B.C.'s Higher Markups Worry U.S. Exporters

Price of imported wines could increase by up to 50% at province retailers

by Peter Mitham
Many of the liquor policy reforms announced in 2014 by British Columbia attorney general Suzanne Anton and parliamentary secretary for liquor policy reform John Yap (above) will become effective April 1.

Seattle, Wash.—Good fences make good neighbors, goes the old saying, but regulations governing the British Columbia wine trade make for barbed wire when it comes to wines from Washington state.

British Columbia should be a logical market for Washington state wineries, which are within hours of both Vancouver—western Canada’s most cosmopolitan and populous city—and the Okanagan Valley, which is contiguous with Washington’s own grapegrowing regions.

But if proximity of the markets make them natural destinations for wineries on both sides of the border, entry hasn’t been so easy for Washington state wineries eyeing the government-controlled B.C. market.

New hurdles
The latest obstacle is a shake-up in B.C. liquor regulation that will see a new markup structure kick in April 1.

Currently, the province marks up a liter of wine 117% on the first $10.25 of value, and 51% on any additional value. Government then applies a 30% discount to establish the wholesale price for which private wine stores buy the wine. The discount provides a margin retailers work with to determine a retail price that reflects their operating costs (while remaining competitive with government liquor store prices).

The new markup structure will establish a single wholesale price for all retailers and see the per-liter markup shift to 89% on the first $11.75 of value and 67% on any additional value.

A liter of wine that enters the province valued at $24 currently costs the retailer $30.10, a 30% discount from the government retail price of $43. The new markup structure will boost the private retailer’s cost to $42.66 prior to the store’s own mark up.

That concerns Steve Warner, current president and CEO of the Washington State Wine Commission

“Our wineries are concerned, and looking to better understand the impact of the proposed changes to wholesale pricing,” he told Wines & Vines. “Initial estimates we’ve seen suggest that retail prices for most imported wines will rise 10% to 50%, and that the rise will be particularly significant for premium wines like those from Washington.”

The markup isn’t the only change on the horizon.

B.C. also plans to allow wine to be sold in grocery stores, with local wines favored for placement.

This “could further cut into Washington wines’ sales,” Warner said. “Given these considerations, some wineries will likely find other markets easier to ship to.”

Looking east
While the Washington State Wine Commission has long sought to build a market in British Columbia for the wines its members produce, it has enjoyed a warmer reception in the eastern province of Quebec.

The province is a minor wine producer, but residents have a keen interest in fine wine. Quebec is the largest market for Washington wine in Canada, followed by Ontario. Promotions there are backed by a portion of the funding the commission receives from the federal government, the most recent being a $97,000 federal grant supporting two more years’ worth of marketing.

British Columbia has been a difficult market to crack, however.

While private stores carry a broad selection of Washington state wines, with products from as many as two dozen wineries offered at outlets across the province, the government-run liquor stores patronized by the general run of consumers carry just 32 wines primarily from Chateau Ste. Michelle, Charles Smith Wines and Long Shadows Vintners

Elsewhere in the Northwest
A selection of wines from eight B.C. wineries received a warm reception when Whole Foods stocked them at 15 locations in Washington state and Oregon this past fall. The coup was a natural step for the province’s industry in the opinion of the B.C. Wine Institute, which played a key role in the arrangement and previously supported a direct-shipment program through Good Company Wines Inc. for U.S. consumers seeking B.C. wines for their cellars.

“The U.S. market, particularly in the Pacific Northwest, is really an obvious next step for the wines of British Columbia, as this is our closest neighbor,” Miles Prodan, president and CEO of the institute, said at the time.

Posted on 01.08.2015 - 10:55:07 PST
I suggest that the new mark-up structure worries BC fine wine drinkers as much as it worries US exporters.
Marc Ofthenorth