

Anheuser-Busch InBev 41.5%

Player PerformanceAnheuser-BuschInBevMarket share: 41.5%Industry Brand NamesBudweiserLabattBecksStella ArtoisAlexander KeithsBassKokanee (ColumbiaBrewing Company)LakeportLuckyOland

Anheuser-Busch InBev (AB InBev) is theresult of a merger between AnheuserBusch (AB) and InBev, which itselfrepresented the culmination of numerousmergers and acquisitions of majorbrewers over the past decade. Thecompanys continual growth hasfacilitated the takeover of many leadingCanadian brands and, although AB InBevallows these brands to operate withrelative autonomy in terms of productionand marketing, many of Canadas mostpopular independent brewers have beenabsorbed by foreign beveragemanufacturing firms in a similar fashion.The combination of Anheuser-Buschand InBev marked a significant change inthe market share concentration of theBreweries industry and gave the companya clear leading position in the globalbrewing industry. Prior to the merger,InBev had a strong global presence in its

SOURCE: IBISWORLD

own right and was the primary operatorin the Breweries industry as the ownerof Labatt Brewing Company. Meanwhile,AB had already distributed InBevsglobal brands in the United States, andthe company was previously the largestbrewer by volume in North America.ABs businesses included brewing,packaging, theme parks and real estate.As part of the merger agreement, ABsold its Busch Gardens theme parkbusiness to recover debt generated bythe merger and to gear operationsexclusively toward beer production.Financial performanceAB InBevs industry-specific revenue isexpected to decline at an annualized rateof 0.9% during the five years to 2015 to$2.4 billion. Although sudden declinesin revenue during 2011 and 2013negatively impacted the companys

Anheuser-Busch InBev (industry-specific segment) financialperformance*Year

Revenue($ million)

(% change)

Operating profit($ million)

2010

2,459.3

-9.6

339.4

9.7

2011

2,401.3

-2.4

333.8

-1.6

(% change)

2012

2,461.8

2.5

347.1

4.0

2013

2,305.3

-6.4

355.0

2.3

2014

2,330.7

1.1

358.9

1.1

2015

2,351.6

0.9

362.2

0.9

*EstimatesSOURCE: ANNUAL REPORT AND IBISWORLD


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Major Companies

Player Performancecontinued

performance over the past five years,recent trends suggest that AB InBev willexperience slow but steady revenuegrowth going forward.Additionally, the companys massivesize has provided many of its majorbrewing facilities tremendous economiesof scale. In turn, operating income hassteadily improved in recent years, and AB

InBev brewing units consistently boastthe highest profit margins in the industry.Operating income among its Canadianbrewing facilities is estimated to increase0.9% to $362.2 million in 2015,representing a company profit margin of15.4%. This is substantially higher thanthe Breweries industrys average profitmargin of 9.1%.

Player Performance

Molson Coors Canada is the product ofmergers and acquisitions among severalmajor North American breweries.Originally founded in 1786 in Montreal,the Molson Brewery is the oldest in NorthAmerica and still produces beer at itsoriginal location. Molson Brewerymerged with US-Based Coors BrewingCompany to create the Molson CoorsBrewing Company, a partnership that hasturned the company into one of thelargest brewing companies in the world.The Molson brand is still owned andoperated by the Molson family, and thecompany has expanded its operationsthroughout Canada, the United Statesand Europe. The company restructuredits position in the European market in2012 with the purchase of StarBev Inc.,which has resulted in both the expansionand consolidation of its disparate Ireland,UK and Central European operations. In

Canada, Molson Coors portfolio ofbrands includes Coors Light, MolsonCanadian, Molson Export, MolsonCanadian 67, Molson Dry, MolsonCanadian Cider, Carling, Keystone Light,Creemore Springs and the Rickardsfamily of brands. The company also holdsjoint venture agreements with SABMillerand Grupo Modelo, both of which grantlimited rights to each company todistribute and bottle the others brands.Much like AB InBev, Molson Coorsmerger and acquisition activityrepresents a continual trend in theCanadian beer market toward majormarket share concentration among theindustrys largest companies. Thecompany has continued to consolidatewithin the Canadian market. Mostrecently, Molson acquired microbreweryGranville Island Brewing in response togrowing consumer interest in craft beer

Molson CoorsBrewing CompanyMarket share: 26.8%Industry Brand NamesMolson CanadianCoors LightRickardsCarlingKeystone LightPilsnerBlack LabelMolson ExportMolson DryMolson M

Molson Coors (industry-specific segment) financial performance*Year

Revenue($ million)

(% change)

Operating profit($ million)

(% change)

2010

1,866.9

-15.7

437.3

-11.7

2011

2,077.3

11.3

477.2

9.1

2012

1,996.3

-3.9

417.4

-12.5

2013

1,962.0

-1.7

364.2

-12.7

2014

1,683.9

-14.2

376.7

3.4

2015

1,516.8

-9.9

337.0

-10.5

*Estimates

SOURCE: ANNUAL REPORT AND IBISWORLD


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Major Companies

Player Performancecontinued

styles. The company currently stands asCanadas second-largest brewer by bothrevenue and volume.Financial performanceMolson Coors revenue in Canada isestimated to decline at an annualizedrate of 4.1% during the five years to2015, including a 1.8% drop in 2015 to$1.5 billion due to declining consumersentiment and premiumization that hasreduced demand for the companysflagship brands. The company holds arelatively lean portfolio of severalpremium light beer brands, and

Other Companies

Moosehead Breweries Ltd.

Estimated market share: 3.7%Moosehead Breweries was founded in1867 and is Canadas oldestindependent brewery. Headquarteredin Saint John, NB, the brewery hasbeen privately owned and operated bythe Oland family since its inception,and therefore does not publicly discloseits financial information. The

declining interest in these brands hasresulted in continual declines incompany performance in recent years.The Molson Canadian and Coors Lightbrands, for example, represent morethan half of company sales domesticallyand have been negatively impacted byconsumer substitution toward otheralcoholic beverages. Although thecompanys massive size continues toyield operating margins that are fargreater than the industry average, bothcompany revenue and operating incomehave experienced steady declines eachyear since 2011.

companys flagship brand, MooseheadLager, remains one of the most populardomestic beers in the industry.Moosehead is also supported by afamily of light, flavoured and dryversions of the flagship brand, inaddition to licensed brands such as SamAdams, Boris, Magners and others. Thecompany is expected to generate $210.0million in revenue over 2015.


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Operating Conditions

Capital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry AssistanceCapital IntensityLevelThe level

of capitalintensity is H igh

Breweries require substantial capitalinvestment in the form of equipment andplants. Fermenters, lauter tuns, filtrationsystems, bottling lines and othermachinery must be purchased when aplant is first established and will alsorequire continuous sanitization,maintenance and repair. As productionfacilities get larger, many brewers preferto substitute labour with more efficient,fixed investments in larger brewingsystems and machinery. On average,breweries spend $0.50 on capital forevery dollar spent on labour. However,the specific amount of capital spendingvaries based on the size of the plant.The majority of the beer productionprocess is mechanized, limiting the needfor labour to brewing functions such as

Capital intensity

Capital units per labour unit1.00.80.60.40.20.0

Economy

Breweries

Dotted line shows a high level of capital intensitySOURCE: IBISWORLD

sanitizing, hydrometer readings, qualitycontrol and other miscellaneousadministrative functions. As a result,

Tools of the Trade: Growth Strategies for SuccessInvestment Economy

Recreation, Personal Services,Health and Education. Firmsbenefit from personal wealth sostable macroeconomic conditionsare imperative. Brand awarenessand niche labour skills are key toproduct differentiation.

Information, Communications,Mining, Finance and RealEstate. To increase revenuefirms need superior debtmanagement, a stablemacroeconomic environmentand a sound investment plan.

Beer, Wine &Spirit Wholesaling

Traditional Service EconomyWholesale and Retail. Relianton labour rather than capitalto sell goods. Functions cannotbe outsourced therefore firmsmust use new technologyor improve staff training toincrease revenue growth.

Bottled WaterProductionSoda Production

Sawmills & Wood Production

BreweriesFlour Milling

Change in Share of the Economy

Capital Intensive

Labour Intensive

New Age Economy

Old EconomyAgriculture and Manufacturing.Traded goods can be producedusing cheap labour abroad.To expand firms must mergeor acquire others to exploiteconomies of scale, or specializein niche, high-value products.SOURCE: IBISWORLD


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Capital Intensitycontinued

wages in the industry are relatively low.Some of the industrys largest breweries,however, have a significant globalpresence with multiple factories andlarge corporate offices that hold massiveexecutive and marketing departments.

The need for administrative employmentdrives up labour costs considerablywhen taking into account the additionalwages that are paid for administrativestaff, sales, marketing, accounting andother employees.

Technology& Systems

Although the standard process of makingbeer has experienced essentially no majorchange throughout history, technologicaladvancements have made brewingprocesses larger, less expensive and moreefficient than ever before. Quality-controlimprovements through computerautomation in the brewing process arefast-growing trends. Modern brewingplants are increasingly using brewing,fermenting and conditioning processesthat are monitored by computers that arecapable of assessing temperaturechanges, yeast activity and fluctuations inthe pH of the initial beer mash. Increasedautomation allows brewers to moreprecisely control variables during thecritical phases of brewing (i.e. mashing,lautering, boiling and fermentation).Technological improvements inmonitoring equipment also allow forbetter quality control.The use of renewable energy to powerbrewing plants is also a growing trend.For example, Beaus All Natural BrewingCompany announced in 2014 that itintends to become Canadas first breweryto use 100.0% green natural gas capturedthrough landfill emissions and biogas.Additionally, the company has installed

solar panels to assist with day-to-daybrewing processes.Technologies used to distribute, store,package and keep track of beer productsare also constantly evolving, giving anindirect boost to the industry bydecreasing middleman costs and thuslowering final sale prices. From electricand hybrid fleet vehicles adopted bydistributors to inventory managementsoftware used by warehouses, technologyhelps the industry provide consumerswith lower-cost beer.Brewing methods vary depending onthe type of beer being manufactured.Barrel aging is a common practice formanufacturers of sour beers. Much likethe process used to ferment wine, oakbarrels may be used in tandem with yeastfermentation to produce darker beer withhigher alcohol content, such as porter orstout. Another popular technique isdouble dropping, a method used toquickly produce sweeter ales byfermenting beer through two separatefermentation chambers. Differentbrewing styles are regularly tested andmodified over time to produce specificbeers with slightly different appearancesand tastes.

Unlike the US Breweries industry, wherechanging distribution laws and rapidlyexpanding craft brewing facilities havecreated a very volatile climate for brewers,the Breweries industry in Canada has beenquite stable over the past five years. Muchof this is due to the rigid structure of the

countrys alcoholic beverage distributionsystem, which has been almost entirelyoperated by provincial governments fordecades. This inherent stability indownstream distribution has contributedto mostly stable growth in brewersrevenue over the past five years.

LevelThe level

ofTechnologyChange is L ow

Revenue VolatilityLevelThe level

ofVolatility is L ow


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Industry revenue volatility, measuredas the average absolute change in industryrevenue over the five-year period to 2015,is low and currently stands at 3.0%.Although state-by-state dismantling ofgovernment-operated alcohol distributionhas created a frenzy among small-scalebrewers to open new facilities across theA higher level of revenuevolatility implies greaterindustry risk. Volatility cannegatively affect long-termstrategic decisions, such asthe time frame for capitalinvestment.When a firm makes poorinvestment decisions itmay face underutilizedcapacity if demandsuddenly falls, or capacityconstraints if it risesquickly.

United States, the Canadian market forsmall-scale microbreweries is likely toremain stable over the next several years.Increasing popularity in craft beer hasincreased the number of industryestablishments since 2010, but substantialrevenue growth among domesticbreweries big and small is unlikely.

Volatility vs Growth1000

Revenue volatility* (%)

Revenue Volatilitycontinued

Hazardous

Rollercoaster

10010

Breweries

10.1

Stagnant30

10

Blue Chip10

30

50

70

Five year annualized revenue growth (%)* Axis is in logarithmic scaleSOURCE: IBISWORLD

Regulation & PolicyLevel & Trend he level ofT

Regulation isHeavyand thetrend is S teady

NutritionThe industry is regulated by HealthCanada, which establishes standards forfood safety and nutritional quality.Meanwhile, the Canadian FoodInspection Agency (CFIA) enforces thesehealth and safety standards, in additionto packaging, labelling and marketingregulations. The Organic ProductsRegulations were instated in mid-2009and require certification from the CFIA ifa brewery chooses to advertise itsproducts as organic.InputsThe Canadian Wheat Board had been theprice setter and exclusive seller ofmalting barley on behalf of producers inwestern Canada until August 2012, whenits monopoly ended. This change

introduced volatility into the pricing andavailability of these key industry inputs.In turn, breweries developedrelationships with suppliers andestablished contracts to mitigate risk.ManufacturingOther policies regulate the industrysmanufacturing facilities. For example,breweries must meet all laws with regardto zoning and environmentalrequirements, such as those included inthe Canadian Environmental ProtectionAct and the Canadian EnvironmentalAssessment Act. Provincial regulationscan also apply: Prince Edward Islandmandates reusable beer containers likeglass to reduce or eliminate waste frompackaging. According to the BrewersAssociation of Canada, about 97.0% of


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Regulation & Policycontinued

Industry AssistanceLevel & Trend he level ofT

Industry Assistanceis L owand thetrend is S teady

bottles are recycled, with each bottlebeing sterilized and reused on average 15to 20 times.RetailRegulations limit the sale of beer byretailers and set minimum prices foralcoholic beverages, which reducesprice-based competition for valueproducts. The existing system favours theindustrys major companies, which haveeach established a significant network ofproprietary stores. If a brewery wants itsproducts to be sold by these stores, they

must pay these stores a fee to carry theirmerchandise. Although this fee is set byfederal and provincial laws, it favoursbreweries that own a network of storesbecause they ultimately control thein-store exposure of each product.Government-owned stores also existand are mandated to carry a variety ofproducts. However, there are fewer suchstores and beer sales are a fraction oftheir revenue. As a result, brewerssignificantly limit their market reach ifthey choose not to sell their productsthrough their competitors outlets.

The Agreement on Internal Trade isresponsible for the regulatory system thatlimits provinces from impedinginterprovincial alcoholic beveragetransactions. As a result, most of the tradebarriers between provinces have beenslashed for domestic brewers. Thiseffectively protects brewers from new orexisting regulations that would detershipments of beer within Canada.Provincial and federal sales and excisetaxes are due upon receipt at the retaillevel. These costs are typically passed alongto consumers in the form of higher prices.Canadian breweries are heavilysupported by provincial governmentassistance. Canadian provinces andterritories operate their own liquorboards, which monitor the production,distribution and sale of alcoholicbeverages within their respective

provinces. Each body operatesautonomously, with varying degrees ofassistance based on the preferences ofeach region. For example, the LiquorControl Board of Ontario purchases allbeer, wine and spirits for its Ontarioconsumers and licensed retailers anddistributes these products using itsintegrated distribution network.Conversely, Alberta operates a fullyprivatized system in which all forms ofalcoholic beverages are distributed andsold to private, licensed premises.Despite the provinces privatization,industry wholesalers are still heavilysupport by the Alberta Gaming andLiquor Commission, which oversees themanufacture, importation, sale,possession, storage, transportation andconsumption of liquor through collectedmark-ups on all alcohol products.


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Key StatisticsIndustry Data200620072008200920102011201220132014201520162017201820192020

Revenue($m)5,710.15,484.35,219.55,564.25,189.05,407.05,524.95,598.35,648.65,665.65,695.05,744.05,751.55,781.45,859.1

Annual Change20072008200920102011201220132014201520162017201820192020

Revenue(%)-4.0-4.86.6-6.74.22.21.30.90.30.50.90.10.51.3

IndustryValue Added($m)1,168.41,218.5961.91,159.51,216.01,309.21,185.71,214.11,250.81,260.61,254.81,273.81,274.61,281.31,298.3

Establishments189198198208206220210215215219219224224228228

IndustryValue Added(%)4.3-21.120.54.97.7-9.42.43.00.8-0.51.50.10.51.3

Establishments(%)4.80.05.1-1.06.8-4.52.40.01.90.02.30.01.80.0

Key Ratios200620072008200920102011201220132014201520162017201820192020

IVA/Revenue(%)20.4622.2218.4320.8423.4324.2121.4621.6922.1422.2522.0322.1822.1622.1622.16

Figures are inflation-adjusted 2015 dollars.

Imports/Demand(%)9.7711.1211.8012.2412.7310.6710.7811.3811.3611.6012.0712.4512.9413.4413.84

Enterprises Employment1869,2951959,4671957,9982058,5712029,6922079,7582079,0812129,2222129,2642169,3422169,3662209,4772209,4782249,5672249,640

Exports($m)400.5381.7377.7288.8296.8243.3232.6239.7224.9212.9198.8188.9182.8174.2167.4

Imports($m)575.0638.4647.5735.7713.6616.9639.6688.3694.8715.4754.6790.1827.7870.3914.0

Wages($m)523.2522.0413.8452.9499.9508.9484.0492.0495.1498.9500.6506.7506.9511.5516.7

DomesticDemand5,884.65,741.05,489.36,011.15,605.85,780.65,931.96,046.96,118.56,168.16,250.86,345.26,396.46,477.56,605.7

Per capita alcoholconsumption(Litres)127.8125.0120.3122.9119.6112.5111.3108.1105.5102.2101.4101.8102.2102.5102.8

Enterprises Employment(%)(%)4.81.90.0-15.55.17.2-1.513.12.50.70.0-6.92.41.60.00.51.90.80.00.31.91.20.00.01.80.90.00.8

Exports(%)-4.7-1.0-23.52.8-18.0-4.43.1-6.2-5.3-6.6-5.0-3.2-4.7-3.9

Imports(%)11.01.413.6-3.0-13.63.77.60.93.05.54.74.85.15.0

Wages(%)-0.2-20.79.410.41.8-4.91.70.60.80.31.20.00.91.0

DomesticDemand(%)-2.4-4.49.5-6.73.12.61.91.20.81.31.50.81.32.0

Per capita alcoholconsumption(%)-2.2-3.82.2-2.7-5.9-1.1-2.9-2.4-3.1-0.80.40.40.30.3

Exports/Revenue(%)7.016.967.245.195.724.504.214.283.983.763.493.293.183.012.86

Revenue perEmployee($000)614.32579.31652.60649.19535.39554.11608.40607.06609.74606.47608.05606.10606.83604.31607.79

Wages/Revenue(%)9.169.527.938.149.639.418.768.798.778.818.798.828.818.858.82

Employeesper Est.49.1847.8140.3941.2147.0544.3543.2442.8943.0942.6642.7742.3142.3141.9642.28

Average Wage($)56,288.3355,138.9051,737.9352,840.9851,578.6252,152.0853,298.0953,350.6853,443.4453,403.9853,448.6453,466.2953,481.7553,465.0453,599.59

Share of theEconomy(%)0.010.010.010.010.010.010.010.010.010.010.010.010.010.010.01

SOURCE: IBISWORLD


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Jargon & Glossary

Industry Jargon

ADJUNCTSNonessential beer ingredients such as riceor corn that are often included in the mash to alterflavor or reduce ingredient purchase costs

LAUTERINGThe process of soaking malted grains inhot water and then draining the water in order to createa liquid that contains fermentable sugars.

BREWPUBA restaurant-brewery that sells more than25.0% of its beer on-site.

NANOBREWERYA very small commercial microbrewerythat is often operated by a single owner and producesvery small batches for local distribution

CRAFT BREWERYA brewery that has annual productionof less than two million barrels and has less than 25.0%of its ownership in the hands of a non-craft brewer. Ittypically targets local and regional markets.HYDROMETERAn instrument used to determinespecific gravity of a liquid. For brewers, hydrometers areused before and after fermentation to determine ifyeast has properly converted fermentable sugars toalcohol

IBISWorld Glossary

BARRIERS TO ENTRYHigh barriers to entry mean thatnew companies struggle to enter an industry, while lowbarriers mean it is easy for new companies to enter anindustry.CAPITAL INTENSITYCompares the amount of moneyspent on capital (plant, machinery and equipment) withthat spent on labour. IBISWorld uses the ratio ofdepreciation to wages as a proxy for capital intensity.High capital intensity is more than $0.333 of capital to$1 of labour; medium is $0.125 to $0.333 of capital to$1 of labour; low is less than $0.125 of capital for every$1 of labour.CONSTANT PRICESThe dollar figures in the KeyStatistics table, including forecasts, are adjusted forinflation using the current year (i.e. year published) asthe base year. This removes the impact of changes inthe purchasing power of the dollar, leaving only thereal growth or decline in industry metrics. The inflationadjustments in IBISWorlds reports are made usingStatistics Canadas implicit GDP price deflator.DOMESTIC DEMANDSpending on industry goods andservices within Canada, regardless of their country oforigin. It is derived by adding imports to industryrevenue, and then subtracting exports.EMPLOYMENTThe number of permanent, part-time,temporary and casual employees, working proprietors,partners, managers and executives within the industry.ENTERPRISEA division that is separately managed andkeeps management accounts. Each enterprise consistsof one or more establishments that are under commonownership or control.ESTABLISHMENTThe smallest type of accounting unitwithin an enterprise, an establishment is a singlephysical location where business is conducted or whereservices or industrial operations are performed. Multipleestablishments under common control make up anenterprise.EXPORTSTotal value of industry goods and services soldby Canadian companies to customers abroad.

IMPORTSTotal value of industry goods and servicesbrought in from foreign countries to be sold in Canada.INDUSTRY CONCENTRATIONAn indicator of thedominance of the top four players in an industry.Concentration is considered high if the top playersaccount for more than 70% of industry revenue.Medium is 40% to 70% of industry revenue. Low is lessthan 40%.INDUSTRY REVENUEThe total sales of industry goodsand services (exclusive of excise and sales tax); subsidieson production; all other operating income from outsidethe firm (such as commission income, repair and serviceincome, and rent, leasing and hiring income); andcapital work done by rental or lease. Receipts frominterest royalties, dividends and the sale of fixedtangible assets are excluded.INDUSTRY VALUE ADDEDThe market value of goodsand services produced by the industry minus the cost ofgoods and services used in production. IVA is alsodescribed as the industrys contribution to GDP, or profitplus wages and depreciation.INTERNATIONAL TRADEThe level of internationaltrade is determined by ratios of exports to revenue andimports to domestic demand. For exports/revenue: low isless than 5%; medium is 5% to 20%; and high is morethan 20%. Imports/domestic demand: low is less than5%; medium is 5% to 35%; and high is more than35%.LIFE CYCLEAll industries go through periods of growth,maturity and decline. IBISWorld determines anindustrys life cycle by considering its growth rate(measured by IVA) compared with GDP; the growth rateof the number of establishments; the amount of changethe industrys products are undergoing; the rate oftechnological change; and the level of customeracceptance of industry products and services.


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Jargon & Glossary

IBISWorld Glossarycontinued

NONEMPLOYING ESTABLISHMENTBusinesses withno paid employment or payroll, also known asnonemployers. These are mostly set up by self-employedindividuals.PROFITIBISWorld uses earnings before interest and tax(EBIT) as an indicator of a companys profitability. It iscalculated as revenue minus expenses, excludinginterest and tax.VOLATILITYThe level of volatility is determined byaveraging the absolute change in revenue in each of thepast five years. Volatility levels: very high is more than20%; high volatility is 10% to 20%; moderatevolatility is 3% to 10%; and low volatility is less than3%.

WAGESThe gross total wages and salaries of allemployees in the industry. Benefits and on-costs areincluded in this figure.

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