Anthony Wilson-Smith,A. W. S May 3 1999


Anthony Wilson-Smith,A. W. S May 3 1999





For a dozen years, every Thursday night during hockey season, Kelly Taillon and about 18 other guys in the Vancouver area ranging in age from their late 20s to early 50s have gotten together to do the same thing. In a scene in which life imitates art—or, at least, countless beer commercials—they gather at the University of British Columbia arena, don hockey equipment, divide into two teams and take to the ice. When the game is over—or sometimes even before—the drink of choice is beer. “We crack open a case in the dressing room, and maybe move to a bar after,” says Taillon, a 40-year-old

telecommunications consultant. For years, he drank Kokanee, a local product now owned by Labatt Breweries of Canada. But at a beer and wine store several months ago, he noticed a new display for Molson Export—a beer that evoked memories of his younger years in Montreal. These days, Taillon jokes, “Fm back to my roots with Molson: if I can’t have my old skating legs back, at least I can keep the same beer gut.”

Ah, spring, when young and not-so-youthful-men’s fancies turn to . . . beer. Or so hope Canada’s major and microbrewers alike, as the start of the National Hockey League playoffs also marks the launch of Canada’s main season for beer drinking. “This is the time that makes or breaks the bottom line for brewers,” says Stephen Beaumont, a Toronto-based author and expert on beer tasting and trends. It also signals the beginning of especially heated battles: tactics include massive ad campaigns, price cuts, gift promotions, skirmishes over product placement in beer stores, and in the trenches, a war of words in which both consumers and competitors are eager participants.

But unlike the hockey playoffs, in which upsets are virtually certain, there is no mystery about the two finalists in the showdown for the bragging rights to beer supremacy.

In recent years, Labatt has been the clear winner, parlaying clever marketing and tight management along with a series of missteps at The Molson Cos. Ltd. (parent company of Molson Breweries) to pull even in the battle for market share. “We know we’ve been on a roll,” says Labatt’s hard-driving president, Don Kitchen, “and we intend to keep things that way.” But Molson, under chief executive officer James Arnett, who divides his time between Toronto and the company’s formal head office in Montreal, is preparing an aggressive response that trades on the company’s status as the largest Canadian-owned brewer.

“Beer and hockey have a long and illustrious history in Canada,” says Arnett. “No one reflects that better than us—certainly not anyone from a European-controlled conglomerate.” That is a not-so-subtle reminder that Labatt, founded in Ixindon, Ont., in 1847, has been owned by Belgium’s Interbrew SA since 1995.

Small wonder the two sides trade gibes: the stakes in the beer playoffs are enormous. National sales to Canadian beer drinkers generate $10 billion in revenue every year. Labatt and Molson, according to informal estimates that neither side denies, each controls about 45 per cent of the domestic market, while regional producers, microbrewers and imported beers account for the rest. A single point in market share can be worth about $15 million a year in profit. This has led both big brewers to spend about $200 million a year on promotion to guard their share of a market that Michael Palmer, an analyst with Toronto-based First Associates Investments Inc., says “borders on being a duopoly.”

That description would be vehemently disputed by people like John Sleeman, the chairman and founder of Guelph, Ont.-based Sleeman Breweries Ltd., or Peter McAuslan, president and founder of Montreal-based McAuslan Brewing Inc.—both of whom take carefully worded swipes at the two big beer makers. “Our market,”

The puck has been dropped in the highstakes battle of the breweries

says Sleeman, “is much different. They sell image; we sell taste.” In the past, McAuslan has cheerfully dissed Molson and Labatt, saying they produce bland products akin to ‘Wonder bread.” After that, McAuslan drew some heat at the board level of the Brewers Association of Canada, the Ottawa-based organization that speaks on behalf of the industry. McAuslan, who sits as a director alongside representatives of Molson and Labatt, recalls that after he had made the remark, he received a “good-natured gift” of a loaf of bread from fellow directors. Today, he is only slightly repentant. “They take what they do seriously and are good at it,” McAuslan says of the big brewers. “It’s just that I personally find the beers are too bland.”

But in the nationwide community of beer drinkers, taste is only one consideration in determining choice. Other factors can include a favourite ad—or a perceived slight. In Calgary, Tracey Bradley, a 32-year-old computer company service co-ordinator, likes Molson Canadian because “I love the ‘I am Canadian’ slogan.” Kelly Tarso, a 20-year-old photojournalist from New Glasgow, N.S., drinks Labatt Blue in part because she loves “the Blue commercial where they are playing hockey on the street” (page 42).

Jeff Solylo, 40, a filmmaker and graphic artist in Winnipeg, can recite more than a dozen beers he has sampled over the years. But none is from Labatt or Molson. After years of selling their products at NHL games when the Jets franchise was in town, he says the big brewers “wouldn’t give a dime” to keep the team from going to Phoenix in 1996. “They’re corporate beers,” Solylo says, “with no taste or heart.”

Whether the favourites are brewed by a big company or a small one, whether traditional lagers and ales or such trendy innovations as chocolate, fruit or espresso-flavoured draft, beer enthusiasts have never faced such wide choice. “Canadian brewers have lacked a sense of adventure for a long time,” says Beaumont, who operates a free Web site newsletter ( that offers regular updates on beer developments. “Now, with the microbreweries, we’re just starting to learn all the different things that you can do with beer.”

Perhaps—but beer’s place in the country’s everyday life already fits as comfortably as, say, a cold glass of Calgary’s Grasshopper Wheat Ale with a steak sandwich made of Alberta beef (medium-rare). Beer companies sponsor everything from professional hockey to amateur snowboarding, country music festivals and giant rock concerts. “Beer is our country’s great social lubricant,” says David Kincaid, vice-president of marketing at Labatt. In particular, adds his boss, Kitchen, “when you add beer to hockey, you have two great defining elements of Canada.”

Labatt has an especially good reason for making that breast-beating claim: for the first time in 40 years, it, rather than archrival Molson, has exclusive sponsorship of the Hockey Night in Canada playoff telecasts. That is another in a series of coups for Labatt under the 43-yearold Kitchen. A Toronto native and former Colgate-Palmolive Canada Inc. marketing executive, Kitchen has been head of the company since January, 1997—and is close

enough to his target market of young male sports buffs that he still plays pickup hockey every Thursday night.

Labatt’s Blue ranks slightly ahead of Molson Canadian in the long-standing seesaw battle for the best-selling brand, and Labatt’s “Out of the Blue” television and radio ad campaign has won critical raves and an enthusiastic response from consumers. By contrast with Molson, Labatt is considered by analysts a model of how to run a brewery cost-efficiently.

But while Labatt takes sole possession of the puck through the playoffs, Molson is plotting a comeback. Molson’s Arnett, a Winnipeg-born,

61-year-old corporate lawyer, has headed the company since May, 1997. A specialist in mergers and acquisitions, he engineered the buyback last year of the 50-per-cent share of the company that had been owned by Australia’s Foster’s Brewing Group Ltd. Now, Molson—whose chairman, Eric Molson, is a direct descendant of John Molson, who founded the company in 1786—is wholly Canadian again. “When we took back control of our company,” Arnett said in an interview, “that was the end of Phase 1 of our plans. Now, we have a sense of urgency. We are not in a businessas-usual mode.”

One sign of that is the recent hiring of Dan O’Neill, 47, as chief operating officer. A highly regarded marketer who was once a colleague of Kitchen’s at Colgate-Palmolive, O’Neill is seen as a likely successor to Arnett. And last December, Arnett hired a new chief financial officer, Patrick Crowley. The trio plans to move swiftly to combat criticisms that Molson has too many employees, too many plants and too much administrative fat. “If Molson is serious about wanting to make money,” says Palmer, “it has to take capacity out of the system.” Arnett agrees. “Capacity utilization,” he says, “will be addressed very seriously.” That may mean the closing this year of one of Molson’s three breweries in Quebec and Ontario—a move that would save the company millions, but cause hundreds of job losses.

Another issue is the $200 million that analysts say the main breweries spend yearly to market their labels. Arnett says spending on promotion will be addressed this year, but not at the expense of further erosion of market share. As recently as a decade ago, following its acquisition of Carling O’Keefe Breweries of Canada Ltd., Molson owned 52.2 per cent of the beer market, while Labatt had 43 per cent. Molson’s tumble to a tie at 45 per cent has cost it more than $100 million a year, while Labatt has gained by about $30 million.

Honing the competition between the two rivals is the general decline in beer drinking. Annual beer consumption has fallen steadily for well over a decade. In 1990, adult Canadians drank an average 95 litres of beer annually; by 1998 that figure had fallen to 83 litres. (By contrast, the world’s biggest beer consumers on an adult per capita basis are the Czechs, who consume 160 litres each a year.) And as Molson has learned to its chagrin, market parity is no guarantee of equal profits. Since Labatt is part of Interbrew, its performance figures are not public. But industry analysts estimate Labatt made $160 million more than Molson last year, despite neck-and-neck sales.

Molson, in fact, is only now emerging from a period of more than three decades in which it tried to move away from the beer business to become a diversified holding company. In order to finance expansion into ventures such as a U.S.-based chemical company and Beaver Lumber Co. Ltd., a home-building supply firm, Molson sold off shares in its core brewing company. By 1997, Molson Breweries was owned 40 per cent by Molson Cos. Ltd., 40 per cent

‘Beer is our country’s great social lubricant’

by Foster’s and 20 per cent by Miller Brewing Co. of Milwaukee.

After Marshall (Mickey) Cohen, a former civil servant, left as CEO in mid-1996, longtime Molson hand Norman Seagram stepped into the top job. At the same time, Arnett was asked by Eric Molson to join a new board of directors. Seagram left about a year later by mutual agreement with the board of directors. The board turned to Arnett, who says the offer “was something I never expected or sought. I guess they just wanted someone who knew their thinking.”

Since taking the job, he has shunned publicity, and concentrated on deal-making to “bring us back to our core operation of brewing, and put us in control of ourselves.” Together, Molson and Foster bought out Miller’s 20 per cent, giving them each half control of Molson Breweries. Then, last year, Molson bought out Foster’s. At the same time, Arnett—although he did not divulge figures—said that for the first time in a decade, Molson has seen its market share improve, rather than decline. And he emphatically rejects suggestions that the company is making a mistake by putting all its focus back on beer even as the market is declining: “People use the words ‘mature market’ as though they were some kind of disease.”

On that, Kitchen and Arnett agree. “This market can still grow,” says Kitchen. “When you add people who make beer at home or in do-it-yourself stores, the market shows a slight increase. Our job is to win those people over.”

There are two other challenges for the major beer companies: attracting today’s fickle generation of young adults and staving off the rise of microbreweries. Although they control a combined total of less than 10 per cent of the market, the boutique brewers have made inroads among upscale, older drinkers who don’t mind spending more money for premium beers. “Our average drinker,” says John Sleeman, “is a pretty-well-educated, well-off guy who doesn’t drink as much beer as he did when he was younger, but who likes to have the best beer possible when he does have a pint.”

The big beer makers may also be losing ground with their coveted age 19-to-24 segment. A survey of 700 young beer drinkers conducted in the Toronto market earlier this year by the Ascot Marketing Ltd. research company found that Molson and Labatt’s share of that market has fallen from 85 per cent to 75 per cent in the past two years among young drinkers buying beer for home consumption. Bob Scott, who conducted the study, said that would be a particular concern because “if the big brewers lose those young drinkers right off the bat, how are they ever going to get them later?”

Those younger drinkers represent the hope of the future for brewers, as their parents cut back on beer. Brewers expect the so-called Echo Generation to take up the slack from their newly abstemious elders. “There is all kinds of room to make money in this market,” Arnett says. “Beer was a thriving business 8,000 years ago—and will be in another 8,000.”

Another issue is that brand preference for beer is tough to quantify, because it is so susceptible to personal whim. Many drinkers jump between major and smaller labels for reasons that include family tradition, the image reflected in ads, and the cost of product in beer stores or bars. Michael Kiss, a 31-year-old Calgary lawyer jokes that he “was called to the bar professionally in 1996, but to my first bar socially in 1984.” He drinks Traditional Ale, a Big Rock Brewery product. When he was younger, he drank Molson and Labatt because “these are the ones you know about through adver-

tising.” Even now, he adds, “every time there is a [Quebec] referendum, I drink Molson Canadian to be patriotic.”

In Hamilton, John Ford, a 29-yearold executive at an Internet service provider company, started drinking Molson Export Ale in his late teens because it was his father’s beer, but moved from big brands in his mid-20s because, he says, of “taste development.” These days, he says that while he prefers premium beers from microbrewers, “I will not pay premium prices. I am very price sensitive.” Instead, he alternates between Export, his old favourite, and Laker beer, which the Brick Brewing Co. Ltd. of Waterloo, Ont., sells for a dollar a bottle.

I To woo younger drinkers, brewers g count on tradition and hoped-for trends. I Some enthusiasts promote beer along I lines similar to wine, with such events d as tasting festivals and dinners in which beers are matched with various courses. The 35-year-old Beaumont, a lifelong enthusiast, describes beer with the vocabulary of an oenophile. He describes, for one, the St. Ambroise Pale Ale made by McAuslan: “Orange-rust colour with a white head, a nose mixing nutshell hop with butterscotch malt and a touch of peach. The body starts soft with a distinct nuttiness joined by some slightly orange malt.”

Such talk is greeted with horror by some hard-case drinkers who value beer’s manly image, and look on wine with the same disdain Don Cherry has held for European hockey players. Consider Taillon, who acknowledges that after a hard-skating game, “any beer is welcome, so long as it’s cold.” Would he consider substituting a nice chardonnay, or sauvignon blanc? “Hey,” he says disdainfully, “I play hockey—not ringuette.” Let the games begin—as suds fly.

With SUSAN McCLELLAND in Toronto and BRENDA BRANSWELL in Montreal




If not for dear Aunt Florian, John Sleeman says, he would still be a millionaire—but his life “would be very different, and less fun.” In 1984, Sleeman, then a 31-year-old high-school dropout, was running a flourishing beer importing business, when his aunt approached him with a beer recipe book. It was a relic of days when the family ran a brewery in St. Catharines, Ont., founded by a great-great-grandfather in 1834. Sleeman had no inkling of such history: his father, embarrassed by his own father’s arrest for smuggling alcohol to the United States in 1933, had not told anyone. But Aunt Florian, who kept the book for 51 years, “gave me no peace until I promised to reopen the brewery,” recalls Sleeman.

So began Sleeman’s foray into brewing—which left him nearbankrupt and contributed to the end of his first marriage. Now, the bearded, buoyant Sleeman, 45, is married a second time with sons aged 6 and 3, along with 19-and-24-year-old daughters from his first marriage. And he is CEO of Guelph-based Sleeman Breweries Ltd., Canada’s fourth-largest, fastest-growing brewery, with about three per cent of the market—after Labatt Breweries of Canada., Molson Breweries and New Brunswick’s Moosehead Breweries Ltd. In recent years, Sleeman has bought breweries in

British Columbia, Alberta, Quebec and Upper Canada Brewing Co. Ltd. in Ontario. The company posted record earnings last year, with revenues increasing 41 per cent to $76 million from $54.1 million in 1997. That rise is due to marketing savvy, clever timing, and a willingness to gamble all. Just before Sleeman’s launch in 1988, a Canadian bank he will not name called a loan for $3 million. He found alternate funding in the United States—but had to sell his $l-million house to cover the loan. The brewery flourished, but his marriage ended. The divorce settlement and the need, over the years, to raise capital for expansion diluted his share of the company from a high of 66 per cent to the present eight per cent.

His peers praise Sleeman’s marketing skills: his radio spots, in English and halting French, emphasize the family’s tradition and aim firmly at discerning drinkers. But Sleeman says he may become a victim of success. “There’s not much we could do,” he says, "to fight a hostile takeover.” But the two firms cited as suitors—Labatt and Molson—deny such intentions, noting that the speculation does Sleeman’s stock no harm. “John,” says Don Kitchen, president of Labatt, “is good at promoting things—whether ideas, or beer.” And the question remains what market value Sleeman would have—if a Sleeman was not in charge.

A. W. S