The 2019 Bar Report

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Canadians are adopting a “less-is-more” approach to drinking — consuming less, but willing to pay more for premium products when they do imbibe.

David Lefebvre, Restaurants Canada vice-president, Federal and Quebec, says of four categories of foodservice establishments surveyed — quick-service restaurants, full-service restaurants, bars and catering — bars had the slowest sales-growth rate in 2018. According to Lefebvre, alcohol purchases were also down in full-service restaurants last year, with four-per-cent fewer diners choosing to order a drink with their meal.

There are two main factors contributing to this drop-off in alcohol sales. Excise taxes levied at both the federal and provincial levels have driven the price of alcohol in foodservice establishments up approximately 20 per cent in the last 10 years, compared to a 10-per-cent increase at the retail level, explains Lefebvre. “Price is even more important for full-service restaurants than for bars,” says Lefebvre, “because with drinking places, you go to drink and, even if it’s a few dollars more, you’ll probably pay it; but in restaurants, for example, people used to order two drinks but now they just order one because it’s more expensive.”

In addition to the sticker shock deterring customers from alcohol purchases, the 18-to-35 demographic is choosing to drink less overall. “Some people want to adopt a healthier lifestyle,” Lefebvre says. “Also, now that everyone has a cell phone, people are more conscious that if they do something stupid while they’re drunk in a bar or restaurant, it might end up on social media the next morning.”

Fortunately, it’s not all doom-and-gloom for foodservice operators: “We also noticed a trend that those who go to bars drink less, but pay a little more for their drinks,” adds Lefebvre. “They’re looking for more quality.”

Evidence consumers are gravitating towards premium alcohol is supported by data from the LCBO’s Annual Report 2017-18, which shows sales growth of premium spirits and wines outpaced that of lower-priced products in the same category.

According to the report, sales of premium spirits (retailing for at least $35 for a 750 mL bottle) registered volume-sales growth of 9.8 per cent year-over-year in 2018 compared to 1.9 per cent for similar-sized, lower-priced spirits. Similarly, premium wines (retailing at a minimum of $18 for a 750 mL bottle) increased at 7.1 per cent compared to a two-per-cent increase for lower-priced wines.

Tyler Rutherford, Restaurant Expansion manager for Toronto’s Gusto 54 Restaurant Group, agrees consumers are getting choosier about their drinks. “The sales volume in terms of the quantity of glasses going out may be slightly reduced on average,” says Rutherford, “but what’s interesting is people are spending a bit more. Now they’re more likely to ask ‘what’s the bourbon in your Old Fashioned?’ Instead of just saying, ‘I’ll have an Old Fashioned’ and having three, they might only have two — so you want to make sure they’re the best drinks they can have.”

The shift towards premium products is promising for Canada’s independent beer, wine and spirit producers, who share a similar philosophy of quality over quantity, as well as foodservice establishments prepared to cater to this generation of sophisticated consumers.

Beer
The beer sector is mirroring the alcohol market as a whole, with sales dropping overall, but interest in premium craft beer remains strong. According to Ottawa-based Beer Canada, Canadians of legal drinking age consumed an average of 210 cans of beer in 2018, a decline of 1.2 per cent from 2017.

At the same time, however, the number of brewing facilities in Canada increased 21.8 per cent, from 817 in 2017 to an all-time high of 995 in 2018. Additionally, 85 per cent of the beer consumed in Canada in 2018 was brewed in Canada. “There are more breweries than ever and more brands and styles to try than ever before. And Canadians continue to choose Canadian beer,” says Luke Harford, president of Beer Canada.

Harford says the decline in per-capita consumption of beer is largely due to rising prices. “Right now, 47 per cent of the price of beer is government tax,” says Harford. “Neither brewers nor restaurant owners are going to survive, let alone grow, if the government keeps digging deeper and deeper into the wallets of Canadians. If things don’t change, no one is going to be able to afford a beer at home or at a restaurant,” he adds. Harford says competition also poses challenges for craft brewers. “Brewers have to find a way to share space with their colleagues,” says Harford.

Ken Beattie, executive director of the B.C. Craft Brewers Guild, agrees the rapid growth of the craft-beer industry can make it tough for brewers to stand out in the market. “A brewery can be the new kid on the block one year and the old stand-by in a very short period of time,” he says.

However, Beattie hopes the new Canadian Craft Brewers Association, which announced its formation in May, will help brewers across the country support one another and promote their shared interests. “This will allow the entire craft-brewing industry to have a collective voice,” says Beattie.

Rick Dalmazzi, executive director of the new Canadian Craft Brewers Association, is excited to give craft beer a voice at the national level. “Whenever public consultations were initiated by the federal government on issues related to beer, there was no one there to speak for the 700-plus craft brewers across the country,” says Dalmazzi. “The big breweries in Canada, which are now controlled by foreign interests, were at the table, but we weren’t. Our requirements and contributions are different than theirs, so we need our own voice.”

Dalmazzi says one of the association’s first initiatives will be the introduction of an “independent craft” seal of authenticity for Canadian craft beers. “Legacy beer is losing market share, so we’re likely to see ‘Big Beer’ attempt to acquire the bigger, more successful craft breweries,” says Dalmazzi. The new craft labelling system will ensure Canadians know when they’re buying beer from a genuine craft brewery.

Dalmazzi and Beattie predict innovation will continue to define Canada’s beer industry over the next year. “Barrel aging is on the upswing, but there’s also an increase in traditional styles, with many breweries now producing lagers that appeal to the novice craft-beer drinker and expert alike,” says Beattie.

While craft beer is already a mainstay on many restaurant menus across the country, Dalmazzi hopes to see its presence expand into areas of foodservice that have been traditionally dominated by legacy domestic or imported beer. “Venues like restaurant chains, hotel bars, catering events, et cetera have been slow to fully embrace the craft-beer wave,” says Dalmazzi. “But consumer demand will ultimately change that. I’m not sure when the tipping point will occur, but it’s coming.”

Wine
While consumer demand for innovation and quality also defineded the wine sector in 2018, this category saw the slowest growth according to the LCBO’s Annual Report 2017-18.

“The understanding of wine among consumers has grown exponentially during the past 10 years,” says Bruce Wallner, master sommelier and owner of Toronto’s Grand Cru wine bar. “It’s now acceptable to serve and enjoy wines that were previously considered bizarre.”

Rutherford agrees Canadians are becoming more sophisticated and adventurous in their wine choices. “People are looking for those super-funky wines,” he says. Gusto 101 was the first in Toronto to offer house wine for $1 per ounce, but Rutherford says even this cornerstone deal has had to evolve as consumer tastes have changed. “The value proposition has changed — people want the best wine, even if it’s on tap,” says Rutherford. “So now we’ve had to change over our product and say, ‘yes, it’s still a dollar an ounce on tap but it’s just better quality’.”

Appreciation for Canadian wine continues to grow, says Jerry White, executive director, Winery Association of Nova Scotia. “Increasingly, consumers are recognizing Canadian wineries make great wines — not great wines for Canada, but simply great wines that favourably compare to those from more-traditional wine-making regions,” says White. “This has resulted in increased domestic-market share, primarily in the major wine regions of Ontario, British Columbia and Nova Scotia.”

Both Wallner and White predict organic and natural wines will grow in popularity over the coming year. “There’s certainly greater concern with where a wine is coming from, how it’s made and the philosophies in the vineyard,” says Wallner.

White also says the sale of rosé wines will continue to be strong. “More wineries are introducing rosé products — both still wines and sparkling — and consumers are snapping them up because they’re much more serious wines than rosé used to be a couple of decades ago,” he says.

Rutherford says the brand’s new restaurant, Gusto 501, which will open in this summer, will look to capitalize on this trend by offering sparkling rosé on tap, as well as lambrusco. “We’re trying to get ahead of that curve and tell people what the new trend is,” says Rutherford. “We’re telling customers ‘I know you love rosé, so you have to try this’.”

Spirits
Jan Westcott, CEO of Toronto-based Spirits Canada/Association of Canadian Distillers, says “premiumization” has been a significant trend in the spirits sector over the past year.

The Canadian craft-spirits market is gaining momentum, with Spirits Canada reporting approximately 50 to 60 new small distilleries have opened across the country during the past 12 months. Research from Spirits Canada also shows Canadian-made spirits accounted for 55 per cent of overall spirits-sales volumes in 2018.

Consumer awareness of craft-spirit producers is also on the rise, says James Donnelly, general manager of Junction 56 Distillery in Stratford, Ont. “It’s a slow build because you go into a bar and see 50 craft beers, but you look at the spirits section and it’s Smirnoff and Bombay,” says Donnelly. “Over the past six to 12 months, we’ve started to see establishments really focus on bringing in craft, Ontario-made spirits.”

Donnelly says producing in small batches gives craft-spirit producers the ability to develop the unique, nuanced flavours that consumers are looking for from a premium product. “We can play around with the flavour one barrel at a time, rather than making 50,000 barrels of the same thing,” says Donelly.

Matthew Widmer, distiller and co-founder of Wild Life Distillery Inc. in Canmore, Alta., predicts craft whisky is about to explode in popularity “over the next five to 10 years.” The reason comes down to timing: whisky needs to be aged for a minimum of three years in Canada in order to be designated as whisky. “As more of the small boutique distilleries ‘come of age,’ there will be lots of new whiskies being released,” says Widmer.

Junction 56 released its second batch of grain-to-glass whisky in April. “The dream was to make whisky from the start,” says Donnelly, “but while you’re waiting for your whisky to age, you make other spirits.”

As early-out-of-the-gate craft distilleries such as Junction 56 hit the three- or four-year mark in 2019, consumers will finally have a chance to try these whiskies.

Dr. Graeme Macaloney, founder and whisky maker for Victoria Caledonian Distillery in B.C., says the Canadian market is primed for this wave of craft-whisky releases, citing the Malt Whisky Yearbook 2018, which ranks Canada as the sixth-largest consumer of single-malt whiskies worldwide.

Canadians love their whisky and they also love premium, local products, making craft whisky a no-brainer from a sales perspective. “It makes it easy for me when I come to Ontario and say ‘we’ve actually got a Canadian-made single-malt whisky that’s world-class,’” says Macaloney.

Cocktails will also continue to be a big trend over the coming year, according to Rutherford. “Where the move is happening right now is that refined, premium-liquor cocktail,” he says. “It’s taking those classic cocktails like Negroni or Old Fashioned and making them the best they can be.”

It’s a movement both Junction 56 and Victoria Caledonian Distillery are aiming to tap into by making custom, small-batch spirits for bars and restaurants. “We do a cask program where a restaurateur can commission us to design a full cask of whisky for them,” says Macaloney. “They can start to make some really fun cocktails with their own branded product.”

Written by Jessica Huras

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