Is Canada’s Craft Beer Industry Tapped Out?
By Daniel Schuurman
From your local brewery's IPA to the stout from across town, craft breweries have worked their way into many Canadian's daily lives. Many craft breweries, characterised by their small batch production, are facing reduced sales with record competition. Canadians share an appreciation their local artisan's work, with craft beer consumption exploding. While our nation's mouth-watering desire for our local entrepreneur's work is not likely to wane in the near future, the number of breweries will.
These locally-anchored businesses branch across the manufacturing, retail, dining and tourism sectors. A recent letter from the Canadian Craft Brewers Association (CCBA) to Parliament asking for relief funding displays the combined pressures of the pandemic and an overly-saturated market. Brew pubs, or tap rooms, are often the most profitable parts of a small brewer's business. As a result of the social distancing restrictions in place, the majority of breweries (79.6%) saw a decrease in sales compared to the same time last year.
The pandemic threatens these businesses survival in this highly competitive market in both the short term and long term. The temporary closures of restaurants and brew pubs, along with anticipated capacity restrictions upon opening, eats away at their greatest profit margin sales. Many are adapting to Covid-19 restrictions by offering online ordering, home delivery, making hand sanitizer, and planning for social distancing measures upon opening, but few expect sales to improve in the near future.
The longer-term challenges may come from the changing nature of social drinking and the possibility of economic downturn. Fear of a second wave of infections and concerns of transmission may lower consumer interest in returning to restaurants, bars, and breweries, even as social distancing measures are relaxed. The nature of grabbing a beer after work or going out with friends may change in the coming year, reducing breweries opportunity for profit.
Covid-19 may not be the only driver of brewery troubles. Prior to the pandemic, Canada's growing enthusiasm for craft beer may have been outpaced by it's supply. Less than half of all small and medium breweries in 2017 and 2018 were profitable, with 2019 welcoming over a 100 new breweries. In a Globe and Mail interview with executive director of the CCBA, Rick Dalmazzi stated that the typical brewery needs 5 to 7 years to become profitable. Of the over 1100 small and independent craft breweries in operation across Canada in 2019, 79% of are in their first five years of production.
With differences in each province's social distancing restrictions and the flow of craft beer heavily limited across provincial borders, the fall-out will be experienced differently across the country. With competition in the industry being of an often local and regional nature, customer loyalty, differentiated services, financial standing, and local pandemic-driven demographic changes will all impact a brewery's chance of survival.
Recommended citation format: Schuurman, Daniel. "TITLE". Food Focus Guelph (88), Department of Food, Agricultural and Resource Economics, University of Guelph, DATE.