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CANADA'S LEADER IN A GROWTH INDUSTRY
The past decade has seen consumer tastes leading a
premium revolution in the food and beverage markets. From
coffee to ice cream to wine, old brands have lost their
market share to improved new age, new image products. A
dramatic example of this change can be seen in the growth of
the craft beer business, the only bright spot in a stagnant
industry. We at Big Rock believe this segment is still
undeveloped. In both the U.S. and Canada this segment only
accounted for approximately 2% of the 1995 domestic beer
market. It is widely believed this market share will grow to
10%.
This growth has attracted numerous entrants. Both the
U.S. and Canada have seen a large inflow of capital from
Initial Public Offerings. Big Rock was the first craft
brewery in North America to complete an I.P.O. and obtain a
listing on NASDAQ in the summer of 1992.
A recent American research report prepared by Hambrecht
and Quist L.L.C., San Francisco, CA believes that this is a
trend, not a fad. "Like the shift to varietal wines,
specialty coffee, and bottled waters, we believe the shift
to specialty beer is permanent and irreversible. Once a
consumer switches to a more flavourful product, they rarely
go back." It is, in their words "an affordable luxury."
Big Rock, with its soon to be completed ultra modern
brewery, is in a strategic position to capture a growing
share of this exciting new market. Among craft breweries it
has achieved international recognition for its high quality
and unique brands.
To maintain its leading position, the decision to build a
much larger brewing facility was finalized early in 1995. As
a first step, 14.4 acres of land in a newly developing
industrial site was purchased from the City of Calgary. The
new facility, including equipment from the existing brewery,
will increase Big Rock's annual brewing capacity from
150,000 hl to 450,000 hl. This is the first major brewery
built in Canada in a generation.
During the past year Big Rock has adjusted growth plans
for many major changes.
In 1994, the Alberta Liquor Control Board privatized the
retailing of all beer, wine and liquor. Prior to
privatization there were just over 200 government stores.
Now there are in excess of 700 liquor stores in the
Province. The increase in stores required Big Rock to
develop new systems for both service, delivery and
packaging.
These numerous retail outlets have greatly changed
shopping habits. Previously, a purchase of liquor was
pre-planned and individual sales were quite large. With the
large number of convenience or small stores the tendency now
is to purchase for immediate consumption. This change
favours smaller and more convenient packaging in both
bottles and cans. Fortunately, Big Rock, at a time when the
standard package was the 12-pack, converted to the 6-pack
and will have cans in the marketplace by July of this year.
In 1995, sales of cans in Alberta exceeded bottle sales
for the first time. This trend continued at an accelerated
pace in the first three months of 1996 with a further 20%
decline in bottle sales relative to cans. In spite of these
changes, Big Rock's share of the Provincial package market
grew in 1995.
Big Rock will add cans to its market line by early
summer. It will be the first craft brewery to introduce
cold, sterile filtered, unpasteurized beer in cans. This
move is viewed with some skepticism by purists in the
industry. We at Big Rock, however, have concluded that the
advantage of cans -- lower shipping, packaging and handling
costs, plus greater stability of the finished product --
will overcome any lingering image problem. In Europe, many
of the traditional breweries have changed to cans since the
availability of this new technology.
We believe, in view of the declining bottle sales, the
introduction of cans will substantially increase Big Rock's
market share.
Product Development
During the past two years our business has developed a
new lower alcohol, lighter ale with 3.5% alcohol by volume.
It is difficult to produce lighter beer with the satisfying
full flavour associated with Big Rock beers. During the
summer of 1995, we tested a 3.45% alcohol by volume (called
Birdie Par Bogie) in draught. This product was very
successful everywhere it was tested.
Recently, to replace our static Porter, a dark, 7.0%
alcohol by volume, Black Amber Ale was introduced
experimentally in draught and large bottles. This product
has attracted an enthusiastic response.
Financing
An agreement to finance the development of the new
brewery was finalized with the Royal Bank of Canada. This
$16,500,000 loan was structured with an attractive fixed
interest rate of approximately 7.5% over a five year term.
Distribution
Until last year, Big Rock relied on smaller distributors
in the United States and other Canadian Provinces. Many of
these companies were unable to finance and service the rapid
growth in these varied markets. In the United States our
original American distributor, Alehouse, the first company
to recognize the growing craft beer business, was purchased
by a national distributor, G. Raden & Sons of Seattle,
Washington. We were sorry a long and friendly relationship
with Alehouse had to end. However, G. Raden & Sons is
now in the process of greatly expanding our market both in
Washington and throughout the U.S.. We are currently in
twenty-one states.
The changeover in various states, particularily
California, resulted in partial interruption, loss of sales
and long delays. Subsequently, G. Raden has successfully
restructured the distribution network. Since the fiscal year
end, sales to the U.S. are beginning to exceed previous
monthly shipments. In Washington, where there was no
interruption, sales growth since the Raden takeover grew in
excess of 25%.
Construction
Cold weather, starting in early November, delayed
construction of the new facility. Testing of the new brewery
was planned for early May but has been delayed, and a June
start up now appears probable.
I would like to thank all our employees and associates
who have adjusted and coped with the many growing pains and
difficult changes that occurred in the last year. The
contractors, our brewmasters and technicians forged ahead
under extreme conditions. Even when temperatures hovered
around -30 F they continued their work.
The good news is that in the first month of our fiscal
year, growth in sales again exceeded 15%. Initial reports
from Ontario and the many new states where G. Raden &
Sons have appointed new distributors are promising. Big Rock
continues to gain national and international recognition and
has developed plans to enhance this market awareness.
Although disappointed with the results, we believe the
year of construction, market development and financing has
provided the basis for solid long term growth.
Sincerely yours,
Edward E. McNally
President
This Annual Report
Financial
Highlights | Report to
Shareholders
Management Discussion
and Analysis | Auditors'
Report
Financial
Statements and Notes |
Corporate
Information

Big Rock Brewery
5555 76th Ave S.E., Calgary, Alberta,
Canada, Phone: 403-720-3239, Fax: 403-236-7523
ale@bigrockbeer.com
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