Date: Thu, 18 Dec 1997 06:33:11 GMT Server: Stronghold/2.0.1 Apache/1.2.0 Connection: close Content-Type: text/html
Home | Beers | Brewery | People | History | Availability | New | Store | Annual Report | Contest It was just a year ago that we were racing to complete the new brewing facility while maintaining production at the original plant. In spite of a severe winter and a late start (September 1995), the first brew was brewed in early July of 1996. We stopped brewing at the old plant at the end of August last year, almost eleven years to the day of Big Rock Brewery's inaugural brew. The packaging line was closed in September and all equipment moved by late October. All of this was accomplished just slightly above budget and well below industry averages for constructing a new plant. The facility is one of the most attractive, functional and efficient in the industry. The major cost savings resulted from in-house engineering and process layout work by our own brewmasters and their close and friendly relations with our suppliers. Before the year-end, Big Rock filed an amended prospectus and through Research Capital Corporation, sold 600,000 shares for $9.75/share. This netted the company approximately $5.2 million after commissions, legal and filing fees. Our sales and production, although slightly higher, were below budget for 1997 because of falling sales to the U.S.. We are pleased that we have compensated for the lost U.S. sales by concentrating our marketing locally. Sales in Canada for the period increased 19.5%. Big Rock sales to the U.S. declined from 15.4% to 7.5% of total sales. By the end of 1996, there were approximately 1200 small brewers in the U.S., many of whom are concentrated in the West. This increase has created a very competitive market and confusion among customers. Now the U.S. has many breweries that are undercapitalized in a market that is overcrowded and making the kind of beer customers do not want. There are major differences between the American and Canadian markets. In the U.S., craft breweries were encouraged by the federal tax structure which reduced excise tax by $11.00/barrel on the first 60,000 barrels, a $660,000 tax saving. This reduction was even granted to contract breweries utilizing large and usually older breweries. Like all tax anomalies, this is undoubtedly one of the major reasons for so many new entries in a crowded market. In Canada, under the ad valorem tax regime in the province of Alberta, Big Rock survived and grew even while paying higher taxes than the major breweries. To comply with free trade rules, encouraged between provinces, the Government of Alberta has adapted a fixed hectolitre mark-up of $89.00/hl. Although not adapted by other provinces, the tax paid by Big Rock is now the same as the large breweries. Not only is the heavy tax burden tough on new start-up breweries in Canada, another disadvantage is the high capital costs of new brewing equipment and the scarcity of used equipment. For example, when Big Rock started, it bought a used bottle washer and filler for $35,000. New, albeit much larger, equipment purchased two years ago cost Big Rock almost $2 million. PRODUCT DEVELOPMENT In partnership with the Calgary Expo 2005 Committee, we developed EXPO ALE, paying a royalty to assist Calgary's bid to host the 2005 World's Fair. This largely volunteer group has been a great supporter of the beer and in turn, Big Rock. Big Rock Brewery Ltd. and Ducks Unlimited Canada (DU) have teamed-up to develop a specialty beer that will support wetland habitat conservation through every purchase made by consumers. This leading craft brewery and leading conservation organization will work together in the marketing and promotion of Canvasback Ale to both DU's extensive cross-country membership and all groups interested in supporting conservation efforts. Canvasback Ale will be available for consumer purchase mid-June 1997. We have several additional products in development, but feel we should be judicious on any more new releases. DISTRIBUTION Big Rock products are currently available in 5 provinces, 2 territories and 23 U.S. states. The Canada-wide support network of DU should assist Big Rock's development of a national and international distribution system for this distinguished product. We continue to have strong growth in our Alberta home market. Alberta has the broadest based, dynamic economy of any area in Canada. Since year-end, Big Rock continues to steadily increase market share in this province, our main market. Big Rock distributes Guinness brands in Alberta, Saskatchewan and the Northwest Territories. During the year we finalized an agreement with Guinness Import Company (Canada) Limited to distribute Big Rock products in Ontario and Eastern Canada. Guinness has complete warehouse and distribution facilities in Ontario and a large, well-trained sales force covering the entire Province. This relationship has resulted in steady growth for both companies in their respective markets. Since the year-end we have established our own distribution systems in the province of British Columbia. We are now concentrating our resources to increase sales in existing markets and explore more distant markets. Testing of our products in both Europe and the Far East has indicated enthusiastic responses. THE FUTURE Big players dominate the brewing industry and are a product of the Industrial Revolution. In the first half of this century, this revolution totally changed the brewing industry, along with a lot of other industries, in five major ways.
The good news is that the new Digital Age has begun. The craft brewing industry is a clear example of the resulting changes. We are really different from the big brewers. This de-industrialization of the brewing industry has changed each of these five areas.
At Big Rock we keep these differences in mind when it comes to location, product development, hiring, distribution and marketing. We believe that these trends will make large national breweries less competitive and strengthen the growth of regional breweries such as Big Rock. We are able to brew a first-class beer consistently while expanding our markets by utilizing the latest brewing, communication and digital technology, and we are able to do all of these things today, not tomorrow. All of Big Rock's employees continue to perform at the highest standards and all have contributed extra energy, time and ingenuity to the completion and start-up of the new plant. They are rightfully proud of having helped build and start-up one of the most modern breweries in the world. Sincerely yours,
Edward E. McNally President 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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