Canadian Brewers Struggle to Survive Amid Pandemic-Related Shutdowns

By: Briana Tomkinson

  At the close of 2019, the Canadian beer industry was riding high. The craft beer craze showed no signs of flagging, with triple the number of breweries in operation just five years before. In 2019, Canada had more brewing facilities in operation than ever before. Then, in March, the coronavirus pandemic spread to Canada.

  Taprooms, restaurants and bars are closed, and though some parts of Canada that were less severely impacted by the virus are slowly starting to allow businesses to reopen, it’s far from business as usual.

  There will be no beer gardens and merrymaking at large summer music festivals, no big wed-dings, no corporate shindigs, no Friday night pints in busy bars. Even in places that allow ser-vice businesses to reopen at a fraction of capacity with seats six feet apart, it’s likely business won’t be booming. With an estimated two million Canadian jobs lost in April alone, many Ca-nadians will be at home counting their pennies, not out on the town quaffing beers.

  According to a survey conducted in early May by Restaurants Canada, seven in 10 of those in the foodservice business fear they will run out of money in three months or less.

  Before the start of the COVID-19 pandemic, Canada’s foodservice sector was a $93 billion in-dustry, directly employing 1.2 million people serving 22 million customers every day. The in-dustry has since lost 800,000 jobs and is on track to lose as much as $17 billion in sales over the second quarter of 2020, the industry association said.

  While the situation for Canada’s breweries is not quite so dire, many smaller breweries also say they are only months away from closing their doors.

  According to Beer Canada Interim President Luke Chapman, many Canadian breweries are under a huge amount of financial stress. A recent member survey conducted by the industry organization revealed that half of the respondents said they had only enough cash flow to sur-vive for a maximum of six more months.

  In 2019, the number of brewing facilities in Canada increased by almost 13%, from 995 in 2018 to an all-time high of 1,123. Yet, although there was an unprecedented number of beers to choose from at grocery stores and dépanneurs, beer sales in Canada have been falling: do-mestic beer sales were down almost 4% in 2019.

  With fewer sales in an increasingly competitive market, Canadian breweries were already brac-ing for more challenging times ahead, yet nothing could have prepared the industry for COVID-19, Chapman said.

  While relief programs for business owners from the federal government have provided some help to keep employees on the payroll—for now—Chapman noted that with major events can-celed and many restaurants and bars closed, breweries will miss out on the expected bump in summer season revenue.

  “This is a very difficult time, and like everyone, like a lot of other businesses, brewers are just trying to learn as they go and trying to make the best of a bad situation,” Chapman said. “No one knows what the market’s going to look like next week, let alone two to three months from now. It’s a very uncertain time, for sure.”

  Canadian breweries directly employ an estimated 15,000 people; however, Conference Board of Canada figures show beer supports 149,000 Canadian jobs, with a labor income of $5.3 bil-lion. The sector contributes $13.6 billion to Canada’s GDP, thanks to the domestic nature of the industry (in 2019, 85% of the beer consumed in Canada was brewed in Canada). The vast majority of Canadian breweries are small, local operations; 94% produce less than 15,000 hec-tolitres of beer.

  Many smaller microbreweries who primarily sold beer through on-site taprooms and local res-taurants have quickly transitioned to selling packaged beer. Expanding into home delivery has also been helpful for many smaller breweries, Chapman said. Even in provincial jurisdictions that do not permit breweries to offer home delivery service, restaurant partnerships have ena-bled some breweries to have their beer delivered with dinner orders.  

  Yet Chapman said even when these transitions have been successful, for taproom-focused breweries, which can make as much as half of their revenue from tap sales, the additional costs of packaging, distribution and delivery are eating away at their profits.

  “A couple of our breweries say they are selling a similar amount of beer, but costs are up 40 to 50%. They’re just trying to keep staff employed and keep the lights on,” he said.

  In some cases, breweries have also had difficulty sourcing cans, bottles and packaging materi-als due to pandemic-related supply chain issues.

  While closing bars, restaurants and taprooms initially resulted in a slight uptick in retail beer sales, for most craft breweries, this was not nearly enough to offset the steep decline in keg sales, Chapman said. Many shuttered bars and restaurants also returned unopened kegs, forc-ing breweries to issue refunds.

  Rather than dump all this unused product down the drain, some breweries have offered this excess beer to distilleries to produce hand sanitizer.

  “Beer is really the only perishable alcoholic beverage. Both wine and spirits last essentially for-ever, and some get better with time. That’s not the case for beer,” Chapman said. “No one wants keg beer anymore, so there are a lot of brewers left with a lot of product that’s going to go bad.”

  While some breweries have been able to sell hand sanitizer on a cost-recovery basis, most breweries are treating it as a way to give back to the community.

  “I know for a fact there are some that are doing it and losing money in the process,” Chapman said.

  Hand sanitizer has been all but impossible to find on grocery store shelves in many parts of Canada since the first wave of COVID-19 cases were discovered in March. Health Canada has since moved to expedite approvals for distilleries and other companies to start producing the product. In Canada, hand sanitizer is regulated under Health Canada’s Natural Health Product Regulations, part of Canada’s Food and Drugs Act.

  In late March, Spirits Canada, Cosmetics Alliance Canada and the Canadian Consumer Spe-cialty Products Association launched the Hand Sanitizer Manufacturing Exchange in collabora-tion with Health Canada. The Exchange provides support for firms interested in contributing to the manufacture of hand sanitizer to find the materials, services or manufacturing capacity needed for production.

  “People are coming together to do what they can in this crisis, but Canadians need access to safe products. DIY hand-sanitizers, the latest trend on social media is at best ineffective against COVID-19 and at worst potentially dangerous,” said CCSPA President, Shannon Coombs.

  On top of all the other challenges facing Canadian brewers, the federal government went ahead with a planned increase in alcohol excise duties. “We as an industry were a little bit stunned that the government decided to go ahead and raise our taxes in the midst of a pan-demic that is having huge negative impact on the industry,” Chapman said.

  Although the 1.9% increase may not seem significant, he said, for a regional brewery produc-ing 70,000 to 80,000 hectolitres of beer per year, the increase translates to about $50,000 to $60,000 in lost cash flow.

  “It is a material amount of money that’s now been taken out of the hands of the breweries and put in the hands of the government,” Chapman said. “I think from our view, and I think most brewers would agree, that money is better in their hands, at least at this point in time.”

  There is one bright spot for Canadian brewers, Chapman said. Some provincial governments have temporarily lifted some restrictions on the sale and distribution of alcohol that have lim-ited how breweries can serve their customers.

  “These are things we’ve been asking for, for quite a while,” Chapman said. “We’re hoping some of these will stick around after COVID-19 is a distant memory.”

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