COVID-19 Impacts on BC Wine & Tourism
Potential Economic and Employment COVID-19 Impacts on the Wine, Hospitality and Tourism Sectors: Around B.C and in the Thompson-Okanagan Region
Key Points:
The hospitality, agriculture and tourism sectors in B.C. and the Thompson-Okanagan region can anticipate a painful contraction throughout 2020, with potential economic losses between $6.0 billion and $10.5 billion provincially, and between $693 million and $1.02 billion in the Thompson-Okanagan.
Employment curtailments or job losses could range from 130,000 to 193,000 people around B.C., and from 9,700 to 14,700 people in the Thompson-Okanagan.
The following four (largely external) factors will likely contribute to a slower and more muted recovery in B.C.’s hospitality, agriculture and tourism sectors over the course of 2020:
prolonged closure of the Canada-U.S. border (perhaps extending into the summer)
prolonged curtailment of international air travel
reluctance by Canadians to travel domestically for health and financial reasons
protracted restrictions on gatherings including conferences, large weddings and other family events
Background
The early social and economic impacts from mandated public health responses to the COVID-19 coronavirus are coming into view. It is still exceptionally early days for estimating the toll it will take on British Columbians’ employment and businesses. However, some preliminary economic forecasts have been released for Canada and British Columbia.
My former colleagues at the Business Council of British Columbia published on March 27, 2020 a comprehensive “bottom-up” outlook for the principal sectors of the B.C. economy, based on North American Industry Classification System (NAICS) standardised codes. The numbers are staggering in terms of the projected absolute decline in economic activity: the Business Council prepared two scenarios which suggest a decline in real GDP of between seven and 12 percent over the course of 2020. In dollar terms, a decline of seven percent is roughly $18.3 billion in lost economic activity. Unsurprisingly, businesses in consumer-facing sectors are the hardest hit. These sectors represent a significant amount of economic activity in the Thompson-Okanagan region, and many colleagues in these sectors are understandably very worried about the remainder of 2020 – and beyond.
What impacts should we anticipate for B.C.’s wine, hospitality and tourism industries?
To scope a general answer to this question, I have applied the methodology and estimated rates of decline for each sector prepared by the Business Council to the hospitality, agriculture and tourism sectors (or proxies where the categories do not line up) by percent change, dollar value and employment. The analysis was conducted for British Columbia as a whole and for the Thompson-Okanagan region. In addition, I estimate the potential impact on regional business counts and the ranges of decline for domestic and international tourism to the region.
Combined, the analysis offers a very sobering picture in 2020 for owners and employees of wineries and other beverage alcohol manufacturers, of restaurants and other hospitality operators, and those whose lifeblood is the seasonal tourism industry.
Below, I discuss the estimates for each sector across B.C. and the Thompson-Okanagan region, noting where assumptions and adjustments were made. For a comprehensive discussion of the global and continental backdrop, and the sectoral methodology relied on here, do consult the Business Council’s report: Preliminary Estimates of the Impact of COVID-19 and Related Containment Measures on the B.C. Economy in 2020.
I have followed all of BCBC’s principal assumptions, including that a late-2020 recovery for the hospitality and tourism sectors will be more muted and slower than other major Canadian forecasts due to “shell-shocked” consumers, businesses that may continue to operate under public health constraints, and probable international travel restrictions. Following BCBC’s analytical approach I have also estimated two scenarios: Scenario 1: “Less Severe Impact”, and Scenario 2: “More Severe Impact”.
Findings
To develop a picture of how the B.C. and Thompson-Okanagan wine and hospitality industries may fare through 2020 in terms of economic and employment impact, I have analysed available provincial and regional data (using proxies where necessary) for the hospitality, agriculture, and tourism sectors.
Provincial
In general, the average potential economic decline in British Columbia for these three sectors ranges from 35 percent (Scenario 1) to 61 percent (Scenario 2) compared to 2019 (Table 2). In dollar terms, the economic hit ranges from $6.02 billion to $10.5 billion. Applying the percentage changes in the Business Council’s two scenarios to employment figures (inexact but illustrative), job curtailments or losses could affect 130,000 to 193,000 people.
The hospitality sector is likely to be hardest hit, given the present open-ended public health and travel restrictions, and could see declines of 37.5 percent to 54 percent from 2019. In GDP terms, this could mean economic losses of $2.9 billion (Scenario 1) to $4.2 billion (Scenario 2), with the burden falling slightly more heavily on the “food services and drinking places” sub-sector than on “accommodation services”. Employment impacts in hospitality are already being widely felt. These impacts may be set against the annual growth in 2019 of sales in all food services establishments in British Columbia, especially full service restaurants (+4.1%), “limited service eating places” (includes fast food/quick service) (+2.9%), and “special food services” (includes contractors, caterers and food trucks) (+5.0%). Consumers are likely to be financially shell-shocked for some time, and it remains to be seen whether the respectable growth in 2019 is resumed in the post-pandemic dining scene.
Applying the Business Council’s estimated percentage changes to employment for hospitality province-wide, job losses could range from 71,000 to 103,000 people. While the accommodation services sub-sector is anticipated to experience a more significant hit (80% in Scenario 2), the food services sub-sector employs nearly double the number of people in B.C.; even with a 66 percent decline (Scenario 2 for the food service sub-sector), approximately 100,000 workers could be affected.
The major sector of Agriculture, Forestry, Fishing and Hunting is discussed here as it encompasses the vineyard and farming aspect of the B.C. wine industry, as well as other crops that go into craft beverages and farm-to-table products. It is less hard-hit in the Business Council’s scenarios, partly because much of food production is not directly consumer-facing, and because its activities are less likely to be curtailed for public health reasons. Provincially, the sub-sector of “crop and animal production” can anticipate a decline of between one and three percent, with limited employment impacts (fewer than 100 according to the model). To the extent that B.C. wineries are agricultural production businesses, these numbers may be somewhat reassuring for vineyard and cellar employees.
Many B.C. (in particular Okanagan Valley) wineries rely heavily on the “cellar door” sales channel, and are therefore also tourism businesses. To develop a picture of provincial tourism impacts, several indicators or proxies were used: the major sector Arts, Entertainment and Recreation, and the sub-sectors “travel arrangement and reservation services”, “transit, ground passenger, scenic and sightseeing”, and “air transportation”. As may be expected, these sectors are hard-hit due to restrictions on gatherings, events and most forms of travel. Province-wide, between $3.0 billion and $4.8 billion in economic activity is likely foregone in 2020. In terms of employment impacts, job curtailments or losses could range between 58,000 and 89,000. While declines in sectors supporting tourism (for example air transportation, as shown in the table) may not be directly indicative of anticipated declines, they inform the economic setting facing wineries and other agricultural sectors that rely on tourism for a share of revenue and employment. (Visitor impacts are modelled and discussed below for the Thompson-Okanagan region.)
Thompson-Okanagan Region
Overall, the Thompson-Okanagan region can expect significant declines in two of the three sectors discussed in this analysis (Table 3). Using the Business Council’s estimates (and modelling that the Thompson-Okanagan region comprises ~11 percent of the B.C. economy, approximately the same share of the provincial population, and the proportion of tourism sector employment), the economic impact could range from $693 million to $1.02 billion over the course of 2020. Applying the same BCBC percentage estimates to employment, between 9,700 and 14,700 workers in these three sectors could experience layoffs or job losses. For context, prior to the COVID-19-caused restrictions and closure of some businesses, the regional unemployment rate had increased from 5.0 percent in December 2019 to 6.3 percent in February 2020. For Kelowna specifically, the unemployment rate increased from 4.7 percent in December 2019 to 5.6 percent in February 2020.
Reflecting provincial estimates, hospitality is likely to be hard hit in the Thompson-Okanagan, with projected economic losses between $326 million and $470 million. The hospitality sector could suffer losses in employment of between 7,900 and 11,300 people. Business counts in the Thompson-Okanagan could also be affected: B.C. Stats counts 3,617 establishment in Accommodation and Food Services in the region (as of December 2019), of which 32 percent have fewer than 20 employees. Applying BCBC’s estimated rates of decline (again, an inexact but illustrative exercise), between 1,300 and 1,950 hospitality businesses in the Thompson-Okanagan could be at temporary or permanent risk.
In terms of agriculture, the major category of Agriculture, Forestry, Fishing and Hunting for the Thompson-Okanagan is not as deeply affected, for reasons discussed under the provincial section. Potential economic losses of $33 million to $54 million are estimated for the major sector, and for the sub-sector of “crop and animal production” losses could amount to $3.4 million to $10.3 million. It is likely that these will fall disproportionately on smaller farm operators whose sales channels are disrupted (e.g. local restaurants, special catered events and farmers markets). On the other hand, forestry-related businesses and workers in the Thompson-Okanagan (slightly outside the scope of this analysis) may receive a much-needed reprieve as they are considerably less consumer-facing and have relatively few “close-contact” occupations with other workers or the public. In terms of business count, there are 7,831 businesses in the region in Agriculture, Forestry, Fishing and Hunting, of which 16 percent have fewer than 20 employees. Business curtailments or closures in this sector (applying the Business Council estimated rates) could be in the range of 415-680.
The group of sub-sectors comprising or proxying tourism are estimated to take a significant hit in the Thompson-Okanagan. Taken together, the economic impact could range from $333 million to $533 million, and job losses could range from 6,300 to 59,800 people. The majority of the impacts modelled are from air transportation, which has a proportionately smaller footprint in the Thompson-Okanagan than provincially. On the other hand, it may serve as a useful proxy for the tourism-related businesses in the region (such as wine tour companies and car-rental businesses) not captured by the sub-sectoral analysis who rely for their livelihood on international and Canadian visitors. Business counts are not estimated for tourism, in part because the Arts, Culture and Entertainment sector is typically comprised of larger or publicly-managed operations (e.g. community recreation centres), which are more likely to re-start when safe to do so.
A more direct way to estimate the tourism impact on the region in 2020 is to consider probable visitor count changes through the main tourism season (Table 4). This analysis estimates visitor counts (domestic and international) by the Thompson Okanagan Tourism Association (TOTA) for 2019 and applies variations of BCBC’s Scenarios for both domestic and international tourism, given the present moratorium on all leisure travel and probable lengthier recovery for air travel.
I have applied a sliding scale for 2020 (as it is probable that “rubber tire” tourism will recover sooner and to a higher level than air travel), estimating a complete shutdown for all of April and May for both visitor categories. For domestic visitors, I estimate an 80 percent reduction for June and then a gradual easing of visitor restrictions (using BCBC’s percentage estimates for hospitality) to 37.5 percent through October 2020. Between April and October a net loss of 2.5 million domestic visitors is estimated.
For international visitors I estimate a 90 percent reduction for June, 80 percent for July, and 66 percent through October. For international visitors, a steeper, longer decline is anticipated, and a net loss of 753,000 visitors is estimated. Depending on when the Canada-U.S. border is re-opened, the Thompson-Okanagan could see a cautious rebound in visitors arriving by car, as the U.S. accounted for over one million visitors in 2019 (by far the largest country of origin for international visitors, according to TOTA.)
In terms of estimating direct impacts on B.C. wineries, the B.C. Wine Institute (BCWI) has begun a weekly survey of member wineries to ascertain the economic effects and winery responses. As at mid-March, BCWI-member wineries reported experiencing a range of financial impacts (between zero and $100K), and 69 percent reported that their retail channel customers have advised they will be slowing/ceasing to place orders. On the other hand, anecdotal evidence suggests that a number of measures introduced by wineries to serve their wine club members and house-bound consumers – including free shipping and home delivery within B.C. – are maintaining, if not boosting, sales.
What are some appropriate public policy responses?
Like never before in post-World War II democracies, most individuals and businesses are dependent on government for assistance. In the short term, the federal and B.C. governments have introduced some unprecedented policies to place a safety net of sorts under workers and business owners.
In particular, the Government of Canada made a significant announcement on Mar 27, 2020 of a subsidy of 75 percent of a business’s payroll affected by COVID-19 – regardless of size, sector or status (for-profit/not-for-profit), up to a maximum per employee of $58,700. Between this measure and others designed to defer mandatory remittances such as GST/HST and some sales tax, it could mean the difference between survival and failure for many businesses in the wine, hospitality and tourism sectors.
Other measures that are mandated or “strongly encouraged” by governments are flexibility in paying utilities and financial charges. Local governments can also assist the most fragile of businesses by offering property tax holidays or deferrals. For those who operate municipal utilities, deferring or reducing charges for electricity and water, and considering flexible arrangements for e.g. garbage and recycling collection may also make just enough difference to keep them afloat until they can resume their operations.
Any relief measures offered by local governments will of course have cost and budget implications (as they will for senior levels of government), and it is likely that the B.C. government and municipalities will have to arrive at an assistance formula once the economy is stabilised. These larger questions of “Who pays? When? And How?” will require a grown-up societal conversation when the worst has passed and the public fiscal picture becomes clearer.
Over the medium term (i.e. from approximately mid-summer to end of year), governments and service providers such as financial institutions and utilities will need to act in concert to shore up businesses so that as many as possible remain viable. Employees who have been temporarily laid off or let go will need to work once the most severe public health measures have been lifted, and a healthy business community is an essential element of the recovery. A priority on the part of policymakers should be to streamline, as much as possible, reasonable regulatory and tax or fee structures so that existing businesses, entrepreneurs (there will likely be many new businesses formations), and workers (be they full- or part-time employees, self-employed or gig economy contractors) can get back on their feet.
All in all, the outlook for hospitality and tourism for British Columbia and the Thompson-Okanagan region over the remainder of 2020 is bleak. Factors such as the (probable) prolonged closure of the Canada-U.S. border, the likely limitations on international air travel, the anticipated reluctance of Canadians to travel for health and financial reasons, and the curtailment of large scale destination events like conferences and larger weddings do not bode well for the region.
On the brighter side, city-based western Canadians toughing out the social distancing and self-isolation in confined spaces who eventually feel comfortable to “stay-cate” close to home may well venture to the scenic and familiar environs of the Thompson region and the Okanagan Valley. The lure of discovering a new vintage of B.C. wines may prove highly tempting… and new visitors and loyal customers alike can expect the warmest of welcomes.
~ ~ ~ ~ ~
Karen Graham is the principal of WineDrops, offering advisory services and commentary on the policy and business aspects of the Canadian wine industry. She has analysed B.C. and Canadian public policy for 15 years on behalf of business organisations, private companies and governments, including the Business Council of British Columbia, the Greater Vancouver Board of Trade and the U.S. State Department (Consulate-General Vancouver).
Assumptions and Caveats
The selected North American Industry Classification System (NAICS) sub-sectors are intended to reflect or proxy wine industry, hospitality and tourism activity in B.C. and the Thompson-Okanagan region, and are not exhaustive. Some categories may not fully capture the extent of economic activity and employment in each sector.
The rates of decline across economic sectors (as estimated by BCBC) have also been applied in my analysis to employment figures, business counts and visitor arrivals. These rates may not be precisely applicable across these dimensions (particularly given variations in labour-intensity of the sectors discussed). However, using standardised rates offers some picture of what may happen as the COVID-19 crisis continues to hit British Columbia’s businesses and workers in this sub-set of consumer-facing sectors.
The analysis covers all of 2020 and therefore takes account of seasonal variations such as the spring/summer growing season (applicable to the agriculture analysis). Only the estimates to visitor numbers to the Thompson-Okanagan region (broken down by month) are adjusted over the remainder of the year.
Sources
B.C. Stats/Statistics Canada, Labour Force Survey (February 2020).
B.C. Stats, Business Location and Counts (to December 2019).
B.C. Stats, Tourism GDP and Employment (to 2016).
B.C. Wine Institute, BCWI COVID-19 Advocacy Update (presentation March 24, 2020).
Business Council of British Columbia, Preliminary Estimates of the Impact of COVID-19 and Related Containment Measures on the B.C. Economy in 2020 (March 27, 2020).
Statistics Canada, Food services and drinking places, December 2019 (February 2020).
Thompson Okanagan Tourism Association, Domestic and International Visitor Patterns (presentation November 2019).