Ontario uncorks its plan for wine in supermarkets

Nine decades since Prohibition ended, Ontario’s cabinet is poised to lift its longstanding ban on new wine outlets.

Thestar.com
Feb. 11, 2016
By Martin Regg Cohn

The LCBO’s long monopoly on wine is unwinding - slowly.

New privately run wine distribution outlets are coming to 70 supermarkets across the province this autumn, rising to 150 new outlets in future years, the Star has learned.

Nine decades since Prohibition ended, Ontario’s cabinet is poised to lift its longstanding ban on additional outlets, according to multiple sources in industry and government. But like a fine wine, the rollout is complex and the flow will be slow.

The province’s influential privatization czar, Ed Clark, gave cabinet ministers a confidential briefing Wednesday on his final proposals - spelling out the balancing act between rising consumer demand for wine in grocery stores and industry fears of liberalized sales.

With a cabinet consensus in place, a formal announcement will come by late February, ahead of the March provincial budget. Grocers could bid on new distribution licences at the next scheduled auction of beer licences, with wine bottles expected to be on supermarket shelves later this year.

The most contentious provision: Giving special protection to Ontario wineries, initially granting them exclusivity in 35 new licensed outlets restricted to locally produced wines.

The goal is to give local VQA wines (Vintners Quality Alliance) a head start over the foreign competition during a three-year phase-in period. Thereafter, all international wines could be sold in those supermarkets.

In addition to those 35 Ontario-only outlets, another 35 unrestricted licences would be issued in parallel, allowing the winning bidders to sell both foreign and domestic wines from the outset.

Ontario cider producers will also benefit from the liberalization. But sales of spirits, with their higher alcohol content, would still be restricted to the LCBO, as is the case with Quebec’s government-owned SAQ alcohol outlets (sales could continue, however, at on-site outlets attached to distilleries).

In 2019, another 40 Ontario-only wine licences would be issued, plus an additional 40 unrestricted outlets that could also sell imported wines. The combined total would be 150 new grocery outlets for wine, with all protectionist provisions phased out by 2022.

There is no hard cap on the number of future wine licences that might be issued. Unlike the beer framework announced by the government last year, which set a limit of 450 new supermarket licences to compete with an equal number of Beer Store outlets across the province over the next decade, the wine plan could be expanded to meet consumer demand.

In addition, many long-neglected wine kiosks that now adjoin a couple of hundred grocery stores across the province may soon be redeveloped to gain prime shelf space inside supermarkets, according to the plan.

The Liberal government will tout the future announcement as bringing more points of sale for wine lovers, but the love affair will be consummated at a slow pace. The challenge for the government has been finding a way to please competing interests.

Consumers are clamouring for greater convenience and convergence, seeking one-stop-shopping in supermarkets where they can now buy beer. The expectation is that many larger supermarkets will bid for both types of licences in locations with the biggest foot traffic - providing beer and wine lanes side by side.

The Liberal government wants to placate those consumers without cannibalizing its own revenue stream of roughly $2 billion a year from the LCBO, which now dominates wine sales through its longstanding quasi-monopoly. The expectation is that supermarket sales will prove popular, but won’t displace volume sales at LCBO outlets that still offer broader selection.

Growers who till Niagara’s soil also want a more level playing field - and floor space - at the retail level. Premier Kathleen Wynne, a former agriculture minister, has promised to heed their concerns but protectionism comes at a price.

Competing foreign wineries have consistently challenged any preferential treatment of domestic wines contemplated by Ontario in recent decades, forcing the government to design the latest reforms to mesh with international trade laws. By issuing Ontario-only and unrestricted licences in tandem, with three-year phase-out periods, Queen’s Park believes it can forestall any future legal challenges.

Industry and government sources say most players are relatively satisfied with the tradeoffs. The proposed changes will “unlock the Ontario VQA wine industry’s true growth potential,” said Richard Linley of the Wine Council of Ontario, who has been getting regular government briefings.

Smaller Ontario wineries have been handicapped in recent years by two large corporations that dominate existing distribution in many supermarket outlets. Most Ontarians are only dimly aware of those wine kiosks perched alongside a couple of hundred supermarkets, selling mostly blended wines (with 25 per cent domestic content).

Those boutiques have a sweet deal that goes back decades.

The foreign-owned Wine Rack is by far the biggest, with 164 stores selling a cross-section of wines, many blended with as little as 25 per cent Ontario grape content (combined with bulk wine imported from abroad). Its U.S.-based parent company, Constellation, boasts sales of $5 billion a year.

The Wine Shop, with 104 outlets across the province, is owned by Andrew Peller Ltd., with nearly $300 million in annual sales. It also sells foreign-blend wines and acquired more licences by buying out other wineries.

Now, the government is tackling the inherent unfairness of a decades-old wine retailing sector, while giving the big players an incentive to raise their game.

Under the plan, the existing Wine Rack and Wine Store outlets will be encouraged to relocate their existing kiosks - adjoining grocery stores or near entrances - deeper within the supermarkets, with better display areas.

In 2014, the government first signalled its intention to liberalize wine sales. By 2015, the Liberals were promising the first bottles would arrive in supermarkets in time for Christmas. Not so fast.

Unravelling the wine sector proved far more difficult than reforming the beer industry (long dominated by the privately owned, foreign-controlled Beer Store at the expense of competing craft brewers). Now, after months of consultations, negotiations, triangulation and deliberation, the government is ready to uncork wine sales.

WINE SALES AROUND THE WORLD

ROME: Wine is sold in specialty wine stores, supermarkets and smaller food stores. Not surprisingly, Italians are partial to their own world-famous wines although most imports are from France, Spain, the United States, Australia and Portugal. But what goes better with pasta than some home-grown vino? And don’t forget wine fuelled Roman legions in their conquests back in the day.

LONDON: Not only is wine sold in supermarkets, so is beer and liquor. Vino is also available from wine stores and smaller convenience stores. Given that the United Kingdom has a very small domestic wine industry, it’s not surprising that the country imports a sizeable 14 per cent of the world’s wine production, much of it from Europe.

SYDNEY: Ever heard of a bottle shop? Sydney has plenty and they’re one place to buy wine, along with supermarkets, where house-label wines are increasingly taking up space on shelves. Given that Australia is a major world producer of wines, and in a remote corner of the world, Aussies are known for favouring their world-famous reds in particular. And, they like beer, too. G’day mate!

JOHANNESBURG: Supermarkets sell wine - but that’s the only alcohol they sell. Beer and spirits must be sold in stand-alone stores. To capture that business, supermarket chains often have subsidiary stores next door with a full line of brew and liquor. South Africa, which has its own well-known wine industry, does not import much foreign vino but exports plenty now that Apartheid-era boycotts are history.

QUEBEC: The province allows sales of beer and wine in supermarkets and corner stores called depanneurs, and it’s not unusual to see Ottawa residents across the river loading up on Costco runs to Hull. Craft beers and ciders are popular in the sense that Quebec does not have much of a wine industry. Anyone wanting liquor in Quebec has to buy it at an SAQ store, similar to Ontario’s LCBO outlets.