MAJOR ANNOUNCEMENT: Beer Store opens ownership to all Ontario-based brewers; New small brewer benefits package unveiled

Broadening ownership provides an Ontario-wide solution

TORONTO, Jan. 7, 2015 /CNW/ - The Beer Store has announced that, effective immediately, ownership is being opened up to all Ontario-based brewers large and small.

In a major announcement today, the Beer Store's current owners said opening ownership makes sense for Ontario brewers and consumers. It helps the retail network continue to offer a low-cost advantage and continues to enable brewers to independently set the lowest average beer prices in Canada, while also supporting award-winning environmental stewardship and a world-class responsible sale program.

"Today marks a new era for the Beer Store. We heard from Ontario brewers that they wanted to participate in the management of the Beer Store and contribute to its future success. That's why we're opening up the system and making it even more transparent," said Stewart Glendinning, CEO of Molson Coors Canada.

"The Beer Store is truly becoming Ontario-owned. Ontario brewers will be represented on the Board and share in decision-making. All owners will have the same or better costs to sell in the Beer Store than the current owners," said Labatt Breweries Canada President Jan Craps.

John Sleeman, Chairman and Founder of Sleeman Breweries said, "We welcome and support the direction of the changes being announced today.  These will help improve the transparency and openness of The Beer Store for all Ontario brewers, including Sleeman, and will allow our input into the evolution of the system."

Also announced were new benefits to further improve access for small Ontario-based brewers.

Small Ontario brewers (who sell fewer than 1 million litres/year at the Beer Store) will pay no listing fee when stocking two of their products at the five Beer Store locations closest to their brewery, increasing the selection of locally-brewed beer for consumers in communities across the province.

Beyond those five stores, small brewers will be able to list the same two products at any additional Beer Store location at reduced listing fees, paying only the per-store fee. This will encourage additional small brewer listings at the Beer Store, enhancing the ability of those brewers to grow their businesses, while also offering wider selection to Ontario consumers.

Small brewers have also asked for the ability to introduce seasonal brands throughout the year. Today, the Beer Store announced that it will implement this change.  Brewers can swap out a new or existing brand listing and replace it with a seasonal brand twice a year at no additional cost.

"We listened and we acted. The Beer Store is a great beer retail system.  Today we're taking new steps to make it even better", said Beer Store president Ted Moroz. "As a result of these changes all Ontario brewers will be able to participate in the management of the company and the smallest Ontario brewers will get improved opportunities to grow their sales volumes at a significantly reduced cost."

Moroz said that at the same time as considerable media debate about the Beer Store had been taking place in recent months, Beer Store officials had been quietly working behind the scenes on how to reshape the shareholder agreement and make the Beer Store even more open and transparent.

Under the new ownership structure larger Beer Store owners (annual Beer Store sales over 5 million litres/year) will pay the exact same fees as the current owners to sell their beer in the Beer Store.  Smaller brewers (Beer Store sales under 5 million litres/year) will pay discounted fees as they will not be required to fund certain costs relating to capital investment in new stores or pension and benefits plans.

As always, any brewer can sell in the Beer Store and brewers will continue to independently set their own prices in a highly competitive environment that keeps prices low for Ontario consumers. These facts will not change.  

New owners are being welcomed into the Beer Store at a nominal cost: Ontario-based brewers with Beer Store sales under 5 million litres/year a year will pay $100 and receive a Preferred Share in the company; those with sales over 5 million litres/year will pay $1,000 and also receive a Preferred Share.

About the Beer Store

The Beer Store offers customers 490 brands, provided by 105 brewers. Approximately 1-in-4 brands come from small Canadian brewers. It is a completely open system that allows any brewer in the world to sell their brands in any store they choose. The Beer Store is deeply committed to responsible sale and not selling to minors and people who are intoxicated.  More than 3.6 million customers were challenged in 2013 alone. It is also one of the greenest retailers in the world and collected more than 1.7 billion beer bottles in 2012-2013 (a 92 per cent return rate) and 300 million wine and spirit containers (a 80 per cent return rate). The Beer Store Employs 7,000 hard-working Ontarians with well-paying full and part-time jobs.

Bill Walker, 416-624-3936, [email protected]

BACKGROUNDER

Open Ownership of the Beer Store

(TORONTO Jan 7, 2015) – The following contains background information about the new Open Ownership policy at the Beer Store. More information, including FAQs on Responsible Sales and Environmental Stewardship, can be found at http://www.ontariobeerfacts.ca/. 

1. Who can become an owner?

Ontario-based brewers, regardless of size, can qualify to become an owner of the Beer Store and share the benefits with all other owners. To qualify, brewers must operate abrewery in Ontario and satisfy the following criteria:

Have an Ontario manufacturing license from the Alcohol and Gaming Commission of Ontario (AGCO);

• Have a Canadian manufacturing license from Canada Revenue Agency (CRA);
• If the brewer imports beer into Ontario for sale from another brewery outside of Ontario but within Canada, the ownership structure for its operations in Ontario and outside of Ontario is identical;
• The brewer conducts the full brewing process, including without limitation, mashing, lautering, boiling, hop separation, fermentation and packaging in its Ontario plant to produce the beer that it sells through the Beer Store;
• The brewer either (a) does not produce beer in any other jurisdiction or (b) the brewer's Ontario facility has a minimum annual capacity of 10 million litres/year and a minimum annual production of 2.5 million litres/year in accordance with government policy, and;
• Has entered into a Beer Store User Agreement in accordance with the Beer Store's qualification requirements.

The Beer Store currently distributes brands from more than 100 brewers from 22 countries and about 24 per cent of those brands represent small Canadian brewers.

2. What will it cost to become an owner?

Ontario-brewers that choose to become owners will pay only a nominal amount to enjoy the benefits of ownership.

Qualifying Ontario brewers with Beer Store sales of more than 5 million litres/year of beer a year will pay $1,000 to become owners.  Qualifying Ontario brewers with Beer Store sales of less than 5 million litres/year will pay $100 to become owners.

3. Will all owners be treated the same?

Under the new ownership structure larger Beer Store owners (annual Beer Store sales over 5 million litres/year) will pay the exact same fees as the current owners to sell their beer in the Beer Store.  Smaller brewers (Beer Store sales under 5 million litres/year will pay discounted fees as they will not be required to fund certain costs relating to capital investment in new stores or pension and benefits plans.

4. What happens with the Beer Store's profit?  Who gets that?

The Beer Store operates on a break-even basis – as confirmed by the Premier's Advisory Council on Government Assets.  This break-even financial structure will continue under the new ownership model and all Ontario brewers will benefit from the low-cost and high efficiency nature of the system.  Consistent with their scale, the smallest Ontario brewers will actually pay lower fees than larger brewers, including the current owners.

Past financial arrangements and fee structures were complex. That's all changing to become more transparent.  Under the new ownership structure larger Beer Store owners (annual Beer Store sales over 5 million litres/year) will pay the exact same fees as the current owners to sell their beer in the Beer Store.  Smaller brewers (Beer Store sales under 5 million litres/year) will pay discounted fees as they will not be required to fund certain costs relating to capital investment in new stores or pension and benefits plans.

5. Why are Labatt, Molson and Sleeman still eligible to be owners? You are not Ontario-based.

They do have Ontario-based breweries. The truth is that Labatt, Molson and Sleeman have significant brewery operations in Ontario.  They have invested in the system as owners, including the recent $30 million in upgrades to Beer Stores that they alone funded.  These three brewers directly employ more than 2,600 Ontarians, and thousands more at hundreds of companies they engage as suppliers in Ontario.

6. How will the new Board of Directors be structured?

Under the old ownership model, only Labatt and Molson had representatives on the Board of Directors. 

The proposed new Board of Directors will be composed of 15 members to encourage and facilitate participation by all Ontario brewers in the governance and future success of the Beer Store. All owners will have the right to vote for directors.

Owner	# of Nominees
Molson	5
Labatt	5
Sleeman	2
Other owner brewers with over 5 million litres/year in Beer Store sales	2
Other owner brewers with less than 5 million litres/year in Beer Store sale	1

In addition, there will be a three person Executive Committee of the Board comprised of one Director from each of Labatt and Molson and one Director elected by all other owners.

7. What do brewers get when they become owners?

A Qualifying Brewer with annual Beer Store sales of 5 million litres/year or more may be invited to subscribe for one (1) Class E Share for $1,000.  Each Class E Share will provide the holder with the following rights and benefits:

(a)	notice of all annual and special meetings of owners;
(b)	the right to vote at meetings of owners held to elect the Directors of the Beer Store;
(c)	periodic reporting of prescribed financial information relating to the Beer Store  and its operations;
(d)	basic service fees calculated on a basis consistent with fees paid by current owners; and
(e)	participation in the capital gains earned from time to time on the sale or other disposition of owned real property that arise from the date of the brewer's entry into ownership in proportion to the amount of gross capital expenditures in excess of depreciation and amortization contributed by such brewer.

A Qualifying Brewer with annual Beer Store sales of less than 5 million litres/year may be invited to subscribe for one (1) Class F Share for $100.  Each Class F Share will provide the holder with the following rights and benefits: 

(a)	notice of all annual and special meetings of owners;
(b)	the right to vote at meetings of owners held to elect the Directors of the Beer Store;
(c)	periodic reporting of prescribed financial information relating to the Beer Store  and its operations; and
(d)	basic service fees calculated on a basis consistent with fees paid by current owners and holders of Class E Shares, provided, however, that the calculation will exclude certain costs relating to capital investments and the pension and benefit plans.

These brewers will also have the ability to appoint a representative to the Board Executive Committee that will work with Beer Store management on the day-to-day operations of the business.  This will give all owner brewers increased transparency into the operation of the Beer Store and an important voice in formulation of company operating policies.

8. When will you be delivering this ownership package information to brewers and how long will they have to decide whether to become owners?

All Ontario brewers are being contacted today, and all will be invited to get more information in the days and weeks ahead.  There will be a period for brewers to conduct due diligence.

9. How are service fees calculated?

Holders of Class E Shares (new owners with Beer Store sales of more than 5 million litres/year): 

Basic service fee charges for brewers holding Class E Shares will be the same as those for the existing owners.  Owner brewer service fee charges will be reconciled with the Beer Store's net operating costs to calculate net owner fee contributions.   Owner brewer basic fee contributions will cover the Beer Store's operating costs net of other the Beer Store revenues, future tax recovery expenses, accounting income charges, non-owner basic and elected service charge revenues and owner elected service charge revenues.  The Beer Store's net operating costs will be allocated to each owner brewer in proportion to that brewer's share of the Beer Store basic service fee payments.  All owner brewers will therefore be subject to the same net brewer basic service charge.  However, holders of Class E Shares will be required to contribute funding for pension and benefit expenses over and above the ongoing pension and benefit costs recorded as operating expenses and for gross capital expenditures in excess of depreciation and amortization expenses, as per the funding formulas described below.

The methodology for the calculation of the service fees payable by holders of Class E Shares is included in the chart below:

	Description
New Ownership (Base)	The Beer Store's ownership is expanded to include all Ontario-based brewers The Beer Store's operating costs and revenues are shared across all owners The tiered rate sheet for non-Ontario brewers will be eliminated May 1, 2015 when the new rate sheet goes into effect. For Ontario brewers who do not choose to become owners the tiered rate sheet will be eliminated January 1, 2016.
+ Other Revenues	Other revenues are redistributed among all owners by netting against costs
+ Financing & pension and other benefits deficit payments	The Beer Store financing costs added back to the Beer Store's Statement of Operations and Deficit and spread across all owners (current & new) Pension and benefit contributions expenses over and above the ongoing pension and benefit costs recorded as the Beer Store operating expenses allocated across owners that sell more than 5 million litres/year through the Beer Store system
+ Capital Cost	Gross Beer Store capital expenditures above the depreciation and amortization expenses allocated among all owners that sell more than 5 million litres/year through the Beer Store system

Holders of Class F Shares  (new owners with Beer Store sales of less than 5 million litres/ year):  The service fees payable by holders of Class F Shares will be calculated in exactly the same way as service fees payable by the current owners and holders of Class E Shares, provided however that the service fees payable by holders of Class F Shares will not include the costs payable by the other owners relating to gross capital expenditures in excess of depreciation and amortization expenses and pension and benefit expenses. This has the effect of lowering the fees paid by brewers with Beer Store sales of less than 5 million litres/year.

SOURCE The Beer Store

Bill Walker, [email protected], 416-624-3936