Month: December 2014

The BC Government issued a press release today indicating that its model for the sale of BC wine on regular supermarket shelves will apply to any wine made from 100% BC grapes, rather than be limited to VQA products. This model is scheduled for introduction on April 1st, 2015. The release indicates that existing VQA stores and independent wine stores may relocate to supermarkets, although there are likely to be no takers on the latter offer since a condition is that they limit sales to BC wines (IWS can currently sell all types of wine). Apparently, a \”limited number\” of new licenses will also be issued for supermarket sales.

The press release does not mention how the above model complies with Canada\’s international trade obligations. It is my view that this model is not compliant with NAFTA, GATT or the EU-Canada Agreement on wine sales.

(UPDATE: I am hearing that the following pricing model may be adjusted … however, there has been no confirmation of that yet.) Here is a short summary of the proposed changes to wholesale pricing for BC set for April 1, 2015 with some new examples. Some information has been circulating that the price projections presented here earlier (Liquor Law Changes 2015) were \”speculative\” and that \”end consumer prices would not change\”. I respond to those claims below.

On the first point, the price projections are estimates but they are not speculative in the sense that they are mere guesses. They were based on the pricing formula that has been publicly released and confirmed by the LDB. Any end consumer price projection that is based on wholesale pricing needs to assume a retail profit margin. These estimates were made assuming profit margins equivalent to the current 16% margin for LRS stores and the 30% margin for independent wine stores. The 16% margin is actually a very low assumed profit margin given that the declared operating costs for LDB retail stores are 17-18% and that Costco, probably the lowest margin retailer, works on 14%. As a result, please note that the low end price projections, in my view, are an absolute best case scenario. The price increases will likely be in the higher end of the range because most retailers would use a margin of greater than 16% (e.g. BC LDB stores would lose money at 16% because their operating costs exceed the margin).  

In respect of the latter issue, it is my view that it is not possible for end consumer prices to stay the same for medium to high priced wine using the new pricing formula (nearly all retailers that I have spoken to agreed with this conclusion).  The wholesale markup (liquor taxes) on medium to high priced wines will increase substantially for all wine above a wholesale cost of $8.81 per 750 ml bottle. Indeed, for some higher priced wines such as those listed below, the new BC wholesale price will actually exceed the current pre-tax retail price! It is not possible to increase wholesale prices substantially without having an effect on retail pricing.

The following examples provide cost comparisons for some relatively well-known high end wine products, showing a range of projected prices between the 16% and 30% retail margins:

And this table provide some cost comparisons for relatively well-known medium priced wines, again showing a range of projected prices between the 16% and 30% retail margins:

In the chart above, note the substantial increases in wholesale prices for BC retailers, the fact that those wholesale prices are far higher than Alberta wholesale prices, and the substantial increase in end consumer pricing. As a result, there will likely be price increases at the high end of at least 25-30%, probably much more. I\’ll add some medium priced wine examples shortly.