Vancouver, B.C.—A contentious revamp of wholesale liquor pricing in British Columbia has boosted shelf prices for more than 80% of wines sold in the province—primarily imported products.

 

The new pricing structure took effect April 1, 2015, following a review two years ago of the province’s liquor policies.

Government announced the revamped pricing policy in November 2014 with a view to setting a common base price for both state-run liquor stores and private retailers, and doing “away with the existing complex model that offers retailers various discounts depending on the type of retailer they are.”

While the pricing formula underwent several changes prior to implementation, it consistently drew fears that prices would increase. (See “B.C.’s Higher Markups Worry U.S. Exporters” and “B.C. Wineries Eye Price Hikes.”) 

Now, data obtained by Wines & Vines indicate that those fears have been fulfilled.

Pricing breakdown
An analysis of 3,821 SKUs sold through B.C.’s government-run liquor stores—where prices are typically closest to wholesale pricing—indicates that 3,177 products (or 83.1% of wines) saw prices increase by at least 2 cents or more, while just 472 items (or 12.4%) saw prices drop.

U.S. wines were near the overall average, with 80% rising in price while just 11.2% saw prices fall.

But for wines produced in Canada, increases kicked in for just 66.4% of wines, while 18.6% saw prices decrease.

Additionally, the increases were not evenly distributed: For 95.1% of Canadian wines that saw prices rise, the bump was less than 5%. A far smaller proportion of U.S. wines—just 74.2%—experienced such a minimal increase.

Instead, 25.8% of U.S. wines that increased in price saw prices leap between 5% and 31.1%. The maximum increase for Canadian wines—and a far smaller proportion at that—was just 16.7%.

Among the several factors influencing prices, exchange rates are a key reason for the smaller jump in the price of Canada’s domestic wines. A year ago, the U.S. dollar averaged $1.09 Canadian; today, the average rate over the past month was $1.22.

Winery perspective
Other costs have also moved north. Charles Smith Wines of Walla Walla, for instance, boosted the FOB price of its key wines by $4 earlier this year, said Heather de Savoye, who oversees Northwest and international sales for the business. According to de Savoye, the increase came based “on cost of goods, vineyards, sourcing and all that.”

Shipments to British Columbia were the last to rise as the company waited to see what the new wholesale pricing structure would be, but shelf prices for its Kung Fu Girl Riesling and Velvet Devil Merlot eventually increased $3.61 per bottle.

De Savoye said prices across the industry are moving around as vintners try to strike a balance between exchange rates and competitive pricing, and suppliers grapple with the impact on the cost of raw materials.

“We’re probably going to see a recalibration of pricing across the board, with everybody,” she said.

Uncertainty over margins
The opportunities for price-taking were pointed out in February by Al Hudec, a corporate lawyer with the firm Farris, Vaughan, Wills & Murphy LLP, who said the situation would remain fluid for some time as wineries and retailers—both government-run and private—came to terms with the new pricing environment.

De Savoye said the uncertainty over the margins government-run stores now need to factor into shelf pricing was a complicating factor in pricing wines for the B.C. market.

“That piece is totally out of our control,” she said of the margins for operating overhead.

However, the numbers are clear regarding the overall trend in the province, and greater increases are likely, according to Mark Hicken of the Vintage Law Group in Vancouver, B.C.

“The current retail-level margins are not sufficient for either private or government retailers to cover their operating costs…so something has to give,” he told Wines & Vines. “The most likely result will be price increases.…I expect that to continue over the next few months until the retail sector gets back to sustainable margins. The end result will be higher costs for consumers.”