City of Vancouver Liquor Bylaw Changes Threaten Wine Consumption in Restaurants

Customer: A bottle of the Caymus Cabernet please. Waiter: Sorry, sir, I am afraid you'll have to order something cheaper. It's a little slow in here tonight and we can't sell any more expensive wine unless we sell more food.

Sound ridiculous? Perhaps not in Vancouver ...

The City of Vancouver is currently implementing changes to its bylaws regarding the operating hours of restaurants and liquor service in restaurants. One little noticed section of the changes seriously threatens the business viability of most restaurants in Vancouver and would have extremely detrimental effects on the consumption of wine in restaurants.

As part of the condition of granting a restaurant a food-primary license, the province (LCLB) currently has a requirement that the restaurant primarily be in the business of selling food rather than liquor. The province can currently check this by enforcing a requirement that in any 24 hour period, the restaurant should not be selling more liquor than food. While this method of testing the balance seems problematic to me, it generally has been accepted by restaurants because food sales at lunch (and/or breakfast etc ...) can balance out higher liquor sales at dinner.

The City, however, is proposing to change the 24 hour check to an 8 hour check. That would mean that solely during the hours of dinner service, a restaurant would have to sell more food than liquor. It doesn't take too much thought to realize that this is a completely unworkable rule. Suppose, for example, that a single table of two orders an expensive bottle of wine ($150) with two entrees ($50). That purchase would skew the sales toward liquor instantly. If that was the only table for the night, or if all other tables ordered 50/50, then the restaurant would be off-side for the night. I would venture to guess that this rule will be immediately unworkable in most popular restaurants in Vancouver.

The effect on fine wine sales could be dramatic. If the manager for the night notices that the restaurant is running 50/50, then theoretically he or she should prevent customers from ordering expensive wine because that would throw the restaurant off for the 8 hour period. Any restaurant that sells moderate to expensively priced wine should be extremely worried about this rule. As the Olympics approaches, this is a huge backward step for the modernization of wine laws in Vancouver.

Restaurant groups are mobilizing to fight this law. The Vancouver Sun has also covered the wine/liquor food bylaw this morning (October 27th)

Update (November 3, 2009): Good News .... The City of Vancouver has withdrawn the proposed bylaw and it will not be considered in its original form, as described above. There will now be a "rethink" and further consultation with the industry.

 

 

Ontario Reforms Wine Laws for VQA & CIC Wine

The Ontario government has announced changes to their regulatory regime which affect both VQA and Cellared in Canada (CIC) wines. Supposedly, Ontario is attempting to move consumers away from CIC blends and toward VQA product made from 100% Ontario juice. There will a change to the minimum domestic content requirement for CIC wine sold in Ontario from 30% to 40% overall (and to 25% for any single bottle). By contrast, B.C. has no domestic content requirements at all for CIC wine. The Ontario changes will obviously create increased demand for Ontario grapes but not in time for this year's harvest for which there is a glut of unsold product. By 2014, the domestic content requirement for CIC wines will be eliminated along with the tax breaks that Ontario currently provides for this category. The government claims that during this time, VQA sales will increase and consumers will move toward true Ontario product. However, as noted, B.C. has zero domestic content requirement for CIC wines and, in fact, CIC wines far outsell VQA product. As a result, the B.C. experience would seem to suggest that the Ontario strategy will be difficult to achieve on the consumer side.

The VQA Support Program is also returning in the LCBO. This program, which was canceled a while back, is similar to BC's VQA rebate program for government liquor stores. In Ontario, the program will return an extra 30% "rebate" to the wineries in order to encourage wineries to sell through the LCBO. Generally, VQA wine sold directly from wineries is not subject to liquor board markup (in either BC or Ontario). However, wine sent through the liquor boards is subject to full liquor board markup which means that the wineries must take a substantial cut in their profit margin in order to sell through government stores. The VQA rebate programs are designed to encourage wineries to send product into government stores by rebating some of the selling price and thus increasing the wineries' profit margins.

However, there is a serious issue as to whether these programs are sustainable in the long term as a result of Canada's obligations under international trade agreements such as NAFTA and GATT (a related though less serious trade issue is discussed here). An earlier challenge under GATT by the EU regarding discriminatory liquor board markup policies was successful and resulted in a settlement agreement under which Canada pledged to eliminate such differential pricing.

This story is now also covered in Wines & Vines. A summary of the massive amounts of recent publicity on Cellared in Canada wines is on my marketing site. A full update on all of these issues will also be provided at the upcoming November conference on Winery and Wine Distribution Law. There is also a good summary of recent developments on the Wine Case Blog.

House of Commons Pulled Into Shipping Law Morass

Canada's outdated wine shipping laws were under the microscrope again today with no lesser body than the House of Commons pulled into the debate. It turns out that the House of Commons was planning to have a "wine tasting reception" for MPs and Senators later this year where they would compare wines from across Canada in order to select a house wine for the Commons. Wineries in BC were among those invited to ship samples direct to Ottawa. Of course, normally wineries can't ship out of province at all due to an ancient post-prohibition federal law which is still on the books. The law contains an exemption for the government but winery owners were understandably miffed when asked to do something for elected officials which the rest of us can't enjoy - the Vancouver Sun covers the story here. More coverage from the National Post here. Personally, I think it's great that the MPs and Senators want to sample Canadian wine - a comparison tasting of many Canadian wines is a fine idea. However, it doesn't leave a good impression when the elected officials are able to organize something which the rest of us are prohibited from doing. Maybe our elected officials should take a short break from non-confidence motions and think about changing the 1928 federal law which stops the rest of us from having similar tastings.

Time for Government to Exit the Retail Wine Business

I wrote an op-ed piece for today's Vancouver Sun in which I argue that it's time for the BC government to get out of the retail side of the liquor and wine business. I have really only glossed over the myriad of problems in this piece but suffice to say, I think that British Columbia is long overdue for sweeping reform of both its retail liquor and wine distribution system and the related regulatory framework. Simply put: our government could make more money, grow the industry and have more effective liquor policy if it adopts broad changes. It's time to bring B.C.'s liquor laws and retail system into the 21st century - and it's a perfect Olympic legacy project.

By the way and not surprisingly, the BCGEU's president, Darryl Walker, disagrees with me on these issues (which is fine). However, in a response on his web site, he labels me "a lobbyist". Just FYI ... I am not a lobbyist and have not been paid by anybody to advance my opinions. My opinions on reform of BC wine laws are solely motivated by the fact that I am passionate about wine and care about the wine industry.

Poor Regulation of Cellared in Canada Wines in the News

British Columbia's inadequate wine laws were in the news again this weekend as the "cellared in Canada" issue got prominent coverage on CTV News, BCTV, the CBC and in the Vancouver Sun. This story is an important one because it relates to a long standing practice where some of B.C.'s largest wineries sell imported wine with misleading packaging such that consumers think that it is B.C. wine. The LDB is complicit in this because they list and display these products as being from British Columbia when in reality they consist of almost all imported juice.

 

The full story on the cellared in Canada controversy is on my marketing site.

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