BC Wine Industry Report - Fall 2021
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- Written by Mark Hicken Mark Hicken
- Category: Latest News Latest News
- Published: 17 November 2021 17 November 2021
Globally, the wine industry has suffered through one of the most challenging years ever due to the continued effects of the pandemic, consequential supply chain disruptions and numerous extraordinary climate-related events. The BC wine industry has not escaped the turmoil and continues to face challenges on multiple fronts. This report summarizes and highlights some of the issues, particularly those related to harvest and grape prices.
Input Costs & Grape Prices
The cost of producing wine in BC continues to rise, posing challenges for producers. Input costs have risen considerably over the past year fueled by labour shortages, shipping cost increases and strong demand for grapes. As a result, prices have risen for everything from glass bottles to oak barrels. Grape prices continue to be robust, benefiting independent growers and rewarding wineries who own their own vineyards.
Review of prices last year (in 2020-2021)
According to the BC Wine Grape Council, in 2020 the two highest volume red grapes produced in BC were Merlot and Pinot Noir. The two highest volume white grapes were Pinot Gris and Chardonnay. The average short ton price for Merlot in 2020 was just over $2900. The average short ton price for Pinot Gris was just below $2300. While prices will vary widely depending upon varietal, vineyard and farming practices, generally, the average prices for most red vinifera varieties was in the range of $2900-3200. For whites, the average price was in the range of $2200-2700.
Anecdotal evidence 2021
2021 was a challenging year for grape-growing due to wildfires and labour shortages. In addition, the “heat dome” in early summer contributed to below optimal fruit set resulting in lower than average crop yields. Nevertheless, the weather was good and quality appears high. Producers are still assessing the manner and extent to which wildfire smoke in certain areas may have affected the vintage. Anecdotal reports from the field indicate that this year’s grape prices will either be consistent with last year’s, or in many cases, higher due to demand. Indeed, for vintners dealing with smaller lot production (e.g. “esoteric” grape varieties or grapes farmed organically), their grape costs may be considerably higher than the averages noted above.
Average Bottle Price and Sales
The average retail price for BC VQA wine in 2021 is about $19.20 according to Wine Growers of British Columbia (based on an average wholesale price of about $16 and retail markup of 20%). However, this number would include a large amount of wine produced by the “big 3” major players who have significant vineyard holdings of their own and/or long term leases (and thus who would be less affected by grape price changes).
In contrast, analysis by Paul Rickett (of VARketing!) indicates that the average current price for 100% BC wine produced by independent wineries is somewhat higher: $18.19 wholesale (estimated $21.28 retail with that same 20% markup). More specifically, it breaks down for BC red wine to $21.70 wholesale (estimated $26.04 retail). And for white wine it is $15.68 wholesale (estimated $18.82 retail). Paul has produced a detailed report on BC wine pricing which could prove invaluable to wineries who wish to delve into these comparisons in greater detail (contact: This email address is being protected from spambots. You need JavaScript enabled to view it.).
1% Rule
There is a “rule of thumb” in the North American wine industry that in order to recover production costs and generate a reasonable return for the winery, 1 ton of grapes ought to be priced at 100 times the retail price of the wine bottle that those grapes produce. So for example, a purchase of Pinot Gris grapes at $2300 a ton, should produce wine that retails for about $23 a bottle. If one uses that test on the grape cost averages above, it indicates that most BC reds should retail between $29-32 and whites between $22-27. Those projected prices are higher than the actual averages just noted. Even if one adjusts the retail margins upward to 30-35%, the numbers come closer but are still below the “100 times” metric. This would suggest that some, or perhaps many, BC wineries are not obtaining the pricing for their wines that would put them in line with North American winery average returns.
Indeed, anecdotal evidence from some wineries confirms that production costs have risen to the extent that price adjustments may be necessary. At the very least, this would indicate that there is some considerable advantage for producers to own their own vineyards and control their production costs. We understand that, in many cases during this harvest, producers purchasing stock from growers received far fewer grapes than they were expecting. Presumably this may also contribute to decreased returns and additional cost pressures for some wineries.
Winery and Vineyard Prices
Despite the pandemic, the North American wine industry has seen continued acquisition, consolidation and investment activity. South of the border, there has been some very significant activity including the sale of Ste Michelle Wine Estates and a successful IPO by Duckhorn Wine Co. In BC, the activity has generated less headlines but has continued (e.g. Wild Goose, Stoneboat, Joie, Unsworth). Al Hudec reviewed some of this activity during a recent AIDV Canada webinar (https://www.aidv.ca/aidv-updates/).
Pricing remains strong, particularly for wineries with significant vineyard holdings. Recent activity indicates that planted vineyards in prime areas are fetching about $300,000 per acre. Prices have been consistently edging upward with growth of about 2% per month which is reflective of strong demand from existing producers and relatively new entrants, such as Frind Estate Winery which now has hundreds of acres of BC vineyard holdings, rivaling the established “big 3”.
We expect to see continued acquisition and investment activity throughout the remainder of this year and into 2022.
A PDF version of this report is available for download here.
Contact:
Mark Hicken: This email address is being protected from spambots. You need JavaScript enabled to view it. 604 868 1375
Tania Tomaszewska: This email address is being protected from spambots. You need JavaScript enabled to view it. 250 220 1745
BC Wineries: Register Your Water Well Now or Lose Your Water Supply
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- Written by Mark Hicken Mark Hicken
- Category: Latest News Latest News
- Published: 13 October 2021 13 October 2021
BC wineries that use groundwater in their operations should be aware that they need to register their water wells before March 1, 2022 ... or face potentially disastrous consequences including a potential loss of their water supply (thanks to Al Hudec for reminding on this). The registration requirement is a result of the Water Sustainability Act, which originally became law in 2016. However, the new law's time extensions for registration run out in just over 4 months, at which point, those who have not registered could be severely disadvantaged.
The basic structure of the registration system is as follows:
- Non-domestic use of groundwater in BC is now required to be registered and licensed. For example, a winery using water from a well to irrigate its vineyards must register its well and obtain a license in order to keep using that groundwater supply.
- A priority system will be created for water usage which will be based on time of first use and/or registration and which may come into effect in times of shortage or constrained supply. So, for example, if an aquifer's water supply was running low, water could be rationed to all users of that supply with priority going to those who established earlier usage (and who had registered that usage).
- Those who used groundwater before March 1, 2016 are categorized as "Existing Users". They can obtain priority for their water usage and can have the registration fee waived if they register before March 1, 2022. If they do not register by that date, they will lose their priority and the use of the water supply becomes illegal.
- Those who used groundwater on or after March 1, 2016 are categorized as "New Users". They should have already registered and obtained a license. If not, the use of the groundwater is illegal.
- Water use amounts may be specified. Water use "rents" may become payable retroactive to March 1, 2016.
The failure to register by the deadline could have very significant consequences for a winery or vineyard business:
- A winery or vineyard could lose its priority access to the water supply and "end up behind" a newer user of that supply even after registration. In times of shortage or if the supply is already constrained, that could result in the older winery or vineyard getting no water or less water than the newer one.
- Any continued use of the water supply without registration would become illegal and could result in enforcement action.
- The value of the winery or vineyard business could be significantly affected ... because a winery or vineyard business that does not have legal water rights will become much less desirable to a buyer.
There is more information on the registration system in this PDF: Licensing Groundwater in BC. Additional information and the application process is here: New Requirements for Groundwater Users. There appears to be a lack of awareness of the upcoming deadlines. See this article for more detail: 15,000 Water Wells Could Be Declared Illegal in 2022.
Please contact me if you need any assistance with registration.
New Public Health Orders Require Proof of Vaccination
- Details
- Written by Mark Hicken Mark Hicken
- Category: Latest News Latest News
- Published: 12 September 2021 12 September 2021
BC's Provincial Health Officer has posted two new Public Health Orders which now require (as of September 13th) most wineries and liquor manufacturers to verify a customer's vaccination status before serving them: Food & Liquor Serving Premises Order and Gatherings and Events Order. I note that the orders make a distinction between manufacturer facilities that have seating (such as a tasting lounge) and those that do not (e.g. customers standing at a tasting bar for samples). The former are treated the same as restaurants and bars (and thus, proof of vaccination is required). The latter are treated like retail stores and are exempted from the order by the wording in paragraph M. I note that the requirement to provide proof of vaccination is necessary for the customer to be served ... so it should be sufficient to ask for that proof once a customer is seated (i.e. not at the door) which may make logistics easier. More details on the vaccine card requirements are here: BC Vaccine Card.
BC Wine & Spirits Summit Set for June 24th
- Details
- Written by Mark Hicken Mark Hicken
- Category: Latest News Latest News
- Published: 17 June 2021 17 June 2021
A complimentary virtual conference for the BC wine and spirits industry will be held on June 24th at 230 pm. The "BC Wine & Spirits Summit" will include two mini seminars and a round table discussion. Topics of interest to be addressed will include recent liquor policy changes related to Covid, liquor licensing and compliance issues, ALC and zoning issues, as well as a general assessment of the current industry landscape. The event will wrap up with a round-table discussion. The event is sponsored by Rising Tide Consultants. Speakers will include Bert Hick of Rising Tide, Tania Tomaszewska and myself. Free registration and more info is here.
BC Celebrates 100th Anniversary of Repeal of Prohibition
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- Written by Mark Hicken Mark Hicken
- Category: Latest News Latest News
- Published: 10 June 2021 10 June 2021
Next week is the 100th anniversary of the repeal of Prohibition in British Columbia. The last day of Prohibition in BC was June 14th 1921. The next day, June 15 1921, the "government control" system for liquor distribution and sales began with the opening of the first government liquor store (now "BC Liquor Stores"). Prohibition had only lasted in this province for 3 years and was repealed after a referendum which asked citizens to choose between maintaining prohibition or the implementation of a government control system. The government control option won handily: the vote was 92,095 to 55,448. The only areas of the province that voted in favour of prohibition were Chilliwack and Richmond. Both Vancouver and Victoria voted in favour of government control by margins of two to one.
The government then set up a system of control which was initially very strict. Early government liquor stores did not have windows (see photo above) and all product was kept behind counters. In order to purchase product, customers had to buy an annual or one-time permit ... and logs were kept of how much liquor was purchased by individual customers. One legal expert at the time warned that the switch to government control would create problems because a system that "swell(ed) the profits of the government monopoly" would lack "any moral or popular psychological backing". Nevertheless, that is what the people had chosen and government control went ahead, becoming a significant source of government revenue from that point onward. Eventually, and over the decades, the constraints were relaxed but the legacy of the system lives on today. There is still monopoly control over the wholesale distribution of liquor in BC. A significant portion of retail sales is still made through government stores ... and government collects large amounts of revenue from the liquor business. Indeed, it was only last year that government permitted hotels/bars/restaurants to buy alcohol at wholesale prices - almost a hundred years later.
Of course, efforts continue to "modernize" the liquor system and to remove lingering aspects of the control system. Nevertheless, in the mean time, BC's citizens can "celebrate" the anniversary next week ... by opening a nice bottle. Cheers!