More shocking news from Old Media this week in the form of taunts from the California wine industry and a good-news, bad-news report from economists at the Bank of Montreal.
Let’s deal with California first.
In a Globe and Mail story the San Francisco-based California Wine Institute, which represents 1,000 wineries in that state, and offices all over the world including here in Ontario, served notice to this province that if Niagara MPP Tim Hudak, who is the leader of the provincial Tories and could very well by our next premier after elections this fall, delivers on his promise to revamp liquor laws in this province, with possible VQA only stores, it would have no choice but challenge that under North American Free Trade deal.
Quoting Hudak, the Globe story said:
I do think we need more options. More opportunities for consumers to get access to wine, beer, liquor,” Hudak said. “Coming from the Niagara area, our wineries are limited in what they can sell to. You get your own shop at the winery and hope and pray to the LCBO gods that you get some space on the shelves … We need to have choice alongside the LCBO.
A trade consultant for the Wine Institute, however, told the Star that introducing Ontario VQA-only stores would breach NAFTA rules because they would give preference to local producers. (The only exceptions are off-site winery outlets, such the Wine Rack, which were grandfathered under the agreement.)
What a pile of hooey.
Seriously.
California has had a sweet deal here in Ontario, selling gobs of California wines for decades to a monopoly that just loves them. Page after page of California wines grace the LCBO’s various glossy publications and tout the wines of California as if this was California. Our shelves are full of California wines and, every year, the California Wine Institute holds a love-in in downtown Toronto at the California Wine Fair where it boasts about market share and always gets a fairly large pat on the back about the great partnership from LCBO brass at the luncheon. I’ve seen it close up.
What I haven’t seen is the same kind of love fest for Ontario wineries.
Don’t get me wrong here, I love California wines. And I think the California wine folks, led by Rick Slomka in Canada, are really nice people and just doing their job.
My own cellar includes a lot of California wines. I have been to Napa, Sonoma, Paso Robles, Santa Barbara and other wine destinations in California, sometimes as a media guest of the California Wine Institute (I suppose those invites will dry up now!), a few times as a consultant and sometimes just to travel on my own and enjoy the great wines made in that state. It’s beautiful there.
And when I go, I love shopping in the California wine stores, packed to the rafters with mostly great Cali wine. I always bring some home for the cellar and to share with friends.
I go there expecting to see California wines well stocked in the private stores. In Napa, I’m looking for Napa wines. I don’t expect Rhone, Italy, Australia or Canadian wines (as if!) when I go there. And I am not disappointed. They can sell whatever they want, of course, and obviously that’s a boatload of Cali wine. They are private stores and can do what they want.
We do not have that luxury in Ontario. We have a monopoly system run by the government under the name Liquor Control Board of Ontario.
It is a warehouse for everything that NAFTA guidelines dictate. A space for all comers, no advantage to anyone unless you pay promotional dollars to have your wines displayed front and centre.
California does all right at the LCBO and Vintages, and the Wine Institute knows this because each year at the annual lunch they tell us so and the LCBO gives them a big hug and drools over the profits it brings to the monopoly. All is good.
So, why in the world would the wine institute care if Ontario opened up a few VQA stores? Why would a wine state the size of California, where one winery alone there, Gallo, produces 75 million cases per year (Ontario in total makes 1.86 million cases of VQA wine, by comparison) care. It just doesn’t make sense.
If they really cared that much, they should have challenged B.C., which now has 21 VQA only stores (see story here) and many more private stores as that province is finally modernizing its antiquated liquor law that were at one time similar to the stone age laws of Ontario.
I am told constantly that it’s because B.C. suddenly “found” 20 old grandfathered licences that pre-date NAFTA that allowed the VQA stores to flourish. I think we all know that’s a pile of BS. Harry McWatter found one licence that started ball rolling and the rest, well, the rest is the rest.
The California Wine Institute is challenging Ontario because it has a pretty good ally in the LCBO. The LCBO does not want Ontario to have VQA only stores. They would be a direct competitor for the mega-monopoly, and the first breach in the fortress that is the LCBO.
VQA-only stores is the beginning of the end for one of the last liquor monopolies on earth. Just like B.C. is headed down that road, just like Alberta has already gone down that road, just like all other Western provinces are travelling down that road, so, too, will the LCBO. It’s inevitable. It’s going to happen.
The California Wine Institute should think twice about challenging NAFTA. The backlash from consumers, proud Canadian consumers, might just not be worth the effort.
California has had a pretty good ride here, and will continue to do so, but many Ontario wine consumers, who appreciate the good, hard work of our Canadian farmers and winemakers, and the livelihoods of the people who work in the industry, won’t think too kindly of a foreign industry group taking advantage of our pathetic liquor laws in Ontario.
We are not on an even playing field. We have but one retailer, one that’s bound and determined to hold on to power for as long as it can. To be fair, the LCBO is trying to appease the growing masses of Ontario wine lovers with more local wines than ever at the government store. But, by its own design, it cannot and never will be able to offer a system that is fair to all Ontario wineries. It does not have the space nor do the wineries have the capacity to feed such a large network of stores.
In my opinion, California would be advised to live and let live, NAFTA be damned on this issue, and stand down on your threat to challenge VQA-only stores.
On the other issue, a report on the Ontario wine industry published in the Toronto Star suggests that Canada’s wine industry is growing strongly, but losing market share at home and abroad, according to a new report from economists at the Bank of Montreal.
Canadian wine production has grown by 7.6 per cent a year since 1998, compared to just one per cent for the overall beverage sector, the report says.
But market share for Canadian wineries slipped to about one-third of the domestic market in 2010 because of intense pressure from imports, the report said in the Star, adding that’s largely due to the higher Canadian dollar.
Canadian winemakers are facing pressure from traditional wine powers such as France and the U.S., but also newcomers such as Australia and Argentina, the Star story says.
The report, like many before it, suggests a way to stave off market penetration from foreign countries is to offer wine sales through private retailers, as well as the LCBO.
Well, fancy that. Privatization, or at least partial privatization.
I think we have a starting point here. Now we need someone with the balls to deliver what so many of us want.
Here are some suggestions for changing our barbaric liquor laws.
• Better access to local wines. Plain and simple. The white elephant in the room is the LCBO and the restrictions it places on local wineries being able to sell their wines at government, monopoly stores. We need to dismantle the monopoly, slowly if you like, but we need to chip away at it just like every province in this country is doing. We should start with private VQA wines stores. But, to make it easier, let’s license a few private stores and place some conditions on them — like a policy to allow a large percentage of space to be devoted to those Ontario wineries who want to sell their wines. A Beer Store model has been bandied about (see this post). There are ideas out there. Let’s start exploring them.
• Knowledge. This government just doesn’t get what’s going or understand the concerns of Ontario wineries or the consumers who drink their wines. Get some help from people who get it. Know the frustrations of the people who work in the industry, who shop in woefully inadequate LCBO stores, who care about local wines. With knowledge comes change.
• Work with the federal government to get rid of equally antiquated laws that prohibit the sale of Canadian wines across provincial borders. Is this ridiculous? That’s a redundant question. Of course it is. We need your help, Dalton.
• Ontarians who care about the wine industry are fed up with banging their heads against the wall. We need progress, not government press releases touting monumental changes and the “modernizing” of liquor laws in Ontario. It’s just not true. Let’s talk, let’s make a plan and let’s really start kicking this thing into gear. Election or no election, the time is now.
I love how you not only brought up the issue, but offered potential solutions. I think if people looked at this from the point of view of “How CAN we make this work?” rather than “This WON’T work because…” we would easily find a solution that not only works, but keeps all stakeholders relatively happy. The solution is there, and it is not as complicated as people want to make it. As you say, there are some easy first steps they can take…and if they treat it like a “beta” or an experiement, they would understand that it won’t be perfect at first, but they can learn and improve their way to a mature model that does meet everyone’s needs.
I’m definitely one of those consumers who want this type of store in Ontario (and specifically Ottawa) and I’d love to be the owner of one of these private stores when the rules do change!
Give em hell!
I am a small agent in Ontario and I have no chance with the LCBO. Talking about raping me in taxes and lack of interest. I have been in this business for over twenty five years and it seems to be getting worse. At one time we in Ontario had thousands of skewes of wine,spirits and beers. I may not be the the greatest when it comes to math…but here’s a comparison. In Alberta with a population of approximatley 2.6 million , there is twent nine thousand skewes of beers,wines,and spirits. In Ontario with a population of nine-eleven million, only about maybe eight thousand skewes. Talk about not having a selection here in Ontario. The LCBO is only looking at the bottom line….profitability and volume of bulk related wines, shelve positioning,end aisle display, LTO’s (limited time offer) which the suppliers have to pay. The direction of new management is a compiliation of ex Bi-Way, Hudson-Bay, Radio Shack etc……and where are this retailers now? I give them credit they might know a little about retail, but I always said the retail end of selling beer,wine and spirits it a different game altogether. I have always predicted that the new regime will run the LCBO to the ground….and then perhaps we will see privitization in Ontario….I have seen it many times here in Ontario. Therefore I have travelled to Calgary, Alberta to pursue my new venture on importing wines there. I can make a good living living without being squeezed. It’s called a free market and anytime governments are involved….well you fill in the blanks….
Great observations Rick – especially about the near impossibility of finding non-California wines in many stores in that state. And good luck trying to find French wines in Barcelona or Spanish wines in Marseille. The unfortunate fact is that by having “grandfathered” the private winery stores here and agreeing to forbid new ones (if you see a new Wine Rack it’s because they closed an existing one), the issue about free and fair international access is front and centre here. Thus the Californians have every right to get pushy if they’re kept out of any new retail model. Tim Hudak’s been talking about VQA-only stores for years but nothing happens because, under current agreements, it can’t. If the Tories get in, don’t be surprised if the VQA-only concept gets a committee study and is then moved down the agenda by other “more pressing” matters…
But why not tweak an existing sales channel: the LCBO?
If you’ve travelled around the province, you know there’s more than a bit of variety in what’s stocked where. There are many more Portuguese wines in west-end Toronto stores than there are in Scarborough or Burlington stores, more PEC wines in Picton than Pickering, and forget about trying to buy wine costing over $20 in many small-town LCBOs – stock can vary within the chain.
So why not a mini-chain of VQA-LCBOs, branded differently, as with Vintages? That way VQA wineries with small production levels would only need to supply a few stores. The fact that the LCBO sells $1 billion-plus of imported wines at hundreds of stores should shield the plan from trade complaints. If not, stick an “international corner” in each of the dozen or twenty stores.
The LCBO shuttered its last free-standing Vintages store last year, citing poor sales figures. The beast must be fed and will jettison anything dragging down income, so VQA-only stores would need to be profitable. Every VQA winery could get shelf space but then it’s sink or swim, with unpopular wines getting de-listed/discounted so there’s no costly “charity” element.
VQA-only stores have been running for years and seem to be doing OK in BC. Worth a try LCBO?
Great idea, Alan. The point here is that something has to be done and there doesn’t seem to be a lot people putting much thought into other than those who can’t really do anything about it. Love the idea you put forward. I hadn’t heard that one before.
Alberta, while not a perfect system, at least puts retail into the hands of people of know best: retailers. Government has no business running retail operations, it’s not their job.
Thanks, Shawn. Key is to keep up the debate. Keep talking. I know you will. Cheers!
Great piece, Rick.
Some questions … From a consumer perspective, isn’t more competition a good thing? And from an Ontario winery perspective, wouldn’t having California wine stores be an acceptable trade off for greater access to their own home market? Isn’t the real question, would the province get the same “dividend” (tax) and if not, how would those needed dollars be replaced? This, of course, puts aside the issue of the LCBO, and its union, being willing to give up it’s monopoly.
Great comments with alternatives suggested that build on the LCBO in a more cooperative way than being directly confrontational. VQA Retail stores, although reasonable as an idea may not avoid Board control – seems the Ont Govt would put them under the umbrella of the LCBO. Thinking of the LCBO slightly differently, everything is already setup to allow retail sale of every VQA produced, however the mindset or most of the executive staff would have to be convinced.
Perhaps corporate wineries would fill the shelves with VQA Ontario blends leaving the craft wineries without any improvement. I haven’t seen a poll of the wineries to understand where they stand – wouldn’t 150+ produce a credible position? even a solution?
Thanks for your comments, Bill. I think even a tiny step in the right direction is good for Ontario. No one is going to approve wholesale changes in liquor laws in Ontario. We just need to crack the ice, then build on slowly into something more attractive for everyone.
Shirley, Even with VQA-only stores, the prices, at least for the wines also available in the LCBO, would be set by the LCBO. The government wouldn’t allow undercutting in their own market. Taxes as well would remain the same. However, for wines that aren’t available at the LCBO but available at VQA stores, can be played around with. But the margains would come out of the winery’s pocket.
Great article Rick. Hopefully things will change for the better out your way. The fact that there is no VQA only stores in Ontario astounds me. Whenever I vist Niagara I inevitably bite off more than I can chew in terms of the number of wineries I plan to visit. There should be a VQA store in the heart of wine country that one could visit to stock-up on the wines from the wineries you weren’t able to visit. This concept works wonders in Penticton where you can visit the large Wines Institute VQA store and purchase the wines you missed.
Couldn’t agree more, Liam. Thanks for your comments.
One thing to remember; every bottle of VQA Wine puts back into the economy $11.40
For every bottle of imported wine it puts into the Ontario economy $0.74.
Doesnt’ that say it all!
That puts it into perspective, Nancy. Thanks for the comment.
Liam reminded me of the cooperative we visited in Martinborough NZ. A single store where a tourist could go to taste and buy any of the wines from the area. I wouldn’t say this particular store was a Tourist attraction though (if fact it was a Tourist distraction but that’s more in the implementation than the idea). It did solve the problem of too many (I didn’t think I’d ever say that) wineries and not enough time. A great article btw. B
As a former wine retailer in Alberta, right from ’93 onto the early 2000’s, I can affirm that privatization has led to better selection, both in SKU’s as well as the sheer number of stores. In 93 I believe there were something like 50 ALCB stores whereas in 2001 there was over 800 private licenses!
There are some issues, however, as the government still has a controlling hand even though it is in a more passive form. The flat tax on alcohol has produced some odd numbers; beer, most distillates, and most wine are actually most expensive in Alberta, while the more expensive items commonly fell in price by quite a bit. This has since been largely absorbed by the brokers (I used to sell Dom for $70.00 a bottle until the Export Director caught wind of this anomaly in Alberta and raised the wholesale price). As well, except for a few grandfathered licenses, retailers cannot import or buy direct: everything has to go through the ALCB as well as a broker. The ALCB no longer purchases, they just monitor the laws and regulations, inventory of their warehouses (also privatized) and sit back and watch the cash roll in. I am not in a position to know, but I would suspect that ALCB takes in less revenue than they did on ’92, but their overhead has shrunk an incredible amount as well, meaning more cash in the bank at the end of the day.
As for the VQA stores here in BC, at last report only a handful of the 20 odd locations actually make sales target, and there are stringent regulations the private owner has to abide by. From a business point of view they never really appealed to me as revenue is severely restricted by the regulations, although not having to purchase your inventory is a definite plus. Even if Ontario was to borrow Mr. McWatters so he could “find” a few grandfathered licenses, the BC VQA store is not really the model you want to use. The retailer needs more control over his/her store in order to make each individual store viable.
regardless, get out and visit wine country!
I’m pretty new to wine culture in general, and I’m not sure I entirely understand the whole VQA only thing. Doesn’t VQA only simply mean only Ontario wines, and don’t we already have those stores? Any wine sections in grocery stores are only allowed to carry Ontario wines, right? Granted, most of them aren’t very large so I can understand if selection is the issue at hand, but Ontario wines are certainly very available.
Just out of curiosity, is there any detailed data available online that compares the sales of VQA wines versus imports? I suppose availability and marketing may be skewing the results in favour of imports, but I have to wonder if increasing the amount of Ontario wine we sell would change the average consumers’ choices. Does the average (wine) consumer want more domestic selection, or is this mainly a concern for enthusiasts and those more involved in the culture/business?
Lots of arms and legs there, Will. But on your main point, no one is saying we need to increase the amount of VQA wine sales, only access to VQA wines. If sales increase, so be it, if they don’t, well, that’s the way it is. Like all retail, put it up for sale to the most number people you can and see what happens. In Ontario, we put our wines in front of the least amount of people and the results are predictable. The LCBO is ill-equipped to handle low-volume, high-quality wines from Ontario. Pure and simple.