One of the world’s largest liquor companies is putting its plans for a $245-million distillery and warehouse in the Sarnia area on hold, indefinitely.
The news came as a shock to Jeff Agar, mayor of St. Clair Township, Ont., where the project was to be built. When he got the invitation to a Zoom call with senior officials from Diageo, he initially thought it would be a progress report.
“It really took me by surprise,” said Agar. “I was excited because I thought they were going to be talking about the project, maybe putting shovels into the ground. It definitely would have been a boost to the economy.”
A spokesperson for Diageo said the company had made the decision to put the project on hold as part of an emphasis on “productivity.”
“Given the dynamic nature of our broader business and our emphasis on productivity, we have decided to pause the development of our facility in Lambton County’s St. Clair Township,” the spokesperson said. “We will be revisiting plans and timeline at a later date, as part of our regular review of investments and priorities across our supply-chain footprint.”
Diageo already has three distilleries in Canada, including one in Amherstburg, Ont., another in Salaberry-de-Valleyfield, Que., and a mammoth facility in Gimli, Man., which produces roughly 100 million bottles of whisky a year.
The company also said the pause had nothing to do with a lawsuit against the LCBO by several major spirits producers, including Diageo. The lawsuit accuses the provincial liquor monopoly of unfairly fining suppliers over a contractual clause promising to charge it the lowest price in Canada.
Eventually, roughly 100 people were expected to work at the St. Clair complex, which was designed to produce more than 66 million bottles of whisky — mostly Crown Royal — per year. It would have also meant construction jobs for 400 to 500 people while it was getting built, Agar estimated.
Diageo owns and produces some of the world’s best-known alcohol brands, including Johnnie Walker Scotch, Captain Morgan Rum, Don Julio Tequila and Guinness Stout. It also owns some of the most highly regarded single malt scotch brands, including Lagavulin, Talisker and Oban.
But the centrepiece of its Canadian portfolio is still Crown Royal.
While Crown Royal is still holding on to its market share, the market for spirits consumption is shrinking, said beer and spirits educator and author Stephen Beaumont.
The decision to put the St. Clair project on hold, argued Beaumont, is likely being driven by a sea-change among younger drinkers.
“Every single bit of data that’s out there is pointing to gen Z just not drinking as much. This is a generational shift,” said Beaumont. “This isn’t just a Diageo story. This is an industry story.”
A recent study for Statistics Canada found that younger Canadians were less likely to drink regularly than other generations.
“In 2023, a higher proportion of younger Canadians aged 18 to 22 reported not drinking any alcoholic beverages in the past seven days, compared with those in all other age groups,” the study said.
Building that much extra capacity when the market is treading water wouldn’t have been a particularly wise use of the millions of dollars Diageo had planned to spend, Beaumont said.
“They were planning for growth that just isn’t panning out,” Beaumont said. “Spirits as a category are basically flat, unless you’re in tequila or Irish whiskey.”
Still, said Beaumont, the relatively small amount of money Diageo paid for land in St. Clair Township — including a 98-acre plot purchased for $5.3 million in January 2022, means the company doesn’t have an urgent need to sell it off immediately.
“They could hold onto it for a year or two and see if the market picks up again,” said Beaumont.
That’s something that Agar — who said Diageo has been “excellent” to work with — is still holding out hope for.
“I still think it will be done,” said Agar. “I’m disappointed, but I’m hopeful they’ll do it eventually.”
