BECOME A MEMBER

Thousands of wines at your fingertips

Search database of wine reviews
Read about wines BEFORE they hit the stores
Match wines with foods

FREE MEMBERSHIP



GET TONY'S NEW EBOOK


TONY'S NOVELS
A gift for the literate wine-lover in your life – who may be you. Tony's murder mystery novels, set in the world of wine, are now available at a discount – autographed.

Find out more...

TUNE IN TO TONY
Listen to Tony

Listen to Tony talk about wine on 680 NEWS radio on Fridays at 10:48 am, on Saturdays at 2:48 am and 9:48 am, and on Sundays at 12:48 am and 1:48 pm.
Tony Aspler
Wine Reviews
Food & Wine Match
Personal Wine Cellar
Pocket Wine Cellar
Articles
Gourmet Recipes
Cocktails
Wine Primer
Links
More Tony Aspler
Tony's Books Tony's Books
Ontario Wine Awards
About Us About Us
Contact
Advertise

MEMBER LOGIN
E-mail Address or
Username
Password
 
Forget Password?
 

FREE MEMBERSHIP

POPULAR ARTICLES
All about sparkling wine Port wine 101 Pairing food and wine Pairing wine and cheese What wine to serve with chocolate Why we like to visit wine country A wine tour of Italy Germany and German wines Wine touring France: Cognac and Bordeaux Wine touring France: Burgundy A tour of California wine country

 

 

 

 

 

 

 

 

 

 TONY'S BLOG

More Tony's Blog  

Winning at Monopoly (March 12, 2007)

This story appeared in the February issue of Wine Business International magazine.

Andrew Brandt, the outgoing Chairman and CEO of the Liquor Control Board of Ontario, had a lot to crow about in his final annual report last year. "The LCBO increased its dividend to government for the eleventh straight year in fiscal 2004–5," he wrote in his Chairman's Message. "At $1.115 billion, it was our tenth straight record dividend and second ever of more that $1 billion, not including taxes."

In that year the LCBO chalked up $3.5 billion from the sale of wine, spirits, beer and coolers and from income generated by promotional services in its stores and advertising in its ultra-glossy, free, quarterly magazine, Food & Drink.

The LCBO is the beverage alcohol retailer to Ontario, Canada's largest province (population 12.5 million); but the Board prefers to call itself with pride the world's largest single buyer of beverage alcohol. To peddle its wares the organization employs 3,352 staff and runs 597 stores, yet it doesn't like to hear itself referred to as a monopoly. Andrew Brandt in his heyday was quick to cite competition from Ontario winery stores that sell direct to the public and The Beer Store, owned by Labatt, Molson and Sleeman, which provides retail and distribution services for brewers in the cottage, micro- and large brewing industries from Ontario, Canada and internationally through its 441 stores. But if you want to bring wine, spirits or premium beers into Ontario you have to deal with the LCBO. So too do the local wineries. And it's the LCBO alone that chooses what wines consumers can buy in their stores.

The Liquor Control Board of Ontario was created in 1927 after eleven years of Prohibition in Canada. The emphasis then and now is on "control." From its birth the Board, a Crown Corporation, has regulated the sale and distribution of alcoholic products in the province and, in spite of several moves over the past couple of decades to privatize it, it has survived because of its perceived money-making potential for the provincial treasury – and the aggressive lobbying of a trade union that goes into high gear whenever a new government suggests that it's time to put the alcohol business into private hands.

In the 1970s, shopping in an LCBO store was rather like entering a betting shop. There were no bottles on display, just printed lists of wines on the walls like railway time tables. You wrote down the product number on a slip of paper and handed it to a clerk, who disappeared into a back room and returned with a bottle in a brown paper bag. He would slide it out of bag to show you the label and then slip it back as if you were purchasing pornography. Heaven forbid you should be seen carrying a bottle! Today the shops are bright, well laid out and inviting, decorated in pastel shades to attract the female customer. The top executives of the LCBO have been hired away from supermarket chains and department stores. Their experience in marketing and consumer spending habits is responsible for the huge profits the Board hands to the provincial government. So don't expect Ontario to privatize any time soon.

With its enormous purchasing power the LCBO can squeeze producers but the savings are not passed on to the consumer. There are floor prices below which wines will not be sold. Profits are generated by mark-ups and taxes. Consider a wine that is sold to the Board ex-cellars for $10 a bottle. Add to this freight and insurance costs, excise duties, a flat tax, a mark-up that averages 63 per cent, an environmental tax, Ontario sales tax and the GST. When that bottle reaches the shelf it will cost the consumer $23.15.

The LCBO is divided initially into 3 major sales divisions: The General Purchase List, Vintages and Private Stock/Consignment. The General Purchase List has as its base many of the moderately priced wines of the world, often produced in relatively large quantities. Currently the General Purchase department lists 3,556 SKUs.

Once a year the Department that governs the General Purchase List advises the importing agents of the categories of wines that it wishes to consider, their retail price points and other factors. Recently, for example, they asked agents to offer no more than two Australian wines for consideration. Close to 1000 samples were presented and it is likely that no more than five or six of these will actually be listed.

If a wine is listed, and if it is able to maintain a satisfactory rate of sales, it continues to be ordered and listed. If not, then it is de-listed with a financial penalty to the supplier. (Generally, it is sold off at 25% discount – at the supplier's expense.)

Top Ten Selling Wines at the LCBO
Product Format Price* Origin
1 YELLOW TAIL SHIRAZ 750 mL $11.95 Australia
2 L'EPAYRIE BLANC 1500 mL $12.95 France
3 JACKSON TRIGGS SAUVIGNON BLANC 1500 mL $15.95 Cellared in Ontario
4 LINDEMANS BIN 65 CHARDONNAY 750 mL $10.95 Australia
5 PELLER ESTATES FRENCH CROSS VIDAL 1500 mL $12.45 Ontario
6 WOLF BLASS YELLOW LABEL CABERNET SAUVIGNON 750 mL $16.95 Australia
7 YELLOW TAIL CHARDONNAY 750 mL $10.95 Australia
8 PASQUA SOAVE 1500 mL $14.85 Italy
9 KRESSMANN SELECTIONNE BLANC 1500 mL $12.95 France
10 TWO OCEANS SAUVIGNON BLANC 750 mL $9.00 South Africa
*Prices at time of writing. These could fluctuate with currency exchange.

Vintages (the fine wine division of the LCBO) offers the more interesting wines from all corners of the world and publishes its needs to agents quarterly. Unlike the General List, Vintages does not usually re-order successful wines (unless they are deemed "Vintages Essentials"), so most orders are to be considered "one off" with the hope that sometime in the future, the department will re-order a wine from a subsequent vintage. Vintages has two releases a month and annually releases close to 6,000 products (wine, beer and spirits).

Vintages also offers suppliers the opportunity to participate in its merchandising initiatives. So, for a fee, you can obtain space on the cover of its release price booklet, which will display a bottle shot of your wine; you can offer "Air Miles"; you can, if chosen, pay a $3,000 fee to be one of its "Wines of the Month," for which you can expect an order of 1000 to 1200 cases of the selected wine.

Private Stock: This arm of the business allows licensees and the general public to purchase wines by the case. The shipping time depends on consolidation with containers in foreign ports. The ultimate retail price charged is exactly the same as it would be had the wine been purchased for LCBO outlets. There are no case discounts.

Vintages Classic Catalogue – featuring collectors' wines – is published three times a year and contains 200 to 250 high-priced products per issue.

The Consignment Programme: LCBO permits agents, under supervised control, to order in stocks of wines from their suppliers. The wine never goes into the retail store system. It remains in the LCBO's own warehouse and is released in case lots only to the agents upon proof of orders from licensees and consumers for their own use. The LCBO pays the supplier 30 days after the last case of a particular product has sold through. This means that instead of being paid, say, 90 days after shipping to the General Purchase List or Vintages, suppliers may well have to wait 180 days or more, depending on the time it takes for the product to sell out.

The LCBO uses the following price categories to monitor sales: Under $8, $8–10, $10–12, $12–15, $15–20, $20–25, $25–30, $30–35 and $35+. The $10–12 and $12–15 currently show greater-than-average growth, around 9 per cent per year. Licensees account for 12 per cent of value sales. The Board responds to consumer purchase preference by shelf-space prominence, giving top-performing brands the best display. And how does a brand achieve this prominence? Steven Trenholme, a marketing consultant for the international wine trade, says that in order to successfully launch a brand, "the supplier/producer has to find a suitable partner in the market, an agent who has the same goals and aspirations. Whether the goal is to sell 100,000 cartons or 500, you still have to find an agent who is capable and prepared to work with you in a collaborative effort." There are about 200 importing agents in the Ontario market, from the large national companies such as Maxxium, Pernod Ricard and Corby's to the tiny hobbyists who bring in a few hundred cases of a specialty product. One of the most successful launches in the LCBO's history was the Boisset product in tetrapaks, French Rabbit – a launch that was heavily subsidized by the LCBO for environmental reasons, although some critics maintain that the LCBO has a commercial agenda in pushing the tetrapak by bringing in cheap wine in bulk and selling it as "premium" wine to maximize their profits. A litre of French Rabbit, in a range of varietals, sells for $12.95.

Because of the large Italian population in Ontario (over 600,000 in Toronto alone), Italian restaurants proliferate, which means a lot of Italian wines on wine lists. Australia and Chile, because they offer fruit-forward, easy-to-understand wines at popular price points, are riding high. South Africa, driven by a couple of strong Distel brands, is gaining ground while traditional Old World suppliers like France and Germany are suffering.

The LCBO prefers to work with strong partners who make a commitment to their brand and are prepared to make significant investments to launch and drive their products. Powerful suppliers with multiple brands with enough resources to fund in-store promotions and full-time dedicated sales teams are what the LCBO looks for. And it's not only throwing money to advertise their product. Those producers who visit the market and hold media events are the most successful. Consumers rely on recommendations from the wine press and they arrive at stores with articles clipped from newspapers and magazines. Success breeds success, so if a producer wants to enter this market he or she should come to the table with an agent who has a proven track record, a bunch of cash to promote their brand and a willingness to show their face once a year to the consumers of Ontario.

 

 

 

More Tony's Blog  
 
ALL MATERIAL © TONY ASPLER   WEBSITE BY MEDIRESOURCE INC.
PRIVACY POLICY