Ontario's wine industry is applauding changes that will see more of its product sold in select grocery stores across the province, but small wineries aren't popping any corks until they see what boost, if any, it will bring their businesses.
The Ontario government announced recently that it will gradually allow 150 grocery stores provincewide to start selling wine, a move it says will give local vintners more shelf space.
Under the new system, half of the first 70 grocery stores to get the new licences later this year will be allowed to sell foreign or out-of-province wines right away. The rest will be required to sell only Ontario wine for three years, and then can bring in bottles to sell from outside the province.
Wine Council of Ontario president Richard Linley is calling it the "the biggest change to wine retailing since Prohibition," in Ontario, and believes it could lead to higher sales, growth and job creation in the industry.
But growers like Harvey Hollingshead, who runs Erie Shore Vineyard with his wife Alma Hollingshead in Harrow, Ont., about 40 kilometres south of Windsor, aren't about to invest more in their business based on the news.
"The economics haven't changed," says Mr. Hollingshead, who sells grapes to Colio Estate Wines and also produces his own wines.
"You need to show me how I'm going to make more money before I spend some. This announcement doesn't say that, it just says it's going to make it more convenient for Mr. and Mrs. Consumer. I think that part is good, but as far as actually moving the Ontario wine industry forward – that's a very optimistic statement to make."
Mr. Hollingshead realizes he's being pessimistic, but says the reality is the vast majority of wines sold in Ontario are from outside of the province, in part because they are produced in large volumes and can be sold at a cheaper price. He feels that consumers who buy Ontario wine will now have more options of where to buy it, but doubts the overall market will grow larger.
He's also concerned about the margins winemakers will get when they sell to grocery stores. Today, he says many local winemakers take home roughly half of what each bottle is sold for in the LCBO, depending on the price, which is why he doesn't do it anymore.
"I do hope in the long run it is positive for the industry, but I don't quite see how," Mr. Hollingshead says of the new sales channel.
Mr. Linley of the Wine Council of Ontario, a non-profit trade association that represents more than 100 Vintners Quality Alliance (VQA) wineries in the province, says that "fair and reasonable profit margins" are critical to the success of local wineries in these new sales channels.
"This part of the rollout will need further discussion with the government to ensure that the playing field is as level as possible for all in our sector," to help it compete, Mr. Linley says.
Today, wine sales are restricted to government-owned LCBO and 292 stores, most of which are owned by two large wine producers, Constellation Brands Inc. and Andrew Peller Ltd. The government plan states that grocery stores won't be able to sell wine for less than $10.75 for a 750-millilitre bottle. The government is also looking at raising the minimum price for wine sold through the LCBO and the winery-controlled stores.
Patrick Gedge, chief executive of the Winery and Grower Alliance of Ontario, believes new sales in grocery stores will help the provincial wine and grape industry to grow, but it will be up to retailers and consumers to support it.
"None of us can predict the exact effect this will have, but I'm an optimist that this will provide more exposure of Ontario wine to consumers and the result of that will be increased sales," says Mr. Gedge, whose members produce more than 85 per cent of all Ontario wine.
His association is now working with the provincial government around designing more specific regulations for the new sales model. Meantime, he says wineries interested in selling in grocery stores will be working on developing those relationships across the province.
"There will be new learning and new business opportunities for Ontario wineries that want to take advantage of the increased channel though grocery," Mr. Gedge says.
Tim Kuepfer, a winemaker who runs the Broken Stone Winery in Hillier, Ont., about 185 kilometres east of Toronto, with his wife Micheline Kuepfer, says the challenge could be finding grocery stores willing to sell higher-priced wines sold by smaller-scale businesses like his.
"The key will be how they are positioning the wines. We can't compete in a low-margin business. It doesn't make sense in our business plan," he says.
Broken Stone expects to produce about 850 cases of wine (with 12 bottles a case) this year. His goal is to sell about 3,000 cases annually within the next couple of years. His wines are now sold at the family run winery, at local farmers' markets and have just started to sell in some local LCBO locations.
"I think it's a great opportunity…another option, another possibility," says Mr. Kuepfer of the government's decision to open sales across grocery stores.
"If we can sell more wines then we can plant more vines, then the industry grows and more people are employed."
The Globe and Mail Small Business Summit brings together the brightest entrepreneurs in Canadian business to share insights for an inspiring day of keynote talks, workshops and networking. Speakers include Ryan Holmes of Hootsuite, Aaron Zifkin of Airbnb, Harley Finkelstein of Shopify, Bruce Poon Tip of G Adventures and many more. The event takes place on April 26 in Vancouver, April 28 in Calgary and May 3 in Toronto. Click here for details.