Labatt Brewing Company Limited Business Information, Profile, and History

History of Labatt Brewing Company Limited

Labatt Brewing Company Limited, acquired in 1995 by Belgian-based Interbrew S.A., holds the number two position, trailing Molson Companies Ltd., in the Canadian brewing market (by market share). Its Canadian nationwide brands include Labatt Blue (the top-selling beer in Canada), Labatt ICE, Labatt "50," and Labatt Genuine Draft, in addition to such regional brands as Kokanee, "50" Légère, and Keith's I.P.A. Labatt also distributes imported brands, including those of Anheuser-Busch and Carlsberg as well as Guinness Extra Stout. The company exports several of its brands into the United States, commanding 15 percent of the U.S. specialty beer market, and holds a 30 percent stake in Mexico's Formento Económico Mexicano, S.A. de C.V., which through its brewing subsidiary makes such brands as Tecate and Dos Equis. Outside North America--in addition to exporting its brands to and licensing its brands for brewing in Europe, Asia, and Australia--Labatt produces local brands in Venezuela and the Dominican Republic through joint ventures. Worldwide production in 1997 topped 11.5 million hectoliters, equivalent to three billion bottles of beer.

London, Ontario Brewing Beginnings in the Mid-19th Century

Company founder John Kinder Labatt was born in Ireland in 1803. His family heritage can be traced back to the Huguenots in France. Fleeing prosecution, Labatt's ancestors resettled outside Dublin. As a young man Labatt moved to London, England, where he met and married Eliza Kell. Together the couple set sail in 1833 for Canada and arrived in London, Ontario. Labatt became a farmer and sold prize-winning malting barley to the local innkeeper, who had built a small brewery in 1828. Contact with the innkeeper gave Labatt the idea of becoming a brewer himself, an idea in which he became so interested that in 1847 he formed a partnership with Samuel Eccles, an experienced brewer. The two bought the London Brewery from the innkeeper.

Early annual production capacity was 400 barrels. In 1853 Labatt bought his partner's share of the business and increased annual brewing capacity to 4,000 barrels. The newly renamed John Labatt's Brewery had six employees. Despite its remarkable production increase, the young enterprise remained a local operation. The situation changed, however, with the growing presence of the railroads. When the tracks of the Great Western Railway connected London to other cities, Labatt began shipping beer and ale to Montreal, Toronto, and the Maritimes.

John Labatt's third son, John Labatt II, apprenticed as a brewer in Wheeling, West Virginia. Meanwhile, John's two older brothers, Robert and Ephraim, had gone into their own brewery business. Their departure left John Labatt's Brewery without a brewmaster, as it had been assumed that one of the older brothers would eventually fill the position. As a result, at age 26 John Labatt II accepted his father's offer of the post.

In his new capacity, John II was instrumental in establishing a product with international appeal, India Pale Ale, based on a recipe he had learned in Wheeling. By 1878 the ale had earned high marks and honors at the Canada Exposition in Ottawa, the International Centennial in Philadelphia, the Exposition in Australia, and the International Exposition in France.

In 1866, just two years after John II returned to the brewery, the founder died, leaving the company to his wife. Eliza Labatt formed a partnership with her son and renamed the business Labatt & Company. Mother and son operated the brewery together until 1872, when John II bought his mother's interest and became the sole owner.

Before the new company leader had much opportunity to establish himself, fire destroyed the London Brewery. Fortunately, however, insurance coverage enabled Labatt to build a modern facility at the cost of $20,000. Annual production now reached 30,000 barrels.

In addition to introducing an award-winning ale and expanding production, John II is credited with modernizing the company through the use of refrigeration and distribution networks. Labatt products also reached distant Canadian provinces; by 1900 customers in Manitoba and the Northwest Territories could purchase the brewer's products.

At the turn of the century John II's two sons, Hugh and John III, joined the family business. John III had earned a brewmaster's certificate from the brewing academy in New York after graduating from McGill University.

In 1911 John II incorporated his company under the name John Labatt Limited. All but four of the 2,500 shares issued were retained by him. The remainder went to his two sons, a nephew, and his lawyer. Total capitalization amounted to $250,000.

Surviving the Prohibition Era

John Labatt II died in 1915 at age 75, and the company presidency went to John III. At that time the various provinces were debating possible Prohibition laws. Unlike the United States, where the liquor industry was regulated by a blanket federal law, in Canada each province created its own standard. Although almost all of Canada was rendered legally dry by 1916, several provinces allowed the manufacture of alcoholic beverages for export. By the end of Prohibition only 15 of Ontario's 65 breweries still survived. Labatt not only was one of the survivors, but also was the only such firm to have maintained management continuity through the era.

During the 1920s and 1930s the brewery implemented a number of innovative employee policies. In the 1920s Labatt workers became some of the first Canadian employees to receive annual vacation pay. In 1932 Labatt set an industry standard by establishing a group insurance plan for its employees, and six years later an annuity plan was created to build pension benefits.

While the nation struggled through the years of the Depression, the Labatt family underwent its own period of misfortune. On August 15, 1934, John Labatt III, already a widely recognized business and community leader, was kidnapped on the way from his summer home in Sarnia to a company board meeting. Later his empty car was discovered with a note instructing John's brother, Hugh, to pay a ransom of $150,000 for the safe return of the victim. For the next several days the story of the mysterious disappearance appeared in the headlines of major newspapers around the world. The incident was the first kidnap assault in Canadian history. Detectives concentrated their search around the Detroit, Michigan area as suspicion mounted about the possibility of gangster involvement. During Prohibition, American gangsters had transported alcoholic beverages from Canada into the United States in rowboats down the Detroit River. Authorities believed Labatt had been abducted in a similar fashion. After a few days Labatt was released unharmed at Toronto's Royal York Hotel. The search for his assailants continued over the next several months until the severely shaken Labatt identified a Canadian bootmaker. Labatt retired from public life for the remaining years of his presidency.

Expansion and Public Offering Following World War II

After World War II the company prepared to undertake a major expansion. To raise capital John Labatt Limited became a public company and issued 900,000 shares. Many employees were among the more than 2,000 original shareholders. In 1946 the company completed its first acquisition, the Copland Brewing Company in Toronto, which doubled Labatt's brewing capacity.

The 1950s saw a number of new beverages added to Labatt's product line. The 1950-introduced Fiftieth Anniversary Ale, nicknamed "Annie" or "50," commemorated John and Hugh Labatt's years of activity in the company. It later became Canada's most popular ale. Pilsener Lager Beer debuted in 1951. After its launch in Manitoba this brand gained the nickname "Blue" after the color of its label and because of the company's sponsorship of the Winnipeg Blue Bombers, a Canadian Football League team. The nickname stuck and Labatt Blue gained increasing popularity, becoming the number one beer brand in Canada by 1979.

Also in 1951 the company presidency passed from John III to his brother Hugh, the former vice-president. A year later John died at age 72. The company continued to expand during the decade, most notably with the purchase of Shea's Winnipeg Brewery Ltd., a company dating to 1873. The new subsidiary introduced Labatt into the hotel industry. Labatt also acquired the Lucky Lager Brewing Company of San Francisco. Construction of a $6.5 million brewery in Ville La Salle, Quebec in 1956 marked Labatt's expansion into other provinces.

When Hugh Labatt died in 1956, W. H. R. Jarvis became the first non-family president of Labatt. The following year he oversaw formation of a Feed Products Department, the company's first entrance into an industry outside brewing. The division manufactured animal feed additives using brewing byproducts. In 1958 Lucky Lager Breweries of British Columbia was acquired.

Jarvis died of a heart attack during a board meeting in the early 1960s. John H. Moore assumed the post and supervised the further expansion of Labatt's operations. New breweries were built in Etobicoke, northwest of Toronto, and in Edmonton in the early 1960s. Bavarian Brewing Limited, based in St. John's, Newfoundland, was acquired in 1962. These additions strengthened Labatt's position in the national market.

Major structural changes occurred at Labatt in the next few years. The first came in the mid-1960s when the Milwaukee-based Joseph Schlitz Brewing Company attempted to gain a 40 percent interest in the Canadian brewery. The family trust agreed to sell half of its shares and many public shareholders were also willing to sell, but the acquisition eventually was halted by U.S. antitrust laws. An investigation led by then-U.S. Attorney General Robert F. Kennedy alleged that Schlitz wanted to control the California market through a Labatt subsidiary. In 1967 Schlitz was forced to sell its approximately one million shares to a consortium of three Canadian investment groups.

Expansion of Offerings Beginning in the Mid-1960s

Another major structural change occurred in 1964 when John Labatt Limited became a holding company to manage all of the various company activities. Brewing fell under Labatt Breweries of Canada Ltd. The parent company proceeded to make acquisitions in other areas. Labatt's first purchase in the wine industry was that of Parkdale Wines in 1965. In 1973 Labatt consolidated its many wine holdings under the Chateau-Gai brand name. The Ogilvie Flour Mills Company purchase led Labatt into the dairy and processed food industry. Other food product purchases followed over the next several years. By 1974 company operations fell into three main divisions: brewing, consumer products, and agricultural products. Brewing operations later were divided into the Canadian and International groups.

A major expansion campaign at the London facility in 1965 increased annual capacity to 1.3 million barrels, making it one of the largest breweries in the world. At the same time, Labatt announced plans to form a joint venture with Guinness Overseas Ltd. to produce the famous Irish stout in Canada.

At the end of the decade Moore announced he would leave Labatt to take charge of a company that represented Labatt's largest shareholder. N. E. Hardy, formerly president of Labatt Breweries of Canada Ltd., succeeded Moore. In 1973 Peter Widdrington succeeded Hardy and would lead Labatt into the late 1980s.

In 1971 Labatt purchased Oland & Sons Limited and its Halifax and Saint John breweries and then acquired Columbia Brewery of Creston, British Columbia in 1974. In 1977 the company introduced Canada's first light beer, Labatt Special Light. Labatt participated in the construction of a brewery in Trinidad and purchased an interest in Zambia Breweries and a Brazilian brewing company during the 1970s. It also established Labatt Importers Inc. in New York to develop aggressively Labatt's presence in the U.S. market. The company also acquired a 45 percent interest in the Toronto Blue Jays, an American League baseball franchise. Meanwhile, during this period of diversification, Brascan Ltd., an investment holding company in Peter and Edward Bronfman's corporate empire, gradually built up a significant stake in Labatt--41 percent by the late 1980s.

In 1980 Labatt became the first Canadian brewery to form an international licensing agreement with a major U.S. brewery when it entered into an agreement with Anheuser-Busch Inc. to brew Budweiser and Michelob under license in Canada. The Budweiser brand quickly gained eight percent of the market.

The 1980s and early 1990s were perhaps most noteworthy for additional expansion moves outside of brewing. Many of the purchases were of U.S. food businesses, primarily in the areas of dairy products and fruit juice. Expanding on its ownership of the Blue Jays, Labatt acquired The Sports Network, a cable sports channel, in 1986. Three years later additional entertainment interests were gained in production companies and International Talent Group, a New York City-based rock music talent agency. By the late 1980s only about 30 percent of company revenue came from brewing.

Labatt's brewing operations were not neglected, however, and were themselves the object of expansionary initiatives. In 1987 the Latrobe Brewing Co. of Pennsylvania, brewers of Rolling Rock beer, was acquired. The following year Labatt began to brew the Carlsberg and Carlsberg Light brands under license from Copenhagen, Denmark-based Carlsberg. Labatt purchased a 77.5 percent stake in Italian brewer Birra Moretti in 1989.

Divestments and Sale to Interbrew in the 1990s

The 1990s represented perhaps the most transformational period in Labatt's long history. The company began the decade under the new leadership of Sidney Oland, who had headed Labatt's brewing operations. Oland sought to end the company's diversification drive and quickly sold the wine operations and two unprofitable U.S. dairies. The remaking of Labatt continued under Oland's successor, George Taylor, who took charge in 1992. That year the company sold its remaining food businesses. Bolstered marketing and hot new beer brands revitalized Labatt's brewing side, as the company introduced a cold-filtered draft beer, Labatt Genuine Draft, in 1992, and the following year the very first ice beer, Labatt ICE, which was created through a patented Ice Brewing process--a process Labatt later licensed to other brewers. In the face of increasing competition--fueled by free-trade agreements--from cheap American beers, Labatt introduced a "popular price" beer known as Wildcat in 1993. The company's entertainment division meanwhile celebrated World Series victories in 1992 and 1993 by the Blue Jays.

Also in 1993 Brascan sold its stake in Labatt, leaving the company vulnerable to shareholder discontent and hostile takeover. In July 1994 the company paid C $720 million (US $510 million) for a 22 percent interest in Mexico-based Formento Económico Mexicano, S.A. de C.V. (Femsa), whose brewing subsidiary, Cerveceria Cuahtémoc Moctezuma, boasted of such brands as Tecate and Dos Equis. A few months later Labatt management, concerned about a hostile takeover, proposed a poison-pill plan, but it was rejected by shareholders--the first such defeat in Canadian history--who felt the company had paid too much for the Femsa stake. Shareholders were also adamant that Labatt should divest its entertainment holdings (which by this time also included major stakes in the Toronto Argonauts Canadian Football League team, Toronto's SkyDome sports stadium, and cable's The Discovery Channel), a move long promised by management but never delivered. Adding fuel to the fire was the collapse of the peso at the end of 1994, which made what was likely already a premium purchase price even dearer. Labatt was forced to take a C $300 million (US $219 million) writedown on its Mexican investment in early 1995.

In May 1995 Toronto-based takeover specialist Onex Corp. made a C $2.3 billion (US $1.7 billion) hostile takeover offer for Labatt. Taylor and Labatt's management team rejected this offer as too low, bought some time through a lawsuit in a New York City court, and solicited offers from other friendly suitors. In June Labatt agreed to be acquired for C $2.7 billion (US $2 billion) by Interbrew S.A., a privately held Belgian brewer with a 600-year history. Interbrew planned to divest Labatt of all nonbrewing operations and quickly fulfilled this intention in part when Labatt's broadcasting businesses were sold to a management-led consortium for C $878 million (US $650 million) in July 1995. Interbrew placed the Labatt sports properties up for sale in April 1996 but took the Blue Jays, Argonauts, and SkyDome off the market in October 1997 after failing to secure an acceptable deal with potential local partners.

Labatt's first few years as a subsidiary of Interbrew were also eventful, if not so dramatic. In 1996 the company sold its stake in Birra Moretti. In August 1996 a joint venture in the Dominican Republic launched its first brand, Soberana ("sovereign" in Spanish). The following year saw Labatt enter the fast-growing South American market for the first time through a brewing joint venture with the Cisneros Group of Companies. The first country targeted by this initiative was Venezuela, where a new brewery opened outside of Caracas in 1997. Labatt entered into an agreement in 1997 to brew and sell Lowenbrau beer in North America. In early 1998 Labatt increased its stake in Femsa to 30 percent. In June 1998 Labatt and Anheuser-Busch tightened their relationship in Canada through a new agreement whereby the American company granted Labatt the right to sell Anheuser-Busch brands in Canada in perpetuity. In return Labatt agreed to step up its marketing efforts and to give Anheuser-Busch a larger share of the associated profits. Labatt was clearly a more focused, stronger company, as reflected in all of these developments and in the following facts: earnings for Labatt increased 15 percent in 1997; Labatt Blue celebrated its 20th straight year as the top-selling beer in Canada in 1998; and this same flagship brand had become the number three import beer in the United States by early 1998.