Wellington Breweries Pdf

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University of North Texas *

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Jan 9, 2024

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docx

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1a.R&D/Satellite Location for Product trending, Preferences, Product trials Develop a comprehensive plan to enter new provincial regions, including online sales and diverse demographics. - Market Expansion - Economical/Political/Social 1b.Tapping into new product and catering to new markets - Tie in with satellite locations Explore new product lines, like craft spirits or non-alcoholic beverages, to tap into emerging markets. - Variation - ? Invest in R&D for novel beer flavors, catering to changing preferences, including health- conscious and low-alcohol options. - Innovative Product Brent and Wellington Brewery could consider establishing R&D or satellite locations for product trending and trials, focusing on market expansion. This could involve understanding shifting consumer preferences, such as the trend towards craft spirits or non-alcoholic beverages, and developing new product lines to cater to these demands [5]. They could also explore online sales to reach diverse demographics and new provincial regions, considering the economic, political, and social aspects of these areas. Additionally, investing in R&D for novel beer flavors could be beneficial. The brewery has experience in producing award-winning experimental beers, which could be leveraged to cater to health-conscious and low-alcohol options [5]. This could help tap into emerging markets and maintain relevance in the face of intense competition. Wellington Brewery: Growth Decision in a crowded Beer Market In late June 2019, Brent Davies was considering various strategic options for the future of his company. Davies was the president of Wellington Brewery, a well - established craft brewery located in Guelph, Ontario, Canada. Wellington Brewery had recently completed a successful expansion of its operations. The expansion had taken place during a period of explosive growth in Canada’s craft brewery industry. As part of the expansion project, the company had increased the size of its premises by 1,700 square met res (18,300 square feet). It had also upgraded its facilities with new state - of - the - art equipment for brewing, canning, and water treatment. The expansion process had successfully transitioned Wellington Brewery from a small company to a medium - sized operation. Within only a few years, the craft brewery’s operations had expanded significantly. Among its greatest assets, Wellington Brewery acknowledged its employees, cutting - edge equipment, and product quality and consistency. In fact, the brewery sought to create consistently handcrafted beer products with every batch, and never took shortcuts in the brewing process. The recently upgraded equipment significantly increased the company’s efficiency in the beer - canning process and improved quality control of the product. These enhancements clearly supported Wellington Brewery’s overall goal of expansion across the entire Ontario market. The brewery already performed exceptionally well locally. The next step was to continue expanding beyond its own community and throughout the province.

Wellington Brewery faced strong competition from other craft breweries in the province, but also from giant multinational “macrobreweries.” However, the company boasted a competitive advantage over macrobreweries simply due to its smaller scale, which allowed the craft brewery to offer more expensive and exquisite ingredients in its beer, such as interesting fruit s and carefully chosen additives, to brew a selection of unique - tasting, small - batch craft beers. After completing its recent expansion project, Wellington Brewery faced the challenges of an unpredictable and oversaturated market. Ontario’s craft brewery industry was characterized by unexpected growth, shifting consumer preferences, and intense competition for shelf space at limited retail outlets. Davies urgently needed to plan his company’s continuing expansion and ensure that Wellington Brewer y remained relevant and financially strong during challenging times. INDUSTRY BACKGROUND The Beer Industry in Canada In 2018, the global beer market was worth CA$895 billion [^1^] and was expected to continue growing [^2^]. Of the estimated 25,000 – 30,000 breweries around the world, most produced less than 1,000 hectoliters (hl) per year [^3^]. Beer was Canada’s most popular alcoholic beverage. In 2018, Canadian beer sales reached $20.2 billion, and were forecasted to reach $22.1 billion by 2023 [^4^]. The Canadian beer market was dominated by two multinational companies—Molson Coors Beverage Company and Labatt Brewing Company Limited (owned by Anheuser-Busch InBev). These two industries giants-controlled 50 percent of the Canadian market, while the myriad of much smaller craft breweries together accounted for only approximately a 9 percent share. Between 2016 and 2018, Canada saw a 30 percent increase in the launch of new breweries, reaching a total of 901 companies in the industry. Despite this increase, however, beer consumption in Canada remained relatively flat over the previous decade and dropped by 0.7 percent during 2019 [^5^]. This trend was attributed to various factors, including an increasingly health-conscious consumer base; lower drinking rates among younger customers; and growing cider, wine, and spirits industries [^6^]. Non-alcoholic beer also saw tremendous growth in 2018, with a 31 percent growth in total volume [^7^]. The beer industry was unpredictable for various reasons: consumption seasonality, explosive growth, changing consumer preferences (e.g., products being made sustainably), aggressive innovation from smaller breweries, and uncertain Canadian and provincial regulations. Until 2015, only the government-owned Liquor Control Board of Ontario (LCBO) [^8^] and The Beer Store (TBS) were authorized to sell alcoholic beverages. In 2019, TBS accounted for 63 percent of total beer sales in the province, which was a decrease from 66 percent in 2018. TBS traditionally sold mainstream beer brands, in packages of 24 bottles, whereas the LCBO offered over 28,000 alcoholic beverage products, including beer, in individual cans or small packs. The LCBO also acted as a wholesaler to approximately 450 grocery stores in the province. In 2019, the LCBO's sales of beer, wine, and cider to grocery stores grew by 60.8 percent for a total of $246.7 million. That same year, grocery store sales represented 80 percent of its market share gain by volume. The LCBO's e-commerce channel was also steadily growing by 72 percent year- over-year, reaching $19.5 million in 2019 [^9^]. The price of alcohol was regulated and consistent throughout the province, regardless of the specific retailer [^10^]. The LCBO reported

directly to Canada's Minister of Finance and provided $6.39 billion in revenue. In 2019, the LCBO transferred $2.37 billion in dividends to the Ontario Government [^11^]. For convenience, beer distribution channels in Canada were classified into two categories: on- premises and off-premises. On-premises locations, which allowed consumers to drink beer directly, included bars and restaurants. Off-premises locations, which allowed consumers to purchase beer but not to directly consume it, included the LCBO, TBS, grocery stores, and e- commerce outlets. In 2018, the LCBO and TBS were the most popular off-premises beer distribution channels, generating $5.0 billion in sales. On-premises locations such as bars and restaurants generated $9.0 billion in beer sales [^12^]. Craft Beer The craft brewing industry, a sub-sector of the overall beer industry, offered premium beverage products. From 2014 to 2018, the Canadian craft beer industry experienced significant growth, almost doubling in revenue from $1.0 billion to $1.9 billion [^13^]. Although a comprehensive definition for the terms "craft brewery" or "microbrewery" was not officially established, microbreweries were understood to represent companies that produced less than 50,000 hl annually [^14^]. The federal government typically licensed craft breweries that produced 400,000 hl or less per year and were independently owned and operated [^15^]. For example, Brick Brewing Co. Limited (renamed Waterloo Brewing Ltd. in 2019) in Kitchener, Ontario, was a certified craft brewery. 16 "Most craft breweries in Canada produced 5,000 hl or less per year [^16^]. Companies that produced over 400,000 hl, such as the two multinational beer companies that dominated Canada’s beer industry, were categorized as “macrobreweries.” In contrast, the Canadian craft brewing industry was highly fragmented, with hundreds of small breweries typically focused on serving local communities, although some of the larger craft breweries catered to the entire province. Ontario was home to 315 breweries, but only two-thirds of them sold their beer in retail outlets such as the LCBO, TBS, or grocery stores [^18^]. Craft beer consumers, whose tastes changed rapidly, were mainly interested in the experience, locality, and the variety of products that craft breweries offered. In contrast to macrobrewery customers, these consumers also tended to have less brand loyalty and to prefer ale to lager. Sales of ale, the most consumed craft beer, grew from $905.2 million in 2014 to $1.7 billion in 2018. Emerging and alternative trends in the industry included canned nitrogenated beer [^21^] and non-alcoholic beer. Despite environmental uncertainty and regulatory constraints affecting the entire industry, the Canadian craft beer industry continued to grow. Reasons for growth included changing demographics, consumer preferences for unique products and new experiences, and overall support from vital retail partners [^22^]. Specifically in Canada, the growth of the craft beer industry was influenced by the country’s generally favorable demographic, social, political, economic, and environmental characteristics (see Exhibit 1). BRENT DAVIES, WELLINGTON BREWERY’S PRESIDENT Wellington Brewery earned $10 million in revenues in 2019 [^23^]. It was one of Canada’s oldest and largest independently owned craft breweries [^24^]. The brewery was initially known for its darker craft beers, which were offered throughout Canada’s most populated province,

Ontario. Davies started working at Wellington Brewery in 1995 but left the company in 2000 to pursue a career in the chemical industry. However, in 2010, Davies returned to Wellington Brewery as a partner and vice-president, with responsibilities in the company’s sales and marketing divisions. In 2016, Davies was appointed president. At the time, he owned 60 percent of the brewery and held 90 percent voting rights. The remaining control of the company was spread among small investors with limited voting rights. In addition to his close affinity with the business, Davies had a passion for beer and a deep understanding of consumer choices. During his interactions with customers at the LCBO stores, he would often ask people why they chose a specific product. He was proud of Wellington Brewery’s award-winning beers and sought to expand people’s palette with high-quality tasting products. As the brewery expanded, Davies knew that upcoming decisions were critical. He believed that any decisions about the business strategy and long-term vision would need to respect, yet help evolve, the company’s culture. COMPANY BACKGROUND Wellington Brewery’s expansion in 2015 – 16 increased the organization’s annual brewing capacity from 24,000 hl to 80,000 hl. In addition to state-of-the-art brewing equipment upgrades, the company purchased a second building to make room for offices and inventory, a new canning line to increase efficiency, and an enterprise resource planning (ERP) system. The company also installed a complete water treatment system to improve the longevity of the equipment and to reduce water usage and waste. As of 2019, the brewery employed 45 staff, including full-time and part-time positions, depending on the seasonality of the business. Wellington Brewery’s respect and pride in its employees were reflected by the company’s impressive retention rate. For example, the brewery’s vice-presidents of finance, sales, and brewing had been with the company for an average of 16 years. Its experienced staff helped Wellington Brewery master the challenging product submission process through the LCBO, as Davies explained: "Because we’ve been around so long, we know the process to plan timing-wise. We got it so our last couple of brands —our product launches—we were early to market, and we had things well in advance with the LCBO. We got approvals through, and we got it out there." Long-tenured employees contributed to corporate memory, provided stability within the business, facilitated creativity, and readily provided their expertise. However, Davies was aware that long-time employees could also be more resistant to change and more heavily relied upon, rather than establishing more automated processes. Wellington Brewery’s top management team described the company culture as “very family and community oriented.” This type of culture worked well if the company remained relatively small. However, with the expansion of the brewery and additional staff added to the team, Davies acknowledged the need for a more balanced approach between focusing on maintaining a “family” feel and integrating more structured roles into the business. Davies noted that “when you’re small, everybody’s doing everything. But now, the thing is, you can’t. You can’t do everything. You can’t have those pressures all the time.” Some members of the top management team were responsible for multiple managerial roles, which reduced their ability to take on additional tasks or projects. The brewery had to start

implementing its new inventory management system, but it was difficult to find the right time and the right person to manage the project, which incurred delays. That person would likely be selected from among the busiest people in the company. Stress and confusion arose in reporting lines due to multiple roles held by some employees. Davies felt that a revised organizational structure was needed to support growth plans, formalize processes, clarify roles and responsibilities, and reduce employee workload. COMMUNITY The community was a crucial element of the craft brewing industry. Craft beers were locally handcrafted, authentic products. Wellington Brewery maintained its connection to the community through engagements in local events, charitable work, and donations to local causes. Davies felt that “those decisions kind of become stand-in for a lot of things I think are really important, and in broader relationship building.” Some initiatives included collaborations with local organizations, such as donations to Pride support groups based on the sale of a specific beer brand or hiring local artists to design beer coasters. Despite its goal to expand across the entire province, Wellington Brewery was eager to retain the local brand feel and connections it had established within its community. A craft brewery’s community was dependent on location, size, and strategy. Some regions and communities were more receptive than others to craft beer. In fact, the number of Canadian beer drinkers that consumed craft products ranged widely from 26 percent to 50 percent of the population, depending on the geographical location [^25^]. Therefore, craft breweries needed to decide whether to focus their efforts on competing in a popular craft beer market or instead tap into a smaller market and build up the brand by educating new craft beer consumers. In Ontario’s highly competitive Toronto market, for example, a craft brewery’s community could vary from the entire city to a geographical portion such as east Toronto or the downtown core, or even a specific neighborhood such as The Danforth or Etobicoke. A brewery could focus on specific stores within a small area to sell its products to a targeted consumer group. Alternatively, it could cater to a much broader range of consumers. For example, Waterloo Brewing Ltd. chose to expand its market share by acquiring province-wide distribution rights for several major beer brands including Laker, Seagram Coolers, and Landshark. 26 Smaller breweries looking for growth needed to be more creative due to their limited acc ess to capital. An alternative to acquisition was to develop long - term sustainable relationships with retailers outside the community. To achieve this, craft breweries could leverage their existing connections with local LCBO stores and licensees to help t hem expand. Other options included sponsoring events and sports teams outside their city and developing innovative methods for bringing people from outside the community to the brewery. The craft brewery industry was generally collaborative. Companies often relied on each other during times of need and shared their knowledge at professional events. These practices helped produce resourceful teams and promoted rapid pivoting when information was needed. For example, when Wellington Brewery’s equipment was experiencing rapid degradation due to the city’s hard water, the company’s vice -president of brewing and another employee leveraged their expertise to build a network of contacts who work ed in wastewater management and water

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