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Wine in Quebec (April 26, 2012)

Quebec has always marched to a different drum from the rest of Canada – especially when it comes to beverage alcohol. In 1898 the Canadian government held a referendum as to whether the populace wanted Prohibition in Canada. The province of Quebec voted overwhelmingly No. Yet Prohibition did come to all Canadian provinces in May 1919. But in a referendum held by the Quebec government the majority voted in favour of excluding beer, wine and cider from the Prohibition Act, making la belle province the only place on the North American continent where the ban on alcohol was not absolute.

The Quebec government had chosen temperance over abstinence, and two years later the province's National Assembly created the Commission des liqueurs du Québec to regulate the sale of wines and spirits. In its first year of operations – six years before neighbouring Ontario set up its Liquor Control Board – the Commission opened 64 stores and offered 383 products. The following year (1922) the CLQ established its own bottling plant and by 1926 was offering 23 brands of wine and 39 spirits.

In 1961, the Commission changed its name to the Régie des alcools du Québec and, in 1971, to the Société des alcools du Québec or, as it's popularly known by its acronym, the SAQ.

From its very beginnings Quebec has been the most entrepreneurial of the provinces when it comes to booze and the most enterprising when it comes to the promotion of wines and spirits to the consuming public. They have also become masters at the art of extracting fees for service from suppliers and importing agents.

In 1978, in the midst of the first strike by government liquor store workers, the Quebec government allowed the sale of wine in dépanneurs (corner convenience stores). In the beginning 30 products were distributed, 10 from the bottling plant of the SAQ (see below) and 20 from the 10 holders of wine permits issued since 1972. The quality of these wines was in line with their cheap price, winning them the ironic soubriquet of Cuvée dépanneur or Château Dépanneur.

All wines sold through these corner stores still have to be bottled in Quebec and be labelled with an original name invented in Quebec. The rules for the wines from the local bottlers (except the SAQ brands) stipulate that the brand must be owned by the bottler and there can be no varietal or regional designations. Labels may for example only state "Imported from France." There are currently 12,000 dépanneurs in the province that sell a respectable 4.5 million cases of wine. (By contrast, in other Canadian provinces, except Alberta and British Columbia, corner stores are not permitted to sell alcoholic beverages at all.)

In September 2006, the SAQ sold the bottling business to Kruger, a major paper and forest product company. Bottling facilities remain in the SAQ warehouse facilities, as well as in a Kruger facility in Boucherville east of Montreal.

To understand how the beverage alcohol business operates in Quebec you have to consider the SAQ's structure. As with every liquor board in Canada they work under the constraints of government who on the one hand want to maximize profits from the sale of beverage alcohol while on the other they preach social responsibility (i.e., restraint).

The SAQ is a government-owned corporation uniquely responsible for the trade of alcoholic beverages within the province. The only shareholder in this corporation is the Minister of Finance of the Quebec Government. Which means that the government sets annual financial targets for the SAQ to meet. For the fiscal year 2010–2011, the SAQ sold $2.66 billion worth of products and then passed on to government coffers its net earnings of $971.4 million.

In 1986 the SAQ was the first province to introduce the credit card sales for wine and spirits in Canada, which was as novel as it was progressive for that time. (Ontario only followed suit with the use of debit and credit cards in select LCBO stores in 1994. By 1995 all LCBO stores began accepting debit and credit card payments.) But even in the laissez-faire business climate of Quebec the move was first looked upon by officials as "dangerous."

Alain Cousineau, the Chairman of the SAQ at the time (now Chairman of Loto Quebec), confided to an importing agent that his Minister was concerned about the introduction of payment for beverage alcohol by debit or credit cards as it might drive people who couldn't afford it to fall deep into debt. Cousineau, operating under the government's mandate for the SAQ to behave like a public company in the private sector, went ahead with the concept anyway – much to the delight of the consuming public. And when the Minister of Finance saw the effect as revenues increased substantially there were no further objections from the government.

The SAQ currently operates 414 stores under six different banners throughout the province of Quebec:

  • SAQ (Classique): These stores are stocked according to the demographic of the area. For instance, in a Greek neighbourhood there would be a goodly selection of Greek wines and in a Jewish neighbourhood, a range of kosher wines. In the smaller towns and villages where there is only one SAQ branch it will be a Classique store.
  • SAQ Express: These outlets feature 400–450 SKUs restricted to the top-selling leader brands. White wine is displayed on one side, red wine on the other and spirits in the middle aisle. These stores located in large urban centres are for consumers who know what they want – to shop quickly and be out in a matter of minutes. Express stores are open 9 am–10 pm seven days a week.
  • SAQ Sélection: These are larger stores with 1500–2000 SKUs, including a vintage corner offering fine wines. They are staffed by wine consultants who talk with the clientele and offer professional service and advice.
  • SAQ Signature: There are two top-tier stores, one in Quebec City and one in Montreal, offering 950 of the most sought-after wines and 350 of ultra-premium spirits. They feature an exclusive assortment of champagnes, large-format bottles and fine liqueurs in addition to numerous collectors' items, gifts and prestigious accessories.
  • SAQ Dépôt: There are six such warehouse-like stores in major population centres for consumers who buy multiple bottles, for which they can receive a discount of up to 15%. They can also bottle their own wine (with a choice between cork and screwcap). Available are table wines, vins de cépage and appellation d'origine contrôlée wines. SAQ's Dépôt in the east end of Montreal offers 19 kinds of bulk wines costing from $5 to $8 a bottle.
  • Webstore: The SAQ's website offers on-line home-delivered shopping for thousands of products, reinforced by a monthly newsletter to its members.

The SAQ also reaches out to its clientele by offering rebated wine on a monthly basis throughout the year. Households across the province are blitzed with circulaires – fliers offering significant discounts. According to one importing agent, "You pretty well have to participate in the program just to stand still. These circulaires have a significant impact on sales since the consumer is saving $2–$3 on the price of a bottle. The supplier has to participate financially in the cost of these fliers as well absorbing the full retail value of the discount. Often, suppliers will raise their FOB price to generate the additional revenues necessary to finance their participation in the discount scheme."

In addition to the circulaires the SAQ publishes a consumer guide called Tchin Tchin and, since 2006, a slick glossy magazine of 116 pages called Cellier, modelled on the LCBO's lifestyle magazine, Food and Drink. Cellier's Editor in Chief, Marc Chapleau, says the quarterly magazine was created to satisfy the needs of a special group – connoiseurs impassionés who represent 10–15% of the wine-buying community but account for 35% of the value of wines sold in the province. The most popular feature of the book is its 12-page centre spread of New Arrivals, specially selected wines that have not previously been sold at the SAQ. Cellier's print run is 100,000 copies, of which 25,000 are in English, which represents the linguistic breakdown in the province. Since 2011 consumers can read the current issue of Cellier as a virtual magazine on the net at

Perhaps the most contentious initiative undertaken by the SAQ, and one whose national and international ramifications have yet to be determined, is the creation of a company to sell wines outside its provincial jurisdiction. In partnership with two large labour unions, the Quebec Federation of Labour and the Confederation of National Trade Unions, the SAQ set up a company called Twist that will use the SAQ's purchasing power to offer wines to other Canadian provinces and to other countries at prices lower than they're able to negotiate themselves. Twist has already struck a deal with Alberta-based Willow Park Wines and Spirits to bring Bordeaux wine into that market. (Alberta is the only province in Canada in which the sale of beverage alcohol has been privatized.) To expand this business Twist purchased an on-line wine sales business, J.J. Buckley in San Francisco, that boasts a yearly sales turnover of US$26 million.

With this new out-of-province venture the SAQ predicts annual sales of $50 million to $100 million within three or four years. Needless to say the SAQ's move outside its provincial boundaries has upset Alberta's local wine importers, who complain that a crown corporation that spends $900 million buying wine around the world while being financed by taxpayers is competing with local small private businesses.

Quebec consumers may be happy with the way the SAQ runs, but it's a different story for those who supply the monopoly with product. "It's a very dangerous adventure to apply for a general listing," says one importing agent, who, like his peers, declined to speak on the record. "Unless you've got fairly substantial budgets and nerves of steel. In the first year of sales you must sell twice the quota – the quota varies on the price point. Let's say the quota is 2,000 cases, which means you've got to do 4,000 cases in the first 12 months. Now let's say you put in a plan that says 6,000, so you launch, you spend the money (most of which the SAQ likes to see in the different SAQ programs) and at the end of the year you come in with sales of 4,500 cases. So the liquor board would say to you, 'Well, congratulations, you've made the quota but I have here an invoice. You see, in our budget we put your 6,000 cases and you're 1,500 cases short. As a result we're 1,500 cases short of our target. So therefore you have to compensate us for that difference. But welcome to the club.'"

Minimum sales quotas are known to all, with penalties in the $15,000 area and up if quotas are not met in the first 12 months, as well as having to return all unsold inventories to the supplier, along with all associated freight costs.

If you went into a liquor store in Quebec today you could barely make your way around because individual stores are selling display cases at $10 a case per month. Everybody wants to be on the floor and those decisions are made at the store level. The stores are loaded with displays in every nook and cranny plus the other promotional programs the SAQ runs. Last year the board earned an estimated $75 million on merchandising and display fees, so it's become a profit centre for the general list. The word is now they're looking at the specialty listings, of which there are over 7,000. The thinking is if they made $75 million in the promotion and merchandising of the 1300 general listings, just think what thry could make if they made these SKUs participate in our display and merchandising programs.

There was a time when an agent could introduce a brand to the market like a Wolf Blass Yellow Label Cabernet Sauvignon or a Yellow Tail Shiraz, invest in advertising and promotional support, and with appropriate ongoing support, depending on the success achieved, be assured of some degree of continuity in the market.

Today, as a result of the increasing introduction of new products, and the significant impact of the higher promotional investments demanded by the SAQ, the general feeling among importing agents is that the life cycle of brands is probably a year and a half or less. As an agent you must have a constantly changing basket of new products ready to present, as the SAQ, like the LCBO, is intent on introducing an ever-increasing selection of new and interesting wines to keep the consumer interested, and thus motivated to keep coming back into the stores. One agent used this example: "If your wife went to the dress shop every six months and there was exactly the same dresses all the time, she probably wouldn't shop there anymore."




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