Given a recent tweet from the PC Party of Ontario claiming that if they win the election they will bring back “buck a beer” pricing in the province of Ontario, I feel like I now have to whip out the calculator again. Actually, it’s not really a math problem, but a basic economics problem.
I seem to find myself explaining on an almost continuous basis how beer works in the province of Ontario, but I’m going to try and keep this simple because it is late and I am tired.
I can keep it real simple for you if you’d like: It ain’t gonna happen. Not in a month of Sundays.
The province of Ontario doesn’t set the price of beer. The brewers in the province of Ontario set the price of beer.
Around 2007, the Federal Commissioner of Competition was investigating whether the big brewers had lobbied for an automatically escalating price floor for the minimum price of beer in Ontario. I am not saying that they did or didn’t. I am saying that had they done that thing it would have been a very good business move.
If you’re a large brewer you want people to buy your flagship brand. Molson Canadian. Budweiser. Big brands with reasonable margins. It’s why you don’t see advertisements for Lakeport, but we do have the Budweiser Stage at Ontario Place. The closer the minimum price gets to the price of the flagship, the more likely people are to buy the flagship.
Value brands, as they’re now coded at The Beer Store, come in a wide number of varieties and sell small volumes at low margin. They were bad business at 24 dollars a case in 2007 and are only slightly better business now. Because of the price floor escalator, which occurs every year on March 1st, the cost of a case of value brand beer is now $35.50. It has significantly outpaced COI adjustments. It is a factor of something like 1.48.
How much did Labatt want to continue making Lakeport when they bought the Hamilton Lakeport plant in 2007? So much that they decommissioned the plant with extreme vengeance, taking jackhammers to the floors and filling the pipes with concrete so that no one would brew value brand beer out of there again. Value brands had been a thorn in their side since Dave Nichols’ President’s Choice brands launched in 1993.
Take the recent Beer Canada #axethebeertax issue. The big brewers do not want to give up a nickel a case in excise tax to the federal government on a year over year basis. That is in the face of this escalating price floor that increases their profits on value brands year over year. How happy do you think the people at Molson, Labatt, Sleeman and Brick would be about taking an 11.50 a case hit on value brand beers at retail? Considering the fuss they put up over a nickel a case, I’m going to guess NOT HAPPY.
Even if you were to adjust the price of a 24 down mandatorily, all of the inputs for making that beer have gone up over the past decade. Any profit the large brewers would be able to realize would be vanishingly small if even extant.
What is clear to me is that no one consulted these businesses. If anyone can get a statement on camera from any CEO of any of these businesses saying that they welcome this development, I will be shocked, as these businesses are all publicly traded and answerable to their shareholders. Such an admission would send their stock into freefall on any stock exchange.
Buck a beer is not coming back. I will also point out that if the PC Party of Ontario thinks you do business by not consulting any stakeholders, then they probably shouldn’t be anywhere near power. They have essentially committed to something industry stakeholders, if they are at all competent, will have no interest in.
And they are competent. Make no mistake. As much as I have jousted with Beer Canada and the large brewers over paying that nickel a case, I wouldn’t respect them if they hadn’t at least tried not to pay it. I have never seen any of them lobby for the removal of the escalating price floor because it is very good for their business. They will ask for that to be removed when Satan snowshoes to work.
to think the PCs used to be a business-friendly party, and here they are promising to impose reduced pricing on the product of private enterprise corporations, having already promised to fire the CEO of another private outfit, Hydro1. Just stay away from promising cheaper labels and packaging for the people, Doug, or you’ll be hearing from big brother Randy, and he’s got previous.
Consistency would be super.
Alberta has $1/beer PC Brand and a few other brands of beer today. It can be done in Canada. Of course Alberta had private beer stores, allows direct distribution to stores by domestic brewers and most importantly it doesn’t have minimum pricing laws for beer at retail. The path is there if they are serious.
Who’s ‘they’? The brewers, who assuredly don’t want to make five dollars less in profit per case? I’m sure they’ll leap at the chance to engage in a race to the bottom so they can sell very slightly more volume at what is essentially a loss.
Just because it happens elsewhere doesn’t mean it is going to happen here.
They being the market. PC Brand beer is made by Big Rock in Alberta, the orogiori craft brewery in Alberta. Create an open market that doesn’t coddle the major brewers and allow new entrants to enter and set prices where they want, allow competition in retail, and you get competition. Beer is just like any other industry if you let it be. PC Brand pop is cheaper than the major labels, same with beer in Alberta.
Sure. Except that we already have PC Brand beers here and they would also lose five bucks per case profit at that lower price point. In Ontario, they are brewed by Brick. Also, Big Rock is already in the market here, with a brewery in Etobicoke and they are competing handily in the craft sector which is way above 24 bucks a case. Neither of those players have any impetus to want to charge less for their product.
You still haven’t answered the question as to why anyone would want to sell more product for less profit. It’s incredibly poor business.
Why does any product go on sale or compete on price? Move more volume, compete as the lower priced option, win market share, to enter the market against established players, etc.
When you have a normal function free market for a good, which Ontario doesn’t have for beer currently but most of the Western World does, it will behave like any other market, with segment differentiation and competitive forces. This all exists currently with pop in Ontario, no reason it can’t for beer as well .
Look, I know you’re not ever going to concede the point, but I’m going to try one more time here:
Ontario is not somewhere else. We’re coming into this situation with history. It’s not a problem we’re approaching from scratch. You’re arguing principles that would work if we were designing something from scratch. Now, theoretically, you could tear everything down and rebuild from scratch, but that is a great deal of if.
For the last decade, large brewers have been actively disassociating themselves from the value segment in the province of Ontario for the reason that it is not as profitable as their flagship brands. If you want to think about the amount of beer produced in the province at this point, the total volume might be something like 6.5 million hectolitres (maybe a little more this year as craft ramps up a bit). I would guess the value brands account for something less than 20% of total volume. Call it 1 million hectolitres. I was talking to a brewer the other day who claims that value brands might make 8-10 dollars a case in profit. If you take the retail cost down from 35.50 to 24 bucks, they might be making 4-5 dollars a case in profit on the condition that the excise taxes are amended in their favour. But, you also need to add labour, maintenance, ingredients, chemicals, fermentation capacity, capital expenditure and a lot of other costs. You might be talking 2 bucks a case in profit instead of 10 bucks a case in profit. In order for that to work out, you not only need to expend a lot of effort, but you need to sell five times as much value brand beer as is currently being produced in the province. That means marketing. That’s an additional cost. I don’t think the desire exists in the consumer base for double the consumption, so it’s sort of a lost cause.
If you are a large brewer, why do you want to work that hard to make less money? It’s not an abstract situation. It’s a situation with very real inputs and costs that companies have been fighting over for a decade.
I’m not sure why you think Ontario is uniquely immune to market forces, if only a free market were allowed to establish itself.
Taking Alberta as a case example, you hvlave brewers such as Minhas specifically competing in the value market. You have Great Western. You have quite a few players that do not even compete in Canada because they only compete where they are allowed to compete. Allow these types of players in the market, allow them to distribute and retail unfettered, outside the cartel and you will see a market develop. It’s happened everywhere else in the world with a wide array of products, beer in Ontario isn’t special if it isn’t protected and restricted like it is special.
But yes, perhaps you are right. Perhaps Ontario doesn’t have a culture of trust in the free market, and won’t open the market in a realistic way, so in that case I agree with you.
Wouldn’t mind seeing some Great Western here. I like that Original 16.
Hi Jordan,
I think you may have overlooked two things. First, this is just dog whistle politics drawing a separation between one candidate’s base and all those craft beer drinking ‘elites’.
Secondly, you have overlooked the possibility of 156ml beer cans.
The big brewers do not care about the cost of beer… They care about the volume that they sell. Big brewers would be more than happy to make Carling (Molson), Lakeport (Labatt), Laker (Brick) or Maclays (Sleeman) a buck a beer. Think about it…. If they made a buck a beer again, which they could in high volume. That would eat up all the Ontario craft brewers. Craft brewers couldn’t brew a high volume of one brand, like the big guys do. They would have to cut pay, wages, benefits, operation cost ect to even make a profit to sell a dollar a beer. The big players are billion dollar companies and don’t have to worry about cost.
Lets be clear tho… buck a beer, like you said… is not what it means. It was a PC vote grab and they succeede!
Well, there’s all manner of cheap beer in the United States, and they certainly don’t have 6500 craft breweries.
I think you might not know what you’re talking about.
What do you people honestly think it costs a big brewery to produce a case of beer ?? they would still be making a fortune off 25$ a case
I have literally provided the math on volumetric excise for you. If you’re unable to process numbers and only feel like you are being cheated regardless there is basically nothing I can do for you. Let me ask you something instead. You are making 10 dollars profit per widget. The public will clearly pay that much per widget. Do you as a business person want to make less money?
No. It is why condos don’t sell for a penny over construction cost. In short, you’re an imbecile.
In short your a blindsided by massive profits imbecile yourself. I provide a much more complex service as a tradesman than mass producing mediocre beer and don’t gouge my customers. I love beer and I know what is involved in brewing and to charge 2$ a beer on average is a joke. You need to go back to school and learn some real math there pal.
You obviously have never provided a productive service to anyone other than your fancy word bullshit calculations hahah I’ll teach you some real math bud. Math that builds what you love in and consume watch who you talk shit to
Well, let’s see. I’m going to take a step back here just so I can observe all the nothing you’ve contributed. Don’t know your name. Don’t have any evidence you know what you’re talking about since you’re more or less anonymous. Don’t have any proof or attempt at proof or any kind of mathematical information at alll. Absolutely nothing. Gosh, all that absence sure is impressive. I’m a-quaking in my booties.
Make a legitimate argument or call upstairs to your mom to warm up some hot pockets.
My thoughts exactly. This was an election ploy with little understanding of the economics. Well put.