This is Part 2 in a two-part column about the archaic tax system that Ontario’s craft wineries are forced to navigate and the state of the industry.
In Ontario the channels for Ontario Craft wineries to sell wine are constrained.
The LCBO controls all channels for pricing, sales and distribution. The Canadian consumer has been fed a constant stream of advertising and marketing from well-funded international wine companies. Antiquated alcohol legislation and the retail environment favours the large incumbents and imported wines. And Ontario wines struggle to distance themselves from a consumer perception of low quality and high cost. After decades of LCBO advertising and marketing to favour imported wines, Ontario grown VQA wines have less than 10% market share in our local domestic market. Our market is dominated by large conglomerate-made international blends presented as local product and cheap imported bulk wines are dumped into our market. Imported wine production is subsidized in their countries of origin and heavily subsidized marketing efforts place them ahead of our products on the shelves of the LCBO.
Ontario Craft Wineries are under-represented on the wine lists of Ontario and the rest of Canada restaurants. The Oregon restaurant wine lists are dominated by Oregon wines. And U.S. restaurant wine lists are dominated by wines of California and Oregon and Washington State. In Oregon, the wineries can sell direct to the restaurants for a price that makes good business sense for both parties. The State government does not collect tax on that transaction. They do not take the margin on the sale – they are not involved. They get their tax at the sales tax level on the restaurant total bill. It is convenient and there is great incentive for the restaurants to put local wines on their list. And the consumer wins. In Ontario we cannot set the price we sell our wines to restaurants. The price is set by the rules and regulations of the LCBO price calculator and the provincial government adds a 6% tax on the VQA Ontario wines. Effectively, the restaurant pays LCBO retail prices for the wine, the winery pays additional taxes that imports do not have to pay and the consumer pays a higher price for a bottle of wine and then pays HST on their entire restaurant bill. Taxes on taxes on taxes.
As the year progressed, COVID-19 became the defining element of all of our lives in 2020. The Ontario Craft Wineries COVID Impact Poll found that between 60-80% of wineries reported a decrease in sales revenue between the months of April-July 2020 compared to the same months in 2019. 51% of wineries report a negative financial impact of $51,000 to $250,000 due to COVID. On average tasting room sales are down 56% and export sales are down 79%. These impacts and challenges are on top of the pre-existing condition of 48% of small wineries being unprofitable before the COVID era.
The LCBO remained open as essential service. Ontario Craft Wineries made the changes and investments to pivot to curb-side pickup and on-line ordering and direct to consumer delivery. Restaurant sales (30% of small wineries’ revenue) evaporated as restaurants were forced to close and accounts receivables with restaurants became bad debts.
“Buy Local” grew as a major trend. But the province and the LCBO blurred the edges on the marketing to consumers and the definition of a “local” product. The province “Made in Ontario” included imported wine blended with a small percentage of low value Ontario grape product put in bottles in Ontario. A slap in the face to our true local Ontario Craft Wineries.
Governments in wine producing regions around the world responded to the COVID crisis with programs designed to support their domestic producers and to encourage export … with Canada and Ontario specifically as one of their major target markets.
In November 2020, another budget was tabled with no material changes for our industry and no tax relief. Rules were changed to allow restaurants to sell wine for take away. And wine shops popped up in restaurant storefronts in the GTA stocked with imported wines. Our local restaurants in the wine regions of Niagara, Prince Edward County and Lake Erie North Shore instead proudly stocked and supported local craft wineries.
We entered the year 2020 with hope that the Ford Government would finally make the changes necessary to help our industry survive and grow.
But it has not happened.
We are at a fork in the road for our industry. The way forward has a path to success that will bring growth and economic prosperity to the rural communities in which we have invested and in which we work and live. The other path is the path we are currently on. No change. No change in an ever-changing market is really a move backwards. If you are treading water in a swift moving river, you will be carried downstream with the current. Our industry will stagnate and some parts of it may die. It is unfathomable to our members why this government has not made any moves to enable a path forward for our success. And this government continues to support the status quo with major market advantages provided to large incumbents and imports. We continue to be shackled by our past. It is time to create a new Ontario Craft Wine industry framework for success for the 21st Century.
Ontario Craft Wineries are all farmers first. We are united in our passion to produce fantastic wines. We have invested our money and our blood, sweat and tears in our vineyards, our products, equipment, operations, buildings and our people. We have invested in Ontario. We have created business ecosystems that have 10 times the spin off economic value on each bottle of wine that we sell. And all we are asking for is that the government get out of our way.
2020 will be remembered as the year COVID impacted every aspect of our lives. It has changed the way we think about everything.
2020 in the vineyards of Ontario was an exceptional year. Perhaps the best of the century. Perhaps the best vintage we have ever produced. The quality of the grapes was outstanding. We have more talented winemakers working with this exceptional fruit than ever before. The wine will be superb. Likely the best wines our region has ever produced. These 2020 wines will begin to reach the market this spring and continue to be released over the next few years as they are ready. Please buy them direct from the wineries. Please ask for 100% grown Ontario wines in your restaurants when they re-open and demand that your local LCBO place Ontario Craft Winery products in a place of honour on their shelves. And lastly, please tell your local MPP that the Ontario Craft Wineries have earned and deserve the respect and support of the Ontario government.
We start 2021 again with hope. Hope that this government will make the changes necessary to secure our success and unleash our potential. We can help to re-build our Ontario economy as we recover from the effects of the COVID epidemic.
Hopefully 2021 is our year.
Note: Carolyn Hurst was approached by Wines In Niagara to offer her thoughts on behalf of the Ontario Craft Wineries Association on the state of the industry as we head into 2021. She is also co-owner of Westcott Vineyards with her husband Grant Westcott.