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Breweries in CanadaMay 2015 1

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Going flat: Changing drinking patterns and low


international demand will limit revenue growth

IBISWorld Industry Report 31212CA

Breweries in Canada
May 2015

Nick Petrillo

2 About this Industry

16 International Trade

Industry Definition

18 Business Locations

Main Activities

Similar Industries

20 Competitive Landscape

32 Industry Data

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 Benchmarks


22 Basis of Competition

5 Industry Performance

22 Barriers to Entry

Executive Summary

23 Industry Globalization

Key External Drivers

Current Performance

25 Major Companies

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 | contact@ibisworld.ca

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About this Industry


Industry Definition

The Breweries industry primarily


produces 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 and
other alcoholic beverages are not
included in this industry.

Canned beer production


Bottled beer production
Draught beer production
Non-alcoholic beer production

The major products and services in this industry are


Bottled beer
Canned beer
Draught beer

Similar Industries

31211aCA Soda Production in Canada


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

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About this Industry

Additional Resources

For additional information on this industry


www.beercanada.com
Beer Canada
www.brewersassociation.org
Brewers Association
www.brewers.ca
Brewers Association of Canada
www.bmbri.ca
Brewing and Malting Barley Research Institute
www.homebrewers.ca
The Canadian Amateur Brewers Association

IBISWorld

writes over 400 Canadian


industry reports to help you make
better business decisions, faster. To
see all reports, go to www.ibisworld.ca

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Breweries in Canada May 2015

Industry at a Glance
Breweries in 2015

Key Statistics
Snapshot

Revenue

Annual Growth 10-15

Annual Growth 15-20

Profit

Exports

Businesses

$5.7bn

1.8%

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

Revenue vs. employment growth

Market Share

Anheuser-Busch
InBev 
41.5%

20

4
3

% change

Molson Coors
Brewing Company
26.8%

% change

10
0
10
20

Year 07

2
1
0

09

Revenue

11

13

15

17

19

21

Year

09

11

13

15

17

19

21

Employment
SOURCE: IBISWORLD

p. 25

Products and services segmentation (2015)

9.7%

Key External Drivers

Draught beer

Per capita disposable


income
Per capita alcohol
consumption
World price of wheat

47.4%

World price of aluminum


Canadian-dollar effective
exchange rate index

Canned beer

42.9%

Bottled beer

p. 5
SOURCE: 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 Performance


Industry Outlook | Life Cycle Stage
Executive
Summary

Breweries suffered from declining per


capita alcohol consumption and
escalating competition from substitute
products over the five years to 2015. Due
to changing taste preferences,
consumers have shifted away from the
traditional light and premium beer
brands that currently represent the vast
majority of sales for the industrys
largest brewers. Consumers are
increasingly electing to buy less beer in
exchange for higher-quality brands or,
in some cases, reducing purchases of

alcohol altogether. As a result, industry


revenue is projected to experience
minimal growth of 0.3% in 2015.
Industry revenue is projected to grow at
an annualized 1.8% rate over the five
years to 2015, reaching $5.7 billion.
As has been the case for several years,
Anheuser-Busch InBev (AB InBev) and
Molson Coors are expected to generate
the overwhelming majority of industry
revenue in 2015. Merger and acquisition
activity by the two companies is expected
to limit the number of new entrants to
the industry, causing the number of

enterprises to grow only marginally


during the five years to 2015, at a 1.3%
annualized rate to reach 216 companies.
These major companies are particularly
pressured because they depend on
high-volume sales of their respective
flagship value products, Budweiser and
Molson Canadian, in which consumers
have demonstrated declining interest. As
industry players continue to innovate and
market new products, profit is expected
to account for 9.1% of revenue in 2015.
IBISWorld forecasts the price of wheat
will remain relatively steady during the
next five years, increasing at an
annualized rate of only 0.1%. However,
brewers may lose some profit due to a
projected 1.7% annualized increase in the
cost of aluminum.
International trade has also challenged
the industry as the Canadian dollar
strengthened relative to major trading
partners currencies. The rising value of
the dollar has made Canadian beer
relatively more expensive for consumers,
which has depressed exports. The
continued strengthening of the dollar will
contribute to poor trade performance for
an industry that is already experiencing
waning interest among consumers in the
United States. Consequently, the
industrys revenue is forecast to expand
at a slow 0.7% five-year annualized rate
to $5.9 billion by 2020.

Per capita disposable income


Disposable income growth is an
important indicator of industry revenue
because it bolsters the purchasing power
of consumers. During periods of
economic growth, rising disposable
income may encourage consumers to
purchase either more beer or highermargin brands. Per capita disposable
income is expected to increase in 2015,
representing a potential opportunity for
the industry.

Per capita alcohol consumption


The average consumers alcohol
consumption patterns can serve as an
indicator of demand for industry
products. Consumers cultural and
taste preferences can reduce drinking
habits and impact sales of beer. For
example, many people drink only in
moderation due to personal preference
or for health reasons, which reduces
alcohol consumption and, therefore,
total sales volume. Per capita alcohol

Due

to changing preferences, consumers


have shifted away from traditional light and
premium beer brands

Key External Drivers

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Industry Performance

consumption is expected to decrease


slowly during 2015, posing a potential
threat to the industry.
World price of wheat
Malted cereal grains such as malted
barley and malted wheat are the primary
ingredients required to produce beer.
Sudden increases in the price of wheat
and barley will therefore impose a
significant cost burden on industry
brewers; increases in the global price of
grain erode industry profit margins. The
world price of wheat is expected to
decline sharply in 2015.
World price of aluminum
Aluminum is a very popular method of
packaging beer. Aluminum cans have
historically been the most cost-effective
container for holding beer and blocking
the beers exposure to flavor-eroding UV
rays. An increase in the world price of

aluminum will lead to higher costs for


brewers who predominantly ship their
products in aluminum cans instead of
glass bottles. Consequently, rising
aluminum prices hamper industry
profitability. In 2015, the world price of
aluminum is projected to increase.
Canadian-dollar effective
exchange rate index
The Canadian-dollar effective exchange
rate index (CERI) is a weighted average
of bilateral exchange rates comparing the
Canadian dollar with the currencies of
the countrys largest trading partners.
The CERI uses the US dollar, the Euro,
the Japanese yen, the UK pound, the
Chinese yuan and the Mexican peso in its
index. Depreciation in European
currencies will likely encourage faster
appreciation in the US dollar. As a result,
the Canadian dollar and the CERI are
expected to decline over 2015.
Per capita alcohol consumption

Per capita disposable income


4

108

106

Litres

% change

Key External Drivers


continued

102

0
1

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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Industry Performance

Current
Performance

Changing consumer preferences have


slowed industry growth over the past
five years. Per capital alcohol
consumption among Canadians has
declined an annualized 1.0% over the
five-year period to 2015, and this trend,
combined with declining interest in
traditional light and premium beer

An evolving industry

The entire North American market for


beer has experienced drastic change
over the past five years. Major
international brewing companies such
as Anheuser Busch InBev (AB InBev)
and SABMiller have either acquired or
merged with large North American
brewers that historically represent a
large group of domestically owned and
operated brands. In recent years,
however, many small-scale,
independently owned breweries have
entered the industry. Although this has
not resulted in any significant industry
decline, a significant disparity exists
between large international brewers and
their smaller domestic competitors.
Profit, for example, is projected to
represent 9.1% of revenue for the
average brewery in 2015. Both AB InBev
and Molson Coors, however, boast profit
margins that substantially exceed this
average. Due to the economies of scale
that come with major brewing

Uncertain input prices Industry profitability has historically

been erratic. Due to both the fickle nature


of consumer drinking patterns and the
significant price volatility of the
industrys key inputs, industry profit is
prone to sudden fluctuations.
Perhaps the most substantial threat to
industry profitability occurred early in the
five-year period to 2015. In 2011, the
industry faced immense pressure from
rising raw material costs that ultimately

brands, has resulted in minimal revenue


growth in recent years. IBISWorld
expects industry revenue to increase an
annualized 1.8% to $5.7 billion in the
five years to 2015, although much of this
growth happened early in the period.
Industry revenue in 2015 is projected to
increase a slim 0.3%.

In

recent years, many


small-scale, independently
owned breweries have
entered the industry
operations across the country, the
industrys largest players have
accumulated tremendous market share.
Aside from these structural changes to
the industry, the number of breweries in
Canada has increased mostly in line with
the industrys revenue growth in recent
years. The total number of brewing
enterprises is projected to increase at a
1.3% annualized rate to 216 in the five
years to 2015. Industry employment is
expected to fall an annualized 0.7% over
the same period to 9,342 workers in
2015, including a single-year drop of
6.9% in 2012. Generally, the industry is
experiencing slow but consistent growth.

led to declines in both establishments and


industry employment the following year.
The world price of wheat increased 41.4%
over 2011, while the world price of
aluminum shot up 10.5%. Some breweries
were fortunate enough to have agreed to
long-term fixed-pricing contracts on these
materials long before their prices
escalated, but breweries requiring new
contracts with upstream input suppliers
were not as fortunate. The number of

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Industry Performance

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 wheat
was ultimately attributed to severe
droughts in Russia, and proved to be only
a temporary obstacle for the industry.
Nevertheless, this incident demonstrates
that breweries are continually prone to
sudden shocks in input prices that,
although temporary, can have significant
consequences. The world price of wheat
has since stabilized, and has in fact

Declining
international sales

Although Canada has historically been a


net importer of beer, the industry has
generated several prominent
international brands. Canadian staples
such as Labatt, Molson, Sleeman,
Rickards and craft brand Dieu du Ciel
are widely accepted in Canada and have
achieved some popularity throughout
North America. Over the past five years,
however, the value of Canadian beer
exports has steadily declined at an
annualized rate of 6.4% to $212.9
million. This has occurred during a
period in which total imports have
remained mostly stable; in the five years
to 2015, the value of industry imports
has increased at a slim 0.1% annualized
rate to $715.4 million. Much of the
decline in exports may be attributable to
changing US taste preferences. The
United States overwhelmingly

declined each year since. Similarly, the


world price of aluminum declined 15.7%
in 2012, effectively negating the spike in
price that occurred the year prior.
Input price uncertainty creates a
significant degree of fluctuation in
industry profit margins. The industrys
profit margin declined to 8.4% in 2014,
despite reaching 10.9% in 2011. In 2015,
industry profit is expected to account for
9.1% of total revenue, representing a
gradual improvement in the years since
the industrys sudden price hikes.

Industry

exports have
declined due to changing
preferences among US
consumers
represents the largest market for
Canadian beer exports, and recent
consumer preferences for craft beers
could largely explain this decline.
Additionally, the majority of Canadian
exports to the United States consist of
traditional premium and light beer
styles. With the Canadian dollar holding
steady against the US dollar, consumers
may perceive imported Canadian beers
as being too expensive, considering the
range of less-expensive US-based light
beer alternatives.

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Industry Performance

Slow and steady

Industry operators will likely face


significant challenges as consumers shift
away from traditional light beer
consumption and international
competition increases. The consumer
move toward premium beverages,
known as premiumization, is expected to
particularly hurt major companies that
depend on high-volume sales of value
beers, like Labatt and Molson Canadian.
Beer is increasingly perceived as less
healthy and exotic than wine and spirits,
and substitution has slowed industry
sales even as consumers have
demonstrated significant interest in
craft beer. Consequently, industry
revenue is expected to grow at a
marginal annualized rate of 0.7% during
the next five years to $5.9 billion in
2020; revenue is projected to increase
0.5% in 2016 as marketing spending by
major companies bolsters industry

performance. Premiumization is also


expected to lead to increased
competition from foreign brands,
especially as the Canadian dollar
remains strong and makes foreign
products relatively less costly.

With input prices stabilizing and the


industrys largest companies slowing
their merger and acquisition activity,
the industry is not expected to undergo
a structural overhaul similar to that of
previous years. The world price of
wheat, which has been steadily
declining since its massive spike in
2011, will likely remain stable over the
next five years. The world price of
aluminum is projected to increase over
the next five years, but at a
manageable 1.7% annualized rate. The

industry will likely remain in a holding


pattern in the years to come.
IBISWorld projects the number of
industry enterprises to increase an
annualized 0.7% to 224, while total
industry employment will grow an
average annual 0.6% to 9,640 workers.
Barring significant input price shocks,
average profit in the industry is
anticipated to slip slightly to 8.9% of
revenue in 2020. The gradual influx of
smaller breweries will slightly erode
average industry profit.

Industry revenue
8
4

% change

Industry
Outlook

0
4
8

Year 07

09

11

13

15

17

19

21

SOURCE: IBISWORLD

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Industry Performance

Craft brewing and


foreign competition

The craft brewing phenomenon that has


taken the US beer market by storm has
not been as significant in Canada. This is
largely due to the greater difficulty of
entering the Canadian market. Since
nearly every province regulates and
distributes beer through provincial liquor
control boards, the regulatory costs
associated with establishing a new
microbrewery are far greater for
Canadian breweries than their US
counterparts. US brewers have witnessed
the gradual loosening of state
distribution regulations in recent years,
which has facilitated the surge in the
number of US microbreweries.
Additionally, the market for craft beer
is not as large in Canada as in the United
States. The United States has many more
markets across a diverse range of
climates that make many styles of beer
suitable for brewing. Different types of
surface water containing different pH
levels and minerals play a key role in
brewing variant styles of beer. In
addition, the proximity between many
major US commercial areas enables
small-scale breweries to retail their
products to a large market. There are far
fewer metropolitan areas in Canada

The

market for craft beer is


not as large in Canada as in
the United States
capable of sustaining small breweries,
and the transportation costs associated
with delivering small-scale batches of
beer to remote locations across Canada
are prohibitive. Although small-scale
breweries will continue to play a large
role in shaping the Breweries industry for
years to come, a resurgence in local
breweries akin to the craft beer
renaissance currently emerging in the
United States is unlikely.
The Breweries industry is also
projected to experience continued
declines in total exports. IBISWorld
projects industry exports to decline at an
annualized rate of 4.7% over the next five
years to $167.4 million in 2020. Industry
imports, which stagnated over the past
five years, are expected to pick up in
response to a strong Canadian dollar and
continued demand for foreign brands.
Total imports are expected to increase at
an annualized rate of 5.0% to $914.0
million over the five years to 2020.

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Industry Performance
Per capita alcohol consumption has
shown steady signs of decline

Life Cycle Stage

The industrys largest companies are


consolidating to achieve greater market share

% Growth in share of economy

The brewing process has experienced


little technological change

20

Maturity

Quality Growth

Company
consolidation;
level of economic
importance stable

High growth in economic


importance; weaker companies
close down; developed
technology and markets

15

Key Features of a Mature Industry


Revenue grows at same pace as economy
Company numbers stabilize; M&A stage
Established technology & processes
Total market acceptance of product & brand
Rationalization of low margin products & brands

10

Quantity Growth

Many new companies;


minor growth in economic
importance; substantial
technology change

Sawmills & Wood


Production
Beer, Wine & Spirit
Wholesaling

Breweries

Flour Milling
Soda Production

Bottled Water Production

Decline

-5

Shrinking economic
importance

-10
-10

-5

10

15

20

% Growth in number of establishments


SOURCE: WWW.IBISWORLD.COM

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Industry Performance

Industry Life Cycle


This

industry
is M
 ature

Consumer shifts in preferences toward


premium beverages and away from light
beer is a major factor behind the
industrys performance during the past
five years. With consumers trading up in
their alcoholic beverage choices, they are
reaching for higher-priced beer as well as
substitutes like wine and spirits.
Although this has enabled brewers to
boost prices for their higher-end
products, overall sales volumes have
stagnated and in some cases declined.
Lower sales volumes and substitution
toward high-end products is posing a
challenge for major companies like
Molson Coors, since their operations are
largely based on heavily marketing value
brands. Molson Canadian and Coors
Light, despite recent declines in

popularity, currently represent more than


half of the companys domestic beer
sales. Industry consolidation is forecast
to result in only a 1.0% annualized
10-year increase in industry enterprises
to 224 by 2020.
Additionally, declining volume has led
to higher per-unit production costs.
Breweries are raising their prices as a
result, and these price increases are also
taking into account volatile input prices
for wheat, hops and packaging materials.
Consequently, industry value added
(IVA), which measures the industrys
contribution to the economy, is expected
to increase at a steady 0.7% annualized
rate during the 10 years to 2020, while
GDP rises at a projected 2.2% average
annual rate during the same period.

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Products & Markets

Supply Chain | Products & Services | Demand Determinants


Major Markets | International Trade | Business Locations

Supply Chain

KEY BUYING INDUSTRIES


41322CA

Beer, Wine & Spirit Wholesaling in Canada


Wholesale distributors are a vital link in the supply chain for alcohol. Most beer manufacturers
are required to sell their products to private or provincial wholesalers, who then deliver these
products to retail locations and drinking establishments.

99CA

Consumers in Canada
Individual consumers ultimately are the final purchaser of industry beverages, although some
may purchase beer directly from small-scale brewpubs and establishments that are licensed to
sell beer for on-premises consumption.

KEY SELLING INDUSTRIES

Products & Services

31121CA

Flour Milling in Canada


Brewers purchase malted grains from mills. Malt comes from barley or other grains that have
been germinated by soaking them in water and then kiln-drying them in order to develop the
enzymes needed for fermentation.

32111CA

Sawmills & Wood Production in Canada


Wooden pallets are used to transport the final product to end users, such as retailers, bars and
clubs.

32221CA

Cardboard Box & Container Manufacturing in Canada


Paperboard containers are used to package bottles and cans of beer for transportation.

32311CA

Printing in Canada
Brewers adhere printed labels on their products to both market their production and to fulfill
government labeling standards.

32721CA

Glass Product Manufacturing in Canada


New and recycled glass bottles are purchased in bulk for bottling.

42451CA

Corn, Wheat & Soybean Wholesaling in Canada


Malted barley, wheat, corn, hops and other flavor adjuncts are purchased from industry
wholesalers.

According to the latest industry survey


conducted by Beer Canada in 2014, the
industry has experienced a sharp
increase in the number of licensed
breweries as well as higher production
volumes. Over the past five years,
canned beer surpassed beer bottled in
glass for the first time, representing a
surprising change for an industry that
has typically benefited from significant
glass bottle recycling programs.

susceptibility to flavour-spoiling UV light.


Although glass bottles are the standard
packaging material for most brewers, the
relative heaviness of glass ultimately adds
to their transportations costs. As a result,
some brewers have replaced some bottled
beer production with forms of canned
beer packaging. This has caused bottled
beer to decline as a share of the industrys
products over the past five years,
representing an estimated 42.9% in 2015.

Bottled beer
Bottled beer has for decades been the
standard packaging for the industrys
products. Beer bottles are made of glass
and often come in brown or green hues.
Clear bottles are rare, due to their

Canned beer
An estimated 47.4% of industry products
are packaged in aluminum cans,
representing a robust increase over the
past five years. There are many reasons
for the sudden surge in popularity of

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Products & Markets

Products & Services


continued

Products and services segmentation (2015)

9.7%

Draught beer

47.4%
Canned beer

42.9%

Bottled beer

Total $5.7bn
canned beer. For producers, aluminum is
a far lighter material than glass that
reduces the overall bulk and
transportation costs associated with
shipping bottled beer. Additionally,
compared with glass, aluminum is
relatively inexpensive to purchase from
metal manufacturers.
Consumers have also taken to canned
beer over the past five years. Although
canned beer may once have been
perceived as consisting exclusively of
light, subpremium and bottom-shelf
varieties, canned alternatives of many
premium craft beers have entered the
market in recent years. Because canned
beer is more cost-effective for
producers to manufacture, they can
pass along some of the cost savings to
consumers. Aluminum cans have given
consumers far greater exposure to
higher-priced brands without any
negative consequences to flavor. In fact,
craft beer producers regard aluminum
containers as a much better packaging
material than glass. Although dark
amber glass bottles generally reduce the
likelihood of UV light exposure and the
potential skunking effect it has on

SOURCE: IBISWORLD

beers, aluminum cans block virtually all


possibility of the products taste being
compromised due to UV exposure.
Many breweries have also used
aluminum cans as an opportunity to
create elaborate product labels and
designs, since cans provide greater
surface area for printed labels than
traditional glass bottles.
Draught beer
Beer Canada reports that a slim 9.7% of
the beer produced in Canada is packaged
and distributed in bulk. Draught beer
production includes beer that is served
from barrels, such as standard
pressurized kegs or more traditional
casks. Kegs are commonly constructed
from aluminum or steel, are forcecarbonated using nitrogen or carbon
dioxide and are sold in bulk sizes ranging
from 20.0 to 58.6 litres. Conversely,
casks are constructed using metal or
wooden housing and carry beer that is
neither carbonated nor pasteurized.
Draught beer is most commonly sold to
private drinking establishments and
individual consumers hosting events and
private functions.

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Products & Markets

Demand
Determinants

Demand for beer varies depending on


many factors. Customer demand for a
specific brand may fluctuate depending
on the perceived attractiveness of other
brewers products. Additionally, beer
substitutes such as wine, spirits and
nonalcoholic beverages can increase in
popularity and negatively impact sales of
beer. Over the past several years,
demand for beer has steadily increased
compared with these close substitutes,
and the industry has responded to
growing demand by expanding its
offerings of seasonal, premium and
specialty beer styles.
The publics demand for beer is also
influenced by marketing. Major
companies that brew very similar, mildly
flavoured products typically dedicate
large portions of revenue toward
promotional campaigns. High-profile
celebrity endorsements, major
advertising campaigns, novel packaging
materials and complex bottle designs all
heavily contribute to the industrys high
marketing costs, and these campaigns
have a major impact on consumers
purchasing decisions.
Government intervention can
influence demand through regulation and

taxation. The most common forms of


government regulation of alcoholic
beverages pertain to retail sales.
Minimum drinking ages, limits on hours
of sale, limits on the size of alcohol
purchases, mandatory minimum retail
prices and excise taxes are all designed to
limit overconsumption and control the
sale of alcohol. Throughout much of
Canada, the distribution and sale of beer
is controlled by provincial regulatory
bodies rather than private wholesalers
and merchants.
Demographics also play a significant
role in determining demand for alcohol.
Demand for alcoholic beverages tends
to be higher among households with
higher levels of disposable income.
IBISWorld estimates that households
earning the top 20.0% of income spend
60.0% more on beer from retailers than
the average household and 80.0% more
on beer at licensed drinking
establishments. Age may also
determine the taste preferences of
consumers. Per capita consumption of
beer is higher among 18- to 34-yearolds than other age groups, while
purchases of wine remain strong among
consumers aged 35 and older.

Major Markets

Beer consumption among men


Men continue to dominate Canadian beer
consumption, drinking an estimated 59.5%
of beer in terms of volume. Men aged 19 to
30 years old will drink an estimated 19.9%
of beer sold domestically in 2015, because
they are more likely to purchase beer in
high quantities and buy a variety of craft
brews to sample. Men in this age range are
not only the most likely to drink beer, but
also typically drink a greater volume of beer
than other age groups. Men between the
ages of 31 and 50 consume 15.6% of the
industrys products.
Meanwhile, men aged 51 to 70 are
expected to drink 14.3% of the beer

produced in 2015, as many in this


segment substitute purchases of beer
with wine or spirits due to higher
disposable incomes and shifting healthoriented attitudes. Similarly, men aged
older than 71 years are estimated to just
drink 9.7% of the beer produced in 2015.
Beer consumption among women
Because women consume beer less
frequently than men, they represent a
smaller market for the Breweries
industry. Although consumption by
women has increased during the past five
years, women are estimated to drink only
40.5% of the beer sold in Canada.

Breweries in CanadaMay 2015 16

WWW.IBISWORLD.CA

Products & Markets

Major Markets
continued

Major market segmentation (2015)

7.9%

9.7%

Women aged 71
years 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%

Men aged 31 to 50 years old

10.4%

Women aged 51 to 70 years old

Total $5.7bn

International Trade
Level & Trend
 xports in the
E

industry are L ow


and D
 ecreasing
Imports

in the
industry are
Mediumand S
 teady

12.1%

14.3%

Men aged 51 to 70 years old

Women aged 19 to 30 years old


SOURCE: IBISWORLD

Breweries are innovating products geared


toward women, such as sweeter beers like
Molson Sublime or Labatt Blue Light
Lime. Low-calorie products are also
increasingly marketed toward women as
brewers seek to tap this growing market.
Women aged 19 to 30 are estimated to
drink 12.1% of the beer sold in Canada in

2015, surpassing 31- to 50-year-olds as


they try newer products. Women aged 31
to 50 are expected to consume 10.1% of
the beer produced in 2015. For
comparison, women aged 51 to 70
consume 10.4% of beer, and women aged
71 or older are anticipated to drink 7.9%
of beer.

The Canadian market for beer is


relatively self-sufficient, with domestic
brewers fulfilling most of the domestic
demand for alcoholic beverages.
However, Canada does participate in the
international market for beer and is a
net importer of beers from Belgium,
Mexico, the Netherlands and the United
States. After a brief decline in beer
imports following the recession, beer
imports have steadily increased in recent
years. Conversely, Canadian beer
exports have gradually fallen in recent
years due to increasing competition
from foreign breweries.

sales have held steady, increasing at a


0.1% annualized rate since 2010 to $715.4
million in 2015. Canadian beer imports
come from many different countries,
although imports from the United States,
the Netherlands, Mexico and Belgium
consistently rank as the most popular
foreign beer brands. Brands such as
Budweiser, Bud Light, Coors Light, Miller
Lite, Heineken, Grolsch, Modelo, Dos
Equis and Duvel are popular imported
brands that are widely available across
Canada. Continually expanding
advertising campaigns and consistent
consumer approval of these brands will
likely lead to continued growth in beer
imports over the next five years.

Imports
During the past five years, the continued
strength of the Canadian dollar has made
foreign products relatively inexpensive
for Canadians. As a result, imported beer

Exports
Exports were weakened by a strong
Canadian dollar during the past five years,

Breweries in CanadaMay 2015 17

WWW.IBISWORLD.CA

Products & Markets

which made industry products relatively


expensive in foreign markets. Foreign
demand for Canadian beer also largely
depends on US taste preferences, since the
United States represents the overwhelming
majority of the industrys export market. In
recent years, US taste preferences have
shifted away from foreign and domestic
premium brands toward local and regional
craft styles, thereby reducing overall
interest in Canadian exports among US
drinkers. When combined with the
increasing strength of the Canadian dollar,
this trend is expected to cause industry
exports to decline at an annualized rate of
6.4% to $212.9 million in 2015.

Exports To...

Industry trade balance


600
300

$ million

International Trade
continued

0
300
600
900
1200

Year 07
Exports

09

11

13

Imports

15

17

19

21

Balance
SOURCE: 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 $715.4m
SOURCE: USITC

Breweries in CanadaMay 2015 18

WWW.IBISWORLD.CA

Products & Markets


Business Locations 2015

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

NT

YT

NU

NORTHERN TERRITORIES
0.4

BC

26.3

AB
3.8

SK
0.4

MB
1.3

ON
40.7

NL

QC

1.7

21.2

NB
1.3

NS

PE
0.4

2.5

SOURCE: IBISWORLD

Breweries in CanadaMay 2015 19

WWW.IBISWORLD.CA

Products & Markets

Distribution of establishments vs. population


50
40
30
20
10

Saskatchewan

Quebec

Ontario

Prince Edward Island

Nova Scotia

Newfoundland

Northern Territories

New Brunswick

Manitoba

Alberta

0
British Columbia

Due to the high transportation costs of


shipping a heavy product such as beer,
breweries are commonly located near the
major markets they serve most. As a
result, industry establishments are
overwhelmingly concentrated in
provinces with densely populated
metropolitan areas: Ontario, Quebec and
British Columbia. Ontario holds a leading
40.7% of industry establishments due to
high demand for beer from Toronto and
surrounding suburban areas, and even
from US distributors across the border
that may wish to import Canadian brands
for US consumers. Quebec holds 21.2% of
industry breweries, falling closely in line
with the provinces 23.1% share of the
Canadian population. Large populations
in Montreal and Quebec City help
stimulate demand for beer in the
province, and shipping activity to and
from the cities of Hull and Gatineau
support the steady trade of alcoholic
beverages throughout the province.
British Columbia holds 26.3% of industry
breweries despite representing only
13.3% of the Canadian population. This is
largely due to the commercial dominance
of Vancouver as well as the provinces
convenient ground transportation access
to Washington state and California.
Access to raw materials is an
additional factor that determines the
locations of industry businesses. There
are only three breweries located in New

Business Locations

Establishments
Population
SOURCE: IBISWORLD

Brunswick, for example, due to lack of


access to fresh inputs like barley, hops
and properly treated water. Although
such areas may have an increasing
number of nanobreweries, homebrewers
and pubs that operate outside the scope
of the industry, regions such as New
Brunswick, Prince Edward Island,
Manitoba, Saskatchewan and the Yukon
do not possess sufficient means of
transportation or large enough
populations to sustain a significant
number of industry breweries.

WWW.IBISWORLD.CA

Breweries in Canada May 2015

20

Competitive Landscape

Market Share Concentration | Key Success Factors | Cost Structure Benchmarks


Basis of Competition | Barriers to Entry | Industry Globalization
Market Share
Concentration
Level
Concentration

in
this industry is H
 igh

Key Success Factors


IBISWorld

identifies
250 Key Success
Factors for a
business. The most
important for this
industry are:

The three largest breweries in Canada


are expected to generate 72.0% of
industry revenue in 2015. Foreign
investment over the past decade has led
to fundamental restructuring of the
industry in the form of intense
consolidation and rising market share
for international beverage behemoths.
Major international brewers have
developed significant market share
through economies of scale in
production, which allow these companies
to produce large quantities of beer at a
low per-unit cost, heavily market these

products through a variety of advertising


channels and generate operating margins
that are significantly higher than the
margins of the industrys independent,
regional brewers. Consequently, the
industry continues to be represented by
both a large number of small brewers
and a select few major international
brewers. As these major international
brewers continue to acquire the
production facilities of popular Canadian
and foreign brands, industry
concentration is anticipated to continue
increasing during the next five years.

Economies of scope
Brewers that produce a wide variety of
beer styles can achieve a marketing
advantage by appealing to a greater range
of customer tastes.

fermentation occurs uniformly and final


packaging is consistent.

Establishment of brand names


Successful branding through label design
and heavy marketing is critical to success
in a brand-centric market.
Effective quality control
Brewers operating large batches must
ensure that their product is made in a
sanitary environment, all ingredients are
measured consistently and precisely,

Cost Structure
Benchmarks

Profit
Industry profit, defined as earnings before
interest and taxes, fell slightly over the five
years to 2015 to 9.1% of revenue. The
industrys largest breweries typically yield
much higher profit margins as a result of
significant economies of scale, while
smaller breweries are often unable to
spread large fixed costs over similarly
large product output. This differentiation
among companies profit is the result of
high variable costs and the bargaining
power that larger players have over

Economies of scale
Breweries that can manufacture beer on
the largest scale possible can purchase
wholesale ingredients at a cheaper bulk
cost and sell their products at a lower
retail price.
Having a cost effective
distribution system
Breweries are typically more efficient
when streamlining distribution
agreements with provincial entities and
downstream wholesalers.

suppliers and distributors. Larger


companies with greater economies of scale
can typically produce higher quantities of
beer at a far lower cost per unit, especially
when these companies brew mild styles
using low-cost adjunct ingredients.
Purchases
Raw ingredient purchases represent the
largest component of brewers expenses,
and purchases are estimated to represent
36.7% of the industrys revenue. Basic
materials include packaging, principally

WWW.IBISWORLD.CA

Breweries in Canada May 2015

21

Competitive Landscape

glass, aluminum and corrugated


cardboard, and these costs have increased
significantly over the past five years as a
result of rising commodity prices. Major
purchases of barley, sugar, malt, corn,
rice, wheat, hops and preservatives, which
are critical ingredients for brewing, have
mostly declined over the past five years in
response to falling global grain prices. The
price of hops can experience significant
variation each season depending on
source region. Fluctuations in price often
have a significant impact on a brewers
overall costs and may even impact the
final retail price. Over the five years to
2020, prices of raw ingredients are
projected to decline overall.
Wages
During the past five years, wages have
remained relatively steady as a share of

revenue, accounting for an estimated


8.8% in 2015. Both industry employment
and average industry wages have
stagnated over the past five years, which
is consistent with the industrys minimal
revenue growth in recent years.
Other
Marketing costs have escalated to an
estimated 4.2% of revenue in 2015 due
to rising advertising spending by the
industrys largest companies. Brewers
are competing against not only new
industry entrants but also against an
increasing number of wine, distilled
spirit and soft drink manufacturers.
Other costs, such as rent, utilities, taxes,
fees, administrative expenses and
government licensing, have been stable
and will continue to represent a
significant component of revenue.

Sector vs. Industry Costs


Average Costs of
all Industries in
sector (2012)
100

80

Percentage of revenue

Cost Structure
Benchmarks
continued

9.0
10.6

9.1
8.8
36.7

60

60.0
40

20

Industry Costs
(2015)

2.9
3.0 1.9
12.5

Profit
Wages
Purchases
Depreciation
Marketing
Rent & Utilities
Other

4.4
4.2
7.0
29.8

0
SOURCE: IBISWORLD

WWW.IBISWORLD.CA

Breweries in Canada May 2015

22

Competitive Landscape

Basis of Competition
Level & Trend
 ompetition
C

in
this industry is
Highand the trend
is I ncreasing

A recent influx of small, local breweries


into the industry has created additional
competition for the few major breweries
that have dominated the Canadian beer
market in recent decades. The industry
consists of a small number of major
international alcoholic beverage
producers, many domestic and regional
brewers and a new class of upstart
brewers throughout the country. Major
imported brands, such as Heineken,
present the largest source of competition
to all of the industrys domestic brewers.
Internal competition
Because the Breweries industry
produces many types of beer that cater
to a wide range of customer taste
preferences, many small-scale
breweries emphasize seasonal flavours,
limited-edition styles and new brands
rather than competing exclusively on
price. Conversely, the industrys larger
beer brands, such as Molson,
Moosehead and Sleeman, are produced
and marketed with the brands costeffectiveness in mind, and competition
from major beer manufacturers is of
little concern to local microbrewers
whose products are geared toward
connoisseurs and those who prefer
more intricate styles of beer. Therefore,
industry competition is based primarily
on brand, quality and retail pricing. In
general, marketing efforts typically
focus on male consumers aged 19 to 25
years, because this demographic
represents the market in which
consumers are most likely to try new
beer products. Alternative marketing
techniques like beer tastings and

Barriers to Entry

Different barriers exist depending on


whether a new operator wishes to enter
the Breweries industry as a small local
brewer or as a large regional producer.
Entry for craft brewers, for example, can

brewery tours have become common


among both small and large brewers,
while major brewers tend to focus their
advertising efforts toward celebrity
endorsements and primetime TV spots.
Consumers show significant brand
loyalty, making it difficult for new
entrants to capture market share from
established brands. Competition for
brand loyalty has intensified on a
regional level and, as a result, many
regional players have aggressively sought
to expand their geographic market reach.
Competition has also increased with the
rise of the craft-brewing segment in the
past five years. Internal competition is
anticipated to continue growing over the
next five years.
External competition
Competition from other beverages and
foreign producers is escalating. Imports
increased over the five years to 2015, as
consolidation among the industrys
largest beer brands compelled
consumers to increase purchases of
major foreign brands.
Other beverage industries are also
posing a major threat to the industry,
offering drinks that compete directly with
beer. Not only is wine becoming
increasingly popular among 18- to
35-year-olds, but there are also new adult
drink categories emerging that are aimed
at consumers in this age range. These
include low-sugar sodas that are
marketed as healthy alternatives,
relaxation drinks and exotic juices that
retailers, restaurants and other
establishments are increasingly selling
alongside beer.

be facilitated by the option to purchase


turnkey facilities, but starting a large-scale
production will require significant cash
investments and substantial purchases of
capital equipment. Before a new brewer

WWW.IBISWORLD.CA

Breweries in Canada May 2015

23

Competitive Landscape

Barriers to Entry
continued
Level & Trend
 arriers to Entry
B

in this industry are


Highand S
 teady

Industry
Globalization
Level & Trend
 lobalization
G

in this
industry is H
 ighand
the trend is S
 teady

can even enter the industry, however, it


must fulfill major regulatory obligations.
The manufacture and distribution of
alcohol in Canada is highly regulated, and
most provinces require that all breweries
distribute their products through
provincial liquor boards. Licensing fees,
audits and excise taxes on production also
compound the total costs breweries incur
on a regular basis.
Barriers to entry include the sunk costs
and other high ongoing capital
requirements necessary to operate large
brewing operations. Many major brewers
can ship large quantities of beer because
they have preexisting agreements with
distributors. Establishing relationships
with distributors is an important
component of achieving success in the
industry, and new entrants will face the
challenge of developing these
relationships from the bottom up. A lack
of major relationships in the industry is a
significant issue for new breweries; since
distribution is heavily regulated and
limited on a regional basis, distribution
opportunities are scarce. Shelf space in
retail outlets is limited and major
breweries are the first to claim retail
space as a result of their large
distribution contracts.
Brewers benefit from establishing
economies of scale throughout the
brewing process. As fermenting tanks,
bottling facilities and ingredient
contracts expand, the cost to produce a
single bottle of beer substantially
declines. As a result, prospective entrants

Both of the industrys largest companies


are foreign-owned and engage in a
significant amount of international trade.
Anheuser-Busch InBev, headquartered in
Belgium, is the largest brewing company
in the world, while Molson Coors, the
worlds seventh-largest brewer, is a
US-based subsidiary of MillerCoors with

Barriers to Entry checklist


Competition
Concentration
Life Cycle Stage
Capital Intensity
Technology Change
Regulation & Policy
Industry Assistance

Level
High
High
Mature
High
Low
Heavy
Low
SOURCE: IBISWORLD

may struggle for success in the industry


unless substantial upfront investment is
made on large brewing equipment.
Although the industry has experienced
steady growth in small-scale
microbreweries over the past five years,
many of these breweries cannot support
national distribution and thus achieve far
smaller profit margins than larger
brewers. Entering the industry is costly
for new breweries of all sizes, and
increasing competition among the
industrys smallest brewers has made it
even more difficult for new entrants to
achieve success.
Economies of scale enable greater
profit margins, which the industrys
largest breweries direct toward major
advertising campaigns. The major
marketing activities of the industrys
largest companies make it difficult for
new entrants to set themselves apart from
established brands. Brand recognition is
difficult to establish by word of mouth,
and this poses an additional challenge to
small-scale brewers.

a financial stake in many of the countrys


Beer Store retail locations.
However, exports have declined as a
percentage of industry revenue over the
past decade. The United States, which is
the leading purchaser of Canadian beer,
has reduced overall purchases of
Canadian beer brands in response to

WWW.IBISWORLD.CA

Breweries in Canada May 2015

24

Competitive Landscape

Exports offer growth


opportunities for firms.
However there are legal,
economic and political risks
associated with dealing in
foreign countries.
Import competition can
bring a greater risk for
companies as foreign
producers satisfy domestic
demand that local firms
would otherwise supply.

Trade Globalization
200

Going Global: Breweries 2004-2015


Global

Export

150
100
50
0 Local
0

demand for beer have historically been low.


In 2015, the value of imports will reach a
projected $715.4 million, which represents
11.6% of domestic demand for beer. With
total imports projected to increase over the
next five years, IBISWorld anticipates
imports to satisfy 13.8% of domestic
demand for beer by 2020.

200 Export

Exports/Revenue

International trade is a
major determinant of
an industrys level of
globalisation.

unfavourable exchange rates and waning


consumer interest in Canadian brands.
As a percentage of revenue, exports have
fallen from 5.7% in 2010 to an estimated
3.8% in 2015.
Imports are projected to steadily
increase over the next five years, although
imports as a percentage of domestic

Exports/Revenue

Industry
Globalization
continued

Breweries
40

80

Import
120

Imports/Domestic Demand

160

Global

150
100
50

2004
0 Local 2015
0

40

Import
80

120

160

Imports/Domestic Demand
SOURCE: IBISWORLD

Breweries in CanadaMay 2015 25

WWW.IBISWORLD.CA

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 Performance
Anheuser-Busch
InBev
Market share: 41.5%
Industry Brand Names
Budweiser
Labatt
Becks
Stella Artois
Alexander Keiths
Bass
Kokanee (Columbia
Brewing Company)
Lakeport
Lucky
Oland

Anheuser-Busch InBev (AB InBev) is the


result of a merger between AnheuserBusch (AB) and InBev, which itself
represented the culmination of numerous
mergers and acquisitions of major
brewers over the past decade. The
companys continual growth has
facilitated the takeover of many leading
Canadian brands and, although AB InBev
allows these brands to operate with
relative autonomy in terms of production
and marketing, many of Canadas most
popular independent brewers have been
absorbed by foreign beverage
manufacturing firms in a similar fashion.
The combination of Anheuser-Busch
and InBev marked a significant change in
the market share concentration of the
Breweries industry and gave the company
a clear leading position in the global
brewing industry. Prior to the merger,
InBev had a strong global presence in its

SOURCE: IBISWORLD

own right and was the primary operator


in the Breweries industry as the owner
of Labatt Brewing Company. Meanwhile,
AB had already distributed InBevs
global brands in the United States, and
the company was previously the largest
brewer by volume in North America.
ABs businesses included brewing,
packaging, theme parks and real estate.
As part of the merger agreement, AB
sold its Busch Gardens theme park
business to recover debt generated by
the merger and to gear operations
exclusively toward beer production.
Financial performance
AB InBevs industry-specific revenue is
expected to decline at an annualized rate
of 0.9% during the five years to 2015 to
$2.4 billion. Although sudden declines
in revenue during 2011 and 2013
negatively impacted the companys

Anheuser-Busch InBev (industry-specific segment) financial


performance*
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

*Estimates
SOURCE: ANNUAL REPORT AND IBISWORLD

Breweries in CanadaMay 2015 26

WWW.IBISWORLD.CA

Major Companies

Player Performance
continued

performance over the past five years,


recent trends suggest that AB InBev will
experience slow but steady revenue
growth going forward.
Additionally, the companys massive
size has provided many of its major
brewing facilities tremendous economies
of scale. In turn, operating income has
steadily improved in recent years, and AB

InBev brewing units consistently boast


the highest profit margins in the industry.
Operating income among its Canadian
brewing facilities is estimated to increase
0.9% to $362.2 million in 2015,
representing a company profit margin of
15.4%. This is substantially higher than
the Breweries industrys average profit
margin of 9.1%.

Player Performance

Molson Coors Canada is the product of


mergers and acquisitions among several
major North American breweries.
Originally founded in 1786 in Montreal,
the Molson Brewery is the oldest in North
America and still produces beer at its
original location. Molson Brewery
merged with US-Based Coors Brewing
Company to create the Molson Coors
Brewing Company, a partnership that has
turned the company into one of the
largest brewing companies in the world.
The Molson brand is still owned and
operated by the Molson family, and the
company has expanded its operations
throughout Canada, the United States
and Europe. The company restructured
its position in the European market in
2012 with the purchase of StarBev Inc.,
which has resulted in both the expansion
and consolidation of its disparate Ireland,
UK and Central European operations. In

Canada, Molson Coors portfolio of


brands includes Coors Light, Molson
Canadian, Molson Export, Molson
Canadian 67, Molson Dry, Molson
Canadian Cider, Carling, Keystone Light,
Creemore Springs and the Rickards
family of brands. The company also holds
joint venture agreements with SABMiller
and Grupo Modelo, both of which grant
limited rights to each company to
distribute and bottle the others brands.
Much like AB InBev, Molson Coors
merger and acquisition activity
represents a continual trend in the
Canadian beer market toward major
market share concentration among the
industrys largest companies. The
company has continued to consolidate
within the Canadian market. Most
recently, Molson acquired microbrewery
Granville Island Brewing in response to
growing consumer interest in craft beer

Molson Coors
Brewing Company
Market share: 26.8%
Industry Brand Names
Molson Canadian
Coors Light
Rickards
Carling
Keystone Light
Pilsner
Black Label
Molson Export
Molson Dry
Molson 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

Breweries in CanadaMay 2015 27

WWW.IBISWORLD.CA

Major Companies

Player Performance
continued

styles. The company currently stands as


Canadas second-largest brewer by both
revenue and volume.
Financial performance
Molson Coors revenue in Canada is
estimated to decline at an annualized
rate of 4.1% during the five years to
2015, including a 1.8% drop in 2015 to
$1.5 billion due to declining consumer
sentiment and premiumization that has
reduced demand for the companys
flagship brands. The company holds a
relatively lean portfolio of several
premium light beer brands, and

Other Companies

Moosehead Breweries Ltd.

Estimated market share: 3.7%


Moosehead Breweries was founded in
1867 and is Canadas oldest
independent brewery. Headquartered
in Saint John, NB, the brewery has
been privately owned and operated by
the Oland family since its inception,
and therefore does not publicly disclose
its financial information. The

declining interest in these brands has


resulted in continual declines in
company performance in recent years.
The Molson Canadian and Coors Light
brands, for example, represent more
than half of company sales domestically
and have been negatively impacted by
consumer substitution toward other
alcoholic beverages. Although the
companys massive size continues to
yield operating margins that are far
greater than the industry average, both
company revenue and operating income
have experienced steady declines each
year since 2011.

companys flagship brand, Moosehead


Lager, remains one of the most popular
domestic beers in the industry.
Moosehead is also supported by a
family of light, flavoured and dry
versions of the flagship brand, in
addition to licensed brands such as Sam
Adams, Boris, Magners and others. The
company is expected to generate $210.0
million in revenue over 2015.

Breweries in CanadaMay 2015 28

WWW.IBISWORLD.CA

Operating Conditions

Capital Intensity | Technology & Systems | Revenue Volatility


Regulation & Policy | Industry Assistance
Capital Intensity
Level
The level

of capital
intensity is H
 igh

Breweries require substantial capital


investment in the form of equipment and
plants. Fermenters, lauter tuns, filtration
systems, bottling lines and other
machinery must be purchased when a
plant is first established and will also
require continuous sanitization,
maintenance and repair. As production
facilities get larger, many brewers prefer
to substitute labour with more efficient,
fixed investments in larger brewing
systems and machinery. On average,
breweries spend $0.50 on capital for
every dollar spent on labour. However,
the specific amount of capital spending
varies based on the size of the plant.
The majority of the beer production
process is mechanized, limiting the need
for labour to brewing functions such as

Capital intensity

Capital units per labour unit


1.0
0.8
0.6
0.4
0.2
0.0

Economy

Breweries

Dotted line shows a high level of capital intensity


SOURCE: IBISWORLD

sanitizing, hydrometer readings, quality


control and other miscellaneous
administrative functions. As a result,

Tools of the Trade: Growth Strategies for Success


Investment Economy

Recreation, Personal Services,


Health and Education. Firms
benefit from personal wealth so
stable macroeconomic conditions
are imperative. Brand awareness
and niche labour skills are key to
product differentiation.

Information, Communications,
Mining, Finance and Real
Estate. To increase revenue
firms need superior debt
management, a stable
macroeconomic environment
and a sound investment plan.

Beer, Wine &


Spirit Wholesaling

Traditional Service Economy


Wholesale and Retail. Reliant
on labour rather than capital
to sell goods. Functions cannot
be outsourced therefore firms
must use new technology
or improve staff training to
increase revenue growth.

Bottled Water
Production
Soda Production

Sawmills & Wood Production

Breweries
Flour Milling

Change in Share of the Economy

Capital Intensive

Labour Intensive

New Age Economy

Old Economy
Agriculture and Manufacturing.
Traded goods can be produced
using cheap labour abroad.
To expand firms must merge
or acquire others to exploit
economies of scale, or specialize
in niche, high-value products.
SOURCE: IBISWORLD

Breweries in CanadaMay 2015 29

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Operating Conditions

Capital Intensity
continued

wages in the industry are relatively low.


Some of the industrys largest breweries,
however, have a significant global
presence with multiple factories and
large corporate offices that hold massive
executive and marketing departments.

The need for administrative employment


drives up labour costs considerably
when taking into account the additional
wages that are paid for administrative
staff, sales, marketing, accounting and
other employees.

Technology
& Systems

Although the standard process of making


beer has experienced essentially no major
change throughout history, technological
advancements have made brewing
processes larger, less expensive and more
efficient than ever before. Quality-control
improvements through computer
automation in the brewing process are
fast-growing trends. Modern brewing
plants are increasingly using brewing,
fermenting and conditioning processes
that are monitored by computers that are
capable of assessing temperature
changes, yeast activity and fluctuations in
the pH of the initial beer mash. Increased
automation allows brewers to more
precisely control variables during the
critical phases of brewing (i.e. mashing,
lautering, boiling and fermentation).
Technological improvements in
monitoring equipment also allow for
better quality control.
The use of renewable energy to power
brewing plants is also a growing trend.
For example, Beaus All Natural Brewing
Company announced in 2014 that it
intends to become Canadas first brewery
to use 100.0% green natural gas captured
through landfill emissions and biogas.
Additionally, the company has installed

solar panels to assist with day-to-day


brewing processes.
Technologies used to distribute, store,
package and keep track of beer products
are also constantly evolving, giving an
indirect boost to the industry by
decreasing middleman costs and thus
lowering final sale prices. From electric
and hybrid fleet vehicles adopted by
distributors to inventory management
software used by warehouses, technology
helps the industry provide consumers
with lower-cost beer.
Brewing methods vary depending on
the type of beer being manufactured.
Barrel aging is a common practice for
manufacturers of sour beers. Much like
the process used to ferment wine, oak
barrels may be used in tandem with yeast
fermentation to produce darker beer with
higher alcohol content, such as porter or
stout. Another popular technique is
double dropping, a method used to
quickly produce sweeter ales by
fermenting beer through two separate
fermentation chambers. Different
brewing styles are regularly tested and
modified over time to produce specific
beers with slightly different appearances
and tastes.

Unlike the US Breweries industry, where


changing distribution laws and rapidly
expanding craft brewing facilities have
created a very volatile climate for brewers,
the Breweries industry in Canada has been
quite stable over the past five years. Much
of this is due to the rigid structure of the

countrys alcoholic beverage distribution


system, which has been almost entirely
operated by provincial governments for
decades. This inherent stability in
downstream distribution has contributed
to mostly stable growth in brewers
revenue over the past five years.

Level
The level

of
Technology
Change is L ow

Revenue Volatility
Level
The level

of
Volatility is L ow

Breweries in CanadaMay 2015 30

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Operating Conditions

Industry revenue volatility, measured


as the average absolute change in industry
revenue over the five-year period to 2015,
is low and currently stands at 3.0%.
Although state-by-state dismantling of
government-operated alcohol distribution
has created a frenzy among small-scale
brewers to open new facilities across the
A higher level of revenue
volatility implies greater
industry risk. Volatility can
negatively affect long-term
strategic decisions, such as
the time frame for capital
investment.
When a firm makes poor
investment decisions it
may face underutilized
capacity if demand
suddenly falls, or capacity
constraints if it rises
quickly.

United States, the Canadian market for


small-scale microbreweries is likely to
remain stable over the next several years.
Increasing popularity in craft beer has
increased the number of industry
establishments since 2010, but substantial
revenue growth among domestic
breweries big and small is unlikely.

Volatility vs Growth
1000

Revenue volatility* (%)

Revenue Volatility
continued

Hazardous

Rollercoaster

100
10

Breweries

1
0.1

Stagnant
30

10

Blue Chip
10

30

50

70

Five year annualized revenue growth (%)


* Axis is in logarithmic scale
SOURCE: IBISWORLD

Regulation & Policy


Level & Trend
 he level of
T

Regulation is
Heavyand the
trend is S
 teady

Nutrition
The industry is regulated by Health
Canada, which establishes standards for
food safety and nutritional quality.
Meanwhile, the Canadian Food
Inspection Agency (CFIA) enforces these
health and safety standards, in addition
to packaging, labelling and marketing
regulations. The Organic Products
Regulations were instated in mid-2009
and require certification from the CFIA if
a brewery chooses to advertise its
products as organic.
Inputs
The Canadian Wheat Board had been the
price setter and exclusive seller of
malting barley on behalf of producers in
western Canada until August 2012, when
its monopoly ended. This change

introduced volatility into the pricing and


availability of these key industry inputs.
In turn, breweries developed
relationships with suppliers and
established contracts to mitigate risk.
Manufacturing
Other policies regulate the industrys
manufacturing facilities. For example,
breweries must meet all laws with regard
to zoning and environmental
requirements, such as those included in
the Canadian Environmental Protection
Act and the Canadian Environmental
Assessment Act. Provincial regulations
can also apply: Prince Edward Island
mandates reusable beer containers like
glass to reduce or eliminate waste from
packaging. According to the Brewers
Association of Canada, about 97.0% of

Breweries in CanadaMay 2015 31

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Operating Conditions

Regulation & Policy


continued

Industry Assistance
Level & Trend
 he level of
T

Industry Assistance
is L owand the
trend is S
 teady

bottles are recycled, with each bottle


being sterilized and reused on average 15
to 20 times.
Retail
Regulations limit the sale of beer by
retailers and set minimum prices for
alcoholic beverages, which reduces
price-based competition for value
products. The existing system favours the
industrys major companies, which have
each established a significant network of
proprietary stores. If a brewery wants its
products to be sold by these stores, they

must pay these stores a fee to carry their


merchandise. Although this fee is set by
federal and provincial laws, it favours
breweries that own a network of stores
because they ultimately control the
in-store exposure of each product.
Government-owned stores also exist
and are mandated to carry a variety of
products. However, there are fewer such
stores and beer sales are a fraction of
their revenue. As a result, brewers
significantly limit their market reach if
they choose not to sell their products
through their competitors outlets.

The Agreement on Internal Trade is


responsible for the regulatory system that
limits provinces from impeding
interprovincial alcoholic beverage
transactions. As a result, most of the trade
barriers between provinces have been
slashed for domestic brewers. This
effectively protects brewers from new or
existing regulations that would deter
shipments of beer within Canada.
Provincial and federal sales and excise
taxes are due upon receipt at the retail
level. These costs are typically passed along
to consumers in the form of higher prices.
Canadian breweries are heavily
supported by provincial government
assistance. Canadian provinces and
territories operate their own liquor
boards, which monitor the production,
distribution and sale of alcoholic
beverages within their respective

provinces. Each body operates


autonomously, with varying degrees of
assistance based on the preferences of
each region. For example, the Liquor
Control Board of Ontario purchases all
beer, wine and spirits for its Ontario
consumers and licensed retailers and
distributes these products using its
integrated distribution network.
Conversely, Alberta operates a fully
privatized system in which all forms of
alcoholic beverages are distributed and
sold to private, licensed premises.
Despite the provinces privatization,
industry wholesalers are still heavily
support by the Alberta Gaming and
Liquor Commission, which oversees the
manufacture, importation, sale,
possession, storage, transportation and
consumption of liquor through collected
mark-ups on all alcohol products.

Breweries in CanadaMay 2015 32

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Key Statistics
Industry Data
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

Revenue
($m)
5,710.1
5,484.3
5,219.5
5,564.2
5,189.0
5,407.0
5,524.9
5,598.3
5,648.6
5,665.6
5,695.0
5,744.0
5,751.5
5,781.4
5,859.1

Annual Change
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

Revenue
(%)
-4.0
-4.8
6.6
-6.7
4.2
2.2
1.3
0.9
0.3
0.5
0.9
0.1
0.5
1.3

Industry
Value Added
($m)
1,168.4
1,218.5
961.9
1,159.5
1,216.0
1,309.2
1,185.7
1,214.1
1,250.8
1,260.6
1,254.8
1,273.8
1,274.6
1,281.3
1,298.3

Establishments
189
198
198
208
206
220
210
215
215
219
219
224
224
228
228

Industry
Value Added
(%)
4.3
-21.1
20.5
4.9
7.7
-9.4
2.4
3.0
0.8
-0.5
1.5
0.1
0.5
1.3

Establishments
(%)
4.8
0.0
5.1
-1.0
6.8
-4.5
2.4
0.0
1.9
0.0
2.3
0.0
1.8
0.0

Key Ratios
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

IVA/Revenue
(%)
20.46
22.22
18.43
20.84
23.43
24.21
21.46
21.69
22.14
22.25
22.03
22.18
22.16
22.16
22.16

Figures are inflation-adjusted 2015 dollars.

Imports/
Demand
(%)
9.77
11.12
11.80
12.24
12.73
10.67
10.78
11.38
11.36
11.60
12.07
12.45
12.94
13.44
13.84

Enterprises Employment
186
9,295
195
9,467
195
7,998
205
8,571
202
9,692
207
9,758
207
9,081
212
9,222
212
9,264
216
9,342
216
9,366
220
9,477
220
9,478
224
9,567
224
9,640

Exports
($m)
400.5
381.7
377.7
288.8
296.8
243.3
232.6
239.7
224.9
212.9
198.8
188.9
182.8
174.2
167.4

Imports
($m)
575.0
638.4
647.5
735.7
713.6
616.9
639.6
688.3
694.8
715.4
754.6
790.1
827.7
870.3
914.0

Wages
($m)
523.2
522.0
413.8
452.9
499.9
508.9
484.0
492.0
495.1
498.9
500.6
506.7
506.9
511.5
516.7

Domestic
Demand
5,884.6
5,741.0
5,489.3
6,011.1
5,605.8
5,780.6
5,931.9
6,046.9
6,118.5
6,168.1
6,250.8
6,345.2
6,396.4
6,477.5
6,605.7

Per capita alcohol


consumption
(Litres)
127.8
125.0
120.3
122.9
119.6
112.5
111.3
108.1
105.5
102.2
101.4
101.8
102.2
102.5
102.8

Enterprises Employment
(%)
(%)
4.8
1.9
0.0
-15.5
5.1
7.2
-1.5
13.1
2.5
0.7
0.0
-6.9
2.4
1.6
0.0
0.5
1.9
0.8
0.0
0.3
1.9
1.2
0.0
0.0
1.8
0.9
0.0
0.8

Exports
(%)
-4.7
-1.0
-23.5
2.8
-18.0
-4.4
3.1
-6.2
-5.3
-6.6
-5.0
-3.2
-4.7
-3.9

Imports
(%)
11.0
1.4
13.6
-3.0
-13.6
3.7
7.6
0.9
3.0
5.5
4.7
4.8
5.1
5.0

Wages
(%)
-0.2
-20.7
9.4
10.4
1.8
-4.9
1.7
0.6
0.8
0.3
1.2
0.0
0.9
1.0

Domestic
Demand
(%)
-2.4
-4.4
9.5
-6.7
3.1
2.6
1.9
1.2
0.8
1.3
1.5
0.8
1.3
2.0

Per capita alcohol


consumption
(%)
-2.2
-3.8
2.2
-2.7
-5.9
-1.1
-2.9
-2.4
-3.1
-0.8
0.4
0.4
0.3
0.3

Exports/
Revenue
(%)
7.01
6.96
7.24
5.19
5.72
4.50
4.21
4.28
3.98
3.76
3.49
3.29
3.18
3.01
2.86

Revenue per
Employee
($000)
614.32
579.31
652.60
649.19
535.39
554.11
608.40
607.06
609.74
606.47
608.05
606.10
606.83
604.31
607.79

Wages/Revenue
(%)
9.16
9.52
7.93
8.14
9.63
9.41
8.76
8.79
8.77
8.81
8.79
8.82
8.81
8.85
8.82

Employees
per Est.
49.18
47.81
40.39
41.21
47.05
44.35
43.24
42.89
43.09
42.66
42.77
42.31
42.31
41.96
42.28

Average Wage
($)
56,288.33
55,138.90
51,737.93
52,840.98
51,578.62
52,152.08
53,298.09
53,350.68
53,443.44
53,403.98
53,448.64
53,466.29
53,481.75
53,465.04
53,599.59

Share of the
Economy
(%)
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01

SOURCE: IBISWORLD

Breweries in CanadaMay 2015 33

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Jargon & Glossary

Industry Jargon

ADJUNCTSNonessential beer ingredients such as rice


or corn that are often included in the mash to alter
flavor or reduce ingredient purchase costs

LAUTERINGThe process of soaking malted grains in


hot water and then draining the water in order to create
a liquid that contains fermentable sugars.

BREWPUBA restaurant-brewery that sells more than


25.0% of its beer on-site.

NANOBREWERYA very small commercial microbrewery


that is often operated by a single owner and produces
very small batches for local distribution

CRAFT BREWERYA brewery that has annual production


of less than two million barrels and has less than 25.0%
of its ownership in the hands of a non-craft brewer. It
typically targets local and regional markets.
HYDROMETERAn instrument used to determine
specific gravity of a liquid. For brewers, hydrometers are
used before and after fermentation to determine if
yeast has properly converted fermentable sugars to
alcohol

IBISWorld Glossary

BARRIERS TO ENTRYHigh barriers to entry mean that


new companies struggle to enter an industry, while low
barriers mean it is easy for new companies to enter an
industry.
CAPITAL INTENSITYCompares the amount of money
spent on capital (plant, machinery and equipment) with
that spent on labour. IBISWorld uses the ratio of
depreciation 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 Key
Statistics table, including forecasts, are adjusted for
inflation using the current year (i.e. year published) as
the base year. This removes the impact of changes in
the purchasing power of the dollar, leaving only the
real growth or decline in industry metrics. The inflation
adjustments in IBISWorlds reports are made using
Statistics Canadas implicit GDP price deflator.
DOMESTIC DEMANDSpending on industry goods and
services within Canada, regardless of their country of
origin. It is derived by adding imports to industry
revenue, 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 and
keeps management accounts. Each enterprise consists
of one or more establishments that are under common
ownership or control.
ESTABLISHMENTThe smallest type of accounting unit
within an enterprise, an establishment is a single
physical location where business is conducted or where
services or industrial operations are performed. Multiple
establishments under common control make up an
enterprise.
EXPORTSTotal value of industry goods and services sold
by Canadian companies to customers abroad.

IMPORTSTotal value of industry goods and services


brought in from foreign countries to be sold in Canada.
INDUSTRY CONCENTRATIONAn indicator of the
dominance of the top four players in an industry.
Concentration is considered high if the top players
account for more than 70% of industry revenue.
Medium is 40% to 70% of industry revenue. Low is less
than 40%.
INDUSTRY REVENUEThe total sales of industry goods
and services (exclusive of excise and sales tax); subsidies
on production; all other operating income from outside
the firm (such as commission income, repair and service
income, and rent, leasing and hiring income); and
capital work done by rental or lease. Receipts from
interest royalties, dividends and the sale of fixed
tangible assets are excluded.
INDUSTRY VALUE ADDEDThe market value of goods
and services produced by the industry minus the cost of
goods and services used in production. IVA is also
described as the industrys contribution to GDP, or profit
plus wages and depreciation.
INTERNATIONAL TRADEThe level of international
trade is determined by ratios of exports to revenue and
imports to domestic demand. For exports/revenue: low is
less than 5%; medium is 5% to 20%; and high is more
than 20%. Imports/domestic demand: low is less than
5%; medium is 5% to 35%; and high is more than
35%.
LIFE CYCLEAll industries go through periods of growth,
maturity and decline. IBISWorld determines an
industrys life cycle by considering its growth rate
(measured by IVA) compared with GDP; the growth rate
of the number of establishments; the amount of change
the industrys products are undergoing; the rate of
technological change; and the level of customer
acceptance of industry products and services.

Breweries in CanadaMay 2015 34

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Jargon & Glossary

IBISWorld Glossary
continued

NONEMPLOYING ESTABLISHMENTBusinesses with


no paid employment or payroll, also known as
nonemployers. These are mostly set up by self-employed
individuals.
PROFITIBISWorld uses earnings before interest and tax
(EBIT) as an indicator of a companys profitability. It is
calculated as revenue minus expenses, excluding
interest and tax.
VOLATILITYThe level of volatility is determined by
averaging the absolute change in revenue in each of the
past five years. Volatility levels: very high is more than
20%; high volatility is 10% to 20%; moderate
volatility is 3% to 10%; and low volatility is less than
3%.

WAGESThe gross total wages and salaries of all


employees in the industry. Benefits and on-costs are
included in this figure.

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