Ambitious regional microbreweries across Canada are planning to expand nationally despite difficulties breaking into the lucrative Ontario market.

Microbrewers say it's difficult to access the Beer Store chain in Ontario, which sells most of the province's suds, because it is jointly owned by major breweries Labatt, Molson Canada and Sleeman.

But Calgary-based Mountain Crest Brewing Co., Russell Brewing Co. in the Vancouver suburb of Surrey and Toronto-based Mill Street Brewery, among others, are planning to sell their products across Canada in coming months.

Mountain Crest, founded in 2002, is expanding to Saskatchewan and Ontario by the end of this year, says president and CEO Ravinder Minhas, 25, who is among a group of young brewers unfazed by the might of Molson, Labatt and Sleeman.

File photo by David Lazarowych, Business Edge
Ravinder Minhas of Calgary's Mountain Crest Brewing, with his sister Manjit, have reason to toast the future of their microbreweries as they tackle the national markets.

"I think we have a plan to take them on," says Minhas. "They're tough competition, don't get me wrong. We found a way that works for us in Manitoba and Alberta. If we stay the course, we should be able to stick it to them."

Mountain Crest, which has annual revenue of $55-$60 million and bills itself as a premium brand at a discounted price, plans to distribute on its own in Saskatchewan and through the Beer Store as well as Liquor Control Board of Ontario stores (LCBOs). By next summer, Minhas and his sister Manjit, who is responsible for the Manitoba operation, hope to double the firm's annual production to 400,000 hectolitres.

Like many other microbrewers, Minhas objects to the idea of distributing through Beer Stores owned by the major brewers.

"I compete with these guys on a head-on basis in Alberta and then, suddenly, I've got to be in bed with them in Ontario," says Minhas. "It's ridiculous. There's so much red tape and there are so many hoops that they make you jump through.

"We had half a million dollars worth of beer sitting in Ontario that ended up going to Manitoba just because it was taking so long," says Minhas.

The difficulties are not deterring his firm's growth plans. But Minhas, who also sells his beer in some U.S. Midwest states, does not plan to expand to B.C. until more stores are privatized, because he says he can't get his beer into enough provincially owned stores. He withdrew his beer from B.C. about four years ago.

But he believes "it's great timing" for microbreweries to expand. "It's a new era, for sure," he says.

In Canada's largest province, Gary McMullen, chairman of the Ontario Craft Brewers Association and owner of Lakes of Muskoka Brewery in Bracebridge, is attempting to get more micro-brewed products into Beer Stores.

"(The Beer Store) is a for-profit private company, so it can be a challenge for a small brewer to compete in that environment, when the Beer Store comprises probably 85 per cent of the sales in the province and it's owned by your competition," he says.

McMullen also wants the Beer Store to improve its displays of micro-brewed beers in stores and revert to its former practice of self-serve stores, which allow customers to walk past displays on pallets and down aisles - "a more modernized retail environment."

Bayne Stanley, Business Edge
Andrew Harris of Vancouver's Russell Brewing.

He contends the Beer Store's shift to Ice Cold Express-format outlets, which display top-selling beers near the front of stores, has hampered microbrewers. Other products are kept behind a wall that contains labels of all beers available.

"We would love to make nothing more than multiple brands of small-batch brews and really highly specialized stuff, but the reality is that the system is not designed for that type of product," says McMullen.

Beer Store spokeswoman Sara Taylor denies the chain prevents microbrewers from accessing its stores.

"No brewer is refused entry," she says.

The chain operates a fair, open-access system and any beer that meets provincial requirements can be sold in its outlets, she adds.

Taylor says all products are behind a "beer wall" in 275 of the chain's 443 stores, but "every product is displayed, no matter what" through a physical display or a printed brand label.

Other stores are self-serve outlets that consist of refrigerated rooms, while only 88 are new Ice Cold Express formats. "It's not as though we've converted everything," she says.

Although Ice Cold Express rack space is allocated on market share, Ontario small brewers, as a group, get more exposure than their sales would dictate, she adds.

Meanwhile, Mill Street Brewery recently expanded to Calgary as part of its bid to enter the Western Canadian market.

Joseph Tuer, owner of tiny three-year-old Stratford Brewing Co., which produces 700 hectolitres per year in the Ontario town of the same name, also hopes to expand nationally one day.

"It's kind of like: If you build a better mousetrap, people will buy it," says Tuer.

He says his one-man shop operates from "the ass end of a steel shed in the armpit of Stratford," but is looking for a property on which he can expand.

Tuer, who estimates he operates the smallest brewery in Ontario, says it's ultimately a matter of getting people to change their minds and not drinking the beer they see advertised on TV.

Until then, he operates on a fairly simple strategy as he peddles his pilsner. "I don't deal with bars that are selling major breweries' beer."

In B.C., Russell Brewing Co. is taking a different approach to expansion.

"We've chosen not to compete with Molson and Labatt," says Andrew Harris, the firm's president and chief operating officer.

Currently, Russell is "exclusively draft," producing 13,000 hectolitres annually. Typically, he says, a microbrewer sells 70 per cent of its beer in bottles and cans and 30 per cent on tap.

The approach is working, because a December 2006 BC liquor distribution branch (BCLDB) report shows Russell Brewing is the fastest-growing brewery in the province, based on year-end revenues of $1.26 million from the BCLDB.

With an eye to the future, the publicly traded company has also acquired bottling and canning facilities through an amalgamation with Winnipeg-based Fort Garry Brewing Co.

"The goal is to push the Russell brand across Canada as quickly as possible," says Harris. Russell will target Western Canada first and hopes to reach into Eastern Canada within two years. Draft beer will still be a priority in those markets, followed by canned and bottled product.

Russell scored a coup of sorts by becoming the exclusive beer at BC Place Stadium concession stands, just in time for the start of the B.C. Lions football season.

Harris says Russell is in a different market segment than the major beers and does not feel threatened by them.

"We're in the premium-cost segment," says Russell. "It's fairly well accepted in B.C. and Alberta. Many of the accounts that we're in don't even carry Molson and Labatt products. It's difficult, in that we don't have the budgets and the brand recognition, but there's an overall change occurring in consumer taste."

Harris is confident that he will be able to get his packaged products into Ontario stores easily.

(Monte Stewart can be reached at monte@businessedge.ca)