Ontario’s independent grocers want to support craft beer

Beer is coming to grocery stores.

No, really.

For a number of reasons, it’s been tough to believe that this development, first announced by the provincial government back in the spring of 2015, would ever actually come. Firstly, there’s the healthy dose of cynicism with which we’ve all learned to approach any news about alcohol reform in Ontario, and secondly, there’s the fact that, aside from those early announcements about 450 grocery stores that would eventually be allowed to sell beer, we haven’t actually heard a lot of details about how (or when) exactly this would all happen.

Until now.

In a Ben’s Beer Blog exclusive, I had an opportunity to chat recently with Tom Barlow, President and CEO of the Canadian Federation of Independent Grocers (CFIG).  This chat was exciting for a few reasons: Firstly, I’ve now got some details about what beer in grocery stores might actually look like, and secondly, the fact that independent grocers have been invited to take part in the conversation with Ed Clark and the panel overseeing the reform of beer sales bodes well for Ontario’s craft beer, in my opinion.

I’ve got the entire transcript of my chat with Tom below, but here are some key points because I know you’re too lazy to read the whole damn thing (oh, by the way, have you cast your vote for the 2015 Golden Tap Awards yet? Don’t forget your favourite beer writer).

Some details about beer in grocery stores

• We will likely see beer on grocery store shelves in the next 18 months
• The province still hasn’t decided how to auction off licenses to sell beer in a way that is fair to small grocers
• At least one grocery store chain has stated they’d like to sell “100% craft beer.”
• If you have fears that bigger brewers are going to be able to buy shelf space, continue to be scared of that very real possibility
• Brewers will be allowed to do direct-to-store delivery

A transcript of my chat with Tom Barlow, President and CEO of CFIG, edited slightly for length 

Ben Johnson: Thanks for chatting with me Tom. It’s been pretty quiet in terms of the announcement about exactly how we’re going to get beer in grocery stores. So can you tell me a little about the process for becoming eligible to sell beer in your stores? Speculation has been pretty rampant that we’d only see bigger chains getting the privilege, so it’s interesting to hear that independent grocers are at the table. 

Tom Barlow: Yeah, I’ll share what I can. The regs will be coming out soon, and the people that have been in discussions are under a non-disclosure but what I can tell you is that the original conversation was that it would be just large chains, then the government through consultations with [CFIG] and regions decided that it should be open to “grocery” under the north american definition of what grocery is, namely that they carry fresh produce, fresh meat, and that kind of thing. I don’t know if they’ve settled on a size—there was some discussion that there would be a minimum size—but for all intents and purposes it would be “grocery” and it would be wide open. The discussion we’ve had so far is that there would be so many licenses to start and they’d step it out, then get comfortable, then release some more, and then release some more. The number that was floated was around 450 licenses. That is, 450 retailers are going to have the opportunity to sell beer.

BJ: I’m assuming it’s a bidding process for getting the license and that’s the part you can’t talk about?

TB: They’re still working through the mechanism, but are looking at a biding process. I think we made our point that privately held—vs. publicly held—the access to cash is different, so there needs to be a plan made so all the licenses don’t all get swallowed up by—

BJ: Galen Weston?

TB: —Yeah, exactly. We were a little frustrated at first but after numerous conversations they’ve heard our position, and I think it’s the same with the corporate chains, is that they should have just opened it up to “grocery” from the start. If you’re going to go grocery, go grocery. This contest for picking winners and losers is a slippery slope to be going down.

BJ: As I’m sure you know, as with all recent proposals to alcohol legislation reform, there is an inherent cynicism from the beer community. Given that things have been so weird for so long, this announcement was a bit of “OK, here we go again. Beer is going to be put in the hands of another third party instead of the people who make it.” That is, a lot of craft brewers feel they should be able to own their own stores, so I’m curious to know how you think this will be an improvement from a system that previously saw beer sales just in the hands of the The Beer Store or the LCBO.

TB: I think it’s a big opportunity for the craft guys and we’ve had a lot of conversations with them. You’re right. Right now they’re kind of restricted: they can sell on premise, and it’s pretty hard for them to get access through the LCBO, and they’re often hesitant to work with The Beer Store. Our position is that we really see the opportunity for craft beer because one of the things an independent grocer needs to do is find their point of difference in the marketplace and having local craft beers, we see that as a big opportunity. We view them as kindred spirits, you know? They’re Canadian operated, entrepreneurs, privately held businesses—very similar to what the make-up of our businesses are.

BJ: So do you have an official position on whether or not your members will support small brewers vs. large multinational brands?

TB: At the end of the day it will be up to each of our members to make their own decision but our committee that’s been in having conversations with Ed Clark—our position has been that if you want to put a minimum on how much [beer] has to be craft, we’re very happy to have a high percentage of the beer sold in our outlets being craft. Our members, for example Jeff York who is the CEO of Farm Boy, has made a statement that he’d like to see it be 100% craft beer.

BJ: Nice! 

TB: I think that’s the sentiment for most of our members. To try to sell Bud Light and Blue and those brands that are already at The Beer Store really doesn’t create a point of difference and there really isn’t much of an advantage. A lot of our guys feel they can build that relationship with their local craft brewer and work together to help them expand their products.

BJ: That’s encouraging to hear because to my mind, the two sectors in beer that are showing growth right now are the discount brands, which are obviously made by big brewers to appeal simply to those seeking the lowest possible price point, and then craft beer, which is experiencing growth among more discerning consumers who are willing to pay more for beer. I’m very curious to see how a new retailer will approach these two sectors in terms of finding a balance of consumer tastes.

TB: Again, we advocated that we would be comfortable in a high percentage of craft. I think that the government is a little restricted based on the current model [I’m not really sure what ‘based on the current model’ might mean other than maybe, ‘the government is really scared to shun big brewers who have happily donated so much money for so long’ but that could just be me being a cynic — BJ] , but what they’ve said to us is “We won’t put a maximum on it,” so if you want to sell 100% craft beer, that’s your decision.

BJ: I’ve written fairly extensively about the way the current model for selling beer is essentially a “pay to play” system wherein breweries and their reps purchase tap lines and fridge space from bars and exchange incentives for exclusivity. For bars and restaurants, this system is actually illegal and yet it is rampant. Given that purchasing shelf space is part of the way grocery stores already do business, what measures will you take to ensure a level playing field in terms of beer retailing? 

TB: This is where the government has been very open to the discussion of “trade spends,” that’s what you’d call this practice on the grocery side, if it’s promotional dollars, if it’s a big retail. Obviously the bigger retailer you are the more dollars you’re going to get. The government has been has heard our concerns, you’ll probably see restrictions on the practice, but you’ll probably see a lot of cross promotion, whether it be bottle openers or t-shirts but not the dollars—like buying space. I don’t think the government is going to allow that to happen. [Fuuuuck — BJ]

BJ: Well, the fear is that you’ll soon see an announcement that Loblaws is going to be exclusively Labatt or whatever. I picture stores where we’ll see that 20% minimum craft being met and the remaining 80% all Labatt or all Molson products. Aren’t the big guys just going to buy their way into another retail outlet?

TB: That’s kind of what you see if you go into Quebec. You go into convenience store in Quebec and you see whether it’s Labatt that’s done the deal or Molson. The one difference I think in Ontario is until they understand this better, they’re going to do everything they do with promotion. The government gets the idea of a level playing field so that one can’t use size to take over, but I think that if you saw something like Labatt partnering with Loblaws, that would be an issue for The Beer Store—even though they technically own that too—and it would be an issue for independent grocers since we couldn’t compete on that field.

BJ: You know it sounds to me like there isn’t much being done to prevent this from happening. Like it sounds like there are a lot of details still to work out there and to my mind this is a pretty big detail to work out.

TB: Yup. But they’re getting close. I think you’re going to hear something in the next couple weeks.

BJ: The next couple weeks?

TB: Yeah I think you’ll see the regs will be in to be debated by the politicians and once they get approval we’ll start moving out on it. There’s still a hope that you’ll see beer in some stores in early 2016. Given that it’ll probably take about six weeks to put in the shelving and build the space, we hope that they get finalizing this pretty soon.

BJ: Speaking of that, I’m curious to know what beer in grocery stores will actually look like. In the US they’ve got end caps in stores and places like Whole Foods have walk-in fridges, but in Ontario where we are historically risk averse, there’s been talk of separate sections that can be closed off at certain hours, separate employees, and separate cash registers…

TB: There is going to have to be the need to lock it down given the hour differences for grocery retailing and beer retailing but you’re not going to see separate check-out counters or separate employees. It is going to mean a change for our members because the clerks will have to be 18 or older and there are a lot of clerks today that are under that. But that’s already the case with the LCBO agency system and a fair number of our members are agency stores, too.

BJ: Considering that small breweries don’t typically make enough beer to service a ton of accounts and they still have to be choosey about where their beer ends up—they have to weigh the merits of the Beer Store system vs the LCBO and when they service bars and restaurants they have to pick and choose the accounts they service—I’m curious to know what you can offer craft brewers who opt to choose grocery stores as an outlet for their product.

TB: Well I think again, depending on the model they go to, the craft brewers will have the opportunity to do direct-to-store delivery so if I’m in Baysville and I want to sell my beer in Bracebridge or Hunstsville, I can go to that local store and develop that relationship instead of having to go through the LCBO and I’ll be able to promote those brands. That’s also in the interest of a local retailer to show that they support the local community. And sure some of the bigger guys like Mill Street or Steam Whistle will have a broader distribution but I think beer will be a reflection of the region. The guys in Waterloo will be in Guelph and so on, but you won’t necessarily see the same brands across the province.

BJ: Finally, how will the beer buying experience at the grocery store be better for consumers than the one we currently have at the Beer Store and the LCBO?

I think what grocery offers—and you talked about—the good operators like Whole Foods, they use that as a cross promotion. Grocery is about food and about the experience. We see it with beer and certainly craft beer. You’re sitting down for dinner and it’s part of the whole experience. I’m not down on the LCBO. I like going to the LCBO. I think what the LCBO doesn’t offer is the ability to cross promote and I think grocery does that.