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  WHY MEXICANS DON’T DRINK MOLSON

  RESCUING CANADIAN BUSINESS

  FROM THE SUDS OF GLOBAL OBSCURITY

  WHY

  MEXICANS

  DON’T DRINK

  MOLSON

  ANDREA MANDEL-CAMPBELL

  Douglas & McIntyre

  Vancouver / Toronto

  Copyright © 2007 by Andrea Mandel-Campbell

  07 08 09 10 11 5 4 3 2 1

  All rights reserved. No part of this book may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, without the prior written consent of the publisher or a licence from The Canadian Copyright Licensing Agency (Access Copyright). For a copyright licence, visit www.accesscopyright.ca or call toll free to 1-800-893-5777.

  Douglas & McIntyre Ltd.

  2323 Quebec Street, Suite 201

  Vancouver, British Columbia

  Canada V5T 4S7

  www.douglas-mcintyre.com

  Library and Archives Canada Cataloguing in Publication

  Mandel-Campbell, Andrea, 1969–

  Why Mexicans don’t drink Molson : rescuing Canadian business

  from the suds of global obscurity / Andrea Mandel-Campbell.

  Includes bibliographical references.

  ISBN 978-1-55365-225-0

  1. Competition — Canada. 2. Competition, International. 3. Business enterprises — Canada.

  4. Corporate culture — Canada. 5. Globalization — Economic aspects — Canada.

  6. Export marketing — Canada. 7. Canada — Commerce. I. Title.

  HF3226.5.M35 2007 382.0971 C2007-900020-7

  Editing by John Eerkes-Medrano

  Copy editing by Ruth Wilson

  Jacket and text design by Ingrid Paulson

  Jacket photographs by Alex vs. Alex Photography

  Printed and bound in Canada by Friesens

  Printed on acid-free paper that is forest friendly (100% post-consumer

  recycled paper) and has been processed chlorine free.

  We gratefully acknowledge the financial support of the Canada Council for the Arts,

  the British Columbia Arts Council, the Province of British Columbia through the

  Book Publishing Tax Credit, and the Government of Canada through the Book Publishing

  Industry Development Program (BPIDP) for our publishing activities.

  For Andrea, Isabella and Scuby

  “To those who urge upon us the policy of tomorrow, and tomorrow and tomorrow; to those who tell us, wait, wait, wait; to those who advise us to pause, to consider, to reflect, to calculate and to inquire, our answer is: No, this is not a time for deliberation, this is a time for action. The flood-tide is upon us that leads on to fortune, if we let it pass it may never recur again . . .

  Heaven grant that it be not already too late; heaven grant that whilst we tarry and dispute, the trade of Canada is not deviated to other channels, and that an ever vigilant competitor does not take to himself the trade that properly belongs to those who acknowledge Canada as their native or their adopted land. Upon this question we feel that our position . . . corresponds to the beating of every Canadian heart.”

  SIR WILFRID LAURIER, PRIME MINISTER OF CANADA, 1902

  “We have met the enemy and he is us.”

  PORKYPINE, QUOTED IN IMPOLLUTABLE POGO, 1970

  CONTENTS

  Introduction

  PART ONE WHY WE CAN’ T COMPETE ABROAD, OR WHAT HAPPENED TO OUR COJONES ?

  1 Time to Wake Up

  2 Steel Dinosaur

  3 Tariffs and Trains: History’s Last Spike

  4 The Milk Mafia and Other Stories

  5 Why Mexicans Don’t Drink Molson

  6 Team Canada and Tequila: The Pitfalls of

  Government Trade Policy, Promotion and Finance

  PART TWO WHY ALL IS NOT LOST: HOW TO GET FROM BUFFALO TO BEIJING

  7 Dragon Slayers and Depanneur Dynasties

  8 Multicultural Meal Ticket, or Multiple Solitudes?

  9 The Mexican Lunch, or a Mug’s Game?

  10 A New Approach to Parenting:

  What Government Can and Should Do

  Sources

  Acknowledgements

  INTRODUCTION

  DAVID HOOD WAS leaving the American Bar in Düsseldorf late one evening when he was stopped by two stern-looking policemen, armed with ak-47s, demanding his identification papers in clipped Germanic tones. Startled, the Canadian businessman squinted in confusion, fumbling in the semidarkness for his wallet as the stone-faced officers looked on in silence. But as soon as Hood pulled out his Canadian passport, the gun-toting police broke into broad grins, summoning up what appeared to be the only English words they knew, chiming in unison: “beer, hockey, Wayne Gretzky!”

  Beer. What could be more Canadian? With its sturdy, honeyed depths, conjuring up images of ice-cold lakes, lumberjacks and rough-hewn beauty, it is one of the few things that seem to distinguish us from the rest of the world. As tightly bound to our still-wobbly sense of national identity as hockey, beavers, Mounties and medicare, it’s the one symbol of iconic Canadiana we could arguably slap a label on and sell around the globe. And yet we don’t. It speaks volumes that Canadian beer can capture the imagination of two policemen in Germany, the original purveyor of the barley beverage and home of Oktoberfest. Especially when just about the only place you can get your hands on a “cold one” is in Canada — and who knows for how much longer.

  The Europeans may have invented the bitter ale, but nowhere are the conditions more ideal for brewing beer than in Canada. Consider its two key ingredients, water and barley: Canada is the largest repository of fresh water in the world and the second-largest producer of barley, its northern Prairie climes ideal for making high-quality malt. The country’s reputation for superior beer has preceded it, while Canada’s two traditionally dominant brewers, Molson and Labatt, bathing in their own self-perpetuated praise, have routinely disparaged their closest competition, American beer, as the brewing equivalent to Jamaican bobsledding. So why is it, when it comes to the global beer industry, that Canadian suds are like the dried-up foam left at the bottom of an empty beer mug?

  In the 1970s, Molson was roughly the same size as Heineken, a beer dynasty based in the postage-stamp-sized nation of the Netherlands. Three decades later, the Dutch brewery is the world’s fourth-largest, with 115 breweries in more than sixty-five countries. Heineken sells some 119 million hectolitres across the planet while its eponymous brand ranks fifth among global beer labels. In contrast, the venerable brewery begun by John Molson in 1786, some eighty years before Heineken was born, manufactures a meagre ten million hectolitres or so and doesn’t claim a single brand among the world’s top twenty. As Michael Palmer, a longtime beer analyst and president of Toronto’s Veritas Investment Research, notes: “Molson literally spills more beer than it exports.”

  While the rest of the beer industry embarked on a global expansion spree in recent years, breaking into previously untapped markets like China and Russia, scooping up rivals and consolidating, Molson could barely bring itself to cross the U.S. border. Instead, it buried its head under the blanket of domestic security, selling off more than half the brewery to rival Australian and U.S. brewers in order to buy chemical companies and the Canadian hardware store Beaver Lumber. Dan O’Neill, Molson’s outspoken former chief executive, admitted to the company’s tunnel vision in a magazine interview as late as 2004: “When you look at the big brewers, you say Heineken — they were in a little tiny country, right? They recognized this need to get out many years before we recognized it. You look at Interbrew,* same thing — they’re in Belgium, and they go out. We just took too long to g
et out. So we’re chasing the big guys.”1

  It’s not like the Montreal-based brewer, whose extensive empire had once included steamships, a bank and even its own currency, didn’t have the opportunity to branch out abroad. It had plenty. In the late 1980s, China’s Tsingtao Brewery was insolvent and looking for an investor to inject $20 million into the company. It was a small price to pay for entry into what has since become the world’s largest beer market. But Molson balked. “China was a long way away and putting $20 million into China was a dangerous thing to do then,” says an individual familiar with the negotiations. “It was a time when Canada had a huge ability to be a really strong player in China . . . Molson was one of the best breweries in the world. Why weren’t they going out and becoming world leaders?”

  Andrew Stodart, the former international brand director for Black Velvet, was convinced that he could do for Molson what he had done for Canadian whisky in international markets. The liquor marketer was confident that Molson Canadian had all the makings of a global brand and approached the brewery’s executives with a plan to break into Brazil and Russia. “I told them I could get Canadian launched in these markets as a premium-brand beer from Canada,” says Stodart. “We could sell it as the most refreshing beer from the coldest place on earth.” In Moscow, Stodart had potential customers lined up; a former Canadian from Halifax who owned a popular pub in the Russian capital was ready to actively plug the beer among his patrons. Molson would already have an important advertising platform that could easily segue into grocery store sales. But the brewer wouldn’t bite. “They were too afraid to take the risk,” says Stodart. “They felt they couldn’t compete against the Heinekens of this world.”

  Molson finally did make its way to Brazil. The oldest brewery in North America and the last of its continental brethren to venture abroad, Molson bought Brazil’s number two beer company, Cervejarias Kaiser, in 2002. But even then, it didn’t dare to introduce its own trademark brand into the world’s fourth-largest beer market. While bringing Canadian beer to Brazil somehow seemed absurd, Molson found nothing strange about peddling its Brazilian beer in Canada. Unfortunately, the Brazilian push was too little, too late, and Molson’s disastrous South American foray would cost it the company and Canada another chance to make it into the multinational big leagues.

  Just like Labatt Breweries, which was snapped up by Belgium’s Interbrew in 1995 and is now just one more subsidiary within the world’s largest beer empire, Molson was subsumed by U.S. brewer Adolph Coors. Carefully packaged as a “merger of equals,” the Molson–Coors tie-up was in effect a “bailout,” says Palmer, with the new entity’s headquarters in Colorado and Coors brass in the top executive jobs. Just one month after the 2005 deal, the new Molson Coors announced it would push into Russia, flogging guess what brand? Coors. Not long after, Molson Coors jettisoned Cervejarias Kaiser, selling out for a song. It retained just 15 per cent of the brewery in the hopes that it could at least use Kaiser as a platform for launching guess what brand into the South American market? Coors.

  Even back on Molson’s home turf, the once ubiquitous Canadian brand may soon be a candidate for the endangered species list. I was in a Calgary pub during the first game of the 2004 Stanley Cup playoffs, which pitted the Flames against the Tampa Bay Lightning. The scene couldn’t have been more Canadian: as giant-screen tvs broadcast the play-by-play from every corner of the bar, a waitress sporting a skin-tight T-shirt with “I love the Flames” stretched across her generous bosom waded through a sea of red hockey jerseys, a tray of beer expertly balanced on her fingertips. But I was hard pressed to find anyone actually drinking a Molson Canadian. At the table next to mine, a trio of mulletheads were squeezing quartered limes down the shafts of pale yellow Corona beers.

  It is a damning indictment of Canadian global ambition that such a lightweight beer, from a country with little in the way of fresh water or barley, would become the fourth-best-selling brand the world over. Although Corona is not a favourite brew among discerning Mexicans, the beer associated with eternal sunshine and aquiline beaches is sold, along with the entire lime-squeezing ritual, in more than 150 countries. In Canada, Corona is the leading imported beer, a category that has grown by 500 per cent in the past decade, to represent 10 per cent of the domestic beer market. Still, the Mexican pale ale is not the most popular beer in Canada. That spot is reserved for those namby-pamby Americans, with Budweiser and Coors Lite, the number one and two beers respectively, taking some 20 per cent of the market in recent years.2

  At the current rate of decline, Veritas’s Michael Palmer predicts the once-mighty Canadian beer brands will cease to exist. “We will still have regional brewers, but the great national Canadian beer brands — the Exports, the Blues, the Canadians — they are going to go the way of the dodo,” he says. “And it’s their own fault.”

  How did this happen? More importantly, will the rest of Canada suffer the same fate as its beloved beverage and sink into the suds of global obscurity? Canadians have long peered into beer’s pale golden depths for a reflection of themselves, and the state of the domestic beer industry should be a wake-up call to the perils of continued self-absorption in a globalized world. For what is happening in the beer industry is playing out across the economy, as Canadian companies — comfortable, complacent or crippled by government — are confronted with increasing competition, consolidation and the rise of new economic powerhouses like China, India and Brazil. And as with beer, it is a battle we are losing.

  The loss of Canadian-headquartered companies with the potential to be global players is so common that it barely merits a headline — the same clutch of concerned citizens trundle out for a perfunctory lament before Bay Street bankers and lawyers are lured by the next get-rich-quick income trust. That Dofasco, the country’s premier steelworks, would be tossed around like a football in a global tug of war— between the Europeans and an Indian billionaire who started out in 1976 with one steel mill in Indonesia— does not bode well for Canada’s ability to harness the powerful levelling force of globalization.

  If there is one area where Canadians have distinguished themselves in international business, it is mining. And yet look at the tragedy that has befallen what should be Canada’s one uncontested world-beater.

  It almost had a fairy-tale ending. After nearly a year of wrangling spurred by the planned merger of two Sudbury mining icons, inco and Falconbridge, Vancouver-based Teck Cominco swept in like a white knight, poised to trump a takeover offer of the pair by American copper giant Phelps Dodge. Teck’s brash $20 billion bid wowed the markets with its bold claim, so uncharacteristic for a Canadian company. During the few hours that it seemed Teck would prevail, CEO Don Lindsay declared: “I believe that it’s important that there be Canadian champions on the world stage, and not just in mining.”3

  But before Lindsay had a chance to imagine what it would be like to head Canada’s first and only “super major” mining company, his dreams were dashed by Brazil’s Companhia Vale do Rio Doce, cvrd, and its eleventh-hour all-cash offer for inco. Even before the world’s largest iron ore producer sealed the deal, it announced that it would delist inco from the Toronto and New York stock exchanges. As for Falconbridge, the Swiss–Anglo mining firm Xstrata swooped in with a $20.9 billion hostile takeover. The acquisition has launched what was, until recently, a little-known ferro-chrome business, with us$500 million in sales in 2001, into the elite Top Five of global mining companies with an enterprise value approaching us$50 billion. Just hours after assuming the reins, Xstrata cleared out Falconbridge’s Toronto head office of senior executives, including almost its entire board of directors. While Toronto will be the headquarters for the company’s nickel division, it will lose control over the former Falconbridge operations in seventeen countries, which are either being sold off or folded into the Xstrata empire.

  Peter Munk, founder and chairman of Barrick Gold, the world’s leading gold producer and, together with Teck, the only sizable Canadian miner l
eft, lashed out at the Canadian industry’s lack of leadership and vision. How, he wondered aloud, did the opportunity for a three-way tie-up between Teck, inco and Falconbridge, and the chance to forge a global powerhouse, turn into an auction of the country’s crown jewels? “This opportunity will never arise again in your generation and not in your children’s generation to put together a group like that,” Munk lamented. “That’s when you’ve got to have the determination and the balls and the courage.”4 Within days, two of Canada’s most historic, established companies were wiped off the map. “We are no longer a branch-plant economy,” surmised John Gruetzner, a Beijing-based Canadian business consultant. “We are a non-headquartered economy.”

  Some people might say, so what? The nickel still has to be dug out from under the Canadian Shield, and somebody still has to forge the steel at Hamilton Harbour. Beer will always be brewed in Canada, even if it’s Coors or Budweiser. If that’s all Canadians aspire to, fine. But without head offices to hone management skills, to develop international networks and ultimately to make Canadians responsible for their own destiny, we become little more than “Mexicans with sweaters” — a quaint term coined by the American movie industry to describe Canadian film crews.

  Just as U.S. corporations set up factories south of the Rio Grande to take advantage of cheap Mexican labour, Hollywood sends its film production north so that it can hire lower-paid Canadian sound technicians and camera operators. The high-paid “talent,” however — the star actors, directors, screenwriters and producers — are all still American. “Anybody who says head offices don’t matter is dreaming in Technicolor,” says Richard Haskayne, one of Canada’s foremost corporate tycoons and chairman of TransCanada PipeLines.

  Just ask Francesco Bellini. Born in the central Italian town of Ascoli Piceno, Bellini immigrated to Canada in 1967 and received a doctorate in organic chemistry from the University of New Brunswick. When the U.S. pharmaceutical firm he worked for in Montreal decided to move its offices to Boston, Bellini opted to stay put, founding BioChem Pharma in 1986. The pharmaceutical start-up developed 3tc, the first anti-hiv compound drug, which became the most-prescribed aids treatment in the world. Yet, despite the firm’s tremendous success, it no longer exists; it was sold to Shire Pharmaceuticals of the United Kingdom in 2001 for $6 billion. Within two years, the company’s five hundred staff were fired and its once-impressive offices, located on a leafy high-tech compound in Laval, emptied. “They took the profit and destroyed the company,” says Bellini. Also gone is the estimated $5 million a year BioChem used to donate to various charitable causes. “When BioChem was here, I don’t know how much money I gave to local arts and the local university,” Bellini says in his thickly accented English. “Now it’s all gone.”