The Strategy Interview

Mark HamelinPresident and ownerCustom Brew Beer SystemsMark Hamelin, the president and owner of Custom Brew Beer Systems with its headquarters in Hamilton, opened his first u-brew outlet in 1988 in that city. Since then, his company has opened 45 turnkey operations...

Mark Hamelin

President and owner

Custom Brew Beer Systems

Mark Hamelin, the president and owner of Custom Brew Beer Systems with its headquarters in Hamilton, opened his first u-brew outlet in 1988 in that city. Since then, his company has opened 45 turnkey operations in Ontario and a further nine in b.c. Custom Brew has 25% of the national u-brew market, worth about in $30 million in Ontario alone.

Q. From the evidence, there seems to be a shakeout coming to your industry. Is this going to be because of overcapacity, the new Ontario tax of 26 cents a litre, or does your industry have an easily discernible maturation point?

A. Definitely there is a shakeout coming along here in a short while. I think it’s partly due to the over-saturation of the market, but I think that has definitely been accelerated by the tax. You talked about the market. Is it going to reach a point and stay there? I think the tax will do that for us.

Q. What about competition between outlets?

A. Competition in terms of customer numbers is fairly intense right now. I think that [operators] are worried with taxation, and some [of them] have elected to try and eat part of that tax. There are all kinds of gimmicks set up now, club cards where you brew one and get one free, coupon clips that allow you $5 or $10 off a batch of beer. There are all kinds of marketing ploys.

Q. How do you differentiate one of your outlets from your competitor 20 blocks away?

A. Most of our systems have fairly modern or automated equipment. First of all, we’ve taken the u-brew and taken it up a couple of levels. We would use things such as counter-pressure bottle filling, which is the same principle as the big brewers use except on an individual basis. Our filtration and carbonation are fairly sophisticated, and what that does is give the customer a better quality product.

Q. In the u-brew business, can you see it being whittled down to just two or three large players much like the commercial industry?

A. I think that’s probably what’s going to happen. From day one, I was always of the opinion that guys that got in on a shoestring budget and pieced things together and really didn’t research equipment and product are going to be the ones who suffer. I think that’s what you will see in the industry in the next six months to a year.

Q. Your business is the largest in the industry. Where do you see your future growth coming from?

A. Right now we are expanding into British Columbia. We put our first store in British Columbia, the first modern u-brew, in the fall of ’91 and [u-brew outlets] have grown [there] to about 25 stores now, of which we have nine stores. So we don’t see Ontario as the growth of the industry.

We see British Columbia [as a growth area.] We have had numerous calls from the u.s. The first u-brew opened up in California about two months ago and so we think with a little different idea of why u-brews open they will [work] into the u.s.

There are a far greater number of home brewers per capita [in the u.s.] than in Canada and [u-brew beer] would probably be sold on the natural-beer,-you’re-making-it-yourself, sort of concept [rather than] its being sold as economical.

Q. What about the rest of the provinces?

A. I think what’s happened is that the brewers have done a really good job of steering this industry. I don’t think anybody realized that the industry would get as big as it has in Ontario as quickly [as it has.]

They [commercial brewers] have seen to it that other provinces really are aware that there is potential for this kind of a market share. And so what’s happened, we have seen places like Nova Scotia, where they have created a law to prevent this.

We’ve just seen Alberta decline the u-brews. [The province] ended up saying there was a great enough number of different brands of beer and there wasn’t a need for a service like [u-brews] in Alberta, which is obviously a cop-out because it has nothing to do with commercial brewing.

Q. What sort of demographics do you look for in a new territory?

A. Obviously population is the first thing. We’ve shown that u-brew can be supported in a town probably as small as 5,000, in the immediate town, with a drawing area anywhere between 10 [thousand] and 15 thousand within a 15- to 20-kilometre radius.

Q. What other characteristics are you looking for?

A. We’re looking for alcohol consumption. Our [software] package will give us the amount of money spent on alcohol in the last year, say, on average, both in a licensed establishment and in Brewer’s Retail [Ontario's beer retailing monopoly.]

Then we’re looking for income that would support u-brews. Surprisingly enough, the very low income places are not the places we want to be because [potential customers] could not afford $100 or $90 for the initial outlay for the beer, then wait two weeks to pick up the product. We’re looking for more the middle-income areas.

Q. What about age? Are your customers people with time on their hands, or people interested in saving themselves money?

A. I would say, typically, the age that we see, the majority of it, is probably somebody from about 28 to about 45.

Q. And these are mostly men?

A. Yes, definitely.

Q. Your industry is low-profile despite the recent publicity about taxes. Does that hurt you?

A. Well, I would have to disagree with that because I think that we’ve got a pretty high profile. I’m very surprised. I’ll go places, and I’ll sit down, or I’ll meet people who I think would never have been in a u-brew.

Q. Do you see your industry getting together to launch some sort of initiative to tell people you’re here and come and try our beer?

A. As a matter of fact, at our last association meeting we formed a couple of committees, and one of them was to do exactly that. Public relations, exposure. We definitely think we need a face for our industry and we are prepared to go out and get that.