Canada is famous for its hospitality, but it can be rough going for wine exporters. That may have something to do with Canada being a monopoly that isn’t a monopoly.
Canada occupies a special place in the heart of many South Africans. Despite the cold climate, it has become a popular destination for South African tourists, professionals and students looking for a welcome reception.
Canadian hospitality is also reflected in our wine exports. Over the past decade, Canada has grown to become South Africa’s seventh largest wine export market for packaged wine with 8.8 million litres exported in the past year, and the fifth largest for bulk wine with 17.7 million litres exported since 2016 (Sawis). In total, exports to Canada have overtaken notable 2015 contenders such as the Netherlands and Sweden and are approaching export levels to France and Russia.
As one of the biggest consumers of wine by volume in the world – mostly imported from Italy, France and America – Canadians have a well-established taste for wine. According to the Canadian Vintners Association (CVA), Canadians drink 1.2 billion glasses of wine a year, with Québec taking the lead with 21.4 litres per capita. Although South African wines account for only 5.4% of the Canadian market share, it’s fertile ground for continued growth. But first South African producers need to familiarise themselves with the challenges they face when exporting to this diverse country. These challenges don’t necessarily lie with consumer tastes only (Canadians still prefer their local ice wines over imported bubbles), but with administrative hurdles to cross before getting South African wines on Canadian lips.
You see, Canada is essentially an alcohol monopoly. In other words, the federal government controls all aspects of alcohol consumption and distribution. This monopoly in fact comprises no less than 13 monopolies as the industry is largely governed by provincial laws and liquor control boards. Each of the 10 provinces and three territories acts on behalf of the federal government as the sole authorised importer and distributor of alcohol within its jurisdiction. Alberta is the exception as alcohol and liquor distribution was effectively privatised in 1993, but the Government of Alberta still regulates the industry and collects revenues.
This fragmentation potentially makes Canada a daunting market for the uninitiated. “Various provinces have various models,” says Wines of South Africa (Wosa) marketing manager for Canada, Laurel Keenan. “For example, Manitoba, Nova Scotia and British Columbia, among others, have a mix of liquor board and private stores. Ontario recently allowed wine to be sold in grocery stores, although the board still controls distribution. The government issues the licences and has also put certain price barriers in place.”
The state of affairs is regularly challenged and debated by individuals and pressure groups protesting the legality and/or wisdom of the system, which was enacted in 1928 to replace prohibition laws. Monopolies are often associated with inflated costs and a lack of diversity and competition. An amendment in 2012 finally allowed the transportation of wine across provincial borders, but regulations still limit the amount of alcohol that citizens may “import” for private use. These limits also make it hard for small and medium-sized wineries to compete with big players. According to the system’s critics, de-monopolisation would not only benefit retailers, smaller wineries and artisanal breweries, but also foreign distributors as it would mean they can target specific restaurants and retailers directly without having to go through mandated agents or state-approved warehouses.
The new Canadian Free Trade Agreement (CFTA), which came into effect on 1 July 2017, was therefore seen as a sign of hope. This ambitious deal seeks to open up trade in Canada on an unprecedented scale, enabling greater mobility of goods and services across provincial borders. Local consumers and producers hope the processes that were put in place will also enhance trade in beer, wine and spirits among the provinces and territories. Such freedom would level the playing field and increase competition, allowing exporters to more easily reach a greater diversity of markets.
Laurel is however doubtful the deal will lead to greater privatisation. “There’s definitely a move toward further privatisation, but it’s moving slowly and it would be pure speculation to say it will ever move to a fully private system with no government involvement,” she says. For the moment, the CFTA doesn’t change much for the liquor industry. Provincial stakeholders will attempt to hang on to their lucrative monopolies, while governments are notoriously slow to change – especially if it means giving up a measure of control.
This peculiar mix of federal regulation and provincial control forces exporters to rely heavily on enthusiastic importers and use the provincial liquor boards as springboards. “Working with the liquor boards is critical,” Laurel emphasises. “It’s important to strike a good relationship with them as they act as gatekeepers.” Importers are your direct link with the monopolies, and good agents are essential in most provinces and mandatory in Ontario. You also need to woo buyers regularly to gain their interest and loyalty. “We use Cape Wine every three years as an opportunity to do just that and try to get new buyers over sooner,” Laurel says.
It can take several years for a new wine to be registered with one of the liquor boards and once stocked on their shelves, wines have to reach provincial sales targets or be replaced by more lucrative products. Effective marketing and customer education are thus crucial for building trust and maintaining a constant presence.
Most boards also have a separate list of specialty products reserved for premium and vintage wines aimed at discerning customers. These wines are typically sold in smaller quantities and are exempt from sales targets. Perhaps an opportunity to sidestep the red tape and introduce real value to a market that otherwise favours bulk?
All these variables make it clear that things are not simply “red and white” in Canada. The monopoly system makes Canada seem like an adventure race rather than a marathon, but no market is without its challenges. Armed with relevant information and good industry knowledge, Canada is a land of opportunity waiting to receive you with open arms and a bottle of your favourite vintage.
- The Liquor Control Board of Ontario is one of the largest purchasers of beverage alcohol in the world and the largest buyer of premium wines.
- Canada was the first country in the world to introduce minimum pricing, setting a lower limit on the price of alcoholic beverages.
- For a list of Canada’s liquor boards go to: kirkwooddiamond.com/Markets/LiquorBoards/ProvincialLiquorBoards.aspx.