Canada, ON: Wave of consolidation in Ontario’s craft beer industry becoming a flood

The wave of consolidation in Ontario’s craft brewery industry is becoming a flood — and experts say repeated COVID lockdowns are only partly to blame, The Record reported on November 4.

In the last two weeks alone, two breweries have been bought, and two others have come together in a “strategic alliance” that will see them share sales, distribution, and some brewing operations.

A slump in draft sales during the global COVID-19 pandemic hit an industry that was already being flooded with new breweries, fickle consumers, and competition from prepackaged cocktails and hard seltzers, industry experts said.

Supply chain woes and increased ingredient costs have also hurt, said Todd Lewin, a board member at the Ontario Craft Brewers Association, and part owner of Muskoka Brewery.

“I think the craft industry was challenged going into the pandemic and the tough past two years just accelerated that,” said Lewin, whose brewery announced this week that it’s buying Rally Beer Co., a “functional beer” brand which had been brewed under contract at Toronto’s Brunswick Bierworks.

Henderson Brewing, based in the Junction Triangle neighbourhood, announced this week that it’s teaming up with Beamsville-based Bench Brewing in an alliance which will see both sides share sales and distribution. Henderson’s main brands — including its flagship Henderson’s Best, and Rush Golden Ale — will be produced at Bench’s wine country brewery.

In mid-October, Collingwood’s Side Launch Brewing Co. announced it had been acquired by London-based Equals Brewing.

In July, Amsterdam Brewery, one of Toronto’s oldest craft breweries, announced it was being sold to Denmark’s Royal Unibrew in a deal valued at C$44 million. In late February, Beau’s All-Natural Brewing agreed to be sold to Toronto’s Steam Whistle Brewing, in a takeover which combined two of Ontario’s biggest craft breweries. Amsterdam and Beau’s both said a collapse of draft beer sales during COVID lockdowns made their deals more urgent.

Beer author Jordan St. John said the repeated COVID lockdowns over the past two years cut sales in half or more for a lot of craft brewers, as many count heavily on draft sales at bars. Even with business getting a bit closer to normal, that’s a hole some companies won’t climb out of, St. John said.

“Without bars and draft sales, there’s a cash flow situation that is pretty much not recoverable just by going back to the regular state of affairs,” said St. John, adding that an increasingly-crowded craft beer marketplace made it a tough industry to turn a profit in even before the pandemic.

St. John estimates there are more than 400 brewing facilities in Ontario, with another 60 brewing companies whose brands are brewed under licence. And they’re dealing with increasingly-fickle drinkers chasing the latest new taste.

“All of those breweries probably make at least 10 beers, which means you’re dealing with at least 4,000 brands. … The desire that craft beer has created for variety, within the consumer base, has really worked against the individual breweries,” said St. John. “It’s very much a chickens coming home to roost situation. All this was ever going to take was one bad economic downturn.”

One Toronto-area brewery was recently so desperate for money that it turned to customers for help when a piece of equipment broke.

“They had a tweet last month where their glycol chiller went down. And they were basically begging for sales so they could fix it. Real ‘we’ve run out of cash’ kind of thing,” said St. John.

The desperation, said St. John, means more takeovers and strategic alliances are coming — especially for smaller craft breweries that brew less than 1,000 hectolitres per year (a hectolitre is 100 litres).

“Just about any brewery under 1,000 hectolitres per year? At this point, you could walk in with half a million dollars and just purchase it,” said St. John.

Adin Wener, part owner of Henderson, acknowledged that the last two years have been tough for beer sales all around, even though things are slowly starting to get back to normal.

The transformation of what was once a heavily-industrial stretch of the Junction into a bustling, mixed-use neighbourhood, however, played the biggest role in Henderson’s decision to pair up with Bench.

Bench had already been brewing some of Henderson’s one-off and seasonal beers, including its series co-branded with rock icons Rush.

“For us, this was really more about location. The construction that’s happening,” said Wener, adding that Henderson had been producing roughly 10,000 hectolitres per year in the Junction.

“We couldn’t even get our trucks in and out any more. … You have a production facility in what is now an incredibly buoyant part of the city with not a lot of great traffic in and out.”

Still, said Wener, whether it’s breweries like Henderson hitting the limits of their existing facilities, or those that have been struggling to stay afloat during the pandemic, the wave of partnerships and takeovers in the craft beer world is nowhere close to over.

“Do I think there’ll be more partnerships like ours? I don’t know. We feel very blessed to have found some great partners at Bench. But there has to be some more consolidation,” said Wener.

E-malt.com, the global information source for the brewing and malting industry professionals. The bi-weekly E-malt.com Newsletters feature latest industry news, statistics in graphs and tables, world barley and malt prices, and other relevant information. Click here to get full access to E-malt.com. If you are a Castle Malting client, you can get free access to E-malt.com website and publications. Contact us for more information at marketing@castlemalting.com .