Canadian breweries are facing challenges as the dynamics of the alcohol beverage market shift. While beer remains a popular choice for consumers, its share of total alcohol sales has declined over the years, dropping from almost 50% in 2004 to just 35% in 2022.
This decline is attributed to increased demand for other alcoholic beverages and the waning popularity of beer, as the volume of beer sold has decreased every year since 2016.
Farm Credit Canada (FCC) warns that the increase in small craft breweries in recent years has led to market saturation and intensified competition in some regions.
The outlook for brewery sales in 2023 is not great, with a forecasted decline of 4.4% ($300 million) by FCC. Although sales experienced a positive trend in the first quarter of 2023, with a growth of 13.3%, the summer is expected to bring a 15% decrease compared to 2022, primarily due to slowing economic growth.
The Canadian brewery industry has managed to capture a significant share of the domestic market, with 92% of beer consumed in Canada being produced domestically in 2022. This dominance has mitigated the threat of imports impacting sales.
However, the accumulation of inventories poses a new concern. As demand slows, inventories are building up, especially for craft beers, which have limited shelf life, particularly when unpasteurized.
The slowing economic environment and niche preferences of certain brews may make it challenging to move these specialized products, leading to an expected increase in ending inventories as a percentage of revenue, reaching 400% in 2023.
Canadian breweries face tough times ahead as beer consumption trends shift and competition intensifies. To thrive in this changing landscape, breweries will need to adapt to evolving consumer preferences, manage costs effectively, and find ways to reduce inventory accumulation.