Canada & USA: Quebec microbrewery working on US expansion

In business, opportunity often presents itself where you least expect it.

For Alexandre Jacob, it arrived during a beer-sampling visit last year to a small brewery in South Burlington, Vt., Montreal Gazette reported on January 22.

Jacob, 35, already owned a brew-pub in St-Georges de Beauce and was one of the four partners in Farnham Ale & Lager, a microbrewery that opened in 2013 in the town of Farnham, about an hour southwest of Montreal.

He said he regularly visited breweries in the northern U.S. to get a feel for the business there, because the goal was to get Farnham products into that market. The company actually exported to Maine on a small scale last year, and while its beers were well received, the costs of shipping and selling through an importer added too many layers to the retail price to make it financially viable.

At the brewery in Burlington, Jacob asked the employee who served him why the selection was so limited. She told him it’s because Infinity Brewing Co. was in the process of being wound down, after less than two years in operation.

“Immediately, I started thinking that this might be our way into the U.S. market. We could cut our cost there by 30 per cent, which would make the pricing competitive and give us every chance to succeed,” Jacob said.

The same day, he contacted the owner, an electrical contractor and long-time hobby brewer, then his partners at Farnham Ale & Lager, to discuss the possibility of a U.S. acquisition.

Three months later, the deed was done. At that point, little remained of Infinity but its lease and brewing licence, but that was enough for the purchasers from Quebec.

“There were complications,” Jacob said. “In Vermont, a non-resident cannot control a brewery, so we had to create a board of directors, consisting of me and two Vermont residents” — former owner Glenn Cummings and his wife Ronalynn. “All decisions of the board have to be unanimous,” Jacob said.

Partner Jean Gadoua, 45, said that “as far as we know, we’re the first Quebec microbrewery to buy a U.S. operation. So far, we’ve been really well received. We’re known in Burlington as the Canucks who saved a local business. Nobody else wanted to do it.”

The deal, which represents a total investment of about US$1 million, is the latest chapter in what has already been an impressive growth story from a company that’s only been around three years.

Gadoua is the partner with the beer credentials. A former auto mechanic, he started brewing at home and honing his recipes as a hobby in the 1990s, eventually transforming his garage into a “miniature brewery.”

In 2006, he and two brothers started Brasseur et Frères brewery (now Brasserie Dunham) in Dunham. But the partnership hit a rough patch during the financial crisis and Gadoua and his siblings dissolved it and sold in 2010. He kept his hand in the industry by consulting.

Meanwhile, in St-Georges-de-Beauce, Jacob and his father had decided to open a brew-pub. They purchased used brewing equipment in Florida, but needed professional advice on how to install and use it. “We heard about a guy in Dunham,” so Jacob gave Gadoua a call.

In the course of ensuing discussions, Gadoua mentioned his plan to eventually start another commercial microbrewery, and Jacob said he’d be interested in coming in as a partner. One of Gadoua’s neighbours in Farnham, 48-year-old Hugues Ouellet, owner of a successful local cheese factory, also had conveyed his interest in any brewery-related initiative. “I wouldn’t go in with just anybody,” Ouellet said, “but I knew him and had tasted and appreciated his beer.”

With the addition of a fourth partner, account representative and Gadoua acquaintance Steve Tellier, 41, of Lachute, they had the partnership and capital pool needed to launch a brewery with the scale to make an impact in an already crowded field. The initial investment was about $1.3 million.

“The four partners decide things together around a table … and there’s no beer,” Ouellet said. “It’s managed to be profitable, and egos are kept in check, for the good of the entreprise.”

One of the key considerations that enabled the Farnham group to start strong was the involvement of the local economic development agency, Fonds de développement Farnham-Rainville. It built their new building for them. Farnham Ale & Lager pays a monthly rent equivalent to the mortgage, plus taxes and $5,000 a year for administration. It has the option to buy in five years for the outstanding balance plus three per cent.

“That was a huge advantage,” Gadoua said. “We still had to equip it, but we didn’t have to tap into our liquidities for a building.”

Ouellet said the hard truth of small business is that, for the first year at least, “you pretty much have to take a vow of poverty. Surviving that first year is hard. You have to be a bit naive to even take it on.”

Still, their company has been profitable almost from the start, Jacob said.

Gadoua said the partners made a conscious decision from the outset to produce beer types underrepresented in a province where more than 120 entities now hold brewing permits.

The company also opted to sell its beer only in cans. It’s lighter to transport, more retailer-friendly than bottles (since returns can be compacted), and also widens the potential market, as there are many venues where bottles are not allowed for safety reasons. The product also keeps its flavour longer.

Farnham’s colourful and distinctive cans, each of which prominently feature a number (the beer’s score in a measure called Interrnational Bitterness Units), also helped the cause. They were designed for them by a Montreal marketing company.

Getting the product into stores could have been a problem, but Ouellet said Farnham has a team of “pitbulls” handling sales and distribution and the brand is now available in more than 800 locations in Quebec. Eventually, the company is hoping to be available nationally as well as in the U.S.

“The hard part isn’t getting in (to stores), it’s staying in, and being visible. You need volume for that. I’ve seen representatives from big companies with measuring tape seeing exactly how many linear feet of space their product has in a store,” Ouellet said.

Farnham’s volume is certainly growing. Gadoua said production in 2015 topped 6,500 hectolitres, almost double year one, which itself beat projections. The U.S. operation is expected to add another 3,000 hectolitres a year.

“We’re looking to double our sales each year,” Jacob said. “We’re not doing this as a hobby. It’s to make money too, though it’s not trendy to say it.”

The company now employs 10 people and has modernized and expanded its Farnham facility four times in just over two years. The Burlington operation will move into a new and larger industrial condo next month, Gadoua said.

The U.S. push will begin in earnest next month with the first production at the new Burlington location, outfitted with brewing equipment that Farnham outgrew in its Quebec operation, Gadoua said.

Pricing should be about what it is in Canada — $10 to $11 for a four-pack of 473-ml cans — an intermediate price point for craft beers.

Ouellet said he sees no reason why Farnham, which has won awards for its products, can’t be an international brand. “We think we can make it work,” he said, “and this will be a good first test for that.”

27 January, 2016