What’s happening in the shifting world of alcoholic drinks in Canada?
by Euromonitor International
Unique products which offer an interesting experience appeal to consumers
Canadian consumers are gravitating towards unique food and drink products which offer an interesting experience, with this trend also spilling over into alcoholic drinks. Prominent examples include craft beer characterised as local small-batch production. Growing from a small niche into a sizable area in 2015, this is breathing some life into a struggling beer category. Meanwhile, partly due to appellations indicating country of origin, region and vineyard, wine is also growing in popularity. Craft spirits are also experiencing significant growth, with industry players hoping to replicate the success of craft beer.
Premiumisation continues while value offerings attract interest in beer
Higher quality premium products remain sought after across Canada, with consumers continuing to trade up. This trend was behind the more positive performances in 2015 of domestic and imported premium lager, higher priced wines (including VQA wines) and premium and ultra-premium spirits, and is expanding into less mature categories such as cider/perry. However, industry observers are seeing a slowdown in premiumisation, partly due to the fact that prices have already risen significantly. Meanwhile, cheaper economy offerings are also registering improved results due to overall weak economic growth and only slowly rising disposable incomes, with this particularly apparent in beer and wine.
Major players focus on overcoming a weak alcoholic drinks market
Industry players are actively seeking growth opportunities in what is an overall modestly growing alcoholic drinks market. Labatt Brewing’s acquisition of iconic craft brewer Mill Street Brewery in October 2015 was another major deal overshadowed by A-B InBev’s takeover of SABMiller at around the same time. Meanwhile, Molson Canada bought Blue Moon (Belgian Moon in Canada) and Guinness from Diageo Plc, further expanding into the lager category with Blonde American Lager in late 2015 in light of the stagnation in stout in recent years. Spirit-based RTDs and cider/perry are experiencing rapid growth, thus attracting industry participants such as Canada Dry Motts and Carlsberg Canada. Concurrently, industry operators are increasingly focusing on growth opportunities in adjacent categories in spirits, with Diageo’s deal with José Cuervo in 2015 to swap its Bushmills Irish whiskey brand for Don Julio tequila being a good example of this.
Changing regulatory environment offers new opportunities
After much anticipation, the Ontario government finally decided to relax regulations regarding the sale and distribution of alcoholic drinks and allow beer and wine to be sold in selected grocery outlets. This change took effect just before Christmas 2015 in the case of beer and in early 2016 for wine. Although the rollout is gradual and there are constraints at the beginning, it heralds the start of a major leap in Canadian history which will have a far-reaching impact in the days and years to come and could also soon be followed by spirits. Early in April 2015, the government in British Columbia went one step further to allow alcoholic drinks, including both wine and beer, to be sold in the grocery channel. Alberta, meanwhile, is seeing an increase in the prices of alcoholic drinks while Saskatchewan decided to privatise most of its liquor stores in late 2015. All of these are activities are part of a changing regulatory environment which will bring both opportunities and challenges to industry players.
Weak economic outlook set to limit the growth of alcoholic drinks
2015 saw Canada in a “technical recession” for the first half of the year due to a steep drop in oil prices, with weak economic growth being seen for the rest of the year. This will likely have a negative impact on consumer disposable income and sentiment going forward, with sales of alcoholic drinks being inevitably impacted.