The brewing industry is one of Canada’s oldest, and has undergone substantive transformations in recent decades. After a period of consolidation that culminated in the mid-1980s, only ten Canadian breweries remained, of which three controlled more than 95% of the market. As a result of further worldwide M&A activity, the industry is now dominated by three major multinational players. These control 90% of all Canadian retail sales, and account for more than 70% of industry revenue in 2018.
Although the industry has enjoyed steady growth in recent years and continues to have a positive outlook, much of this growth can be ascribed to the increasing popularity of craft beer. According to a recent industry report, this shift in consumer tastes from mainstream light and premium brands towards craft beer is not only a Canadian phenomenon, but has also taken hold in Europe and the United States. While there is no universal definition of craft beer, it is typically associated with small, independent, traditional brewers producing less than 400,000 hectolitres a year. This shift in consumer taste is reflected in the number of new breweries that have entered the industry in recent years. In 2012, less than 250 establishments were operating in Canada. Today, despite substantial regulatory barriers to entry, there are 766 Canadian breweries, of which the vast majority are craft brewers.
The surging popularity of craft beer has created a challenge for the established players in the brewing industry, which is further exacerbated by the slow decline of Canadian beer consumption. Although Canadians’ spending on beer has increased, this is mainly because of the higher average price of craft beer compared to traditional brands. Currently, craft beer still only accounts for a fraction of the Canadian beer market, but is expected to make further inroads thanks to government incentives and increasing consumer demand for locally produced goods.
In their efforts to capitalize on this shift in consumer demand, the dominant companies may consider acquiring craft brewers. This strategy, however, has only seen mixed success in Canada and the United States, as the brand appeal of a previously independently owned brewery may be diluted. Further, craft breweries may have limited growth potential outside of their local market. As noted by others covering the industry, the ability of individual brewers to grow from small into medium-sized enterprises is limited, particularly because of tax reasons and regulations that make it difficult for microbreweries to sell outside of certain locations. This means that there are relatively few attractive acquisition targets. While M&A can help the established players in building out their brand portfolios, they will also need to invest greater resources in in-house innovation. Ultimately, no matter the approach taken, consumers will benefit from ever better selection in the coming years.
The author would like to thank Felix Moser-Boehm, articling student, for his assistance in preparing this legal update.