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Canadian brewing companies face competitive pressures amidst falling trade barriers.

Falling trade barriers between the U.S. and Canada may prove a boon to Canadian beer drinkers-- and a blow to Canadian brewers. As the trade relationship between the two countries evolves, Canada's two dominant brewers, Molson Breweries, Ltd. and John Labatt, are preparing for what may become a U.S. beer onslaught.

Although Canadian barriers have previously limited U.S. brand share to a few percentage points, U.S. brewers are looking for a much larger slice of the market, and low price points may give it to them.

Although Canadian beer sales have declined in recent years, analysts attribute the decline more to excessive taxation than lack of demand. High prices have allowed Molson and Labatt to reap large profits as they have divided the $7.6 billion Canadian beer market between them.

U.S. brewers, particularly Stroh and Heileman, are eager to jump into the Canadian market. Both companies have suffered volume declines in the rabidly competitive U.S. market, and are looking to recoup their losses through shipments of popular-priced brands to Canada. Some analysts believe that U.S. brewers could seize up to 20 percent of the Canadian market.

Increased U.S. competition will complicate the picture for Molson and Labatt, and both companies are working to build efficiencies for the coming battle. Canadian brewers have been hobbled by a regulation that mandated a brewery in each province-- leaving a legacy of far-flung, modest-sized provincial breweries, and making Canadian brewers ill-equipped to compete on an even footing with U.S. giants.

To counter this structural disadvantage, both Molson and Labatt have closed breweries and trimmed staff, and the companies are now pursuing broader strategies.

Molson's recent announcement of a pact with Miller Brewing Co. builds a stronger hand in the U.S. market, where Miller will begin to promote Molson brands. Molson views the arrangement as a "strategic partner ship" that will boost Molson brand share in the U.S.

John Labatt, meanwhile, has worked to divest itself of its non-brewing assets. The company has said it will proceed with a plan to split off to its shareholders the company's Canadian dairy business, but it will keep for the time being its U.S. dairy operations.

The company said it would split off its dairy operations as part of a long-term strategy to focus on brewing.
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Publication:Modern Brewery Age
Date:Mar 22, 1993
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