BC wines are well-known and well-supported by BC consumers. However there appears to be a coming supply/demand/price crunch facing the industry. Broadly speaking, quality is improving, but prices continue to creep upwards, and the price/quality ratio deserves some critical attention. There is some evidence that the BC consumer is close to tapped out. While demand continues to grow for BC VQA wines (at a rate of 9 percent over the past five years, according to the BC Wine Institute), demand is growing at an even faster rate for imported brands. What should be of greater concern to BC producers is that consumers are prepared to pay more for imported wines than they are for domestic wines (a trend that has not substantially changed in a decade). Last but not least in a story of a converging storm based on the data – the recently released BC crop report for 2011 shows that despite a challenging vintage, the tonnage harvested was 27% larger than 2010 (97% from the Okanagan). The industry is facing the saturation point for its domestic market.
With consumers who are supportive but paying about as much as they are willing to for BC VQA wines, and with larger harvests coming from rapidly expanding vineyard acreage (doubling from 5,000 to nearly 10,000 acres between 2005 and 2011), leading winery owners have begun to conclude that to thrive they have to “export” – at least across provincial boundaries to the rest of Canada. (Bill C-311 for the legalisation of private interprovincial wine shipments was passed by a vote of 287-0 late last night – see Mark Hicken’s site to track the latest developments: www.winelaw.ca.) It remains to be seen if the scale of private shipments has a significant impact for the overall industry (between one and two percent by some estimates), although leading small to medium size wineries indicate that it could make a huge difference for their individual businesses. In general, Vancouver and the Lower Mainland remain the anchor retail and on premise market for BC wines. Because of the spectacular homegrown success, export markets have not been tested in a coherent or sustained way.
The foundations may not yet be sufficiently well-laid for an effective export push by the industry. Last year, SFU professor Andy Hira caused a stir when he and his team released a draft study on the competitiveness of the BC industry (www.sfu.ca/~ahira). His research continues, but his principal findings are that the growth and improvement of the industry will remain constrained unless several key vulnerabilities are addressed. To me, two of the most important are the lack of effectiveness of support institutions (both within the industry and the public institutions established by government); and the lack of an identifiable cluster within the industry. Hira identifies three essential components of an effective cluster, and argues that BC is vulnerable in each area: little strategy/coordination of the sector; weak knowledge flows; and weak collective branding. Each of these has implication for success in building alternative markets.
Some initiatives are in the works which will certainly affect the BC industry, some of which should help, some of which likely will not. A move towards establishing sub-appellations in the Okanagan Valley is heralded by some as a critical element in building brands for domestic sales and exports alike. However, Hira’s findings leave some doubt that sub-appellations will exhibit sufficient characteristics of a cluster – particularly in the areas of connections and knowledge flows among small, geographically dispersed members, and in terms of branding, particularly in the absence of dominant varietals or styles. (On this point, the BC crop report identifies a dizzying 35 white and 27 red varietals.) Another coming change includes the privatization of the BC Liquor Board distribution system, which could have substantial adverse impacts on the current direct-delivery model afforded to BC wineries. And this provincial government development may itself represent the thin edge of the wedge, as whispers persist of a coming levelling of markups across the on premise and retail categories making up the sales environment in the province.
In order to thrive in a competitive marketplace – within the province and across the country if not beyond – the BC Industry needs to coalesce around some broad, common goals that will foster its growth and competitiveness, and support a sustainable export strategy. It also deserves to have clearer signals from the BC government concerning its intentions about the remake of liquor distribution and sales in the province, and a strengthened set of public institutions that can assist with addressing several of the vulnerabilities raised in Hira’s study. It is clear that the present set of economic circumstances around the industry are challenging. While individual wineries’ decisions should be guided by their own financial imperatives, some broader commitment to the collective interests of the industry seems to be called for. Otherwise elements of the industry may find themselves divided (and conquered?) by individualistic survival strategies in the face of external and internal threats to their viability.