Vancouver, B.C.—Two years after kegs barrelled into Canada’s wine market, the format is having a growing impact on the country’s liquor business.

British Columbia-based FreshTap Logistics Inc. debuted kegged wines in 2012, as part of the launch of Vancouver Urban Winery. The finishing touches were being put on the space as the first kegs made their way to market.

Today, FreshTap has grown into a free-standing business, incorporating in its own right last year and moving into a 26,500-square-foot space in an industrial area just outside Vancouver’s downtown core. A distribution facility opened in Ontario six months ago, adding another 5,000 square feet to FreshTap’s operations and marking its expansion to Eastern Canada.

The distribution aspect
All told, FreshTap now has close to 12,000 kegs in circulation carrying wine from more than 75 wineries around the world to more than 275 restaurants and bars in British Columbia, Alberta and Ontario.

“We took on distribution, which was a key shift in our business model,” explained Mike MacQuisten, who co-founded FreshTap with Steve Thorp.

“Before, when we’d keg all our wines, it would be up to the winery to get it to the bars and restaurants and to warehouse it with whomever they liked,” he said. “We realized that with a two-way asset like stainless steel kegs, a lot of distributors aren’t as good at getting the damn things back.”

The adjustment made sense on several levels: Not only would FreshTap have control over its precious kegs, it would provide better service to wineries.

“When wine comes to us, essentially bottle-ready, we package it into kegs, then move it to our distribution facility,” MacQuisten told Wines & Vines. “It’s just one point of contact; they don’t have to deal with anyone else. They get to just send their wine to us, we package it, we worry about delivering it, warehousing it.”

Holding onto kegs
The issue of keg management and retention was one King Estate Winery of Eugene, Ore., highlighted in 2012, when it tentatively signed on as FreshTap’s initial U.S. client.

King Estate executive vice president Steve Thomson pointed out that U.S. distributors controlled kegs, but the initial model FreshTap presented was similar to the deposit system used for other package formats.

“We don’t want to have to pay a deposit on a keg that someone is using in a different country,” he said at the time. “It’s a lot easier to keep track of the kegs if someone up there is responsible for them. Otherwise they get lost pretty easily.”

Getting traction
Between working out distribution arrangements and developing the market for kegged wines, MacQuisten is thankful he started FreshTap as an offshoot of a larger business.

“I don’t think FreshTap ever would have survived if it didn’t have a secondary income keeping the lights on,” he said. “It was one of the businesses that needed quite some time to build and prove a model and get out into the market.”

But the market did indeed grow, and business increased.

Distribution of King Estate’s keg wines never occurred in Canada because demand was too great in the United States. “They had to pull back the reins of their wine-on-tap program, because it was selling so much in the U.S.,” MacQuisten said.

Domestic sales of kegged wines for King Estate have jumped from an initial estimate of 3,500 kegs in all of 2012 to 1,000 kegs per month this past summer; similarly, FreshTap is filling 1,300 to 1,500 kegs per month, each holding approximately 19.5 litres.

Kegging in Ontario
Hopes are now high that the Ontario division, overseen by veteran wine industry players Allan and Brian Schmidt, co-owners of Vineland Estates Winery in Vineland, Ontario, will tap into similar demand.

A half-dozen local wineries already have signed on.

Paul Speck, co-owner of Henry of Pelham Family Estate Winery in St. Catharines, Ontario, says the kegs containing his wines are being refilled. He expects restaurants to leap on the opportunity to sell premium wines in environmentally sustainable packaging, especially when they realize the cost savings to be had.

“This is a very legitimate long-term option for restaurateurs,” Speck said. “It allows them to have a very vibrant wine-by-the-glass program, and they don’t have the wastage.”

Rather than opening a bottle for a single glass, wines can be poured by the ounce—something many Ontario licensees are doing.

Canadian locations of The Keg restaurants are interested in kegged wines becoming part of their national programs, while Pennsylvania-based international arena operator SMG is watching how kegged wines perform at the new Meridian Centre in St. Catharines, with a view to potentially expanding use of the format to other locations.

The one obstacle to growth in Canada is provincial liquor regulations.

Keg regulations
Saskatchewan and Manitoba, which lie between Alberta and Ontario, don’t allow wine (or cider) to be sold by the keg, and British Columbia has yet to follow Ontario’s lead and allow wine bearing the Vintners’ Quality Alliance (VQA) designation to be sold in kegs. (See “Wine Package Rules Box-In B.C. Vintners.”) 

Ontario changed its regulations in 2012, but the fight continues in British Columbia.

“That’s been the biggest bane of our existence,” MacQuisten said. VQA wine “is only allowed to be in the glass bottle format.”