At lagerheads

It is not difficult for beer drinkers in search of lower-priced product to feel sympathy for Lakeport Brewery President William Sharpe.Sharpe's noble struggle is to bring low-cost beer to the masses, and in that pursuit he has had unexpected success.Lakeport's launch...

It is not difficult for beer drinkers in search of lower-priced product to feel sympathy for Lakeport Brewery President William Sharpe.

Sharpe’s noble struggle is to bring low-cost beer to the masses, and in that pursuit he has had unexpected success.

Lakeport’s launch late last year of President’s Choice beer, brewed under licence for Loblaw International Merchants, took the market by storm and has led to the creation of a popular-price segment in Ontario where none existed previously.

But if Sharpe, who owns 30% of Lakeport, outsmarted and outmanoeuvred Labatt Breweries of Canada and Molson Breweries in Ontario, he claims they have formed a Wrestlemania-style tag team and pinned him to the mat in Quebec.

Last July, the Quebec government, at the behind-the-scenes urging of Labatt and Molson, slapped Lakeport down mid-stride in its effort to begin shipping control label beer to Quebec’s two leading supermarket chains, Provigo and Metro-Richelieu.

(Lakeport already supplies Metro-Richelieu with a de-alcoholized beer called Norrois.)

Provigo and Metro-Richelieu both intended to sell the brew as discount price house brands.

Since 95% of packaged beer sales in Quebec occur in supermarket chains and corner stores, many of which are owned or controlled by Provigo and Metro-Richelieu, the appearance of control label beer would clearly present a formidable competitive challenge to Molson and Labatt.

But Lakeport’s ambitions in Quebec were stymied by the provincial government’s sudden introduction of a new set of regulations governing the distribution of beer in the province.

To manage the regulations, the government formed a new permit board, La Ragie des Permis, which must grant distribution licences to out-of-province brewers before they can ship their beer to retailers.

A key regulation introduced in July says retailers are barred from acting as distributors for beer.

Since Lakeport intended to ship the supermarket house brew from its plant in Hamilton to a warehouse in Montreal, where it would be picked up by the supermarkets’ distributors, Sharpe found his plans running afoul of the law.

Subsequently, Lakeport established an alternate distribution system, in conjunction with its majority owner Cott Beverages, and applied for a distribution licence in its own name.

But in October, both Molson and Labatt registered their opposition to the application, and Lakeport has been waiting for its day in court ever since.

According to Sharpe, La Ragie des Permis is a puppet of the two big brewers, who he accuses of using the new legislation as a shield from competition in the market.

‘I might sound a bit bitter about it, and, by God, I am,’ Sharpe says. ‘Two guys have 95% of the Quebec market and they don’t want to let anyone else in.’

(Sharpe is so incensed at the treatment he has received at the hands of Molson and Labatt that last year he registered an ‘Abuse of Dominant Position’ complaint under the Department of Consumer and Corporate Affairs’ Competition Act. Consumer and Corporate Affairs is still looking into the complaint.)

Sharpe believes he will eventually gain access to the Quebec market, but he predicts it will not happen until both Molson and Labatt have established discount brews of their own.

Indeed, within the last two months, both major brewers have introduced so-called popular-priced brews – Molson’s is called Carling and Labatt’s is called Wildcat – selling for about $2 a 12-pack less than regular-priced beer.

For their parts, Molson and Labatt claim they have done nothing wrong or unfair to Lakeport.

Alban Asselin, vice-president, public affairs with Molson O’Keefe in Montreal, says Lakeport’s original distribution plans would have given it, and, more to the point, the supermarket chains, an unfair advantage over Molson and Labatt.

This is because if a retailer were allowed to own or control its beer supplier, it would gain a type of monopoly advantage over other brewers selling beer in its stores.

Asselin points out that since the vast majority of beer sold in Quebec passes through private retailers, such arrangements would tilt the playing field in favor of the retailers.

He says a law already exists preventing brewers from owning retail outlets, in effect from becoming retailer, so, to be fair, a law should also exist preventing retailers from becoming brewers.

Further, Asselin takes issue with Sharpe’s contention that the Ragie des Permis was formed with the strict intention of wrestling Lakeport to the ground.

‘The registry wants to establish what the rules are not only for Lakeport, but also for the Americans who will probably be here in October,’ he says.

A number of u.s. brewers are poised to begin widespread distribution in Canada’s 10 provinces and two territories, each of which has different beer regulations, but the invasion is not expected to begin until Ontario and Washington resolve their on-going beer dispute.

Asselin says La Ragie des Permis is charged with ensuring that u.s. brewers are not able to enter the province, buy up retailers and monopolize the market.

Natalie Lejeune, an executive assistant with La Ragis des Permis, says she is trying to arrange a public hearing for Lakeport in July.

But she is not sure if she will succeed because ‘it looks like too many of the parties will be away.’

Last month, the board heard its first case involving a Quebec microbrewer that wanted to name a Montreal food distributor as its distribution agent.

The application was denied on the grounds that the distributor, Colabar, of Montreal, was too closely tied to the retail industry through exclusive distribution contracts to various retailers.

It remains to be seen whether Lakeport will be shot down for the same reason. Lakeport is 70% owned by Toronto’s Cott Beverages, a control label manufacturer with close ties to the retail industry.

Sharpe says he has taken pains to distance himself from Cott’s operations, although he admits he is leasing a Cott-owned warehouse near Cott main distribution centre in Montreal and he is planning to appoint Cott as his licensed distributor. PA