Local brewers face uphill battle as alcohol tax looms: Andrew Coppolino

Counterpoint Brewing Company owner Graeme Kobayashi isn't sure government bodies understand the nuances of the current business climate that food-and-beverage companies continue to face.

"I feel like the government is acting as though economic times for the hospitality industry are back to normal, yet we're far from back to normal," says Kobayashi.

The Kitchener nano-brewery says loans that helped businesses during the pandemic need to be re-paid.

Couple that with a scheduled tax increase and guidelines encouraging people to cut back on their alcohol consumption, brewers are facing a difficult commercial environment.

In January, The Canadian Centre on Substance Use and Addiction published a continuum of risk associated with weekly alcohol consumption and identified standard drink levels at which risk goes from low to highest.

Add to that a 6.3% federal "escalator" excise tax on those beverages kicks in April 1. It's part of a combination of events that will put more pressure on the food and hospitality industry.

"We're looking at higher labour costs but also packaging costs that have increased immensely along with the rising cost of our ingredients," Kobayashi says.

Shifting drinking habits

The beverage alcohol sector is a major employer in Ontario (and Canada) driving billions of dollars into the economy and filling federal and provincial coffers with tax dollars.

The new consumption guidelines and the tax could modify how much alcohol people drink, according to professor Jacob Shelley in the faculties of law and health sciences at Western University.

"When there are efforts that attack the same problem from  multiple angles, it informs the consumer more if it was just one intervention," says Shelley who heads the Health, Ethics Law and Policy Lab at Western.

"A tax hike on its own might have an impact on one consumption pattern for financial reasons, but combining that with information on the risks associated with alcohol consumption, that have largely been misunderstood or unknown by a lot of people, and suddenly people might go, well it costs more but maybe I should be drinking less anyway," Shelley says.

He suspects that drinking habits could shift because information aligns on "multiple fronts."

Escalator tax just one of several factors hurting industry

When it comes to the escalator tax, there is some misinformation as presented by tax watchdogs and lobby groups who say the tax will add significant cost to your alcoholic beverages in order to proclaim a "taxation without representation" critique.

While it is true that the escalator tax, instituted in 2017 by the Liberal government, slips into effect quietly each year without going through Parliament and is based on the Consumer Price Index, it's just one of several factors that continue to put pressure on the industry.

Considering the beer market, from the brewing side, and despite the tax watchdog cries, London, Ontario-based beer writer and "Beer and Bullsh*t" podcaster Ben Johnson says the tax increase is calculated on production volumes and will only raise the price for beer a small amount.

"The federal tax hike might be on the list of things that small Ontario breweries need to worry about but realistically it's not even in the top 20," Johnson says.

He cites the rising cost of ingredients, noted by Kobayashi, along with increased prices for aluminum and cardboard for packaging, and the disruption of the Russian invasion of Ukraine.

Alex Szaflarska of Together We're Bitter (TWB) in Kitchener agrees with both Johnson and Kobayashi.

"That tax is one of the smallest in our basket of taxes," she says. "The Ontario Beer Tax and other expenses are more impactful. The toughest thing for us this year is the big increase in the living wage, as labour is our biggest expense."

"We're struggling to survive as an industry"

While TWB says the increase likely won't raise prices because of the escalator tax alone, it's realistic to expect more expensive drinks – including from big brewers.

Johnson points out that the numbers for cost increases are negligible even for mega-brewers like Labatt, based in London, and part of brewing monolith AB InBev. Even though they could easily absorb the cost, it will likely be passed on to consumers.

"Their revenue was up last year 6% to $15 billion and their net income was $1.4 billion. Is it a million more in taxes? If they wanted to eat the cost, they could. But I imagine they will pass the increase on to the consumer," Johnson says.

Pubs selling beer say that with other supply-line increases they will have to pass along the price rise. That's true at Kitchener's The Bent Elbow, according to owner Harold Kroeker and at Milos' Beer Emporium in London.

"Whenever you have cost increase anywhere, you have to recoup some of that money," says owner Milos Kral. "We're struggling to survive as an industry. I feel that every time I turn around, there's another kick in the butt."

Together, a series of events are at play that will see prices continue to rise. While Shelley at Western says the discussion around alcohol consumption is a good one to have, he also suggests buying better beer but less of it.

Johnson agrees that it's a strategy to beat the federal tax and support a local industry that continues to struggle.

"If you really want to keep your dollars out of the government's pocket, buy beer from independent local breweries. They pay less federal tax, so by default you're giving the government less of your money."