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02.26.2014  
 

B.C. Alarmed over Wine in Grocery Stores

British Columbia Wine Institute says wider sales threaten local wineries

 
by Peter Mitham
 
 
prodan
 
Miles Prodan

Vancouver, B.C.—Vancouver is hosting the Vancouver International Wine Festival this week, one of North America’s biggest consumer-oriented wine festivals, but guests of local hotels are prohibited from carrying a glass of wine (or any other kind of alcohol) from the lobby lounge to the hotel’s restaurant.

That, and other inconveniences, are set to be remedied in new legislation the provincial government has pledged to pass in the coming weeks in response to a review of provincial liquor policies released earlier this month.

But if the wine industry has warmed to changes that will give consumers greater freedom where and how they drink their wine, nothing strikes more fear into the hearts of some members than licensed grocery stores.

“Our biggest concern is a grocery store getting hold of a liquor license, frankly,” said Miles Prodan, president and CEO of the B.C. Wine Institute, at a seminar held by Law Seminars International this week to review legal issues associated with the wine business in B.C. The annual seminar has preceded the Vancouver International Wine Festival for five years running, drawing more participants each year.

Prodan’s organization is charged with the promotion of wine bearing the B.C. Vintners’ Quality Alliance (BC VQA) designation, borne by wines made entirely from B.C.-grown grapes and meeting specific quality standards. It also holds licenses for 19 stores across the province selling exclusively BC VQA wines.

Worries over more downward price pressure
With the industry battling to keep market share and even lowering prices in response to competitive pressures, Prodan isn’t keen to see more downward pressure on the sales of the province’s wine.

“We’re about protecting 100% B.C.,” he told the room full of industry members, retailers, and lawyers. “[Grocers] getting their hands on a license is going to be problematic for us because it will not be VQA, 100% B.C. [they’re selling]. It will be about low-priced SKUs.”

Retailers in Alberta, which privatized its liquor system in 1993, have grappled with similar issues. The province is reviewing its liquor laws this year, which have long barred grocers from selling alcohol within grocery stores. Sales are allowed at adjacent locations, however.

This has historically drawn the ire of smaller retailers who claim that Loblaws and other grocers can use low overhead costs and volume sales at high-traffic locations to absorb low margins on popular products. This draws in customers, who may then pick up a higher priced item while they’re there.

That’s the kind of scenario continuing to play out in Washington state’s deregulated liquor sector.

While convenience stores and grocers could sell wine prior to the passage of ballot initiative 1183 in November 2011, when the state got out of the liquor business the door was also opened to central warehousing and volume discounts by large retailers.

These have brought new competitive pressure to bear on the state’s wineries (see “Fall-Out Continues in Washington State,” Wines & Vines, January 10, 2013).

Deregulation can bring new challenges
The entrance and subsequent growth of large retailers in the state on the back of the new operating environment is changing the game for smaller wineries, which face greater competition for shelf space. The large retailers can secure discounts that allow them to buy and move volumes of cheaper product, explained Marty Clubb, who has followed developments closely as president of the Washington Wine Institute and co-owner of L’Ecole No. 41 winery in Lowden, Wash.

Smaller shops are unable to compete on the same terms, and try to get better deals from wineries to attract price-conscious consumers used to getting bargains at the big retailers. And, as wineries able to offer better prices secure shelf space, other wineries need to find other channels.

“There is growing evidence of this creating challenges for small wineries to get their foot in doors,” he told Wines & Vines. “This notion that this free marketplace was going to create new opportunities for small wineries is clearly not materializing.”

While his winery is large enough to hold its own, he estimates that three-quarters of the state’s 689 wineries sell mostly within the state.

“The entire marketplace has got a competitive pressure on it now that is putting retail shops in jeopardy, that is limiting locations where small wineries can distribute,” he said.

With new entrants to the industry continuing to arrive each year, the pressure isn’t about to let up.

Prodan doesn’t want to see the same situation play out in B.C. While the province isn’t giving up control over distribution, retailers have been told they’ll be allowed to maintain secure, off-site storage of product subject to regulations that have yet to be developed. Whether grocers will be allowed to engage in central warehousing is a question seminar participants raised.

However, Prodan is concerned that grocers will impose fees and conditions on wineries that ultimately extract equally damaging concessions from B.C. wineries.

“We are going back to government saying this makes no sense at all,” he said of the move to allow grocers to sell alcohol. “However, if you insist on doing it, what we need to do is take a look. ... Maybe it has to be 100% B.C., including beer and spir its [in grocers].”

 

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