Canada is a smorgasbord of alcohol retailing systems. Some provinces are entirely government run, Alberta is entirely private, and most are a combination of both. This creates a unique situation for marketers.
Here’s how the retailing system breaks down by province:
Alberta: entirely privatized
British Columbia: public/private
Nova Scotia: public/private
New Brunswick: exclusive government monopoly
PEI: exclusive government monopoly
Ontario is the largest beverage alcohol market in Canada, and has one of the most unique public/private retailing arrangements in the country. It has public, semi-private, and (as of recently) private retailers. The province sells alcohol through the provincially owned LCBO, The Beer Store (a privately owned government mandated monopoly), and as of recently, grocery stores. Wine, beer and spirits are also sold directly from producers facilities.
Marketing through The Beer Store in Ontario is anything but straightforward. Unlike the LCBO, it’s not owned by the provincial government. Instead, this government mandated monopoly is owned by some of the largest multinational breweries in the world.
Under a series of deals dating back to the end of prohibition, Ontario’s brewers were given the sole right (along with the LCBO) to sell beer. Decades of mergers have resulted in two primary owners of The Beer Store. Anheuser-Busch InBev SA and Molson Coors Brewing Co. each own just under half of The Beer Store, with Sapporo Breweries Ltd. owning the small remaining proportion.
Another deal, struck in 2000, gave The Beer Store the sole right to sell cases of 12 and 24 beers in Ontario. This means that The Beer Store’s only competitors, the LCBO and grocery stores, can only sell 6 packs. This creates a number of unique challenges for beverage alcohol marketers, especially those marketing smaller breweries.
Difficulties for small breweries
Cathy Huyghe, writing for Forbes magazine sums up the nature of marketing beverage alcohol in places where government monopolies exist. “Monopolies don’t necessarily limit access. They limit choice,” she says.
If your brand is not owned by one of these three corporations, it can be difficult if not practically impossible to sell your product through The Beer Store. Independent breweries must pay fees which have historically prevented smaller breweries from selling or marketing their products.
According to Gary McMullen, the founder of Muskoka Brewery and former chair of the Ontario Craft Brewers trade association “the listing fee structure [The Beer Store] have in place now escalates up to about $80,000 for channel-wide listing, which is atrocious.” As a result The Beer Store owners’ products make up 80% of the sales at The Beer Store, compared to 74% at the LCBO.
Big breweries’ Beer Store advantage
While listing and marketing costs are restrictive for small independent breweries, for the brands that own The Beer Store, it significantly cuts their costs. Logistically, having a limited number of outlets, all under the ownership of the big breweries reduces the cost of shipping and warehousing and centralises the marketing efforts. This economy of scale means that the total cost of retailing and distributing a 24 case of beer in Ontario costs just $5.34 as opposed to $9.06 in Quebec for the breweries that own The Beer Store.
Grocery store retailing
In December of last year, The Beer Store monopoly was broken as grocery stores began selling 6-packs of beer (12 and 24 packs are still restricted to The Beer Store). Currently only 60 grocery stores in Ontario sell beer, but that number could rise to as high as 450 in the coming years – approximately the same as the number of Beer Store locations in Ontario.
Independent breweries need to leverage this new avenue, and push for greater privatization in order to increase their market share. Unfortunately, for now further privatization is unlikely, and the limitations on grocery store beer sales mean that it will not completely level the playing field for independent breweries. For now, beverage alcohol marketers will have to contend with the LCBO and The Beer Store.
Despite the negative implications for beverage alcohol marketing in areas of government retailing there are two major upsides:
- To get your marketing materials inside of a store requires negotiating with fewer parties, and you know exactly where to tell consumers to go to find your products.
- Even medium to small sized independent breweries can benefit from the fact that there is less competition from upstarts at The Beer Store or LCBO. Getting your foot in the door can be difficult and expensive, but once you are in you will benefit from this level of distribution not enjoyed by all producers.
Regardless of the distribution system, smaller beverage alcohol manufacturers need to market their products creatively to break into the market. Having a great product is important but will not be enough to grow and thrive in this new and evolving environment.