A Word of Advice for Ontario Breweries… 31

If you’re a brewer in Ontario you are probably weighing the changes that The Beer Store proposed yesterday. I’d like to review them for you.

First of all, there’s the concept of ownership. On The Beer Store’s conference call last night Ted Moroz made much of the idea that by offering ownership to Ontario Breweries, we would be going back to the way The Beer Store was intended to be; that we would be reclaiming its heritage.

The offer is a snare and a delusion. The Class E and Class F shares that are on offer do not buy you a stake in the company. You do not get a stake in the capital of the organization. They simply buy you the ability to vote for a representative on The Beer Store’s board. Now, it is worth pointing out that the three positions offered by The Beer Store on their board amount to 20% of the total board vote. There is no feasible situation in which Molson and Labatt will vote against their own interests in your favour. Your three board positions are therefore entirely meaningless. It is pointless busy work. Do not fall under the sway of the idea that your brewery’s President might gain status by being on the board. It’s an empty seat only a fool would covet.

Secondly, much was made of the idea that “owners” would be given five free store listings for two products. The initial product fee would be waved and also the listing fee for the five Beer Store locations nearest you. Let us do the math on this. The listing fee is something like $2650.00 and the per store fee is something like $230.00 per store. They are offering you a one time concession of something like $7600.00 in the hopes that you will stop pressing for reform.

Let me explain something about the changes they are proposing. They are founded in a deep arrogance. They believe that by giving you some crumbs that they will be able to keep the whole loaf. They think of you as dogs to be fobbed off with scraps.

The worst part of The Beer Store’s offer is that it is calculated to divide you. They believe that some one of you will want to claim the role of board member. They believe that you will turn on each other for $7600.00. That’s the amount of money The Beer Store believes will sway you. They want you to be so excited about their $7600.00 that you forget the following key detail.

You will still be in the thrall of a system that has disregarded you until this moment. The Beer Store offers you these scraps in order to prevent having to make any more concessions. They hope that it will be enough. They will not change. Your input will be disregarded. Your stock will not be displayed in the front of the store. You will not be treated equally. They have had thirty years to change the business model. They pretend to do so now only under duress.

We are at a crossroads. You have the opportunity to think of the future of your brewery. There is every possibility that you will have your own stores in the near future. That you will prosper in business and be a scion of your community. That you can build a system of your own and with it bolster the economy of a province that sorely needs the aid. That you can achieve your dream of building a business that might live on in your family.

The Beer Store would have you sell your dreams, would have you sell your future, for $7600.00

The Beer Store did not consult with the Ontario Craft Brewers about these changes. They did not consult with the Provincial Government. They believe that this will be enough compromise to bring you to heel. They believe it will stop you in your tracks.

Let me tell you something. It’s not the size of the dog in the fight. It’s the sheer bloody number of dogs in the fight. They are worried enough to offer these concessions unprompted and it’s because they fear there is worse coming. They know that the number of brewers that have been maltreated by The Beer Store has increased to the point where their very existence is in jeopardy.

This would be a good time to take advantage of your numeric superiority. Stand together. Make some noise with your Members of Provincial Parliament. Let them know that the time for change has come. Let The Beer Store know that your dignity, your integrity and your future are worth more than the pittance they offer.

Do not ask what they will give you. Ask what you can take from them. It may very well be everything.

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31 thoughts on “A Word of Advice for Ontario Breweries…

  • Greg

    Nice article. Although I think it would be easier for the brewers of Ontario to stand together if they had some sort of united group that represented all of them. But last time I did the math, only something like 1/3 of all small brewers/brew pubs in Ontario are members of the Ontario Craft Brewers. That actually might be something worth doing a story on, why so many brewers in Ontario choose not to be OCB members.

  • Brian

    I think the only tangible benefits to breweries are the reduced listing and per store fees on two beers across the whole chain (did we actually get numbers of how much these have been reduced?) and being able to swap out SKUs for seasonal ones twice a year at no cost.

    Otherwise you’re bang on here. People are already on Kichesippi’s back for having interest in the local store program, so I can definitely see a division among brewers happening. I can also see a couple other local breweries here potentially getting on board too, while a few others will ignore it and publicly deride the whole thing. There are bound to awkward situations between brewers at festivals and events over this issue as our local brewing community’s intentions become clear, in favour of one side or another.

  • Greg Clow

    You’ve got one important bit of info wrong, Jordan:

    It’s not just the “owners” that will get the five free listings. ANY Ontario brewery that sells less than 1 million litres per year will receive that deal.

    If I owned a brewery where the five closest Beer Stores were far enough away to not have a big impact on my direct sales – or if I had a contact brewery, and the five “closest” stores were defined in a way that made sense – I’d probably do it. Can’t see any good reason not to, really.

    As for the “ownership” thing – based on what I’ve seen so far, I can’t imagine how any brewery could see it as being a positive step for them. Especially as it isn’t a criteria for the listing fees deal – nor the seasonal swap deal, if I’m reading that correctly.

  • admin Post author

    There’s a great reason not to. If you take advantage of those five free listings at your closest stores you’ll be wheeled out by TBS as propaganda and used against any manner of reform in the future. You’d be helping them stop you from seeking alternatives.

  • A few thoughts

    Per Brian’s point, you seem to ignore the two annual product change outs that would be a much more significant savings, but probably negates your $7600 rallying cry. YOu also dont mention the reduced listing fees, but thats understandable seeing details werent announced.

    Are you subtly or bluntly advocating for a craft beer store network (“your own stores in the near future”)? Seems flippant to just put that out as an alternative to the current proposal like its an A-B relationship.

    Dont like seeing myths perpetuated in which blowing up the Beer Store automatically creates a craft beer utopia. Everyone hates the thought of listing fees, but no one points out that any product is allowed at any time, no questions asked. That’s not true anywhere else in Canada, is it?

    Keep seeing the ‘free’ listings at the LCBO cited in today’s news by many of the midsize brewers, but those who’ve been around for a while know that more products are declined at LCBO (and any other private retailer across the country) than are accepted. In short order, many may find that they picketed and protested to get rid of the only guaranteed distribution channel.

    Not against reforms to the system, but dont agree with the rhetoric on either side of this debate

    • admin Post author

      What I’m saying is that accepting The Beer Store’s offer will work against any subsequent reform. They will use it as propaganda in the media. If you sign up for the five free listings they will be able to say that they are looking after your interests. That is far more valuable to them from a PR standpoint than any savings an individual brewery might accrue.

      There might be a craft beer store network in the offing and there might not be. Reform is certainly in the offing, but we don’t know exactly what form it will take. What we know for certain is that this is a move on the part of The Beer Store to mitigate any potential reform through improved public relations. In working with them you are certainly working against your own long term interest.

  • Greg Clow

    I’m honestly skeptical that TBS will be able to get enough juice out of the listing fees thing to add much leverage to their fight against reform. The reaction in the last 24 hours has shown that people are getting smart enough to see through the bullshit, and the attempts to spin it with those “positive reaction” press releases have been so embarrassing that I almost feel sorry for them.

    It’s also possible to take a similar approach to what Flying Monkeys and Kensington have done in the past of selling through TBS but also making a lot of noise about the fact that they’d prefer not to. It is possible to begrudgingly play ball with The Man while still fighting for change, as long as it’s framed correctly.

    And here’s a question/conundrum: How about the breweries that are already in the Beer Store and below the million litre threshold. Should they refuse the offer out of principle and keep paying the full fees? Or pull out of TBS entirely?

    • admin Post author

      If you’re already there, you’re already there. If they adjust the listing fees downward, that’s fine. The problem comes if they are able to say to the government in negotiations, “Oh, look at these breweries that have come on board. There is no reason to make any changes to our system.” The government, incidentally, will make any announcements they have about reform prior to announcing the budget. I’m saying at least wait until after that announcement to consider playing into The Beer Store’s hands.

  • tom anguish

    Jan.7 2015,I read in your London Free Press column some beer suggestions.Then you talked about cider ,when you get bored of beer.BORED OF BEER!!!???Any respect for your advice and opinion just went out with the spent mash to the Farmer.

  • Jamie from Shillow Beer Co.

    It’s true Greg. As a contract brewery with a Toronto office address, this could be a great foot-in-the-door for us. But then what? Then we have our foot…in a door?

    I can’t speak for other contract breweries, but you can add us to the list of those not interested in chasing the shiny bauble. We are of course looking for opportunities to grow our business, but we also see ourselves as part of the community of Ontario Craft and want to see reform that will benefit our industry as a whole.

  • doug

    A couple of things:
    They promise that cost of service fees will be lower for “owners” which acknowledges that they already have tiered service fee pricing. These guys have a way of making you offers you can’t refuse. If you already sell beer in the system, then paying the $100 sleeping with the enemy fee means that you will be charged less to sell your beer in the system. Taking a principled stand not to buy a share will cost $$$.

    This also sheds light on predatory service pricing fees. Are craft brewers paying higher service fees than owner breweries? Probably, but nobody can tell because they have stymied efforts to find this out at every step of the way. They say the BS breaks even, but instead of returning profits to owners they can easily rebate their service fees, therefore getting money back without technically making a profit.

    I get asked “what is wrong with the beer store?” the simple answer is they are doing all they can to put our products “behind the wall”.
    – They are converting the self serve stores to Ice cold Express top 10 flow rack”, where they offer a few select brands they want to promote in coolers up front, and you have to ask the clerk for anything else.
    – They went from where you could browse the bottles, to logo tiles, and now to where you need to look at an ipad to find out what the store carries.
    – They are phasing out the program where brewers could each put a standard stie poster in each store for $105. per store.
    – they take the deposit fees charged by all brewers on their lcbo and BS sales, regardless of wether the containers end up in the blue bin or get returned, and also charge a recycling fee for brewers selling their beer through the LCBO.

    Also, currently, if you sell less than 25,000Hl you cannot open a second retail store if you have a second brewery. Not facing this restriction, they opened the beer academy with retail store, selling mostly creemore products (which also has it’s own store too). If we can’t play under the same rules as the big guys, it will be a struggle for small breweries to grow.

    Craft brewers offer variety and choice, and often customers will com in and ‘shop’ and discover new beers to try at the store. Owner brewery customers generally know what they want before coming in, so the above changes don’t hurt them.

    I am not advocating for the dismantling of the beer store, but let us set up our own parallel system (or systems) so we can set up our own boutique stores where we can merchandise promote and sell our beer. It would be nice not to be under the thumb of big competitors who would like to crush us. Competition will decide how well that works, If beer drinkers want to buy it directly from us, let us sell it to them.

  • Just Curious

    ^ Looks like the tinfoil hat crowd just walked in…

    Jordan, between this and the posts I saw on Twitter just curious if you’ll play hypothetical with me? Your given the keys to open your new chain of stores. How do you decide what gets stocked? I’m asking because I perceive that all brewers everywhere want you to stock every sku they brew and that space is finite. Curious what someone who’s thought about it thinks?

    LCBO has “applications” to get products listed, meaning most never make it. Beer Store is pay-to-play, meaning that until you’re as least mildly successful, you can’t afford it.

    How do you structure who gets in?

    • admin Post author

      Probably based on whatever sells in whatever store. Each store is still going to have a manager stocking whatever they think will work. It’s still a free market and success is not determined by whim but rather by sales and quality. Some craft beers are still better than others. The difference here is that they get a better shot at it. Also, some stores are going to be larger than others. What you’ve done is take an issue that would naturally be addressed on a case by case (in cases!) basis and assume that it needs an immediate solution in order for the dialogue to continue. That’s nonsense.

  • Darrin

    Having friends work in the LCBO i’m sure the crafts themselves would have to pick there best brews as per sales and still the odd ones would have to be picked up from the brewery direct … your right i may like a Denisons Weiss and i cant get it anymore D listed as they say and not ordered back …

  • Mark

    @Just Curious. That’s easy. The same way every bar owner in the city decides on what beer to carry either on draught or in can/bottle. A mix of what sells best/has the best margin, what they think their customers want, and probably a few personal fav’s.

    What’s so wrong with an open market?

    • Rob

      So Mark you say “A mix of what sells best/has the best margin” so basically that would be the largest Craft Brewers as the largest sell the most and have the best margins (usually). How does that help the new brewery that has no sales at all and want to distribute its product? Maybe you get them to pay a listing fee? Well gee that sound like a mini Beer Store arrangement but instead of Molson / Labatt the big players will be 3 or 4 of the largest Craft Brewers.

      As far as the Beer Stores current offer to give 20% of the board seats to Craft Brewers People complain that that is not enough.. They want enough seats to control decisions about how the Beer Store operates. That may be fine to you but I think Craft Brewers currently have something like 7% of the beer market but want 50% representation and control? Does that sound reasonable?

      They say above that the offer only saves the craft brewer $7600… but that is not a lot of money if you cannot afford that to get your brand in the beer store how will you afford to pay a private retailer a 30-50% margin to sell your product or even worse millions of dollars to build a chain of retail outlets yourselves?

      This is a very complex issue and I really have not hear a viable “sharing agreement” that would suit all beer producers. The Craft Brewers cant just say “we don’t like how it is” they need to produce a cohesive alternative that can be sold to the public, government and / or the big brewers.

  • Mark

    @Rob The Beer Store does a good job for their owners, that is exceptionally clear. In an open market the beer store will continue to do what it does.

    But imagine the following scenarios:
    – A Steam Whistle kiosk in Union Station
    – A Beau’s Brewery store in St. Lawrence Market
    – A “St. John’s World Beer Emporium”™ in a small storefront at Yonge & Lawrence
    – 12 packs and 24’s at the LCBO
    – A craft beer section (no doubt big beer will be there as well) at Longo’s or Sobeys

    Why should any of this not be allowed?

    • Rob

      Agreed BUT the Beer Store does NOT control that possibility.. that is the Ontario Government Liquor Rules. But think of the alternative scenario in an “open market”

      -Union Station offers up a space for a Beer Kiosk but as they spent so much money on renovations they want to maximise their retail rental income. Which Brewer would be able to spend the most on renting that space? even to the point of running it at a loss. Steam Whistle or Labatt?
      – A Beau’s Brewery store in St. Lawrence Market – right beside the Creemore store and Richards store and Sleemans store.. which will be bigger stores because they have more money to spend..
      – A “St. John’s World Beer Emporium”™ in a small storefront at Yonge & Lawrence yup and a few hundred others around the GTA that would need space to store 10-50 cases of each brand of which there are hundreds and these brewers will need to have a fleet of trucks to deliver to all these independent stores. They would also have to sell the beer to this store cheap so that the store can make its 50% retail margin in order to pay its overhead.
      – Liquor Store does not want to carry 12 packs or 24s’ as it takes up too much room in each store. and if they did how many brands do you think each store would carry? You would still end up with Molson & Labatts having big stacks of 24s for their brands as they have the highest sales..
      – Same with Supermarkets.. have you not heard how hard it is to get shelf space at a supermarket? how many soda brands do you see besides coke pepsi & their house brands? Companies with deep pockets pay big bucks to get space on the shelves.

      Look at this link to the “Specials” at a Quebec Depanneur that specializes in beer and scroll down to the point that you see a “Craft Beer” its a long way! http://www.depanneurrapido.com/promotions.php

      Privatized beer sales will not “even” the playing field as the Big Brewers have DEEP pockets that they will use in order to keep their market share..

      • admin Post author

        Rob, I think you’re failing to take something into account. The Craft Brewers are basically already paying their own delivery costs. They already have to hustle sales to pubs and restaurants. The Large Brewers, on the other hand, have The Beer Store because it keeps them from having to delve into those DEEP pockets you’re so worried about. See, the Large Brewers have to list everywhere in a privatized market and it’ll bleed them badly. Their prices will absolutely go up. The Small Brewers don’t need to list everywhere. They need to list in stores that showcase their product, which I absolutely guarantee you will exist in a privatized market. No, they will not be listed in every convenience store and grocery store, but consider the strengths of privatization. Say you get two grocery stores in your town or one chain of grocery stores near where you operate. You can get all your product in front of people who already want to shop in a specialized store. It is, incidentally laughable, that something called “The Beer Store” provides no oversight on the quality of the products listed. Specialty stores will do that and they will emerge quickly.

        Southern Ontario is the size of England. The Large Brewers will have to pay to be in every store in a territory the size of England. Small Brewers, whose products people are already seeking out, don’t have to do that just to keep up appearances.

        There’s also the possibility that small brewers would be able to band together to have their own stores. Or indeed that some private company might start their own chain of stores.

        I think you’re living in fear of change. Every other market in the world suggests we’ll find a way around these problems that you would have us stop in our tracks for. We have literally hundreds of models to look at.

        • Rob

          I think you’re failing to take something into account as well. The Big Brewers OWN the Beer Store, the money spent by the beer store to warehouse deliver and sell beer comes from the big brewers. They currently deliver to each and every one of these bars and have warehouses around the province, and trucks and drivers.. again which the Big Brewers are already paying for through the Beer Store!

          If the market goes to corner store / supermarket.. then the Big Brewers sell or close most of the retail beer stores keep the warehousing & distribution network and take the money that they save not having retail staff and buildings to buy more distribution trucks and listing fees it would probably be “a wash” moneywise for them in the long haul. Yet for Craft Brewers they would not have anything to initially offset these cash expenditures for the additional distribution.

          To me the Craft Brewers should organise together and fight for the right to have their own stores like the Ontario Wine stores. Make some requirement that to sell your product there you have to have a Brewery in Ontario and produce less than “X hl” of beer per year (to keep the big boys out). They can open these in hot spots around the GTA and build sales and awareness as the government deals with the big picture of alcohol sales in general. As there is a precedent for this with Wine it should not be a big stretch to get this approved quicker than any of the other suggestions I have heard…

          • admin Post author

            I’m not. Let me explain: The benefit of The Beer Store is that they don’t have to spend money year over year in competition in the market. It’s not a wash. The Beer Store is the reason Ontario is such a profitable market for large brewers. They do not have to make any outlay for labour or delivery. They do not have to maintain their sales. Because they own the retail distribution channel they do not have to spend money on these things year over year over year. If you add retail channels to that they then have to spend that money on employees of all stripes. They have to spend that money every year as an ongoing operating cost. Even with the ownership of the channel, they have shrunk massively over the course of the last 40 years. With a monopoly, they have still failed prodigiously. How much of their business model in Ontario do you think depends on not spending the money to compete in additional retail channels? They would have to compete for shelf space in situations they do not control.

  • Zack

    I wish more people were publicizing this point of view. Everything reported to date has been extremely short sighted. Thanks for putting this up, dude.

  • Jason

    The other really important thing for the smallest brewers tempted by this to remember is this: Craft. Beer. Doesn’t. Matter. To. Brewers. Retail. You are an ant to be crushed, or more accurately, to be relegated to a bottom shelf or around a corner, or a bottom corner of the fridge, left to collect dust (and shelf listing fees) for InBev, Coors and Sapporo. Your beer WILL be left to expire, and although they preach “brewer neutrality,” The Beer Store staff will ALWAYS recommend a nice TWO-FER of the cheapest thing they’ve got that week, because, when a company only understands profit above all else, doesn’t care about its reputation in the market for its products, well, that’s what you do. Their retail market REPELS your demographic, REPELS women with its sexism and bro attitudes, and REPELS anyone with a sense of SMELL. Their stores are disgusting, and you deserve better.

    Beyond that, keep in mind their inside corporate mantra: “Keep the owners happy” and the OWNERS are not you. Never will be. … This means being wrapped up in their campaigns of faking minors and intoxicants challenges numbers to boost their “social responsibility” stats (of course when that doesn’t work they call their friends at the OPP to stage TV commercials during Leaf games) … So if you want to get on board with a group that’s out to fleece Ontario beer lovers further, sign on “to own a piece of the Beer Store”… just don’t act surprised when craft drinkers don’t bother picking up your stuff anymore. They’re scared. Scared beyond belief. Craft in developed markets in the US has 25-20% of the market, and craft has less than 5% here. They’re scared, because they know, THEY KNOW you’ve got the power to make them lose. And lose big. Don’t give up now.

  • Michael

    I operate a nano-brewery and am interested moving in to the beer store or LCBO in my immediate area. Primarily to get my beer in to the hands of customers who want the convenience of location. I have one brewery location and being very small currently keep limited retail store hours. On the days I am closed, my customers will still have the ability to walk in to TBS or LCBO and request my product. Doesn’t matter if it’s on the bottom shelf or in a dark corner because my customers ask for my product and aren’t swayed by the shiny offerings on the shelf above mine. If I decide to close retail during a seasonal lull (we are in a very seasonal location), TBS or LCBO will still stock my product. For me this is simply another mechanism for fulfilling customer demand. It’s my job to reach my customers in the first place but if the reduced listing fees (free isn’t totally free, there are still associated costs) make meeting my customer demands possible, why wouldn’t I do it? I understand that TBS is currently trying to limit exposure and keep ahead of the game, but today is better than yesterday and nothing is stopping me from taking advantage of what may come tomorrow.

    • admin Post author

      There’s a very good reason. If breweries, you included, accept The Beer Store’s offer it will prevent reform from happening. For every brewery that signs up for the current situation, The Beer Store has the ability to say that they are looking out for everyone else’s interests.

      Let me put it to you this way: You have been open since May 17, 2014. I can understand your desire to expand. I don’t know whether you’ve approached local LCBO stores yet, but you should. Until Wednesday, you weren’t in The Beer Store. I’d bet that until Wednesday, you didn’t think much of them. You’re thinking of taking advantage of their offer because you don’t have a lot of budget and it looks like a good deal. In your specific instance, you would get on shelves in the five closest stores. That’s Minden, Bancroft, Kawartha Lakes, Haliburton Highlands and maybe Gravenhurst or Bracebridge.

      It looks like a nice little bonus until you realize that there are any number of stores in the outlying areas that might stock your product for nothing if change is allowed to occur by the province. You think the local grocery stores aren’t going to carry the local brewery’s product? You think they don’t want your custom in Orillia and Huntsville and Harcourt? How about the stores on the highway in between?

      What I’m saying to you is that you should at least wait to see what the government announces in their budget. You’re no worse off than you were on Wednesday. If you are going to be a brewer for the rest of your life, you need to think longer term. The offer is not going away and as you mention, your seasonal business will not pick up in those five towns until May.

      • admin Post author

        Also, quite frankly, you barely made enough beer last summer to keep up with sales at your brewery. You don’t make enough beer to stock five beer store locations if your reputation in the area picks up even a little.