How will wine consumers respond to the liberalising retail laws in Canada?

As with the bears that populate its northern reaches, the Canadian wine retail market is awaking, slowly, from a decades-long hibernation period where it has been among the most highly regulated alcohol markets on earth.

The move reflects a broader goal that Canada’s recently elected federal government has latched onto: the removal of regulation and bureaucracy that stifles commerce and intrudes into the lives of ordinary Canadians. The most spectacular of these is Prime Minister Justin Trudeau’s pledge to legalise marijuana for personal use, the legislation for which is expected to be published in 2017.

On a more conventional level, there is a growing realisation among federal and provincial (regional) government officials that some of Canada’s regulations are too complex and counterproductive. The Economist recently reported that oil firms in Alberta take delivery of equipment via US ports and highways because each Canadian province requires firms to get a licence, while in the US one (federal) licence is fine. The Canadian Senate’s banking committee recently published a report entitled “Tear Down These Walls” claiming that C$130 billion is lost to the economy through internal barriers.

The drinks business appears to be a prime case for reform. Liquor sales regulations are a patchwork of state control, licencing and occasionally heavy handed criminal law. Each province has the right under the constitution to make its own rules regarding alcohol sales, and this has resulted in mostly restrictive distribution and retail arrangements, the most well-known of which are the province-controlled liquor retailers LCBO (Ontario) and SAQ (Quebec).

Efforts to liberalise these rules are now coming from above and below. At the grassroots level, Canada’s burgeoning domestic craft beer industry is kicking out against penal tax rates and painful restrictions on out-of-province sales. All eyes are currently on a case to be heard shortly in front of Canada’s Supreme Court, where a man from New Brunswick challenged a fine he received for exceeding the small personal limit on beer he transported in his car from neighbouring Quebec. A lower court has ruled in his favour, and, if upheld by the highest court, the ruling could potentially overturn all inter-province alcohol transport restrictions as unconstitutional.

At the same time, some top-down initiatives are taking shape. In Ontario, changes to licencing laws have allowed branches of Loblaws, the dominant grocery chain in the province, to sell beer, and more recently cider. Wine sales are following shortly, and up to 300 stores will be able to stock wine in its main store within the next year. In many cases this move is simply to move beer and wine from an adjacent store into the main supermarket, but industry leaders believe this will have a significant impact on consumer behaviour. Consumers in more liberal British Columbia – where independent liquor stores have been operating under a licencing regime for some time –  are also seeing wine appearing in supermarket aisles, via a more convoluted set of regulatory changes; in Quebec wine and beer have been sold in supermarkets for some time.

Despite the reforms, some commentators have pointed out that the government attitude to wine and beer is still overly paternalistic, particularly given the impending legalisation of marijuana. The changes have thrown up some baffling legal quirks: on July 1st Ontario repealed a law which until then made it illegal for an individual to carry their glass of wine from a winery tasting room to the same winery’s restaurant (they had to give it to a waiter); similarly, if you like the wine you drank in the restaurant, you can now order it to take away from your table rather than going back into the shop and making a separate transaction.

For consumers, the cleansing of such restrictions can only be good news for both them and wine producers. The main beneficiaries in the short term are likely to be domestic producers, who are seeing some direct-shipping barriers fall and cellar-door sales liberalised. However, our view is that in the longer term, consumer choice overall will be improved, which will present growth opportunities for all wine producers selling in Canada.

Author: Richard Halstead