Triple-whammy behind closure
Meredith Macleod
The Hamilton Spectator
(Mar 31, 2010)
Price wars, stagnating beer sales and a decision by U.S. authorities blended into the end of beer making in Hamilton.
When InBev, Labatt's global parent company, bought American brewer Anheuser-Busch in July 2008 to form the world's biggest brewer, it touched off a Department of Justice ruling requiring Labatt to sell its U.S. subsidiary and to stop importing beer made in Canada.
The loss of American market share left Labatt with an excess of 1.4 million hectalitres in its seven Canadian breweries, said Jeff Ryan, Labatt's director of corporate affairs.
That amounts to more than 17 million cases of 24 bottles. Labatt absorbs 5.5 million of those cases, or about one-third of that excess, by closing the Hamilton plant and shifting its production to London, Ont., said Ryan.
With flatlining beer sales in Canada over the past decade, there is little chance of making that up in growth. Suds sales dipped 2.8 per cent in 2009, attributed to the sagging economy.
"We had to step back and look at it all and Hamilton stood out as the most expensive to run. We had to make this unfortunate choice," Ryan said.
The Lakeport Brewery plant will close April 30, leaving 143 workers without a job.
"London is almost twice as efficient. The bottling and canning lines are quicker and most cost- and time-efficient," he said.
Labatt has pumped about $40 million into its London flagship, its home for 164 years.
Industry watchers say they aren't surprised by the Hamilton closure because consolidation is the name of the beer game these days.
Stephen Beaumont, who has written books and blogs about the beer industry and co-owns Toronto's Beerbistro, thinks Labatt will marginalize the discount Lakeport brand as much as it can to protect its mainstream and premium labels.
The discount segment poses a much bigger threat to the mainstream brewers than does imports or craft beers, said Beaumont. By marketing to a young male demographic, the big brewers have inadvertently played to a crowd that is more focused on price and more likely to jump to a discount beer.
"I think if there is a winner in all this, it's Molson because they're benefiting from this segment going down without having to spend on the brewery," Beaumont said.
Craft and premium brewers have done a better job of protecting their brands, agreed beer analyst Bob Scott of Toronto's Ascot Marketing.
But he said Lakeport lines have grown under Labatt's stewardship and are more important now than when Labatt bought the Burlington Street brewery for $201.4 million in 2007. Brava and Lakeport Pilsener currently rank in the top 10 sales in Ontario.
"They are far too important to Labatt now to walk away from," Scott said. In fact, he said, Lakeport's success in the buck-a-beer discount market has changed mainstream beer marketing for good.
Now, both Labatt and Molson routinely discount their flagship brands, with deals such as 28 bottles for the price of 24 on Blue, Canadian, Coors Light and Budweiser. Even the brewers' premium lines, such as Alexander Keith's and Rickard's, are discounted, he said.
"When Labatt took over Lakeport, Blue wasn't discounted like that but it would die a slow death if they didn't do it," Scott said.
He said Labatt and Molson have rationalized production and the Hamilton closure is probably "the final move" that can be made in Ontario: "It's got to the stage now where there is nothing left to close. If they close much more, they might as well turn the lights out."
Marvin Ryder, a professor at the DeGroote School of Business at McMaster University, said Labatt's move to strip the plant of the beer-making and bottling equipment leaves no room for doubt that Labatt is seeking to make it impossible for another brewery to set up in the Hamilton Port Authority-owned building:
"If a soft drink company or alcoholic cider or winery came forward, they might sell the equipment ... But there will be a short window of opportunity there."