St. John's Wort Beery Musings And Amusing Beers

Category Archives: Accounting For Taste

On Malt Lightening and the Beer Style Continuum

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As far as I can tell, every single brewery is issued one of these when they get their license. I’ve never been in a brewery that doesn’t have one kicking around. Look at it sometime and note the visible difference in malt colour. A good rule of thumb is that the lighter the malt, the later it was developed.

Last time we talked about German Beer and Food (scroll down a couple of posts) we had established some pretty basic truths about the situation in Germany prior to the advent of Oktoberfest. We talked about how the flavours in German landrace hops more or less matched the flavours in the herbs and spices available in Germany. We talked about Oktoberfest as an expression of the modernization of the German agricultural system. I know that it isn’t Oktoberfest anymore, but sometimes these things take a while to percolate.

A lot of the styles that you think of as German beer didn’t exist at the beginning of the 19th century. Altbier existed in Dusseldorf in a broad sense although it would have been different from the versions we get today. Bock had been around for quite a while, with the town of Einbeck claiming its advent in 1351. Dopplebock had been brewed by the Pauline monks from the mid 18th century. By 1798, the Bavarian branch of the Wittelsbach family had decided to allow their monopoly on Weissbier to lapse, giving license to several entities to produce a similar product. In Munich, the prevailing style was Dunkel. People were also making things like Kellerbier and Zwickelbier with bottom fermenting yeast[i], especially in the northern bits of Baden-Wurttemberg and Franconia, but they would have been darker in colour than we are accustomed to.

The thing that these beers have in common is that they are uniformly pretty dark in colour. The Weissbier is the exception that proves the rule. In order to make a beer that was much lighter than 15-20 SRM in the late 18th century in Germany, over 50% of your grist had to be wheat.

The early 19th century created a sort of renaissance for brewing in Europe due mostly to technological advancement. Beer Styles as we now think of them, catalogued by Michael Jackson, are thought of usually as entirely separate entities, but their development exists on a temporal continuum. Usually the development of a new style is influenced by an old style and a new ingredient, process or cultural influence. At the moment, we’ve got hops in a wider variety than has ever existed and that’s due to technology, genetic manipulation and cross breeding.

You’ll recall that there were really only four varieties of German hops. They didn’t have a roadmap for genetic inheritance. There was only one kind of yeast and they didn’t really understand how it worked yet. The water was however it was. The single most important discovery in the entire history of brewing, the one that caused brewers all over Europe to suddenly create new beers, was the ability to reliably heat a kiln to a specific temperature.

A direct fired kiln is not bad for pottery, but it’s terrible for malting. For one thing, it’s extremely inefficient. You’ve got to fire the kiln and then wait for it to get to about the right temperature. You’re more or less guessing about what the temperature is and where it will be over a long period. You’d develop a knack for that eventually, but there’s only so much you can do with it. The lack of precision means that your malt is going to turn out darker than you want and it’s going to take on some flavour from whatever fuel you’re using to heat the malt. If you’re in a place where you’ve got to use wood or peat for fuel that means wood smoke. That’s a geographical problem. If you’re in Upper Canada in 1820 and you’re making your own malt, you probably don’t have access to coke or coal. You were probably using wood or charcoal because there’s lots of it. Slight smoke flavour.

Another way that it’s inefficient is that darker malt is going to tend to have less diastatic power. In order to get the beer to the strength that you want it to be as a finished product, you’re going to have to use more malt. More malt is going to result in the darker beer styles that we’ve already mentioned. It’s quite expensive because you need more barley to make the same amount of beer.

Gabriel Sedlmayr's Spaten Brewery. Munich Lager changed irrevocably with the adoption of (and improvement on) English malting techniques

Gabriel Sedlmayr’s Spaten Brewery. Munich Lager changed irrevocably with the adoption of (and improvement on) English malting techniques

By the time that Anton Dreher was a brewing apprentice in the 1830’s, he was touring England to see what techniques they were using. This was pretty common practice amongst brewers in the 19th century. Because no one was in direct competition with each other internationally, trade secrets weren’t particularly highly guarded. By 1836, he had brought English malting techniques back to Schwechat near Vienna. It wasn’t exactly Pale Malt. It was darker than that. It was closer to a light Crystal Malt roast and that’s what’s become known as Vienna Malt.

Informational exchange within the region happened almost immediately because Dreher was friends with the brewmaster at the Spaten Brewery in Munich, Gabriel Sedlmayr. Dreher borrowed Sedlmayr’s yeast and Sedlmayr borrowed Dreher’s malting technique. Informational exchange drives progress in any field, but the string of events these two brewers would put in motion would last until the 1950’s on another continent.

Artistry and refinement happen in German beer as a direct result of modernization of agriculture and industry. You can’t have barley to malt without increased yield and you can’t malt it to any degree of precision with shoddy tools. The hops, yeast and water did not change substantially. The lightening of malt leads to the lightening of beer. The styles exist as a basic continuum because they all result from the previous change. Because of the prevalence of rail and the ability to transport goods, each style inspires the next. They don’t exist in a vacuum.

Viennas
Beer Style Creator Date Avg Bus Avg SRM AVG ABV
Vienna/Marzen Anton Dreher 1841 24 13 5
Marzen/Oktoberfest Gabe Sedlmayr 1872 24 10.5 5.25

 

This is the prime example. Functionally there may not be a difference between Marzen and Oktoberfest beer. However, in practice, Oktoberfest beer was introduced by Spaten in 1872 and the primary difference was the fact that they had developed a new malting technique. Instead of Vienna Malt there was Munich Malt. The lightening is only two and a half points on the SRM scale, but that requires a level of precision. How dark can you make the malt and still have diastatic power needed to convert starch to fermentable sugar?

Lagers
Beer Style Creator Date Avg Bus Avg SRM AVG ABV
Schwarzbier Kostritzer 1543 27 23.5 4.9
Dunkel Munich 1800 23 21 5.05
Pilsner Plzen 1842 40 4.75 4.8
Dortmund Kronen 1871 26.5 5 5.4
Northern German Pilsner Radeberg 1872 35 3.5 4.8
Munich Helles Spaten 1894 19 4 5.05

 

If you start with Black Lager and move through Munich Dunkel which is formalized as a style by 1800, the departure once Dreher imports English malting techniques is pretty staggering. I’d put it to you that while people will talk about soft water and saaz hops, the defining characteristic of Pilsner is that it was nearly 10 SRM lighter than the other beers available during the 1840’s. Yes, it’s hoppy, but it’s also light gold in colour. That’s a huge departure. Northern German Pilsner is lighter and less hoppy. Dortumunder is significantly less hoppy and about the same colour.

That's light enough, mein freund. Put the rake down and step away from the floor maltings.

That’s light enough, mein freund. Put the rake down and step away from the floor maltings.

The brewers in Munich actually had some difficulty with Helles. Spaten created it and took a great deal of criticism from the other brewers for doing so. They thought that it was too light! They thought that it didn’t have enough character! That’s as light as German beer styles ever went.

As I’ve shown in the previous posts in this series, because German beer and food contain essentially the same seasoning agents as a result of the landrace hops and locally available herbs and spices, we can assume that we’re dealing exclusively with complementary pairings when we look at Oktoberfest food. Ultimately, the result of the beer getting lighter is that the food also gets lighter. The food needs less fat and can stand being less heavily seasoned. Weisswurst, for instance, is invented in 1857. Additionally, because industrialization has provided more quantity of food, the individual meals do not need to be as substantial. More people are working in cities. In point of fact, a lot of people are emigrating; they are Emigrating to America.

To this day, the largest ancestral group in the USA is German. It’s about 17.1%. From about the time of the revolutions in 1848, there was a huge wave of immigration to the United States. You’ll notice that by that time there was already Pilsner and Vienna Lager in Germany. It was fairly widespread and these people would have had context for that. They had seen the lightening of beer. The largest wave of immigrants came later on and they had seen even lighter beers in Germany. By 1900, Milwaukee, Cincinatti, and Cleveland were all at least 40% German. Every large town in the Midwest would have been at least 25-30% German. We’ve heard the names: Anheuser, Busch, Blatz, Schlitz, Pabst, Yeungling.

This map will explain more about America's brewing history than any other image I can show you.

This map will explain more about America’s brewing history than any other image I can show you.

When you have a population concentration like that, immigrants bring their ideas with them. In this case, they brought their progressively lighter beers along for the ride. If the defining concept of German beer in the 19th century has to do with making a beer that’s lighter in colour, the restraining factor had been how light the colour could be made with malt. Without the restriction of the Reinheitsgebot, these German brewers could pursue making even lighter beers with adjunct grains like corn and rice.

People claim that prohibition was the factor that created light flavourless commoditized beer, that people had gotten used to soft drinks. Really the blame lies with the fascination of making the beer lighter. It’s a construct that depends on industrial production. It was a good idea that got out of hand.  In Munich, they had the sense to stop at Helles. In America it spiraled out of control.

By the 1950’s we had light beer and America had thoroughly adapted the German feasting culture that is Oktoberfest. Bratwurst had become hot dogs. Frikkedellen had become hamburgers. What is a chicken finger but an unflattened chicken schnitzel? The commonality between the food and the beer is that they have been reduced to their least flavourful form in order to appeal to the largest number of people. There’s an idea that beer and food pairing is difficult, but it’s the foundation of American popular cuisine. America was a feasting culture, but without flavour and without joy.

Whether you believe it or not, this is German food.

Whether you believe it or not, this is German food.

We talk about the 3000 brewery mark in terms of craft beer. There’s an idea that it is important that we have reached the number of breweries that existed before prohibition in North America. The fact is though that the makeup of those breweries is significantly different than it would have been before prohibition. The majority of brewers would have been German and would have made lager. It might be time for Craft Beer to attempt to reclaim that heritage, additional ferment times be damned.

[i] A word on yeast: Throughout my career writing about beer, I’ve run into people who are a little confused about bottom fermenting yeast. I have met professionals who think that lager didn’t exist before 1840. Bottom fermenting yeast had been around and in use for a few hundred years before Emil Hansen managed to separate out a pure strain at the Carlsberg labs. I suspect that these are people who are using “lager” and “pilsner” as interchangeable terms.

The real question is how there was suddenly bottom fermenting yeast in the mid 1500’s. I have an elaborate theory involving Saccharomyces Bayanus, Dutch trading ships and the Rhine as a primary trade route to Bavaria. It’s as good as anyone else’s guess.

 

Advent Calendars – But What If You’re In Ontario

This week in the column, I talked about the growing trend for breweries to produce advent calendars. It’s a fun idea and one that I can get behind. With the short days and cold weather, you want to treat yourself nicely and a single high quality beer a day is not a bad way to do that. It may only give you ten or fifteen minutes enjoyment, but it’s a nicely ritualized thing. It’s an Agent Cooper approved strategy for coping with a seasonal lack of esprit de corps.

You’ll notice that there are no craft beer advent calendars in Ontario. The LCBO isn’t allowed to stock packages over six bottles because of an agreement with the Beer Store. It’s an agreement that they’re threatening to rescind. The Beer Store isn’t a good option for stocking something like an advent calendar because they charge the same for listing whether you’re offering a product year round or as a seasonal option. Even when Andrew Oland from Moosehead says that The Beer Store is doing a great job, you’ll notice that his Hop City and Sam Adams Seasonal products only show up in the LCBO. If The Beer Store is so great, why aren’t they carried exclusively by The Beer Store, huh?

Incidentally, you’d think this would be a great opportunity for the Beer Store to score a PR point and maybe make way for something like that “because Christmas” what with them having been visited by the ghost of Christmas future in the form of Ed Clark. They seem to have decided to cover their ears and reap the whirlwind of public opinion.

Let’s not be scrooges. For the moment, let’s be Fezziwigs.

If you’re in Ontario, you might want to put together an advent calendar of your own. The good news is that it’s pretty easy to do that with the beer that’s available at the LCBO. I notice that the  Craft Beer Advent Calendar out on the West Coast is somewhere between $129 and $145. In Newfoundland, more like $188. If you like rare stuff, that’s probably a good deal. The Phillips and Central City/Parallel 49 packs tended to come in somewhere between $65 and $85 depending on the store stocking them. That seems a little more in line with what I’m willing to spend.

The goal I therefore put together was to create advent calendars that you can use. I wanted them to be affordable and fairly specific. The ones that I have put together will run you approximately $75-$80 bucks and they’re suitable for different beer drinkers. I didn’t put together a Canadian Craft Beer version because that’s really easy. You can do it entirely with canned beer and it requires no imagination. I’ve come up with an English Version and a Belgian Version instead.

The “Full English” is actually 25 beers. You can drink the extra Hobgoblin while you put the calendar together for whomever the recipient might be.

The Full English
Package Beers Included Price
Marston’s Classic Ales Brakspear Bitter $18.95
Hobgoblin
Banks Bitter
Cockerhoop
English Pale Ale
Ringwood Fortyniner
Wychwood Beers of Character Hobgoblin $12.95
Goliath
Wychcraft
Scarecrow
Duchy Originals $3.05
Young’s Double Chocolate Stout $2.95
Abott Ale $2.25
Fuller’s London Pride $2.95
Lancaster Bomber $2.65
Bombardier $2.25
Fuller’s London Pride $2.95
Belhaven Best $2.15
Historic Ales from Scotland Heather $9.95
Elderberries
Gooseberries
Spruce
Samuel Smith’s Winter Welcome $3.90
St. Peter’s Winter Ale $4.00
Samuel Smith’s Oatmeal Stout $4.25
$75.20

The Belgian Pack actually came in under budget because the leverage the LCBO has over the Belgians is insane. It’s crazy. I included a Dupont Saison for Christmas day which brings it in three dollars over budget. Whoever you give it to will be just that much happier. Because of the darkness of the short days and the prevalence of St. Bernardus products, I’ve taken to calling it “Bleak End at Bernie’s.”

St. Bernardus Pack St. Bernardus Wit $18.95
St. Bernardus Pater 6
St. Bernardus Tripel
Watou Tripel
St. Bernardus Abt 12
St. Bernardus Prior 12
Belgian Beer Pack Piraat $18.95
Gulden Draak
L’Eute Bokbier
Augustjin Blonde
Augustjin Donker
Augustjin Grand Cru
Pauwel Kwak $3.00
Chimay White $3.25
Rochefort 8 $3.25
Chimay Blue $3.55
Rochefort 10 $3.85
Mort Subite Framboise $3.95
Saison Dupont $7.75
Unibroue 6 Blanche de Chambly $12.95
Don De Dieu
Ephemere Apple
La Fin du Monde
Maudite
Trois Pistoles
$79.45

I’m not going to claim that either of these packages is going to be absolutely unique. I will say that at least wrapping them is pretty simple: Take two wine boxes from the LCBO, arrange beers at random in them and slap a bow on that sucker. Wrapping paper optional, but available at dollar stores for cheap.

Two historical beers you should try at Cask Days

Cask Days is this weekend and for Toronto beer drinkers, that’s an event that is more or less Christmas. This year’s specialties are from California, with nearly 40 beers to choose from. There are also 22 beers from England. As if that were somehow not enough, there are 22 ciders on offer. Also, nearly 250 other beers. It’s the 10th anniversary and they’re going big. There’s not any point in planning for the event at this point. The best you can do is bring about a hundred bucks in cash for food and snacks and pace yourself.

I am pleased to say that I have beers on offer at Cask Days. I make up approximately 2/339ths of the selection, or just over one half of one percent of the beer to be served. Both of the beers that I’ll be serving on Saturday have historical precedent, which befits the recent level of activity over here at St. John’s Wort. As you may know, I’ve written two books this year. It should have been obvious given the links to those books directly to the right of this article and the sheer amount of publicity I’ve been trying to get out for them. They are Ontario Beer: A Heady History of Brewing from the Great Lakes to the Hudson Bay and Lost Breweries of Toronto. I wrote the first one with Alan McLeod from A Good Beer Blog. The second one was my first solo book.

Both of them are relevant to the beers on offer on at Cask Days.

The first beer was brewed with Jason Tremblay from Shacklands and is called Rouille after Fort Rouille in Toronto. You may have been to the Toronto Festival of Beer and posed on top of the cannon. (Yes, it’s funny. It looks like you have a giant cannon for a penis.) What you didn’t know is that that cannon represents the placement of a French fort and trading settlement from the 1750’s.

Spruce Beer was a fundamental part of the growth of Upper Canada. Even in a place without citrus, you are usually able to grow food that contains vitamin C. That doesn’t work very well in Toronto in the winter. We know that Fort York imported real beer from Kingston, being as it was from a later era. Fort Rouille probably made some manner of Spruce Beer.

The verifiable historical recipes for Spruce Beer are just awful. The purpose of spruce beer was not to taste good. It was to hydrate you in a way that would prevent you from having to drink the water and contracting Giardia, a parasite which will cause the contents of your digestive tract to seek escape in as violent and explosive a manner as possible. Spruce Beer would also prevent you from getting scurvy and having your teeth fall out. If Spruce could prevent those two horrible things from happening, you’d gladly suck on a branch.

Traditionally, the recipe for Spruce Beer contained five quarts of molasses per 36 Gallon Barrel. Having done the calculation, I can tell you that it would have barely been alcoholic. If you were extremely lucky and you had an active yeast strain that would chew through fermentables, you might have gotten 1.5% alcohol out of that.

We decided not to make that beer. We decided instead to go with a historically inspired Spruce Beer. We used mostly Maris Otter and a small amount of Wheat in addition to the traditional Molasses. We used Spruce Extract, since neither of us are mighty woodsmen and tips were out of season. Since Jason seems to have a solid grip on the funky stuff, we used nearly a gallon of lactobacillus culture in the boil and used two yeast strains in fermentation, finishing it with Brettanomyces. It’s not your great great great great great grandfather’s spruce beer, is what I’m saying to you.

The second beer on offer is called Helliwell 1832 and it’s a collaboration between myself and Jon Downing from Niagara College. You’ll notice, if you’re observant, that it’s not listed on the Cask Days list. All I know is that it has been delivered to Cask Days. I imagine that it will be available (although, apologies are probably necessary to Tomas Morana for being a logistical omnishambles.)

The Helliwell Brewery was located at Todmorden Mill. I have been given an idea of where we’ll be serving the beers in the Brickworks and I can tell you that we’ll be approximately 385 meters and 182 years from where this beer was brewed. I managed to piece together a large amount of information from the Helliwell Diaries about their brewery and the kind of beer that they would have made.08051

It was difficult because they used an outdated standard of measurement called the Dring and Fage Saccharometer that didn’t use Brix or Plato or even Specific Gravity. It used something called Beer Gravity which represents pounds of extract per barrel. We know they were using it because William Helliwell went to the manufacturer when he was in London in 1832. Using google image search I was able to find a photograph of the slide rule they used for calculation as part of the Saccharometer’s set and found out that the beer would have been somewhere around 9.0%. It’s a sort of unaged Barley Wine. The Helliwells were from Yorkshire, so they didn’t trifle with wheat in the grist.

The Helliwells brought in barley to their own maltings (part of which I’m told still stands, across the river from the brickworks) and kilned it themselves. During the 1820’s and 1830’s they owned nearly a thousand acres and were clearing wood from it to make properties in the area north of the Danforth saleable. They actually had a hop yard on the Don River’s flood plain that I’ve estimated at being about 8-10 acres based on the number of poles they commissioned for it.

I assume that they were using that wood to fire the kiln and we’ve accounted for that with just enough smoked malt to give it a kiss. I also know that the open fermenters that they were using were simply converted puncheons (although he did not adopt this strategy until later) and that being made of wood they would have taken on some souring bacteria. We have lowered the PH of the beer with a hint of acidulated malt. We used Brown Malt and some dark Crystal to replicate the crispy burnt edges you’d get from a single inconsistently kilned malt. We used Golding hops because that’s about the only English variety that existed at the time.

I don’t claim that Helliwell 1832 is an exact replica of the beer that would have been produced in the Don Valley. It’s as close as we’re ever going to get, though, and it’s definitely worth a try. I’ll be pouring both beers myself on Saturday during the day. Stop by and chat. It will also be the first time that Lost Breweries of Toronto will be available for purchase by the public.

German Beer and Food Part 2: Terrines, Terpenes and Terroir

Last week (just scroll down a little), we ended up by talking about Oktoberfest and how it’s a sort of benchmark for the modernization of the Bavarian agrarian system. The impressive thing about Oktoberfest is not that it has been going on for 204 years. The impressive thing is how quickly it was adopted in other parts of the country. While Bavaria may have been out in front, Wurttemberg eventually launched a festival in Stuttgart.

The Canstatter Volksfest started in 1818. This is because the winter was so bad in 1816 that it negated any attempt at growing crops that year. The people of Wurttemberg were starving because there had been snow on the ground until May. The King was basically dependent on grain deliveries from his brother in law in Russia to prevent starvation, riots and uprising. In 1817, they decided that there should be a harvest festival. There should also be a new Agricultural University. These were Monarchs prolonging their reign by making concessions to science and rationality. An educated populous is notoriously bad for a Monarchy, however, one makes concessions when faced with an unruly mob with pitchforks and torches.

This period of privation, incidentally, was one of the reasons for German settlement in Kitchener and Waterloo in the 1820’s. It’s one of the reasons Ontario looks the way it does. In fact, it’s why the second largest Oktoberfest in the world takes place there.

Agricultural science takes a long time to propagate, or at least it did in the early 19th century. Gregor Mendel would not actually establish genetic heredity for another forty years. For the time being German Brewing was like German Cuisine: Taking advantage of scientific modernization, improved technique and vastly improved production to make strides ahead. Another similarity is that for the time being they were largely stuck with “landrace” ingredients.

In an age like we are in with GMO products basically everywhere and Monsanto issuing patents on their designs for plants, it’s a good idea to explain the concept of landrace. Landrace more or less means that the plant or animal variety that you’re using has been there since time immemorial; since before records were kept. There was a time when it wasn’t so easy to transplant crops around and grow them in greenhouse polytubes and glasshouse nurseries. There was a time when you were more or less stuck with what there was on the land when you got there.

Germany had landrace hops. They were actually spoiled for choice on the landrace hops. There are four basic varieties that we’re going to look at: Spalt, Tettnang, Hallertau and Saaz.

(I know what you’re going to say! Isn’t Saaz a Czech hop? It is named after a Czech town called Zatec, but Saaz is the German name for that town. Plzen, which is where you find a lot of all Saaz beers is less than 300 kilometers from Munich. One of the developments they enjoyed was trains. Let it go.)

Hop Variety % Humulene % Myrcene % Caryophyllene % Farnese % Alpha Acids
Spalt 21.5 20.0 12.5 12.5 3-5.5
Tettnang 22.5 22.5 8.0 14.0 3-5
Hallertau 40.0 32.0 11.0 0 2.5-5.0
Saaz 42.5 22.5 11.0 13.0 2.5-4.5

 

Don’t worry. You’re not going to be forced to do math.

In terms of the hops that were landraces in Germany, there are a few things we can tell from this information. The Alpha Acids are pretty low. These days, if you want a bitter beer, you put hops with high alpha acids in at the start of the boil. The Germans would have had difficulty making really bitter beer (by modern standards, anyway) without using a ton of whole leaf hops. The historical hopping rate for Pilsner Urquell was apparently 400-460 grams per hectoliter. That is before hop pellets. That’s a lot of trub at the bottom of the kettle. The beer in the region didn’t really get more bitter than 40 IBU, 45 tops.

If bitterness comes from Alpha Acids, then aroma comes from the oils in the hops. Those are the four columns in the middle. Now, typically aroma doesn’t survive when you add hops early in the boil. The byproducts of Myrcene in particular tend to disappear in a flash when added to the boil. When you dry hop or add hops at flame-out, you get a better result. Think of it like making a stew. If you add fresh herbs at the beginning, they’re going to get overpowered and cooked down. If you add fresh herbs at the end, you can actually taste the freshness of the herbs.

Myrcene’s byproducts are things like menthol, citral, citronellol, geraniol and linalool. More importantly, they are responsible for all of the aromas in your favorite American dry hopped beers. Modern hop varieties have been brew to extract specific byproducts from Myrcene. Take Citra, for example: Grapefruit, Lemon, Lime, Passion Fruit, Lychee. 65% Myrcene!

You’ll notice that the hops in the chart don’t have a lot of Myrcene. Every single one of the German landrace hops are higher in Humulene than Myrcene. The things that you tend to get out of Humulene’s byproducts are earthy, woody, or spicy. Humulene occurs in things like Bay Leaves and Tobacco and other kinds of herbs. Knee level forest floor stuff.

It’s also good to mention Caryophyllene. It mostly comes across as dry wood, spice and pepper. Some new varieties that you will have tried have bred it out completely. Galaxy and Nelson Sauvin are good examples of hops that don’t have Caryophyllene in any reasonable quantity.

What all this means is that the hops that German brewers had access to at the beginning of the 19th century were herbal, spicy, woody, peppery and potentially a little bit floral. It would have been more or less impossible to make a beer that tasted like an orange without adding some oranges. Landrace hops meant that they were stuck with these four varieties of hops.

That is a good thing because all of the other ingredients in Bavaria were also landrace ingredients. Everything that the peasants were using in their food and everything that would be adopted into the idealized festhallen fare we recognize as German food today was suited to the same terroir as the hops.

Let’s think about the herbs that German cuisine used for flavouring at the beginning of the 19th century:  parsley, thyme, bay leaves, juniper and caraway seeds. They also had salt and pepper.

Herb Aromatic and Flavour Components
Parsley Phellandrene, Myristicin, Myrcene, Menthatriene
Thyme Pinene, Cymene, Linalool, Myrcene, Thymol
Bay Leaves Cineole, Pinene, Linalool, Methyl Eugenol, Humulene
Juniper Pinene, Sabinene, Myrcene,
Caraway Seeds Limonene, Pinene, Caryophyllene
Black Pepper Sabinene, Pinene, Limonene, Caryophyllene, Piperene

 

From a beer and food pairing point of view, this explains just a huge amount about how German beer and food culture develops. For the most part, the beer that they’re making is going to be a complement to the food because the hops contain all of the same flavor components as the food from the region.

The brewers and beer drinkers did not know about hydrocarbons and terpenoids and aromatic compounds. At least, they didn’t have those words for them. They knew that what they liked and which things tasted good and that certain things went together. Most of these people would never have travelled much more than 100 miles from their homes. They would not have had context for other cuisines. What they would do over the course of the next century is refine the beer being made based on technological innovation to make the beer and food work better together.

We’ll talk about the refinement and development next time.

Wibbly-Wobbly Timey-Wimey Stuff

One of the things I don’t see people taking into account frequently when they talk about beer is time.

I don’t mean that you should drink a hoppy beer when it is fresh (you absolutely should) or that a 2008 Thomas Hardy is probably still too young to drink (it is apparently still tasting sort of young) or even that you should probably take a while to linger over a beer (you get more sensory information that way, plus this stuff is getting expensive).

If you’re a craft beer nerd, you’re constantly re-ordering your mental model of what beer is whether you know it or not. Breweries like to refer to the creation of new beers and new styles as innovation. The innovation is not really theirs to claim. The number of ingredients that exist is constantly expanding. Different strains of hops and different kiln treatments of barley and the inclusion of other ingredients like fruits and spices and (yes) pumpkin create a larger number of permutative possibilities. You can think of a brewer like a mathematical function that develops probability.

I mean, don’t walk up to a brewer and tell him he’s an abstract system into which you put ingredients and beer comes out. Most brewers put beer into their systems and hate doing math much beyond brewhouse calculations. Accountants become brewers so they don’t have to do math.

My point is that if you think of beer as a kind of mathematical function in which a brewer’s individual taste acts on a kind factorial permutation, you would not be terribly far off of understanding what innovation looks like. Oh, sure, people would look at you funny when you try to explain that at parties, but deep down in your soul, you’d know you were right.

My point is that ingredients increase over time. Before 1855, we didn’t have Fuggles; Only Goldings. In 1855, English beer got twice as exciting. Before 1971, we didn’t have Cascade. Actually, if you take Wikipedia at face value, no one used Cascade commercially until 1976. The number of distinct hop varieties that have sprung into being in the last thirty years certainly outstrips all hop developments in world history up to that point.

More ingredients means more complexity and that is a function that increases over time.

The shorthand that we have developed for this is the concept of beer styles. Michael Jackson wandered around cataloguing things like some entomologist with a butterfly net, pinning down the different beers that he encountered into different boxes, displaying their colorful labels for the world to see. It’s a useful mode of thought and he did a lot of useful work, probably while having a really nice time.

To borrow from Bill Cosby, “I told you that story so I could tell you this one.”

Sometimes, the function of an entomologist is to discover a butterfly encased in amber. You will sometimes run into beers that were designed at a specific point in time for a specific purpose. There were only so many ingredients available at that time, so the beer is markedly of that time.

On Friday night I drank about a third of a bottle of Foothills Seeing Double IPA. Foothills is in Winston-Salem, North Carolina. The family vacation caravan was passing through Asheville, North Carolina and offered to bring be beer if I’d provide a list. I hopped on Ratebeer and came up with the kind of kid at Christmas list you come up with in that situation.

Foothills Seeing Double IPA is a 9.4% Double IPA that clocks in at 126 IBU’s. Foothills is a well-respected brewery that makes some pretty highly thought of stuff. It wasn’t that it was a bad beer, exactly. It was overly hoppy, sure, but I remembered drinking big hoppy beers around the time when I got into beer around 2006 and liking them just fine. Avery’s Maharajah made an early impression. I remember having Moylan’s Hopsickle at Volo. I couldn’t figure out why I didn’t like Seeing Double.

Then it dawned on me: I’m old!

I researched Foothills Seeing Double the next day and found out that it was designed in 2005. It’s like a time capsule from a period when people were seeing how many IBUs they could jam directly into your sinus cavity. The criteria in 2005 was “does this beer make your tonsils recoil in horror? does your jaw tingle like Peter Parker’s senses at a villain convention?” 126 IBUs is full quarter above the human taste threshold. It means that no matter how long they keep making that beer at Foothills, it’s going to be 2005 at Foothills. I don’t mean them any ill will. It happens other places too.

I left an unfinished pint of New Belgium’s Fat Tire at the Belgian Beer Lounge at Edmonton Airport. There was nothing wrong with the beer. There was nothing wrong with the taps. There was absolutely nothing wrong with the service. Actually, the ability to order a Rochefort 10 before your flight is sort of delightful. Well done, Edmonton!

Fat Tire was first brewed commercially in 1991, but I feel like the thought process that went into it stretches back before that. Apparently the brewer first thought about it in 1989. The Edmonton Airport was the first time I’d tried it, so it was new to me. To say that it was something of a chore is an understatement. This was a beer from before Stone Temple Pilots roamed the earth. It is an Amber Ale, so it was probably never going to curl my toes and make my hair stand up; however, when you consider that it carried New Belgium and is responsible for much of the success over there, it’s just underwhelming to experience. “Is that it?” was my thinking.

The number of ingredients and the amount of thought about them has expanded exponentially since 1991. It must really be the sign of a great beer to survive as an exemplar; as the sort of evolutionary offshoot that worked. As time goes by new styles are probably inevitable, but feel free to wait on them. The strong will survive as exemplars. The weak will display their age. In ten years you’ll be drinking a 4.1% session IPA with flavours of mango and passionfruit and making pop cultural jokes about One Direction and Skrillex.

Speaking of age, one sure sign of it is when you realize you don’t have to drink the entire beer.

Stone’s Indiegogo Campaign is Cynical and Exploitative

One of the things that I find frustrating in writing about beer is the insistence by people that brewing is not first and foremost a business. I have written two histories now and I can claim to understand from its outset the development of brewing in North America. At no point before 2008 was anyone under the misapprehension that brewing was not a business to be embarked on as a money making venture.

I suspect that the reason for this is that craft brewing in North America is a rebellion against globalization. We don’t have a whole lot of production capacity on this continent anymore for manufacture and it has become a service economy. People like brewing because it provides the ability to create something special and unique. Each brewer has a different fist and while there is a certain amount of sameness between products and always will be, you can make the case that compared to something like Budweiser or Heineken, craft beer is art. It’s small batch analog production.

But, and this is really really important, it is and has always been and will always be a business first.

The modern development of craft beer mirrors almost exactly the development of brewing in the 19th century in North America. Small companies starting up to service local areas. Craft beer has filled in the vacuum left behind by mergers and acquisitions. It has taken advantage of market opportunities presented by Global brands that are too large to care about the vacuum they created. The thought process for the global brands is not “we could open a brewery in Brooklyn.” The thought process is “let’s take over the entire Peruvian beer market.”

The problem is that the concept of craft beer as art comes with baggage because of the way art is perceived in North America; that the important thing about craft beer is that it is a community or that it is a culture or that it should be supported by viewers like you in the manner of a PBS pledge drive. The difficulty is that it is already supported by you. The business model is as follows: You like the beer, you buy more of that beer.

There is no additional business model. That has been the business model since Alewives put out boards and since bread was soaked in pots in Egypt. If the product is good, the product sells. If the brewery sells enough beer, the brewery expands. (There is a corollary here that suggests that upon sufficient expansion the brewery will become beholden to its shareholders and start cutting corners to increase profit. Happens damned near every time. You see it in action in the current market daily.)

To switch gears for a moment, let me tell you how much I hate Kickstarter and Indiegogo.

Kickstarter and Indiegogo exist for the purpose of crowdsourcing funds to start a project. Famously, one wag has recently used it to acquire funds to make some potato salad. Some aspiring brewers have been attempting to make use of the site to fund their start-up projects.

Let’s say that you’ve got a hankering to open a brewery and you don’t have enough money to do it on your own. You don’t have your own capital and you can’t get a loan from the bank. You have decided that you must start your brewery now and that the best way to do that is micro-donations. Personally, I feel that the decision to do that marks you as impatient, narcissistic and entitled. I will judge you negatively for doing it. It is not a business plan, by the way. If you don’t get to the goal, you don’t get the money and your alternative is what, “oh, I didn’t want to do it anyway?”

The thing about brewing is that it if you enter into it on a whim, you’re more or less screwed before you start. If you want to own your own brewery and be successful, you’re doing it for life. You want to make enough to retire. Kickstarter and Indiegogo reek like hell of the trend bandwagon to me. Having said that, there are cases where it might be the only way forward and if you truly believe you want to brew as a career and it’s the only path to that, it’s probably excusable. You will almost certainly deal with not being taken seriously for a lengthy period of time, but you can overcome that.

When a really large brewery creates a Kickstarter it’s absolutely inexcusable. Stone’s current Indiegogo campaign is shockingly exploitative and cynical. Worse than that, it is actively evil.

Let me explain: Stone Brewing is, according to their website, one of the 5000 fastest growing private companies for the last seven years in a row. They are averaging 43% year to year growth over the last 15 years. They are the tenth largest brewery in the United States with a 2013 production of 213, 277 barrels. Greg Koch was named Ernst & Young’s Entrepreneur of the Year in 2011. He is a millionaire many times over. Stone’s annual revenue in 2012 was just over a hundred million dollars. The figure that I have seen for last year is $137 million although I cannot substantiate that number.

Stone has been rumoured for years to start up a brewery in Berlin. I first heard the rumour about three years ago. It is not a new plan. They have been thinking about it for quite some time. They have had years to acquire the funding for this project through traditional sources. It is my belief that they have the money on hand or that they could easily acquire it. Their Indiegogo is asking for you to help pay for their facility in Berlin because it’s “a fun way to do it.”

This is a project that will make Stone a brewing multinational. It will be a Global business. I cannot tell you how advantageous from a production standpoint having an established craft brewery located in the heart of Europe would be to Stone, but I can state with some degree of confidence that it is a license to print money. It might eventually double their production globally. I should imagine that properly managed the Stone Berlin plant will recoup investment in fairly short order. It is slated to cost something like $25 million dollars. The Indiegogo campaign is asking for a paltry million dollars.

Stone does not need to crowd source a million dollars. They have already funded the Berlin plant and one in the Eastern United States. They just want your money so they can do it faster. In order to get your money they are saying “Stone Brewing Co. was founded with the mission of joining the fight to return the art of brewing to the noble stature it enjoyed before industrialization and subsequent commoditization diminished its luster.”

Firstly, Stone is attempting to become a global industrial company and secondly beer has always been a commodity. If you don’t think it is a commodity, why is it that you think we pay for it? They are fundamentally misrepresenting themselves and I begin to wonder whether they even see the hypocrisy in their position. The Indiegogo campaign is a perversion in this case of the basic business model which I mentioned earlier. They want you to pay money now so that you can have beer later so that they can build a plant that will make them tens of millions of dollars over the next decade. They are essentially panhandling as part of their marketing strategy. Say what you will about MolsonCoors or Anheuser-Busch or SAB Miller, but they don’t expect you to pay them to advertise to you.

Stone’s Indiegogo campaign is actively evil because they are exploiting secondary ideas around the brewery business model like art and community in order to get you to pay them money to do something they are going to do anyway. My suggestion to you is that there are 3000 other breweries in the United States and maybe 400 in Canada and many of them will gladly accept your money without exploiting your sense of belonging to a culture.

On Mediocrity

In undergrad, a friend of mine adopted a principle that allowed him to spend more time playing cards than doing coursework. While he was very interested in doing his best when it came to the courses pertaining to his major, he viewed elective courses as something of an intrusion into his spare time. As a result he would aim for a balance between the highest mark that he could possibly get and the lowest amount of effort that would allow him a respectable grade. He called it “The Gentleman’s C.”

I am not sure that it served him well subsequently, but we always had a fourth for euchre.

I’ve been thinking a lot about The Gentleman’s C in recent months because I’ve noticed something interesting: Given enough time, everything, regardless of its quality will end up with a mark somewhere between 3.25 and 3.75 on Untappd. For those of you who don’t know, Untappd is an application that lets you check in the beers that you are drinking and give them a score out of five. It’s generally fairly pointless and ultimately gameifies the consumption of alcohol by giving you badges. That’s very probably a bad thing in the long term.

I think that this has to do with the sheer quantity of beer being made across North America at the moment and the amount of enthusiasm that the market is seized with. In terms of criticism it’s difficult because there’s only so much meaningful output that any one person can create. In Ontario at the moment there are so many new breweries that I think it unlikely that anyone has eyes on all of them.

Understand this: As little as thirty years ago, it would certainly have been possible for a single critic to have tried every beer in production in North America. It would not even have taken all that long to do it. Possibly less than a year. It was not as though there were fourteen new kinds of session IPA hitting the market each week.

My numbers are bogus here, but follow me on the concept. There are something like 3000 breweries in Canada and the USA. I think we can safely give those breweries an average of five brands a piece, although in practice I suspect it to be higher than that. This means that there are something like 15,000 brands of beer being brewed in North America (excluding Mexico because I don’t know enough about that to wrap my head around it.)

At one beer a night that would take you 41 years. Even were you to dedicate your entire life the process and call it 8 three ounce samples a night, you’re never going to catch up with the growth forecasted and you’re going to zeno’s paradox yourself right into oblivion.

(edit: kudos to astute reader David Horatio Ort, who kindly pointed out that my bogus math was three times as bogus as it ought to have been.)

For that reason, there’s a significant tendency in criticism to focus on the absolute best of the best. It’s impossible to have context for everything, so why wouldn’t you focus on the things that you know you’re going to like and be able to review positively? If you try something you don’t like why would you waste your time reviewing it? Many people I’ve talked to are pleased to simply not write about things that they don’t like or things that are poorly made. I do it myself. I’ve got books to write and I’d prefer to recommend good things in the column than excoriate bad things.

With that huge and ever expanding number of beers out there, I think that we’re probably doing a disservice to people who read about beer by accentuating the positive when we should really be eliminating the negative with extreme prejudice. If a beer is simply not very good, then we should probably be telling the public that.

Untappd is a poor substitute for reality. Not everything is worth 3.5 stars out of 5. There’s some rough work being pulled at the fermenter and I’m seeing that increase rather than decrease. There are beers being launched into the world that are uninspired and really serve no purpose other than being something to market. There are some woeful mediocrities out there that deserve nothing but scorn. I don’t mean mass market brands from the big guys. I mean small craft beer producers who are more interested in a marketing strategy than a quality product. Brewers whose grasp has exceeded their reach.

The directory over at Mom n’ Hops is telling me that there are 184 breweries and brewing companies open or in planning in Ontario. When I started writing about beer in 2010, I think we had something like 35 in Ontario. For that reason, you wanted to be a bit gingerly. It was a big deal when someone got a new product on a shelf. You wanted to be a bit supportive even if the product was mediocre because at least it meant there was choice.

Choice is no longer a problem, but mediocrity is becoming one. Average is going to get you lost in the shuffle. Aim for something a little higher than a Gentleman’s C, folks. Just existing is for plankton.

Understanding The Beer Store

Since it is December, we are in that phase of the year when people talk idly about abolishing The Beer Store. You’ve got Martin Regg Cohn over at The Star doing a reprise of last year’s column. It’s a good party piece, but it’s unlikely to accomplish anything. Even Anindya Sen who released a number of studies and who is probably a very good economist seems not to have made an impact, although this might be due to the ease of dismissing a commissioned study.

I’ve taken a slightly different tack on the issue this year: I’ve actually talked to The Beer Store in an attempt to understand the problem. If you want to effect change, you’ve got to understand the motivations of all of the parties involved. It does you no good to vilify The Beer Store out of hand. It is not run by Darth Vader. If it were, the stores would feature more unsafe catwalks over giant pits.

Let’s put aside for a moment the shopping experience which has been famously awful. Let’s put aside the rhetoric that it is an outmoded eastern bloc style of organization.

Let’s instead have a look at the functions it actually performs.

The shopping experience tends to blind people to the fact that The Beer Store is actually a retail and distribution organization. Despite the insistence of studies to the contrary, it operates at a cost recovery basis. That is to say that it does not turn a profit. It makes enough money to pay for itself.

Please understand this: It does not make a profit. Intentionally. Anyone who is telling you different is flat out wrong.

This is not to say that the ideas of those people who are telling you it makes a profit are wrong. They’re absolutely right. If it were a retailer in a purely capitalist system, The Beer Store would be raking it in hand over fist. Anindya Sen claims that there are approximately 700 million dollars worth of incremental profits unaccounted for in The Beer Store’s operation. Let us account for them.

The Beer Store has more than 440 locations operating all over Ontario. Sure, there are a whole bunch in Toronto, but there’s one in Espanola and Wawa and Azilda and Coboconk. They’re everywhere. This is the retail component, which is customer facing.

Consider all of the stuff involved that does not face the customer.

There are the licensee sales. When you see the Brewer’s Retail truck out and about delivering kegs, that’s also The Beer Store. They have an online ordering system for licensees and people to staff it. They’ve got people driving those trucks. They’ve got administrative staff supervising those sets of employees.

There are the logistics of distribution to contend with. You can’t sell beer in Wawa and Coboconk unless you get the beer there in the first place. The Beer Store has six separate distribution centres which service the province. This means that beer intended for stores or licensees need only be shipped as far as the nearest distribution centre and The Beer Store will take care of the rest. Think of the logistical support needed for this.

There’s the bottle recycling program. I recall reading somewhere that your typical ISB bottle can be re-used between 18 and 20 times. The Beer Store controls the recycling of these bottles within Ontario. I forget exactly what the current consensus is on recycling beer bottles. It seems to change depending on the cost of cartage or freight. Anyway, it employs a number of people and The Beer Store has a really significant hand in it.

There’s also the Draught Services division which handles installations for licensees and line cleaning equipment.

What The Beer Store actually does is outsource services for the three extremely large companies that own it. I suspect that the only reason Sapporo is allowed 4% ownership is to keep it from becoming a subsidiary company of either Molson Coors or AB InBev based on shifts in market share.

Because these companies have contrived over several decades to own The Beer Store, they are able to outsource all of the following: Customer facing sales, licensee facing sales, draught equipment sales, distribution of their product to all corners of the province of Ontario, the ownership and maintenance of the physical buildings, the ownership and maintenance of the fleet of trucks required, the recycling of beer bottles for re-use predominantly by the owners of The Beer Store, the staffing and administration of the entire concern, insurance liability for the entire concern and the pensions of the entire concern.

Jeff Newton, a spokesperson for The Beer Store (and a dashed accommodating fellow), pointed out to me that smaller breweries could also take advantage of these benefits. The scale of the thing is prohibitive if we’re all going to be honest. There’s an initial investment involved that requires a lot of capital.

To be fair, I should point out the other thing that I learned. The LCBO has a markup which makes them a profit. Selling beer in The Beer Store seems to (once you recoup the initial investment) provide a greater profit margin for breweries. Sure, it’s a long term strategy, but it might work out eventually.

What all of this means is that all of the service fees that go into selling beer at The Beer Store essentially go into a pool which funds all of the above listed activities. There is a sliding scale of fees to have your products listed if you’re a smaller brewer, which is something of a concession. However, you’re still paying into a system which disproportionately benefits the large brewers in a substantial way.

The Beer Store doesn’t need to make a profit, which is why it doesn’t. Making a profit would be gilding the lily. The real benefit here is that the large brewers don’t have to perform many of the tasks I listed above. The Beer Store handles those for them. It also brings a certain amount of stability to the cold war like détente between AB InBev and Molson Coors in Ontario since they both benefit massively from their ownership and the status quo seems to be working.

This is what you’re contending with when you talk about privatization, incidentally. You’ve got a massively organized logistics and distribution company whose parent companies have some incredibly deep pockets and have contrived to create an oligopoly out of something intended to be a public service over the course of several decades. If you want privatization, you need a governmental figure willing to think further ahead than the next election.

Whether you like it or not the current structure of The Beer Store is absolutely brilliant. It’s actually genius. Just because it tends not benefit the consumer doesn’t change that.

The OCSA vs. The Status Quo

The second of the studies that the Ontario Convenience Store Association released in August is a good deal more broad in scope than the first. It is entitled An Economic Analysis of Increasing Competition In Retail Liquor Sales in Ontario. It is also written by Dr. Anindya Sen from the University of Waterloo. If you really like reading economic papers, you can download it by clicking the title.

I am going to attempt to explain the gist of the paper as best I can given my limited understanding of the economic model employed between pages 18 and 24. I think I get most of it, but if there are any economists out there, you might want to lean in on this one.

This paper is intended as a study to provide information on the possible effects of partial privatization of alcohol sales within the province of Ontario. It is an attempt to provide substantive academic research into the problem. This is something of which I am generally in favour. Too often we argue on internet forums about the likely effects of privatization without any real research to point to.

The initial findings which guide the study are as follows:

1)      The vast majority of the money the LCBO makes is on markup, which is generated in their capacity as a wholesaler. (This is usually true with specific amounts based on product type. Here is a link to the current pricing structure.)

2)      Comparatively speaking, federal excise and federal and provincial ad valorem taxes typically make up a smaller percentage than the markup,

3)      Based on empirical evidence, increased market competition is significantly correlated with an increase in per capita gross income, net income and government revenue generated by the provincial liquor authority.

The arguments that follow are largely based on the concept of consumer and producer surpluses and it basically goes like this:

Say you’re standing in the LCBO at Summerhill, checking out all the groovy new craft beers and thinking about what to drink this weekend. For the purposes of this argument, you’re all about buying a bottle of Panil Enhanced because it looks interesting and you liked the Bariquee that came in last year. You check the price tag and it is $15.00. The absolute most that you’re willing to pay for a single bottle of beer at retail is $16.50. That measure of $1.50 difference counts as your welfare based on consumer surplus.

Now, on the other end of the scale, Panil is trying to sell their beer for as much money as they reasonably can. It’s good beer and they feel they deserve to be paid a premium for it. I don’t know exactly what price the LCBO is buying Panil Enhanced from the importer at, but let’s assume for the sake of argument that it’s about $6.50 a bottle. That’s more than the $5.00 the importer would have taken at a minimum. Their producer surplus is $1.50.

All this means is that the system works tolerably well towards an equilibrium between consumer surplus and producer surplus at $15.00. Also, you go home with a bottle of Panil Enhanced and everyone’s happy.

If you could remove some of the markup that the LCBO adds as a wholesaler from the equation and keep the producer surplus the same, your consumer might suddenly be paying $13.50 for that bottle of Panil, creating additional consumer surplus.

Without competition, there’s no compelling reason for the LCBO to change the equilibrium point in the model. They would make less money in markup, and, because the product is cheaper, the province would take less PST. “Everything is worth what its purchaser will pay for it,” said Publilius Syrus. You’ll pay $15.00 for Panil Enhanced because it’s worth that to you.

There is also a concept here that you should understand that is called Deadweight Loss that’s associated with a monopoly on various products. Since a monopoly allows the retailer to charge the most beneficial price for themselves, some consumers are not able to afford Panil Enhanced at all, resulting in a loss of market utility. They have frowny faces.

Dr. Sen is essentially arguing that the LCBO voluntarily enter into a position in which they are creating their own retail competition.

Theorize that some kinds of alcoholic beverages are available for sale at convenience stores. The study assumes that convenience stores would be allowed to accept a lower markup, resulting in decreased cost to the consumer. For this the convenience store would pay some of the markup as licensing fees. As a result of that move, the majority of rational consumers would shop at the convenience store. This would in turn result in lower sales at the LCBO, which would force them to lower their prices.

This would lead to a significant reduction in government revenue due to the loss of markup and ad valorem taxation. The good news is this: The lowered costs to the consumer mean that the people who counted as Deadweight Loss and could not afford Panil Enhanced at all can now do so and that the people who were experiencing mild consumer surplus on their $15.00 bottle are now paying $13.50 and those suckers are doing backflips of joy in the streets, let me tell you. “Whoopee hoo,” they yell “I’m gettin’ enhanced tonight.”

“The LCBO in the short run is worse off, because of lowered sales and profits generated by its own stores” says the study. “However, it is quite possible that overall LCBO net revenue and transfers to the province will actually increase. Recall that in this model, convenience stores must also transfer their markup revenue to the province. Since they charge a lower price (compared to the LCBO), the total amount of liquor sold is obviously more than the quantity sold by the LCBO as a monopoly retailer. Otherwise, the LCBO would have earned these higher profits as a monopoly retailer by setting a lower price.”

Got that? Convenience stores charge a lower price and the LCBO charges a lower price but ideally the increased volume of sales that results from the decreased prices bridging two sales channels might theoretically increase once you take the additional taxation revenue into account.

I agree completely with Dr. Sen’s finding. That’s exactly what would happen given those conditions.

Those conditions will be met on the day that hell freezes over.

The model depends on a simplified version of the system as it currently exists which thinks solely about the benefit in terms of consumer surplus. The issue is that since the LCBO’s profits and the general tax revenue from the LCBO and Beer Store make up approximately 1.5-2% of the annual provincial budget, the real world also has to take the consumer into account as a citizen who benefits from services derived from that revenue.

The ignored cost implications are staggering. The LCBO’s reduced profitability would probably result in a decreased operational budget and therefore a decrease in staffing. Think about the amount of work that would have to be done in order to figure out what the decreased price structure would look like.

Think about the fact that you as the OCSA are pitching this fanciful study whose empirical data analysis does not account for demographics or trends in the marketplace and a conclusion section which contains a woefully large number of conditional statements. If I’m the government, I’m shutting you down because the LCBO is a guaranteed cash cow in a time of economic uncertainty and you are offering a potential 5% – 9% theoretical increase at some point in the future if everything goes right and there are no unforeseen eventualities.

Peace, order and good government means that “if” and “maybe” and “should” don’t get a seat at the table.

On a final note, consider the main precept of the OCSA model: additional sales. Additional sales mean additional consumption. If the core tenet of your model hands your opponent a social responsibility argument to beat you about the head with, you can’t be surprised when you lose.

The OCSA vs. The Beer Store

One of the interesting things that happened in Ontario’s beer scene this year is that the market is becoming increasingly contentious. The increased interest in beer is making it so that the status quo is becoming somewhat untenable. There are 155 craft breweries open or in planning as of this writing. That means a very large number of brands for which the LCBO does not have shelf space and a number of craft breweries which are not large enough to afford The Beer Store’s listing fees.

When you add to this the increased interest in the craft and import segments, you get players in the market who are more serious about effecting change than they used to be. Take the Ontario Convenience Store Association, for instance. They hired economist Anindya Sen from the University of Waterloo to produce a two part study that makes the case for privatization of beer sales.

The first part of the study is about the difference in pricing between two-fours in Ontario and Quebec. You can download it here.

I do not have a Ph.D. in Economics, but I’m going to try and walk you through the basic arguments here.

The methodology here was to choose five brands sold over a 22 week period and record data based on pre-tax beer prices. The period in question was Dec 2012-May 2013. The brands in question were Molson Canadian, Molson Dry, Coors Light, Budweiser, and Bud Light. The format in question was 24 341ml bottles. In Ontario, data was culled from The Beer Store’s website. In Quebec, it was culled from online pricing for Metro and IGA supermarket chains.

Dr. Sen’s findings were (for those of you who don’t want to wade through the PDF)

Quebec IGA Quebec Metro The Beer Store % difference IGA % difference metro
$26.08 $25.95 $35.56 27% 27%

 

Essentially, in Ontario we pay 27% more for a 24 of beer than people do in Quebec. That is essentially the primary conclusion of the study and then there are subsequent conclusions based upon that data.

Can you spot the problem with this study? The Beer Store could. They released a comment paper on the study on November 18th through the Earnscliffe Strategy Group. It is available for download here.

To their credit (and lord knows I’m a fairly vocal critic of The Beer Store) The Beer Store only lists one format of pricing on their website or in store. It’s the total amount that you’re going to pay for a thing. It includes both tax and bottle deposit.

The claim here is that the IGA and Metro prices that are listed don’t include bottle deposit or sales tax (GST and QST in Quebec.) If you remove from the average price of $35.56 the bottle deposit and applicable sales taxes (GST and HST in Ontario) the price difference is not $9.50. It’s $3.33.

The Beer Store’s study goes on to mention commodity taxes. In Quebec, these total about 50 cents a litre while in Ontario they total 91.62 cents a litre. As it turns out, this is the main reason for the difference in beer prices between Quebec and Ontario. The provincial commodity tax we’re charged is about 1.8 times higher.

 

 

Table 3:

Re-Stated Net Price Removing All Relevant Taxes & Deposits

  QC Average Price ON Average Price
Price after Adjusting for HST

and refundable Deposit

 

$26.02

 

$29.35

Adjustment for Provincial

Commodity Taxes

 

-$ 4.09

 

-$ 7.43

QC and ON prices on Equal

Basis

 

$21.93

 

$21.92

Adjustment for Federal

Commodity Taxes

 

-$ 2.56

 

-$ 2.56

Net Price after removing all

Consumer Taxes and deposits

 

$19.37

 

$19.36

 

Of course, this means that the data collected for the OCSA study was at best improperly fact checked and that any conclusions drawn from subsequent steps of the study are bunkum. This is dumb. It does not matter if you employ an economist to release a study if the basic and easily verified facts are incorrect. You cannot use an appeal to authority to point to an expert opinion if that authority demonstrably does not understand the problem.

And you know what? The OCSA’s study was released in August. No one questioned the thing. It claimed that The Beer Store was making 700 million dollars in additional revenue based on faulty data. It may have been wrong, but it sure got a lot of re-tweets.

This is the problem with the debate about Ontario and The Beer Store. Every time the subject of The Beer Store comes up just about any self respecting beer drinker is going to have an opinion about it. The problem is that aside from The Beer Store, no one actually knows how much money The Beer Store makes on an annual basis. The information is not disclosed to the public. The ability of interested parties like the OCSA to release a study claiming a 700 million dollar windfall is enhanced by this. It renders substantive debate on the issue ludicrous.

The end result of this go around in the Ontario Privatization Hoedown is that The Beer Store has managed to basically discredit any further studies the OCSA might care to produce. They have done this by understanding their own pricing structure. Frankly, it was kind of a gimme, but I have to applaud their restraint in not smacking it down on the second day with a cry of “Boo-Ya.”

What this should do is highlight the fact that the Ontario beer market is large and profitable and that in the next few years, organizations are going to fight over it. It is not being fought over for the benefit of the consumer, no matter how much the consumer might feel that they should have a say in the matter. Frankly, what we want is immaterial.

As a side note, the average price of those five brands at the moment at The Beer Store is $34.55. That may have been an unintended consequence.