(continued from Part 1: What wines will Canadians be drinking in 2016?)
How can this rapid growth take place?
The BCLDB sales data do not tell the whole story. Taken together, several reports last year on the BC wine industry (discussed in a previous post) paints a disturbing picture: that the BC consumer is nearly tapped out and that the industry is facing a saturation point in terms of the price/value/supply nexus. (A recent seminar in Vancouver heard that some BC vineyards remained unpicked last harvest due to low demand and cancelled contracts).
Rebalancing the industry while taking advantage of the increasing thirst of Canadian wine lovers require more than a business-as-usual effort from the BC industry. There will be increased competitive pressure from import brands, which is good news for consumer selection and price. Depending on the outcome of Canada’s free trade negotiations with Europe, prices may drop even further (e.g. Colombia just eliminated its 15% customs duty on European wine as part of their free trade deal. We can hope…)
Developments over the past year suggest two possible pathways forward: privatisation of government distribution and retailing, and direct-to-consumer shipments. While true privatisation in British Columbia is clearly a moot point for the foreseeable future, many eyes turned south to Washington state last year as it privatised its wine and spirits warehousing, distribution and retailing operations. Nine months in, the results appear mixed (hard numbers are sparse). Prices for spirits appear to have risen in some regions, due in part to a cumulative 27% state tax – 10% on distributors and 17% collected at retail. Those wine retailers with close ties to the domestic Washington industry (740+ wineries) can bypass the distributor markup and tax, and can lure wine lovers by unique offerings in both the wine and spirits categories. It is far too soon to draw conclusions on the experiment, as the private market has barely formed (and other factors such as the reduction of the distributor tax to 5% in two years will also influence prices).
On the other hand, Alberta has a long track record with its private liquor retail system. A recent Alberta Gaming and Liquor Commission update helps convince the wine lover that a private wine retail environment could look a bit like heaven, at least in terms of selection: the overall number of outlets has increased from 803 (pre-privatisation in 1993) to 1,987 in December 2012; the number of products available has increased from 2,000 to 18,000, and annual wine sales have more than doubled to 4.3 million cases (outstripping economic and demographic metrics like inflation, disposable income and population growth). The searchable database at www.liquorconnect.com lists a dizzying 20,000 wine SKUs. The flat per-litre markup rates on table wines have held within a $3.00 to $3.50 band for well over a decade. Not all prices on all products are lower in Alberta than anywhere else in Canada, but the market is mature, and selection is indisputably large.
A privately operated, open marketplace for wines from all over the world at fair prices is probably the holy grail for advocates of wine market reform. In its absence, a managed hybrid system can still offer some benefits for wine lovers and the domestic wine industry alike. The advent last year of legal interprovincial shipments of wine for personal consumption breathed some life into the nascent direct-to-consumer distribution channel in this country. As well-documented by Mark Hicken and others, the federal de-criminalisation of personal interprovincial shipping is only half (or less) of the equation: some key provincial liquor monopolies and their political masters have dragged their feet in announcing policies that align with the new law. These confusing delays inhibit consumer choice and the development of a pan-Canadian wine market.
Predictions for the initial scale of this market in Canada rested somewhere in the one to two percent range of a given liquor board’s domestic wine portfolio. It was expected that small-lot, premium-priced wines would be the target for the keen wine consumer. It is early days for this experiment, and numbers for BC are hard to come by. While some small to mid-size wineries have surely taken advantage of this opportunity, the new trade channel has apparently created barely a ripple in the pattern of wine shipments and sales across the country. Many operators in the BC industry understand that expanding the market is essential to survival, and they are pinning their hopes on expanded DTC interprovincial shipments.
Recent research published by the Canadian Vintners Association and others offers a helpful quantitative benchmark of the impressive economic impact of the Canadian wine industry, but a roadmap for growth is still greatly needed.
(How can BC wineries and wine lovers benefit? See Part 3)