Tapping an old market

New Brunswick's Moosehead aims to flow into U.S. markets.

Walk into your average watering hole in downtown Boston (the former Cheers set does not apply) and you'll find row upon row of Pabst Blue Ribbon and Budweiser gracing the tables. Anecdotal evidence suggests the vast majority of Americans are drinking beer that's as boring as it gets.

Appearances are deceiving. According to U.S. industry representatives the Beer Institute, Americans drank 29.3 million barrels of imported beer in 2006 alone. Of that, 3.3 million barrels were from Canada. With about 12% of the market going to imports in the past few years, Americans are clearly open to trying new brews, something crafty Canadian exporters have known for years. Canada consistently runs a net trade surplus in beer exports to the U.S., with sales peaking, in 2001, at $367 million. It has subsided slightly in recent years—but Americans still drank $323-million worth of Canadian beer in 2006, according to Statistics Canada.

That's why Moosehead Breweries Ltd., which has been selling into the U.S. since 1990, is now after a larger slice of the market, says president Steven Poirier. Between April 1 and mid-June, the mid-sized Saint John, N.B.-based company is hiring 20 new U.S.-based sales staffers, each mandated to save America's Pabst-addled masses from a flavourless fate.

Why is Poirier so focused on the American market this year? In part, it's because of the opportunity. The U.S. currently represents about 10% of Moosehead's sales, and Poirier reckons he can increase that by at least 50% in the next five years. But Poirier also faces ever more complex market conditions back home. Owned and operated by the Oland family, as it has been since its inception in 1867, Moosehead is one of the only substantial brewers still owned by Canadians, following a wave of consolidation and foreign takeovers that have created even bigger competitors. Combine that with stiff provincial trade barriers, such as per-crate fees that must be paid to the provinces in order to access their markets, and in Poirier's view, the U.S. is both his most attractive growth market and his most accessible.

“It's much easier to sell into the U.S. than to sell across provinces,” Poirier says. “To expand sales in Ontario, we had to actually buy a brewery there.” (Regulations in Ontario require that a brewer shipping into that province must own a production facility if they are not using the provincially owned distribution system.) The U.S., by contrast, is set up as one big zone. “As long as you meet the basic labelling and quality requirements—which apply equally to each state—you are fine,” says Poirier.

That doesn't mean selling down south is easy. A big part of Moosehead's strategy this year is tightening control of its U.S. export arm to make it more profitable, and more in tune with branding and marketing strategies at home. To get the message across, Poirier is rebuilding the company's distribution network, adding more retail stores and bars, and let its American importer go on March 31. Poirier says the company wanted to reduce the number of middlemen between the brewer and consumers. “When you go to the U.S., you need a distributor and a retailer,” Poirier says. “Having an importer on top means that much more gets shaved off your margins.”

Moosehead can also now promote a more consistent message across the border, and it also plans on slightly repositioning Moosehead lager. “Market research tells us Americans associate us with outdoorsyness and sports, which is good, but could be limiting,” Poirier says. “We're focusing less on outdoors and more on nature.” Moosehead is developing a city-by-city regional advertising strategy that targets radio and billboards, rather than television. The aim, Poirier says, is to grow “from the grassroots up.”

Going it alone as an importer is a smart move on balance, says cross-border trade consultant Ruth Snowden, managing director of the Logistics Institute in Toronto. “You become the importer of record—in control of your own destiny,” she explains. “You develop a profile with U.S. customs and border protection, and you establish your own physical distribution networks, and better inventory control.” The cons tend to be in the startup phase. “You have to develop new competencies, and there's some cost and some administrative burdens.” But ultimately, she says, having that capacity in-house is “good for the business.”

As Poirier sees it, the potential American windfall is worth the effort. Though reluctant to put a dollar value on the opportunity, Poirier estimates the U.S. should represent at least 15% of Moosehead's sales in the next five years. Poirier bases this rosy scenario on the fact that premium imports are the fastest-growing category in the U.S. market, and the company's own recent success in expanding sales in Ontario, where it has enjoyed 20% growth since the early 1990s.

Moosehead's new salespeople will be based in Denver, because Moosehead's regional focus remains the western states. The company's hottest U.S. markets so far are California and Hawaii. “It's ironic,” Poirier says, “that the states we do best in are the ones that are possibly as far away as you can get. And we have to pay freight costs on all of that.” But Poirier's undeterred. Contrast the easy market access and considerable growth potential in the U.S. with the prospect of fighting off mega-brewers such as Molson Coors, InBev and Sapporo, as well as dealing with provincial red tape for market share at home, and it's clear why Moosehead is heading in the right direction.