What's Happening in with Canadian Beer Sales: 2021 Market Update
With so much data so widely available these days, we figured it made sense to pause and reflect on our own market to shed light towards on where the most advanced craft beer market currently sits within the Covid-19 reality, and our thoughts on it’s direction for 2021.
Strap up, let’s get started.
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HEADLINES
COVID-19 leads to a strong fall in on-trade volume sales of beer in 2020, due to the closure of entertainment venues, whilst although off-trade sales increase, it is insufficient to offset the decline.
Beer sees a total volume decline of 2% in 2019, falling to 2.4 billion litres.
Despite the overall decline in 2019, more consumers appreciate craft beer and non-alcoholic beer.
Non-alcoholic beer sees the highest total volume growth of 25% in 2019, to reach 28 million litres.
Beer sees a 2% increase in the average unit price in current terms in 2019, with similar increases on-trade and off-trade.
Labatt Brewing remains the leading player in beer in 2019, with a total volume share of 46%.
In the forecast period, beer is expected to see a negative total volume CAGR of 1%, falling to 2.2 billion litres in 2024.
PRE COVID 19 PERFORMANCE
Decline attributed to several factors, including health and product substitution.
After stagnation in 2019, total volume consumption of beer returned to decline in 2019. A major factor negatively affecting the category was the health and wellness trend, which led to a tendency for some consumers to move towards healthier beverages such as bottled water. Meanwhile, younger consumers of legal drinking age have been gravitating towards more sophisticated alcoholic drinks options, such as wine and spirits, whilst the ageing of the population limited volume growth, as older consumers tend to drink less. Also, the craft beer movement and the premiumization trend limited volume consumption. Consumers are drinking less, but are keen to purchase quality products. The weather was an additional factor in 2019, with higher consumption usually seen during the warmer summer months, but the poor summer weather limited consumption.
Accounting for the lion’s share of total beer sales, lager was hardest hit, particularly domestic mid-priced lager, as consumers diverged towards either premium products and craft beer, or economy offerings in the last few years. Indeed, imported premium and economy lager were the only two categories within standard lager to see total volume growth in 2019. Both the on-trade and off-trade channels saw volume declines in 2019. Although off-trade accounted for far higher sales, on-trade saw a slightly slower rate of decline.
The craft movement continues to grow dramatically in beer, whilst non alcoholic beer takes off
However, areas for growth still exist in beer, with craft beer and non-alcoholic beer posting double-digit growth in the last few years. Even the Liquor Control Board of Ontario (LCBO) and The Beer Store (TBS), which previously focused exclusively on alcoholic drinks, started to incorporate non-alcoholic products as part of their mandate. Sales of non-alcoholic beer have really taken off, as seen in terms of this category seeing the highest growth in 2019, as well as wider distribution and very active new product development.
In terms of craft beer, smaller breweries continue to emerge, whilst major players, including the two dominant beer makers, Molson Canada and Labatt Brewing, are also investing in craft beer. Sales of craft beer increased tenfold from 2008 to 2018, and now account for 6% of the market or more, with some estimates upwards of 25% according to a University of Guelph report.
Molson Canada is attempting to position itself against local craft brewers by marketing its own roots in the country. A new association, Canadian Craft Brewers Association, was formed in May 2019. It will be focused on educating the federal government on the positive economic impact of craft beer, working with the 10 provincial craft beer associations, and promoting craft breweries and beers to beer drinkers nationally and internationally. It also launched a new seal programme, which is similar to a certification programme.
Labatt and Molson remain dominant despite falling sales
Labatt Brewing and Molson Canada remained the two leading players in beer in total volume terms in 2019, with a combined share of more than three quarters of sales. However, although Labatt Brewing maintained share growth, despite seeing falling sales, Molson lost share, mainly due to the rise of craft beer makers. In order to address this challenge, in 2018/2019 their efforts focused on marketing initiatives, rebranding and new product development, although this was limited. Molson has reimagined packaging and brand designs for prominent beers in order to better compete with smaller craft beers. As for Labatt, the company has partnered with Tilray to work on new product developments in the non-alcoholic cannabis-infused space. Whilst the regulation on these products was evolving in 2019 and abroad, this partnership places Labatt in an advantageous position with regard to the large future potential of cannabis-infused alcoholic beverages.
Following Labatt and Molson are a slew of smaller players, including Sleeman Breweries, regional players, and a rapidly growing number of craft brewers. The barriers to entry are relatively low in beer, and over 2016-2018 there was a 30% increase in the number of breweries in Canada. Most of this increase was from craft brewers. As such, the competition for channel distribution and shelf presence is intensifying, particularly in jurisdictions where liquor board stores play a major role, and industry players continue to call for regulatory changes in cross-province sales and online sales. In addition, consumers are becoming less loyal to brands, and the growing product variety only reinforces this trend, making it a challenging environment in terms of brand development.
Craft companies and small players are pushing innovation in beer. Steam Whistle, one of the pioneers of the craft movement in Ontario and one of the leading players in the space, remains active in new product development and remains significant based on its channel coverage and store presence. The company’s new pale ale extends the line-up into this popular beer subcategory, whilst also maintaining its respect for quality and meticulous brewing standards. Non-alcoholic and low alcohol beer is another area of focus for players in beer. It has been supported by active new product development from Molson (Heineken 0.0), Labatt (Prohibition Brew) and a slew of smaller players/brands, such as Bavaria 0.0% and Ebb & Flow in 2019. Macro breweries have seen initial success for non-alcoholic versions of their popular beers, whereas craft beer has yet to see similar success. Nonetheless, craft brewers are creating innovative options. Ebb & Flow’s new product development allows fans of sour beers to experience lower alcohol options (2.4% ABV).
2020 AND BEYOND
COVID 19 impact
On-trade volume sales of beer are expected to fall by 38% in 2020 in light of the impact of COVID-19. This compares to an expected negligible decline forecast for 2020 during research conducted in May 2019, before the spread of COVID-19. Off-trade volume sales of beer, meanwhile, are expected to see a negligible increase in 2020 due to COVID-19’s impact. This compares to an expected 1% rise forecast for 2020 during our research conducted in May 2019.
Both the on-trade and off-trade channels are expected to see lower growth rates than originally forecast for 2020, due to the impact of COVID-19. However, the on-trade channel is expected to be much harder-hit, due to the temporary closure of bars, restaurants and nightclubs in most provinces in the first half of the year in order to try and stop the spread of the virus.
Although many of these restrictions have now been lifted, some outlets are expected to close permanently. Restaurants Canada, a professional association, estimates that up to a third of restaurants will not reopen their doors. In addition, for those that do reopen, tough times are likely to for the rest of the year and into the forecast period. Due to social distancing measures, outlets are able to accommodate fewer people, leading to lower footfall, and therefore lower sales of alcoholic drinks than before the lockdowns. Due to the high share of sales via the on-trade channel compared with other alcoholic drinks categories, beer is expected to be particularly negatively affected. In addition, due to lockdown restrictions, beer is not expected to see the rise in sales it usually does during the summer months. This is likely to hamper growth both on-trade and off-trade.
Meanwhile, in the off-trade channel consumers stockpiled in anticipation of shortages early in the pandemic, which is expected to maintain growth in the first half of 2020, although sales are expected to normalise in the second half of the year, providing companies can keep shelves stocked. Rising off-trade sales are expected to offset some of the decline in the on-trade channel, although total volume sales are expected to remain far lower than those seen in 2019. In addition, the closure of restaurants is also expected to affect off-trade sales, as many people are expected to lose their jobs in foodservice and connected industries, or have their hours cut. This will lead to fewer people being able to afford to drink at home as the economic environment in the country becomes more uncertain.
Another factor expected to hamper growth in 2020 is shortages of specific products and brands, as outbreaks within manufacturing plants have led to plant closures. Meanwhile, shortages of workers have also been reported, as consumers have to self-isolate if they have symptoms of the virus, whilst social distancing and stringent cleaning measures are also leading to lower productivity. Companies have emphasised their CSR activities in their marketing, which has led to less emphasis on traditional advertising. Some marketing is also moving to associated events, such as companies participating in a campaign to support struggling local Toronto restaurants by ordering take-away. Meanwhile, Labatt and other large brewers are making hand sanitizer as part of the effort to combat COVID-19, whilst some craft producers are also following their lead. This is also limiting the amount of beer that can be produced.
Although only a small percentage of sales of beer was via e-commerce before COVID-19, this share is expected to rise in 2020. Although essential store-based retailers have remained open, including those selling beer, the government has urged people to stay at home where possible, and many consumers have therefore opted to shop online and receive home delivery to try and avoid catching the virus, especially if they have pre-existing health problems.
Affected products within beer
The craft movement, which was nascent but growing strongly in Canada at the end of the review period, is expected to see a significant negative effect from COVID-19. At-home beer drinking is becoming the new normal, and Canadians do not tend to drink as much craft beer at home. They are therefore turning to domestic economy lagers from the big breweries. As a result, economy lager is expected to be the only price segment to see off-trade volume growth in 2020, whilst domestic lager is expected to perform better than imported. The trading down trend is expected to lead to a much stronger decline in total current value terms than in volume terms in 2020. On-trade, although all categories are expected to see strong volume declines, it is non-alcoholic beer which is expected to see the best performance, in a continuation of the trend seen in the review period.
Recovery and opportunities
After the expectation of a strong decline in total volume sales of beer in 2020, a return to slow growth is expected in 2021. The on-trade channel is expected to see a strong increase in this year, as consumers return to restaurants, bars and nightclubs as restrictions ease and consumers feel more comfortable going out. This is expected to have a negative impact on off-trade sales, as consumers will drink less at home as a result. As recovery is expected to be gradual, this pattern is expected to continue in 2022, with on-trade double-digit volume growth expected to continue, with rates of growth only returning to more normal levels from 2023. Social distancing measures are expected to continue after 2020, which is likely to lead to only slow recovery, whilst some consumers will be cautious about returning to on-trade outlets for financial and health reasons.
As in the review period, non-alcoholic beer is expected to see the best total volume performance in the forecast period. More consumers are becoming interested in such products for health reasons, whilst the range of products available has been growing and their flavour has improved compared with the products available in the past. These products are gaining a good reputation amongst people who want to cut their alcohol consumption. Flavoured/mixed lager is also expected to see growth in the forecast period, continuing the trend from the end of the review period. The only other category expected to see total volume growth in the forecast period is imported economy lager, which is growing from a very small base. Overall economy lager is expected to see a much better performance than mid-priced and premium lager, as consumers are likely to remain concerned about their finances due to the economic fallout from COVID-19. With many job losses already seen, some consumers are likely to cut back on non-essential purchases or trade down where possible. This means that by 2024, volume sales are not expected to reach the level seen in 2019 either off-trade or on-trade.
However, beer was already struggling to achieve growth in 2019, and not all of the poor performance can be attributed to the impact of COVID-19. However, a number of other non-COVID-19-related factors are expected to impact the performance of beer in the forecast period. For instance, the expansion of beer sales in Ontario and BC is expected to continue. A growing number of outlets in Ontario received licences to sell alcohol, mostly beer, wine and cider, at the end of the review period. Interprovincial sales are also likely to receive support, whilst grocery stores in BC are likely to see an increasing selection of international alcoholic beverages, contributing to growth in beer. However, a major challenge is that the consumer groups for cannabis users and beer drinkers can sometimes overlap. Players in beer are concerned that growing interest in cannabis could challenge beer for consumer dollars. Economy beers could be especially vulnerable, whilst premium and imported beers may be more resistant to this threat.
CATEGORY BACKGROUND
Lager price band methodology
Premium lager mostly includes imported brands such as Heineken and Stella Artois. Mid-priced lager consists of domestic brands such as Budweiser and Labatt Blue. Economy lager includes domestic brands such as Old Style Pilsner. Prices differ regionally due to tax regimes, and pricing overlap between economy, mid-priced and premium products makes marketing, presentation and positioning increasingly important as differentiators. Guinness Hop House 13 distinguishes itself from other premium imported beers by focusing on a hop-forward flavour profile. In this respect it also distinguishes itself from standard Guinness. The introduction of this beer extended a well-known imported brand by incorporating modern flavours and packaging reminiscent of North American craft beer options.
Premium - $5.49 CAD per litre and above
Mid Priced - $4.54 and $5.48 per litre
Economy - $4.53 per litre and below