Category: Latest News

In an earlier post, I noted that there has been a minor controversy this summer regarding the use of Enomatic \”wine tasting machines\” in some private retail stores. I asked for clarification on this from the LCLB and I can now confirm the following:

• The use of Enomatic machines is permitted so long as the store is otherwise complying with the terms of its license in regard to consumer tastings. Store owners should check the terms of their license – but the terms and conditions for most licenses are here.
• For most stores, the most significant restriction will be that self-service on tastings is not permitted (in other words, customers cannot pour their own tastes) … this will mean that they cannot operate the Enomatic machine themselves. Instead, as applicable, the agent or a store employee would have to operate the machine.

Some retailers have complained to me that the rules regarding tastings in LRS stores are overly restrictive particularly the requirements to dispose of any unfinished bottles at the end of the day (which defeats the purpose of the Enomatic machine). In this regard, the LCLB has told me that they are currently reviewing their policies in regards to tastings and they expect to \”clarify\” the policies in the near future. Hopefully, this will mean some modernization of the policies with clearer accommodation for new technology like the Enomatic.

Generally, it\’s my view that the current policies need to be updated – so long as there are safeguards to over-service, it\’s always a good thing if consumers can try wine before they buy it. In regards to limiting the amounts served, the Enomatic is actually a great tool because the machine measures pours much more accurately than people do and customers could be given a \”smart card\” that limits them to the exact amount permitted by the tasting policy. If it is any consolation to private retailers, I can attest that the rules for tastings in LDB stores are equally frustrating – a recent LDB memo on this subject has caused some agents to re-think how they will address in-store tastings in government stores.

Update: this story has now been covered by the Vancouver Sun: Another Bizarre BC Wine Law Dampens Competition

Here\’s a grab bag of a few bits of interesting summer liquor news …

BCLDB Liquor Sales Down. The latest edition of the BC LDB\’s Quarterly Market Review shows that overall liquor sales in British Columbia for the quarter ending in June were down 8% by volume and almost 5% by value over the previous year. Those are significant drops when total annual sales figures for BC are $2.8 billion. Sales of wine and spirits were both essentially flat while sales of both beer and coolers were down considerably. The LDB missed its sales targets last year and numbers like these seem to indicate a repeat performance.

HST Impact on Restaurants. As was expected, it has now been confirmed by the Canadian Restaurant and Food Services Association that the introduction of the HST had a strongly negative effect on restaurant sales in July. The Association is now asking government to mitigate the impact by considering other compensatory measures such as a long requested wholesale discount on liquor. As I have previously written on many occasions, BC\’s liquor wholesale distribution system for restaurants is seriously outdated since restaurants get zero discount – they pay full retail price when they buy wine and other liquor. This puts them at a serious competitive disadvantage when compared to restaurants in neighbouring jurisdictions (such as Alberta and Washington) and also creates sticker shock and dismay when tourists see the price of wine on restaurant wine lists. Let\’s hope government listens on this one.

Enomatic Controversy. I have recently been made aware of a minor controversy involving the use of \”Enomatic\” wine dispensing machines in various private liquor stores. These machines (from Italy) dispense measured pours of wine for tasting and keep the wine fresh for up to 3 weeks by preventing oxygen from entering the bottles. A few private retailers have purchased these machines to allow customers to sample wine before purchasing. I can attest from seeing them in operation in Italy and California that they work extremely well. However, the LCLB is apparently having some difficulty with them: read the full story here on the Winecouver blog. Update: August 6th … I haven\’t been able to get any additional information on this to date but Wines & Vines has now covered the issue: Government Limits Wine Dispensers.

It\’s the summer travel season. Many British Columbian wine enthusiasts will be venturing south of the border and will want to bring a few bottles home with them. As most will know, that is a very expensive proposition in BC if you exceed your miserly duty-free allowance of two 750ml bottles of wine per person. However, the introduction of the HST has made these importations ever so slightly less expensive. Previously, for BC, the charges were 85% liquor board markup plus 10% PST plus 5% GST.  However, the sales tax portion has now gone down from 15% to 12% and is calculated in a way which is slightly more advantageous. Canada Border Service Agency (Customs) has revised its memo on this issue to show the new tax collection rates and process. The following table shows you the comparative rates for importing a non-duty-free 750 ml bottle of wine into a Canadian province when you return from a trip to the U.S and also shows you the effect of these charges if you import a 750 ml bottle of wine that cost $15.

As you will see, the rates charged at the border for British Columbians are very high in comparison to most other provinces (Quebec is also very high). In BC, you will end up paying more than double the original price once you have imported the wine. Once again, British Columbian wine lovers are getting soaked by our government on this issue.

Please note that for almost all provinces, these rates are only valid in the \”travellers stream\” – which means you must personally bring the wine across the border with you. If you ship the wine, the rates are generally much higher (it\’s hard to believe that the BC rates could be higher, but they are!). There are also quantity limits for these rates: 45.45 litres for BC; 45.45 litres for AB (although the memo says 9.09 which is wrong); 45 litres for ON; no limit for MB; 9 litres for Quebec. Also note that the way of calculating these fees differs from province to province – see the CBSA memo for details.

You may also wish to read my Bringing Wine Back to Canada After a Trip article.

The Costco led initiative in Washington state to privatize the remaining elements of Washington\’s liquor distribution system has been certified and will appear on voters\’ ballots in the fall. If the measure passes, Washington\’s remaining state liquor stores (which have a monopoly on spirit sales) would be privatized. The distribution system would also be deregulated and price controls repealed. As will be apparent (and despite the \’success\’ of the anti-HST campaign), the process for getting a voter initiative such as this on to the ballot is much easier in WA than here in BC. Still, progress and reform south of the border may have some influence on legislative policy here in BC. Is it too much to hope that our archaic distribution system and irrational wine tax structure will soon be changed? If you need reassurance that the time for change is overdue, read Jake Skakun\’s recent blog post: \”A Layman\’s Attempt to Understand What It Means to be a Licensee\” where he shares his frustration at our outdated system.

People ask me all the time why wine prices (and other alcohol prices) are so high in BC. The short answer is that there are two reasons: 1) extremely high tax rates (including hidden taxes like liquor board markup) and 2) inefficiency in our monopoly distribution system.

To give you a comparison on the tax side of the equation, here are the per capita (per person) annual amounts of money that the major provincial governments in Canada made from liquor tax revenue in 2009:

As you can see, BC makes a lot of money from liquor tax revenue … over $900 million per year. You can also see that BC makes a disproportionately large amount of money on the per capita revenue as compared to the other major provinces and the Canadian average. BC takes in just over $200 per person per year from liquor tax revenue … almost $60 more per person per year than Ontario (the other major wine producing province) and almost $80 more per person per year than Quebec.

It\’s also interesting to note that Alberta, the only province with full retail privatization, makes considerably more money per person per year than either Ontario or Quebec and only a bit less than B.C. where we have much higher retail prices and almost no competition. The bottom line in BC is that we are getting soaked on the tax levels compared to the other major provinces. Makes you want to have a drink … preferably in another province.

Also … if you are a glutton for tax punishment … you may want to check out my updated BC Liquor Store Wine Markup calculators which now show the HST and increased markup amounts (as of July 1st) that are hidden in the bottle prices at government stores.

The BC LDB has just released an information package explaining the removal of the licensee \”discount\” that will occur as a result of the implementation of the HST on July 1st. A number of licensees have emailed me expressing concern and confusion over the effects of the changes. Particularly, there seems to be confusion over the LDB\’s claim that licensees will make more money following the changeover.

Licensees should pay attention to the information contained in the package as it is important for their accounting and financial planning. While the financial impact is not major, the changes will have an impact on profitability if close attention is not paid to the changes in taxation and pricing structure. Particularly, licensees should be aware that they will need to re-calculate the pre-tax menu prices for almost all liquor products if they wish to maintain the same profit margins before and after the changeover. A detailed analysis is provided below (click the \”Read More\” link if necessary).

It appears that the Cellared in Canada controversy is continuing. Two recent articles by Jancis Robinson on her blog (From Bottom to Top – Canadian Wines and Canadian ripples – the response) have brought the subject into the spotlight once again and include a response from Vincor (one of the major producers of these wines). You can read and judge for yourselves on the consumer and business issues. I was quoted in the latter article on Canadian labeling laws (see my previous article: Cellared in Canada in the News Again) where I state my view that the current labeling of CIC wines is likely not compliant with the provisions of current Canadian federal law. On that issue, I\’ll make one further comment.

The Vincor response to Jancis Robinson\’s article states as follows:

The designation Cellared in Canada is federally regulated by the Canadian Standards Board .The words \’Cellared in Canada from Imported and Domestic Wines\’ is required to be on every product of that distinction. For 14 years we have been using this terminology with no confusion in the marketplace.

I don\’t agree with these statements. The Canadian Standards Board is a voluntary standards association. It is not a federal regulatory body and has no force of law behind it at all. Canadian federal law is contained in the statutes and regulations of Canada as passed by Canada\’s Parliament. Voluntary industry groups cannot create federal law nor create any requirements to label products in accordance with the standards that they create.  There is no legal requirement that CIC product be labeled in the manner described – the CIC wording is simply the \’standard\’ that the voluntary industry group came up with. In terms of what is legally required, current Canadian federal law requires a country of origin declaration on all wine sold in Canada as I explained in my previous article. I don\’t see how the current wording can be interpreted to comply with that law.

Some licensees have recently received information that the BC LDB will be eliminating the licensee \”discount\” which is currently provided to restaurants and bars due to the introduction of the HST on July 1st 2010. Currently, the provincial alcohol sales tax is removed from the price charged to licensees because it is added in on the customer\’s bill when they purchase the product so licensees pay a price which is approximately 10% less than the shelf price (the provincial sales tax on alcohol is currently 10%).

If the LDB eliminates the discount, the licensees would pay the full shelf price for all purchases without any discounts or exemptions. The licensee could claim an input tax credit later in order to recover the amounts paid. However, this would have a negative effect on licensees because: a) they would have to pay more up front to purchase their liquor which would affect their cash flow, and b) the input tax credit for the HST will be 12% whereas the combined current discount and GST tax credit equals 15%. Licensees would thus pay about 3% more for their liquor because the government would have moved some of the price from sales taxes (which the licensee got credits for) into the liquor board markup (for which their is no credit). As a result, the wholesale cost to licensees would increase and it seems likely that wine prices would increase on restaurant menus in order to compensate.

None of this information is confirmed as yet. If it is correct, it will be disappointing because, in my view, restaurants and bars should be given some form of wholesale discount just like in nearly every other jurisdiction in the world. Restaurants can buy food and other beverages at wholesale … why can\’t they also buy wine and liquor? I will provide an update once I receive concrete information. Apparently, there will be some type of official announcement next week.

In any event, the tax that the customer pays on the alcohol portion of their bill will decrease slightly from the current level of 15% to 12%.

UPDATE (2010-06-17): The LDB has now distributed their package on the affects of the HST. It confirms that there will be zero discount for licensees as of July 1st. I\’ll post further on this but it also appears from the examples contained in the package that restaurants and bars will need to re-price all liquor items on their menus if they want to maintain their profit margins.

Yesterday (June 3, 2010) was the final day of the current legislature session in British Columbia. Happily, the package of reforms to BC\’s liquor laws which I previously wrote about (\”BC Reforms Some Liquor and Wine Laws\”) received \”royal assent\” yesterday which in layperson\’s terms means that the changes were approved or passed by the legislature. This is good news for the industry because there are some substantial changes in terms of modernizing certain aspects of our archaic liquor laws: e.g. tied house laws, co-op advertising, sponsorship (see the previous article for the details). However, you should be aware that most of the major changes do not come into effect immediately – they do so at such time as they are made effective by action of the Lieutenant Governor in Council. Since many of the changes require that new accompanying regulations be drafted, it is unclear when the effective date of the changes will be. Still, this is a significant step in the right direction.

The BC Liquor Distribution Branch has announced today that the \”liquor board markup\” on all products will be increased as of July 1, 2010 as part of the implementation of the HST. The introduction of the HST means that the provincial sales tax on alcohol will actually go down from its current 10% to the 7% provincial component of the HST (the 12% HST is made up of 7% provincial sales tax + 5% federal sales tax). In order to prevent consumers from actually receiving a break on the introduction of the HST (maybe that would have been a good idea?) … the government had previously announced that they would increase liquor board markups to compensate. Today\’s announcements make changes to the markups across the board for all products. On wine, the liquor board markup will increase from 117% to 123%. On spirits, it goes from 163% to 170%. If you weren\’t aware of these staggeringly high \”tax\” rates … yes, you are reading those numbers correctly.

The stated intention has always been to keep \”shelf prices the same\”. I ran a few calculations for wine only using the new markup formula and the results were fairly consistent that the end shelf prices were almost identical to the old formula. However, these changes may be difficult to explain to a cynical public … as the markup goes up by 6%, tax down by 3%. In addition, there is a small problem regarding the legitimacy of moving government revenue generated by tax dollars to government revenue generated by liquor board markup. Revenue from taxes must be considered and passed by the legislature or it is not legal (i.e. no taxation without representation). Revenue from liquor board markup is not passed by the legislature – it is simply implemented by administrative action at the LDB. The government has now \”moved\” a large chunk of revenue from the tax side (passed by the legislature) to the non-tax side. Is this taxation without representation?

This story has now been covered by the Vancouver Sun: LDB Increases Markup on Booze as HST Lowers Tax

Update (May 25, 2010): I received a press release from Laughing Stock Vineyards today indicating that they intend to pass the HST savings on to their customers for wine ordered directly from the winery. As I explained, in an earlier article, BC wineries will actually get a small benefit from the switch to HST for wine delivered direct from the winery.