BUSINESS

Molson Coors: Beer Store Monopoly's End Could Mean Higher Prices

02/11/2015 08:33 EST | Updated 02/11/2015 08:59 EST

MONTREAL -- Changes to the Beer Store being contemplated by the Ontario government could raise prices and suppress sales in the beverage sector, the CEO of Molson Coors Canada said Tuesday.

"My overall worry is that we create a problem for beer volumes in Ontario,'' Stewart Glendinning said in an interview after the company reported disappointing fourth-quarter results.

Canada's National Brewers, an organization which represents Labatt, Molson and Sleeman, has warned that changes to the system recommended by a panel chaired by former TD Bank CEO Ed Clark would add about $5 to the price of a case of 24 beers.

Clark has recommended the Beer Store give taxpayers a "fair share'' of its profits or have the government auction off its virtual monopoly if it refuses to pay an undetermined fee.

Meanwhile, Ontario craft brewers say their market share is held back by the Beer Store, which makes it difficult -- and expensive -- for them to sell their products in its 448 retail outlets across the province.

The Beer Store, the commercial name for Brewers Retail, was the property of a consortium of Ontario-based brewers when set up in 1927, but now is owned by Molson-Coors of the United States, AB InBev of Belgium and Sapporo of Japan. It controls 80 per cent of beer sales in the province.

Glendinning described the retail outlet as a break-even co-operative that is so low-cost it enables the province to charge high taxes that account for 44 per cent of the purchase price of beer.

He rejected suggestions that the Beer Store is a monopoly, even though 24-packs can only be purchased from its premises. The brewer said the Beer Store doesn't control which beer is sold and every brewer sets its own prices.

He declined to say what level of fee Molson Coors would accept and wouldn't say if it would pursue a legal challenge if the government launches an auction.

"I'm sure that there will be some change. I'm waiting to see what that is going to look like,'' he said.

Earlier, Molson Coors missed analysts profit expectations as fourth-quarter net earnings fell nearly 32 per cent to US$94.1 million on lower sales due to currency fluctuations.

The company earned 50 cents per diluted share for the period ended Dec. 31, 10 cents below forecasts and down from 74 cents per share or US$137.2 million a year earlier.

Net sales dropped 5.3 per cent to US$973.8 million, but would have been up 0.9 per cent if currency values were constant.

For the full year, it earned US$514 million or $2.76 per diluted share, down from $567.3 million or $3.08 per share in 2013.

In Canada, adjusted pretax income fell 14 per cent to $76.2 million. The lower Canadian dollar reduced profits by $5 million. Sales were down 8.7 per cent to $423.1 million.

Coors Light volumes declined two per cent in the quarter, continuing a trend that began nearly three years ago. Canada accounts for 20 per cent of the flagship beer's global sales volume. Molson Coors plans new advertising and in-store support in the coming weeks to turn things around. It will also increase promotional support in Quebec for Molson Export to reverse declining market share.

The American-Canadian beer company said it will be raising its dividend by 11 per cent to 41 cents US per share and it will buy back up to $1 billion worth of its shares over four years.

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