Off-beat beer producers fight for survival

The faint possibility of making money has not discouraged growth in Canada's microbrewery industry.

Alex Zakrzewski might be just the ticket for Canada's craft brewers.

The 24-year-old Torontonian tends to stick to budget brews during the dark months but gets a little more experimental as summer temperatures rise.

"When I buy beer in the winter to, say watch a hockey game with the boys, I usually go cheap, like Laker or Old Milwaukee, something like that. But, this past weekend [in July] I was drinking Tankhouse. It was really good actually. It may just be my summer choice," he said.

Tankhouse Ale, produced by Toronto's Mill Street Brewery, is one of a growing number of Canadian beers made by smaller companies, enterprises that tout their drink-making philosophy but many of whom face an uphill battle when it comes to actually turning a profit.

As the joke goes: "How do you make a small fortune in the craft beer business?" said Ken Woods, president of Black Oak Brewing Co. Ltd., a small brewery located in the Etobicoke suburb of Toronto.

"Start with a big one," he said.

Ken Woods, an accountant-turned-brewmaster, is still trying to make Black Oak Brewing Co. more viable. ((Black Oak Brewing Co.))

Still, unlike most other businesses, the possibility that the next decade will be spent with only the vague promise of some financial reward does not appear to discourage this crowd.

"It's a craft. It is one we're passionate about," said Matt Phillips, owner of Phillips Brewing Co., one of four beer makers located in Victoria, B.C.

Fighting against convention

The beginnings of Canada's craft brewing industry was really a reaction in the mid-1980s to what was perceived as the blandness of the beers coming from bigger players, such as Molson, Carling O'Keefe and Labatt Breweries of Canada.

In 1984, Jim Brickman, a Toronto marketing executive, started producing a new beer in Waterloo, Ont., reviving the entrepreneurial sprit in an industry that, microbrewers claimed, had become the purvey of taste-destroying pollsters and risk-adverse finance types.

Twenty-five years later, Canada's craft brewers are throwing all sorts of different ingredients — everything from raspberries to oatmeal to huckleberries to chocolate and coffee — into their beer mash.

These companies specialize in neat names, like Dead Frog Brewery in Aldergrove, B.C., and the Yellow Belly Brewery in St. John's, N.L.

And they have whack of characters, from 79-year-old Aldo Lista, owner of the Old Credit Brewery Co., in Port Credit, Ont., down the lakeshore from Toronto, and who periodically dragoons his grandchildren into working in the plant and the 34-year-old Phillips, who is not above grabbing a wrench to fix a piece of machinery or taking a spot on the bottling line.

National numbers on the penetration of craft brewers in Canada are non-existent.

But, from a standing start in 1984, the microbrewed segment has snagged about five per cent of the Ontario market and 12 per cent of the market in British Columbia.

A brewing state of mind

Now, the definition of craft – important from the perspective of government taxes and various regulations – changes depending upon where you are.

For instance, in British Columbia, 100,000 hectolitres of beer production is the cutoff point, according to Craft Brewers Association of British Columbia.

But, the U.S.-based Brewers Association, while holding a loose definition for a craft facility, pegs the level for a microbrewery at almost 18,000 hectolitres.

(The amount of beer in a hectolitre equals about 12 cases of 24 beers.)

But, even if what constitutes a craft brewery changes, the mindset of a craft brewer is pretty standard.

Black Oak's Woods was an accountant who slowly realized that matching up debits and credits on a balance sheet was not that much fun after all.

 "I worked for a corporation and was stuck in a cubicle all day. I hated it," he said.

So, at the age of 35, Woods jumped into the beer game in 1999.

Steve Cavan liked his work as a professor of classics at the University of Saskatchewan. But, he could not get the proper ingredients to make good-tasting beer, so he set up his own company.

Steve Cavan put his career as a classics professor on hold to make beer in Saskatoon ((Paddock Wood Brewing))

Both brewers, however, say they are evangelical when it comes to making complex drinks.

"I want people to realize there is so much more in the world of beer than what is produced by the bigger players," said the 53-year-old Cavan, president and chief executive officer of Paddock Wood Brewing, based in Saskatoon.

Old Credit's Lista was part of the team that started up Connors Brewery in the 1980s, he said.

Connors moved, leaving Lista with a building he could not sell.

So, in 1994, he and another team of beer lovers decided to open up Old Credit.

"I like the idea of the microbrewery as a concept. We have a quality beer that people can appreciate," Lista said.

Money still matters

While craft brewers pride themselves on their unconventional beer outlook, it is often their attention to dollars-and-cents issues that can dictate their survival.

Beer, like many food stuffs, it is an economies of scale business, according to many experts.



Having your machinery working 24 hours a day is always the best situation, allowing the company to make the most productive use of equipment and manpower.

In this world, long production runs of similar types of beer allows a firm to attract the widest range of customers at the lowest cost per case.

Craft beers usually have small production runs, which can increase the time the machinery is not in use and which can force the sales force — if they have one — to push multiple beer styles on different customers.

As a result, starting your own craft brewery is not for the faint of heart.

"I wasn't married. So, I was able to jump in with both feet. But, I know some people who had to bail out in the first year," said Woods.

Still, in the 10 years Black Oak was located in Oakville, an affluent community west of Toronto, the company was only able to get its beer into two local eateries, both of which eventually closed their doors, he said.

So, a recent move to Mississauga, another western Toronto satellite community, cost more cash but netted Black Oak 25 bars and restaurants as customers and a more solid financial future.

Still, Black Oak is only producing about 1,500 hectolitres annually, well below the 5,000 to 10,000 hectolitres that Woods said is a sustainable commercial volume.

Total beer production in Canada2004 20052006  2007
Shipments  $4.377B$4.763B $4.442B $4.378B 
Shipments per worker $0.48M $0.55M $0.54M $0.53M
Source: Agriculture and Agri-Food Canada

Pushing beer

Phillips' startup strategy was even more unique than Black Oaks' plant switch.

Matt Phillips, who cut his teeth working for other B.C. breweries, could not get any banks interested in his new company back in 2000.

So, he took out a bunch of credit cards and borrowed on that plastic to the tune of $12,000. Nine years later, Phillips is pushing 14,000 hectolitres out of the plant gates annually, a level, which most craft brewers said, gives a smaller facility decent economies of scale.

As well, his brewery has a good reputation on Vancouver Island, a region which excels in microbrewed suds.

As a result, Phillips' brewery can make all kinds of off-beat drinks, such as his Black Toque ale, without the necessity of huge advertising expenditures.

Paddock Wood's Cavan has set his sights on a bigger horizon.

"I know the usual strategy is to sell in your local market. But, I'm setting my sights on the world," said the native of Aurora, Ont.

Cavan believes he can secure enough of a reputation for his beers in markets outside of Saskatchewan, and even outside Canada, that people will seek out Paddock Wood's offerings in distant lands.

For now, he would be content with getting his 1,200-hectolitre operation into a location with more space.

"We're shoehorned into this little strip mall," he sighed.

Old Credit perhaps has the most interesting marketing strategy of them all.

"We don't have a sales force," Lista said.

Instead, the tiny, seven-employee brewery relies upon word-of-mouth and decent shelf placement in Ontario's liquor stores for sales, he said.

At his age, Lista said, he is just not all that worried about making mounds of cash.

"I just love what I'm doing," he said.