The story of Canadian craft beer’s supply chain: The Consumer
When Jessica Shumlich and Dan Anderson married in 2012 near Vulcan, Alberta, they offered their guests craft beer from Wild Rose Brewery. They wanted to have a locally-sourced meal and support the province’s emerging microbreweries.
“We love beer,” Jessica said. “And wanted to source as locally as we could. Our local small craft brewery at that time was Wild Rose and we were so excited that we could buy the kegs from the owners.”
At the time, the young couple had the choice of 14 craft brewers in Alberta. If they’d married seven years later, their options would have increased to 124.
Alberta had some catching up to do. The province’s craft beer explosion lagged behind the rest of the country until the repeal in 2013 of restrictive regulations. But what Alberta craft lacked in history, it has made up in energy.
Canada’s #1 choice
The suds once believed to be associated with the working-class, now enjoy wide market credibility. Beer is, by far, Canada’s choice of alcohol.
In 2017-18 (most recent data), beer sales accounted for 71.4% of total sales by volume and 39.7% of total sales by value. Canadians have consumed more beer by volume and value than wine, spirits and coolers – both overall and on a per capita basis – since at least 2004-05. Within that, craft is still relatively small, with less than 10% of total sales, but its recent growth has magnetized interest in an otherwise declining market.
This post is the first of a 4-part series about the economics of the Canadian craft beer supply chain by visiting people who work within it.
Part 1 — explains the market shift that has put consumers in the craft market’s driver’s seat.
Part 2 — examines how brewers and retailers have responded to consumer demands.
Part 3 — illustrates how maltsters act as a conduit between brewer and farmer.
Part 4 — concludes the series with Aimée and Sheldon Stang. Together with Sheldon’s parents in west-central Saskatchewan, they operated 8,000 acres of grains and oilseeds in 2019. We explore how farmers grow the grain with the right characteristics to meet malthouse requirements – and the consumer demands that drive it all.
Meet the consumers at the heart of the supply chain
Jessica and Dan are 30-something urban professionals with means and the impulse to travel and try new things. I met them in late November during a visit to Blindman Brewing in Lacombe, Alberta. Along with Jessica’s sister and brother-in-law, the pair were visiting the taproom whose beers they had already enjoyed off-site.
“I was excited to go to a brewery I've never been before,” Jessica said. “Because every place has its own characteristics and feel. It's cool. You feel at home and welcome when you go to these sorts of places.”
The craft lovers I spoke with echoed this sentiment. They seek out brew masters and their origin stories and wholeheartedly support Alberta’s brewing communities and their supply chains. They’re in it for the total beer experience, wherever they go.
At home in Inglewood, Dan and Jessica call High Line Brewery their neighbourhood favourite. “We know the owners and the regulars,” Jessica said. We're in there two or three times a week, even if it's just for a quick pint after work.”
Craft beer must be distinctive and high quality
Consumers like Dan and Jessica are now the main driver shaping the sector’s current market dynamics. Growth in Canada’s micro/ craft breweries began in the ‘80s but has recently exploded as more people find what was once a niche product. As of December 2019, there were more than 1,000 licensed brewers in Canada, up from 10 just 35 years ago. And 125 brewers served 3.4 million Albertans aged 18 years and over.
Craft lovers go out of their way to find taprooms or liquor stores that sell a variety of beers they’ve never tried before. They frequent restaurants and pubs offering a distinctive craft selection on the menu. They host parties where guests try six-packs of different brews brought by other guests. Uniqueness defines the craft beer experience, even in tried-and-true brews from their local pub or taproom.
Dan Anderson and family enjoying a flight of craft beers at Blindman Brewing’s taproom in Lacombe, AB.
And for many, human fallibility is what gives the beer its sizzle. “It's a person making it, not a machine,” Dan said. “And because people aren’t perfect, the product changes just a little.” But even if the brewer succeeds in creating something unique, it must be consistently good. Craft’s closest cousin and competitor, the macro-brewed pale lager sold throughout the world, has built a global powerhouse that depends on its taste and quality.
A push vs. pull market
Craft lovers gain more power as additional suppliers fight for a relatively small market. Therefore, they can “pull” from retailers, brewers, maltsters and farmers the product characteristics and attributes they want to buy.
Macro-brews are a homogenized product “pushed” from very few suppliers to millions of consumers worldwide. More supply than demand factors have shaped today’s global beer market and its product’s consistently clean, crisp taste.
That’s the economics of it. But for Dan and Jessica, the craft experience provides a connection to something cool.
“When you visit a place that's smaller and more intimate,” Jessica said, “you get to know the people behind it. Our local brewer will say to me, “I'm trying these new hops. Or, have you tried this new beer we just got on tap yesterday?” He's asking for your opinion, and you feel part of it,” she said.
2 ways consumer influence shapes the craft market
- Highly-differentiated products: No two beers need be the same and, if done well, each can command premiums for their unique characteristics. One brewer might boldly re-interpret a forgotten Trappist ale recipe while another uses only locally-sourced ingredients.
- Growth of supplier interest: When such differentiation is possible and can lead to profit, more suppliers will be motivated to enter the market. The challenge? Each must bring some spark, some brand-specific creativity, either to the product or the experience. There’s a well-known limit to the growth potential of that structure (which we’ll explore), but while such investments reap the rewards, the sector can flourish.
A selection of craft beers and mead available on tap for growler sales at LA Liquor in Lacombe, AB.
These consumer-driven attributes aren’t simply nice-to-have features, they’re the product characteristics, widely shared and strongly valued, that shape the economics of each player in the supply chain – right to the farmer who plans crop production around them.
But this hasn’t always been the case - and it didn’t happen overnight. The shift from “push” to “pull” has deep roots in the history of beer production. It has taken a remarkable string of coincidences, amazing discoveries in science and engineering, some hefty marketing genius and decades of dizzying levels of global consolidation. And it all starts with yeast.
Brewing: A marriage of art and science
Beer is the world’s adult alcohol of choice, outselling all other alcohol by both volume and value. Its advantage is in its simplicity. Water, fermented grains and yeast, three readily available ingredients are all that’s necessary to brew beer - add flavouring as a fourth if you want an appealing taste. But while it may be simple, it’s anything but easy to brew a consistently good beer.
To be commercially viable, a brewer must offer customers a beer they’re confident will be safe and tasty. Being able to buy and consume the same product reduces purchaser risk. Today’s craft brewers can commercially brew a distinctive, good quality porter or stout, but that’s a relatively recent development in a product that’s thousands of years old.
Old world stout and ale
The yeast fermentation process used throughout history made ale, a richly coloured, strongly flavoured brew. Ale yeast acts quickly, allowing brewers to bring the beer to market quickly. But, it can only be used in warmer temperatures, and is notoriously difficult to work with. Add this to a production process that was unstable and unpredictable.
Traditional ales were fermented with the yeast rising to the top. By the early 1800s, scientists had discovered a property of yeast that could produce alcohol more reliably in a bottom fermentation process. It made a different family of beer commercially viable.
New world lager
The new process took much longer, during which the beer had to stay cold, which meant brewers had to have large cold storage facilities. Europeans had successfully brewed it in underground caves or during winter, but couldn’t reliably produce it year-round. That changed with the invention of refrigeration in 1876. Bottom fermentation would re-invent beer production, beer markets and arguably, the global patterns of the supply and demand of alcohol forever.
The new “lagering” produced a beer golden in colour and smooth in texture, with a different look and taste from the rich, strong ales of history. Drinkers loved the new quaff and the status consuming it was thought to provide. The invention of glass, glass bottles and cork-stops shortly after meant the golden elixir could be seen while enjoyed. Named lager, German for “storage,” this beer would become a global darling thanks to good luck and good timing.
Lager for the masses
Europe’s brewing infrastructure, much of it destroyed in the first and second world wars, would be rebuilt post-war in an era of mergers and acquisitions. Brewers were eager to capitalize on the growing success of lager, but only the largest could afford the refrigeration and expanded facilities its production required. That lager-based industry consolidation sowed the seeds of today’s market concentration of brewers supplying global markets with highly uniform pale beers with light hoppy character.
In North America, the world wars and the 1930’s drought restricted the use of grains such as wheat and barley. That limited both the production of more traditional beers and their profits, and along with Prohibition, the rations dramatically reduced the number of brewers. Post-war, production of a lager made with other grains such as rice and corn ramped up.
Consumers in the U.S. had acquired a taste for those adjunct beers as ale production declined, and low-fat diets gained popularity, giving birth to the commercialization of America’s famous “light” beer. The potential market growth in the U.S. wasn’t lost on the multinationals. Between 1947 and 1995, beer sales doubled, while the number of “traditional” brewers fell from 421 to 22. The top 5 brewers’ output grew from 19% of total production in 1947 to 87% in 2001.
The introduction of TV in the 1950s further cemented big beer‘s hold in North America. Offering the benefits of mass marketing to anyone who could afford it, the new medium ushered in beer’s golden era. Large multinational brewers had on their hands, a sexy, relatively new product that consumers loved. Having the means to advertise across the country combined with the growing demographic of peak beer drinkers (males aged 18-44), was a perfect storm of opportunity that all but drove North American ales into obscurity.
Until the ‘80s, that is, when a critical mass of consumers could fight back against the status quo. The move to take beer out of mass production into their homes (and then their small breweries) would turn the consumer from passive buyers to influential market players whose legacy now reverberates across the Canadian prairies.
Martha is a Research Specialist with a focus on economic performance and success factors for agricultural producers and agri-businesses. Martha has 20 years’ experience conducting and communicating quantitative and qualitative research results to a number of different audiences. She holds a Master of Sociology degree from Queen’s University in Kingston, Ontario.