E-Malt.com News article: USA & Canada: Labatt Blue to be brewed by Molson Coors Canada

North American Breweries, which owns the rights to sell Labatt in the U.S., is contracting out production to none other than Labatt archrival Molson-Coors, The Star reported on August 19.

Several Labatt brands, including the iconic Blue, will start rolling out of Molson-Coors facilities in Toronto or Montreal later this year. Labatt beer destined for Canada will still be brewed by Labatt.

The move is part of the fallout from brewing giant InBev’s purchase of Anheuser-Busch in 2008. As part of the purchase, the U.S. Department of Justice forced InBev to sell Labatt USA.

It was bought by North American Breweries in early 2009. NAB, in turn, was given three years to shift production of its Labatt brands to someone other than Labatt.

“We analyzed our options, which included buying or building a brewery, and contract brewing. There is a lot of brewing capacity in Canada so we chose to pursue a partnership, which frees up capital that we can invest in our brands,” NAB president Rich Lozyniak explained in a statement.

Eventually, they settled on Molson-Coors. “Experience with large-scale volume and a reputation for exceptional customer service made Molson the best fit,” Lozyniak said.

While it might seem a bit like the Hatfields renting out a stall to the McCoys, the move didn’t come as a big surprise, according to Charlie Angelakos, vice-president of corporate affairs at Labatt.

“Because there are limited options, it was always very likely that NAB’s sub-licensee would be an existing Canadian brewing company,” Angelakos said, adding that Labatt wasn’t told in advance of NAB’s decision.

Angelakos also pointed out that licensing agreements and contracting out production are common practices in the brewing industry. While it’s more common for a local brewer to be licensed to make a foreign brew, such as Labatt’s production of Guinness Extra Stout, Angelakos says it also happens with domestic brews.

Montreal craft brewer McAuslan, for example, produces Moosehead Lager for the Quebec market. And Moosehead has also done contract work for Molson-Coors, according to Molson-Coors spokesperson Fergie Devins.

While contracting out production may be a common practice, having one of your flagship brands brewed by an archrival poses a long-term danger to the brand, said Alan Middleton, professor of marketing at York University’s Schulich School of Business.

At a time when the difference in taste between the big brands is minimal, any suggestion that it doesn’t matter who makes it or where it’s made, is the beginning of a slippery slope, said Middleton.

“Brand differentiation is very important. And this chips away at that a little bit. Brands very rarely have a big implosion. It’s more like death by a thousand cuts, and this is one of them,” said Middleton, adding that it doesn’t matter that the decision only affects beers destined for the U.S.

Still, Angelakos said that even John Labatt, who founded the company 163 years ago, would have probably understood the rationale for having a beer bearing his name brewed by an archrival.

“Given that John Labatt was a practical businessman, it’s likely he wouldn’t have acted any differently and accepted that companies have to comply with government regulation even when it might not be their first choice,” said Angelakos.


20 August, 2010