Canada: Sleeman plans to double its market share in central Ontario

Sleeman Breweries Ltd. announced on May 18 it intends to double its market share in central Ontario within five years, but its CEO admits that's no easy task amid a beer price war. The beer maker has achieved 10% market share in British Columbia and Alberta and hopes to reach the same level in Ontario and Quebec, where its share currently stands at about 5%, John Sleeman, chairman and chief executive of the family brewery commented.

"It means doubling our business (in Ontario and Quebec) and we have to be pretty unique in our thinking if we're going to be able to achieve that," he told shareholders at the company's annual meeting on May 18.

Getting to that level is made more difficult given an Ontario price war in which low-cost brands such as Lucky and Lakeport have been on the offensive. It also comes at a time when Sleeman is looking to cut costs after reporting last week a first-quarter profit drop to C$1.6 million, compared with C$2.2 million in the first three months of last year.

Shareholders challenged the chairman over whether Sleeman should be reducing prices for some of its products, including premium brands that cost several dollars more per six-pack than rivals. But John Sleeman said the company doesn't want to damage the reputation of its high-end brands. "We spent years and years and millions of dollars building the brand equity of Sleeman as high-value premium products," he said.

Sleeman will occasionally offer limited-time discounts but "it's not in the long-term health of this company or the brands to drop the prices on Sleeman," he said. "While there are an awful lot of people who want low-cost beer, equally there are a lot of people who want us to retain the quality and the pricing structure of Sleeman."

The company does sell discount beers such as Pabst Blue Ribbon and Old Milwaukee.

Sleeman urged patience among shareholders who have noticed cheaper brands at Ontario beer stores. He said cyclical pricing - where competitors drop prices, and then edge back up again - has been seen in Quebec, Alberta and other markets but is a "new phenomenon" in Ontario.

Rather than drop prices the company is launching new offerings, such as Sleeman Original Draught, and revising its marketing strategies, including new advertising to target a younger audience. "What we need to do is constantly look at things that will grab the consumer's interest," he said.

He said part of the Ontario price war is powered by tax advantages given to smaller brewers, enabling them to significantly hold down their prices until they reach certain volume thresholds.

In the meantime, Sleeman is looking at "aggressively cutting operating costs," said chief financial officer Murray Mateyk. He said the company's goal is to show no increase in cost of goods sold, which in 2004 averaged $87 per hectolitre. Sleeman intends to cut back on administrative spending and on sales and marketing expenses.

John Sleeman said the company is still targeting earnings per share growth of 10 per cent for 2005. Earnings in 2004 totalled 89 cents per share, or C$14.4 million. "You shouldn't judge the whole year based on the first quarter's results because management has got all kinds of programs in place," John Sleeman said. "We've already started taking some costs out of the system in the first quarter, we're continuing to do that in the second quarter."

Sleeman shares closed unchanged Wednesday at C$12.56 on the Toronto Stock Exchange.

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