Strategy

Now hear this: Andrew Oland, CEO, Moosehead Breweries Ltd.

Moosehead Breweries CEO Andrew Oland speaks to Andy Holloway about the state of manufacturing in Canada and how industry can survive.

Canadian manufacturers must stop whining about the high dollar and foreign competition. That’s the view of Andrew Oland, the CEO of Moosehead Breweries Ltd., who recently delivered a scathing speech on the state of manufacturing at the University of New Brunswick–Saint John. Andy Holloway caught up with Oland to discuss how industry can survive.

“There’s no way, whether it’s beer or anything else, that you can compete head-on with the labour rates in the developing world. But we can compete. Manufacturers just have to constantly get better. Part of it is investing in technology and process improvements. Through technology we can have great processes, but also traceability and quality assurance programs that are much more difficult in other jurisdictions.

Business manufacturing is not easy, and it’s not easy when the dollar is at parity. It’s a little easier at 65¢, but it’s still not easy. With a 65¢ dollar, a lot of Canadian manufacturers were focused on the U.S. market and we’re very busy. Sometimes people have to take a hit between the eyes to adjust to the new realities. The strong and the best manufacturers will emerge from this in a better position.

Obviously, more and more manufacturing is going to go to the Chinas, Indias, Central Americas, but there is some stuff that has to be done in North America. It’s more challenging in terms of human resources in some of these countries, whether it’s getting ex-pats to live there or infrastructure issues. Consumers are also becoming more aware of where their products are made and they want to ensure that they’re made in a facility that follows basic safety rules, treats their employees properly and acts in an environmentally consistent manner. Our research tells us that consumers, particularly younger consumers, that corporate social responsibility is very important to them. Perhaps they are much more aware of these issues than consumers of the previous generation were, because the Facebooks, YouTubes and those types of tools have a real impact.

It’s not just the right thing to do, but from a long-term profitability point of view, it’s the right thing to do. Plants that have high safety standards are more profitable than plants where people are being injured every day. In terms of our operation, we’re not where I’d like to be but we’re starting to focus more on our energy costs. That’s being environmentally friendly, but there’s a return as well. We’ve made good progress in terms of the amount of water we use per hectoliter of beer brewed, and our energy consumption, but we still have a ways to go.

We have a list of projects we’d liked to do and we don’t have enough time and people to get them all done. It will be many years before all those projects are done. We’ve almost stopped thinking about projects because we have too many. For example, every forklift in our warehouse has a laptop computer on it. That’s a level of technology that would not have been thought of 10–15 years ago. We now have the capability of telling you where every case on every palette was shipped to, and that means a lot to us from a quality control perspective, but also to our contract brewing customers.

With the contract business, the price that we charge is part of it, but it’s not all of it, because these are world-class brands and, in most cases, they’re multi-national companies and they don’t want to trust their brands to just anyone. They have a large investment in the equity of their brands. We also learn from them, much bigger companies, about how they interact with suppliers, how their quality functions work, what they’re expecting and what they’re seeing. That’s a hidden benefit of the contract brewing business.

There’s potential for contract manufacturing to be done in a number of segments of the manufacturing industry. The barriers are starting to fall between manufacturers. If you look at logistics costs, there will be more and more of these opportunities, because you want your factories or facilities to be at capacity or close to capacity. A lot of times it makes sense to make an investment in sales and marketing efforts once you overcome that psychological hurdle of outsourcing, instead of investing money into equipment. And then you have to have the processes in place to make sure that the manufacturer that you’ve sub-contracted to is doing the job that you expect.

Brewers are working very hard, because it is such a competitive market, to improve their efficiencies, and that means you don’t have to pass on all of our consumable or input increases to the end consumer. But beer prices have to go up, unfortunately. It’s no different than when you walk into a grocery store and the price of bread is going to be up, the price of cookies is going to be up, we already know about what’s happening with pasta. We haven’t had much food inflation in Canada the past few years and we’re now in that world. The Chinese and individuals from India are consuming so much more protein from meat products than they ever have before. Combine that with a drought in Australia and the ethanol situation, and it’s making a bad situation worse.

That being said, beer is still great value. You’re not going to see a $10 increase on a two-four; it’ll be $1 or $2 a two-four, somewhere in that range is what you’ll see throughout Canada. You can buy a 24-pack of Moosehead Lager, put it in your fridge and you and four or five friends can sit out on a nice patio on a nice summer evening and have a pretty special experience for less than $40. It’s pretty tough to do that with any other product.”