Molson Companies Ltd.

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Molson Companies Ltd.

1555 Notre Dame Street East
Montreal, Quebec H2L 2R5
Canada
(514) 521-1786

Public Company
Incorporated: December 4, 1930
Employees: 1100
Sales: C$1.639 billion (US$1.186 billion)
Market Value: C$652 million (US$472 million)
Stock Index: Toronto Vancouver Montreal

Established in 1876, Molson is the oldest brewery in North America. The modern brewery’s operations are extensive, and Molson beers are now sold throughout Canada and in most of the United States. The company is also licensed to brew the German Löwenbräu beer for distribution in North America and, under contract with Adolph Coors Company of Colorado, distributes Coors and Coors Light beers in Canada.

Founder John Molson did not limit his attention to brewing; in the early 19th century he invested in farming, lumber, banking, and various civic enterprises. He is also known for lending his support to development of the first Canadian steamboat line and railroads. Later the company shed all its interests in non-brewing fields and concentrated on its original business for a century. In the 1960’s Molson began to diversify and today has divisions in various industries, particularly sanitation products, retail home improvement outlets, venture capital, and television production.

The history of Molson brewing began soon after the 18-year-old Molson emigrated from Lincolnshire, England during the late 18th century. He arrived in Montreal in 1782. A year later Molson became a partner in a small brewing company outside the city walls on the St. Lawrence River. In 1785 he became the sole proprietor of the brewery, closed it temporarily, and sailed to England to settle his estate and buy brewing equipment. Upon his return in 1786, with a book entitled Theoretical Hints on an Improved Practice of Brewing in hand, the novice started brewing according to his own formula. By the close of the year, Molson had produced 80 hogsheads (4300 gallons) of beer.

In 1787 Molson remarked, “My beer has been almost universally well liked beyond my most sanguine expectations.” His statement in part reflects the quality of the brew, but it also indicates that Molson had excellent timing; he faced very little competition in the pioneer community.

Molson believed that an elemental part of brewing highquality beer and keeping operating costs low was local production of barley and hops; to that end, he brought seeds back with him to distribute to local farmers. Today the brewery is particularly proud of the yeast it uses, praising the superiority of live cultures imported from England when shipping time was shortened in the 19th century. The corporation’s literature professes that the “purity of yeast cultures is protected in high security yeast rooms. The descendants of that first transatlantic yeast shipment are hard at work today in some Molson breweries.” Admittedly, the recipes and tastes for beer have changed over the past 200 years, but John Molson’s insistence that the brewery produce only highquality beer persists.

Before electrical refrigeration became available in 1900, Molson was confined to a 20-week operating season because it had to rely on ice from the St. Lawrence River. Nevertheless, production grew throughout the 1800’s as the Montreal brewery steadily added more land and equipment. Population growth and increasingly sophisticated bottling and packaging techniques also contributed to Molson’s profitability in the early days.

It was not long before Molson became an established entrepreneur in Montreal, providing services in the fledgling community that contributed to its growth into a major Canadian city. Molson first diversified in 1797 with a lumberyard on the brewery property. A decade later he launched the Accommodation, Canada’s first steamboat, and soon thereafter he formed the St. Lawrence Steamboat Company, also known as the Molson Line. The steam line led to Molson’s operation of small-scale financial services between Montreal and Quebec City; in turn, the services became Molson’s Bank, chartered in 1855.

In 1816 John Molson signed a partnership agreement with his three sons, John Jr., William and Thomas, ensuring that the brewery would remain under family control. He was elected the same year to represent Montreal East in the Canadian Parliament, and opened the Mansion House, a large hotel in Montreal that housed the public library and post office and Montreal’s first theatre.

The Molson’s established the first industrial-scale distillery in Montreal in 1820. Three years later, the youngest brother, Thomas, left the organization after a severe disagreement with his family. In 1824 he moved to Kingston, Ontario, where he established an independent brewing and distilling operation.

The elder John Molson left the company in 1828, leaving John, Jr. and William as active partners. He served as president of the Bank of Montreal from 1826 to 1830, and in 1832 was nominated to the Legislative Council of Lower Canada. Possibly his most foresighted venture was his contribution of one quarter of the cost of building Canada’s first railway. He died in January 1836 at age 72.

Thomas Molson returned to Montreal in 1834 and was readmitted to the family enterprise. Over the next 80 years new partnerships formed among various members of the Molson family, prompting several more reorganizations. The first in the third generation to enter the family business was John H.R. Molson, who joined the partnership in 1848. He became an increasingly important figure in the company as William and John Jr. devoted more of their time to the operation of Molson’s Bank.

In 1844 the Molson brewery, now called Thos. & Wm. Molson & Company, introduced beer in bottles which were corked and labelled by hand. Beer production grew faster than bottle production, though, necessitating the company’s purchase of a separate barrel factory at Port Hope, Ontario in 1851. In 1859 Molson started to advertise in Montreal newspapers, while also setting up a retail sales network and introducing pint bottles.

The company became John H.R. Molson & Bros, in 1861 following the establishment of a new partnership with William Markland Molson and John Thomas Molson. In 1866 the Molsons closed their distillery, citing poor business, and in 1868 they sold their property in Port Hope.

By 1866, the brewery’s hundredth year exclusively in Molson hands, its production volume had multiplied 175 times but profit cleared on each gallon remained the same—26 cents. In the early years of the 20th century, the company incorporated pasteurization and electric refrigeration into its methods. Additionally, electricity replaced steam power, and mechanized packaging devices sped the bottling process. In 1911 the company became Molson’s Brewery Ltd. following its reorganization as a joint share company. The family’s direct interest in banking ended in 1925 when Molson’s Bank merged with the Bank of Montreal.

The first half of the 20th century was a period of rapid growth for Molson. Production at the Montreal brewery rose from 3 million gallons in 1920, to 15 million in 1930, to 25 million in 1949. Molson adopted modern marketing and advertising methods to enhance market penetration, and in 1930 began producing its first promotional items—despite founder John Molson’s contention that “An honest brew makes its own friends.”

In the mid-1950’s Molson management recognized a need to expand operations significantly. By concentrating their resources, other Canadian breweries had finally begun to compete successfully against perennial leader Molson. Molson decided that the appropriate strategy was to have a brewery operating in each Canadian province, as distribution from its base in the pronvice of Ontario to other provinces was subject to strict government regulations. With operations in the other provinces, Molson could further build its market throughout Canada.

Thus, a large-scale expansion began when Molson announced a second brewery would be built on a ten-acre site in Toronto. Modernizations at the Montreal facility had, it was felt, fully maximized output there. The new Toronto installation opened in 1955. It became the home of Molson’s first lager, Crown and Anchor. In the next few years Molson acquired three breweries: Sick’s Brewery, bought in 1958; Fort Garry Brewery in Winnipeg, 1959; and Newfoundland Brewery, 1962. By the late 1980’s Molson had nine breweries in Canada.

The expansion effort resulted in good returns for Molson investors; between 1950 and 1965 earnings more than doubled. Even so, Molson leaders recognized that expansion potential within the mature brewing industry was limited, and further, that growth rates in the industry would always be slow. It was clear that even the most successful brewing operation would soon reach the limits of its profitability. Thus Molson began an accelerated diversification program in the mid-1960’s which heralded in Canada the era of the corporate takeover.

In 1968 Molson made its first major non-brewing acquisition in more than a century. Ontario-based Anthes Imperial Ltd. was a public company specializing in steel materials, office furniture and supplies, construction equipment rentals, and public warehousing. The Anthes executive staff was known to be highly talented in acquisitions and strategic management, two areas in which Molson needed expert help to pursue its goal of diversification. However, because the various Anthes companies required different management and marketing strategies, the acquisition did not benefit Molson as much as its directors had hoped. Soon Molson sold off most of the Anthes component companies. The company had learned that future acquisitions should be of firms that were more compatible with Molson’s long-standing strengths in marketing consumer products and service.

By the early 1970’s Molson was again searching for an acquisition to establish for the company a foothold outside the brewing industry. Management felt the ideal candidate must be a Canadian-based firm; it must be involved in above-average growth.

The “do it yourself” material supplies market seemed to be the ideal candidate for everything the brewery wanted to accomplish in its diversification program. There seemed to be a new trend—consumers doing their own home improvements—and Molson recognized the potential for rapid growth of this market in urban areas, which at that time had few or no lumberyards or similar outlets. Molson began acquiring small hardware, lumber, and home furnishings companies. In 1972 it spent $50 million buying more than 90% of the shares of Beaver Lumber, a large Canadian company. During the remainder of the decade Beaver acquired several smaller hardware and lumber operations. Molson’s service-center division grew to encompass 162 retail stores, most of them franchises, selling anything from paint to home-building supplies. In the mid-1980’s Beaver began importing competitively priced merchandise from Asian countries.

In July 1973 the company’s name was changed to Molson Companies Ltd., a reflection of its diversification. The brewing operations were now called Molson Breweries of Canada Ltd.

Although Beaver’s sales climbed steadily throughout the 1970’s, profits lagged behind what Molson had anticipated, and initially the company considered the Beaver purchase only a modest success. Struggling at first to integrate the brewing and home improvement divisions, Molson eventually learned that the two industries, and marketing therein, are very different. The beer industry operates in a controlled market; governments regulate sale and manufacture of alcoholic products. The hardware industry, on the other hand, operates in a relatively free market. Furthermore, in brewing, manufacturing efficiency is the key to a profitable enterprise, but the success of a home improvement retail operation hinges on the ability to provide a broad variety of products at competitive prices.

The challenge of integrating two companies operating in such different markets led Molson to a careful reassessment of its diversification criteria; in the future, the company would concentrate on marketing specific product brands. W.J. Gluck, vice president of corporate development wrote: “We only wanted to go into a business related to our experience—a business in which marketing, not manufacturing, is the important thing.” The search for another acquisition began.

In 1978 Molson offered $28 per share of stock in Diversey Corporation, a chemical products manufacturer based in Northbrook, Illinois. Diversey stockholders contested the offer, hoping for a more lucrative takeover bid, but later Molson was able to buy Diversey for the $55 million it had originally offered to pay. Diversey was Molson’s first large acquisition in the United States, though most of Diversey’s clients and manufacturing plants were in fact located outside the U.S. in Europe, Latin America, and the Pacific basin.

Two years later Molson paid $25 million for another American company, BASF Wyandotte Corporation, a manufacturer of chemical specialties products related to food services and commercial laundries. The subsequent merger of BASF and Diversey made the chemical products division Molson’s second largest earnings contributor. Prior to the merger, Diversey was a weak competitor in the U.S. sanitation supplies market. BASF Wyandotte, however, was a leader in the U.S. kitchen services market. Thus the marriage was a sound move for Diversey, which had found a relatively inexpensive way to increase its share of its market in the United States.

The chemical specialties division now has the greatest worldwide presence of any company in the chemical industry; it is represented in 36 countries with 52 manufacturing plants. In order to sustain the advantage, Diversey emphasizes the development of products and technologies with worldwide applications. In recent years Diversey has considered entering the metal products industry and expanding into markets in Mexico and the People’s Republic of China.

In the mid-1980’s Molson is fully established as a branched conglomerate and appears to concentrate less on major new acquisitions than on refining its management techniques and on organizing its three main divisions. The company’s excursions into new markets and services have been on a smaller scale in the past decade. For example, Grayrock Capital, a venture capital firm with approximately $23 million worth of interests in U.S. oil and gas exploration, specilty retailing, health care, communications, and biotechnology, had profits of just $3 million in 1986. It is not, as a result, counted among Molson’s major divisions. The television production company, Ohlmeyer Communications, is also a smaller-scale member of Molson Companies Limited, as are Molson’s various interests in amateur and professional sports.

In 1986 the brewing group accounted for more than half of the Molson’s sales and a third of its profits. The chemical specialties group contributed almost twice as much to sales and profit as the retail merchandising group did in 1986, but both the non-brewing groups cleared a healthy profit relative to sales.

Principal Subsidiaries

Molson Breweries of Canada Ltd.; Molson Newfoundland Brewery Ltd.; Molson’s Brewery Quebec; Molson’s Brewery (Ontario) Ltd.; Molson’s Western Breweries Ltd.; Aikenhead Hardware Ltd.; Beaver Lumber Co., Ltd.; Molson Mont Laurier Ltée.; Wilson Office Specialty Ltd.; C-N-W Leasings Ltd.; C.W. Henderson Cartage Ltd.; Cotnoir & Pleau Ltée.; Curlew Investments Ltd.; Molson Breweries International; Club de Hockey Canadien, Inc.; Le Club de Soccer Manic de Montreal Inc.; Diversey Corp.; Seaway/Midwest Ltd.; Kipling Properties Ltd.; L’Arena des Canadiens Inc.; Molson Abitibi Ltée.; Molson Baie Comeau Ltée.; Molson Gaspesie Ltée.; Molson Levis Ltée.; Molson (Quebec) Ltée.; Molson Sept-lles Ltée.; Molson (Sherrybrooke) Ltée.; Molson St-Hyacinthe Ltée.; Molson Valley-field Ltée.; Michel Fuller Ltée.; Saveway Lumber & Building Supplies Ltd.; Sick’s Bohemian Brewery Ltd.; Warden Lumber Distributors Ltd.; Yves Bourre Ltée.; A Ben Mathieu Inc.