It’s been heartening over the last couple of weeks to see adjustments to the way that the beer industry functions go into effect. It just goes to show that reform has always been possible, although the alacrity with which some moves have been made will require a little thinking time on the parts of participants in the industry. 

If you’ll recall, last time I spoke to you I suggested five things that could really make a difference for the beer industry over the course of the COVID-19 related shut down. I’m pleased to say that some of these ideas have actually gone into effect. I’m not crazy enough to think that I’m directly responsible, but I’m pleased to be participating in the dialogue in a helpful and constructive manner. 

So far, we have the Canadian Chamber of Commerce and Beer Canada allied with several organizations working to get excise increases postponed and the payment of excise deferred, which is a good direction to be headed in. We have also had a lot of luck getting the AGCO to allow licensees to sell packaged alcohol with takeout food. Not ideal for bars that specialize in elaborate mixology, but quite reasonable for bars and restaurants with bottled beer and wine. It’s a very positive step forward in an uncertain time. We have some information on it on this week’s Podcast.

A huge number of breweries have stepped up their delivery game. Here’s a great list put together by Dan Grant (beer personality of the year, you know) that deals with Toronto Specifically.  There’s also a list here from Cass Enright which deals with the larger provincial roster. At some point you gotta assume everyone who can deliver will be delivering. It’s been nice to see the brewers rally on that extremely quickly. My understanding is that outsourced delivery services are in the works as well based on some conversations I’ve had behind the scenes.

That means that we have four out of five of my previous asks in progress. 

There is one that I’m quite worried about: Contract Brewers. 

Yes, I know. Many of you don’t like Contract Brewers. The argument goes that they do not properly have skin in the game. While I’m sort of agnostic on that front, having co-written two guides to the province that included all available products regardless of ownership structure, I’d hasten to point out they are now more at risk than breweries with physical plant, and while you might not like them, there are people’s life savings tied up with them and their income to consider at this juncture. Basically, I’m asking you to put aside your prejudice a moment so that the kids of entrepreneurs can continue to eat.

Here’s the thing: Beer Canada estimates that 10% of packaging Canada wide is keg. That’s mostly for Licensees. That’s taken an enormous hit. We also know that while the LCBO is dealing quite handily with the crisis considering the limitations and their assignment as an essential service, the rules have changed very quickly. Supplemental direct deliveries are very hard to manage when you consider that you’re not really meant to call or email individual stores. It’s hard just to deliver product for the time being, let alone getting new stuff on shelves. According to an email from the OCB to its members yesterday, Spring and Summer seasonal releases already agreed upon go ahead as planned, but the distribution will hinge on central planning taking into account variables like historical reputation, potential for an individual style to sell, brewery reputation, etc. 

It’s quite reasonable considering the additional stress on the system, but not ideal for virtual businesses whose only in house function is sales. The contract brewing segment is one that relies on that facet of the business more heavily than others. The issue is that without licensees, and without the ability to grow the brand through new sales, and with volume hampered by a distribution choke point, the prognosis is not great.

Here’s the dilemma: without clear messaging from the AGCO about the legality of direct sales home delivery, we have contract brewers attempting to come up with workarounds and very seriously weighing the failure of their company through a lack of sales versus the potential of being fined heavily or the removal of their licenses for skirting guidelines.

Take Adam Ouimet from Storyteller Beverages, for example. He has partnered with Niagara Falls Craft Distillers and currently features his Storyteller Lager for direct sale to consumers. Since Niagara Falls Craft Distillers has a bricks and mortar facility, they are perfectly within their rights to sell their product online. As a brewery holding a manufacturer’s license without a bricks and mortar facility, Storyteller is in no man’s land.

Ouimet said, when reached for comment: “We’ve been in business for two years and have ten employees. I had just brewed a 180hl tank when the licensees shut down.” Storyteller has been trying to get a listing in the LCBO, but not having achieved that before this situation means that they’re making a difficult choice. “I’m selling online because it’s the only way to survive.” 

Marcelo Paniza, owner of Paniza Brewing requested yesterday that contract brewers be allowed to sell online in a virtual town hall with South Brampton MPP Prabmeet Singh Sarkaria. Since then, he’s been able to get his product listed through the LCBO’s online portal and with any luck will also have cans in stores by Friday. 

According to Paniza: “We are in big trouble these days. We no longer have licensee sales and have just started selling at the LCBO (we are very thankful). Meanwhile, brick and mortar breweries can sell directly to the public… We are yet to learn why contract brewers are always unfairly treated. We pay the same taxes as the brick and mortar breweries. We do not have the overhead of a serving room, but on the other hand, we profit in cents and not in dollars from serving pints.”

For a brewer like Paniza who somehow managed to win a Canadian Brewing Award while still a homebrewer, the future has a lot of potential. That potential is decreased significantly without the ability to increase sales as a growing business. Direct online sales would at the very least prevent contraction.

A lot of established brewers in Ontario started as Contract Brewers and made the transition to a brewpub or brewery model in their own right only after leveraging that success. That’s what True History Brewing is currently facing, having launched last summer with two products. They’re currently brewing out of Junction Brewing in Toronto.

According to co-owner Matt Tompkins “We took this as an opportunity to figure out how we can directly sell product to people. We had all this other product that was in tanks or was preparing to be in tanks and we needed to find a way to sell. In terms of how to do this we’re looking at AGCO laws and trying to figure out what’s a grey area before Corona. With contract brewing even on the AGCO website, there’s not a lot there. We are an agency as well as a brewery, so we can solicit sales. There’s nothing that says we can’t solicit people to purchase it from Junction’s website. The law doesn’t strictly state that we can’t do this, so we’re going to give it a try. What if we try this and see what happens?”
Their contention is that if licensees are able to sell beer and wine out of their cellars that they didn’t even produce, what is the rationale for disallowing people with manufacturer’s licenses from selling direct to the public? The lack of a store? The licensees are using delivery services!

Co-owner Adam Shier was quick to add: “We don’t want to break any laws. That’s not our objective here. We’re just trying to do what we have to to survive.”

Contract Brewing is a fraught subject, but preserving the companies that are doing it has an upside in the face of this 12 week lockdown that the city of Toronto has imposed. There are a number of existing companies that depend on the contracts to fill their volume. Junction Brewing produces both Paniza and True History. Storyteller is produced at Brunswick in Toronto. If those contracting companies fail, there is a knock on effect which causes a decrease in volume at those larger facilities. 

That decrease in volume means a decrease in realized excise. That’s tax money that we are going to need eventually to pull ourselves out of the temporary economic crater that COVID-19 is causing here. For anyone thinking that maybe thinning out the herd would be beneficial in the long run let me point out that the decrease in excise rates by volume is pretty likely to result in an increase in excise rate per capita. It’s not a good time to think of industry confreres as expendable, because that thought process will revisit you with a sense of vengeance. 

For that reason I think it would be sound policy for the registrar of the AGCO to make it possible for Contract Brewers to legally direct deliver online sales to consumers until such time as social distancing and isolation are rescinded. It would prevent people from having to make the choice between risking their manufacturer’s license and their business failing, and hopefully continue to generate much needed excise revenue instead of overlooking that potential value. It would be both fair to the holders of the manufacturing licenses, and a net positive in terms of governmental revenue. In the short term, it would be helpful for the AGCO to make a statement. The success of these small businesses three months from now is dependent on a matter of days now.