B.C. Wineries Claim Discrimination

Network of wine shops applies surcharge to non-members of marketing association

by Peter Mitham
Eugene Kwan
Eugene Kwan.
Vancouver, B.C. -- British Columbia wineries have banded together to fight what they call an unfair surcharge introduced earlier this year by wine retailers run by the organization charged with promoting B.C. wines.

A network of 20 wine shops, known as "VQA stores" because they were originally licensed by the province to sell wines bearing the seal of the Vintners Quality Alliance program administered by the B.C. Wine Institute, have levied a 6% surcharge on wines supplied by non-BCWI members.

Three winery associations have banded together to protest the surcharge and lobby the provincial government to revoke the licenses it granted the BCWI. They're arguing that the stores shouldn't penalize producers of VQA wines simply because they aren't BCWI members. (Currently, about six non-BCWI wineries sell VQA wines through the BCWI stores.)

Government regulations that took effect last year placed responsibility for quality control in the hands of the government-backed B.C. Wine Authority. The transition was meant to allow the BCWI to focus on the promotion and marketing of B.C. wines.

BCWI members approved the new surcharge last year, according to BCWI acting general manager Lisa Cameron, who likens it to the rate many industry organizations charge non-members who want to participate in organization events.

"In effect, they are our members' licenses, and it was unanimous that [our members] wanted preferred access because they've spent the past 20 years supporting the [VQA] brand," Cameron explained.

Smaller wineries affected most

Since the 80 members of the BCWI include the three largest wineries in the province, all but two of the mid-sized wineries and more than 50 small wineries, the surcharge primarily affects the province's smaller producers. There are approximately 100 of these wineries producing 5% of the province's wines.

Blasted Church Vineyards in Okanagan Falls, which has an annual production of 20,000 cases, is one of the affected wineries. Though its wines bear the VQA seal, it is not a BCWI member. The institute is within its rights to set pricing structures for the stores it controls, however Blasted Church's Chris Campbell said it's problematic that the institute would boost the price of the VQA wines the stores aim to sell just because they're not produced by its members.

"It hurts both us and the VQA stores," Campbell told Wines & Vines. "It's not only lost revenue to us, it's also lost revenue to the little VQA store owner who was relying on our product…as a major revenue source."

The quirky labels on Blasted Church's wines have made them recognizable items, but they've been withdrawn from VQA stores and are now sold through other private stores, as well as B.C.'s government-run liquor stores.

Coercive stance

Blasted Church isn't the only winery to step away from the VQA stores since the surcharge was introduced. Domaine de Chaberton in B.C.'s Fraser Valley also stopped supplying the stores, but co-owner Eugene Kwan, a Vancouver lawyer, said it will resume sales while increasing prices 10% on bottles sent to BCWI stores, in order to recover the surcharge and associated costs of doing business He doesn't like the coercive stance the institute is taking. "They're basically saying, 'We're going to penalize you for not being a member,'" he said.

Kwan has sought a meeting with the government minister overseeing liquor control and licensing in B.C. on behalf of the Fraser Valley Wineries Association (of which his winery is a member), the Wine Islands Vintners Association and the Association of B.C. Winegrowers. "We've all agreed that we want to approach the minister…to say that the licenses should be taken away from the BCWI," he said.

The three associations represent more than 100 grape and non-grape wineries, and would like to see the VQA stores licensed to carry the full range of B.C. wine products. The move would also put pressure on government to adopt quality standards for non-grape wines similar to those developed for grape wines.

But any revenues lost from the stores would hurt one of the main alternatives to member fees the BCWI has for raising funds to support its $1 million annual budget.

The most recent BCWI annual report notes, "VQA stores are a vital source of funding for the BCWI and the selling of only VQA wine continues to remain the basic premise of the stores' existence." The dual roles of the BCWI as voluntary industry group and an organization recognized by government as marketing and retailing its industry's products is a large part of the problem Vancouver lawyer and wine marketer Mark Hicken sees.

"From a lawyer's point of view, (it's) obviously an inherent conflict of interest," he said. While the stores have been successful in making B.C. wines available and building support for the industry, Hicken says it's time to review whether a new approach is needed. "I think the industry has grown to a point now where somebody really needs to take a second look at that system," he said
Posted on 05.20.2009 - 13:12:38 PST
Thank you Peter Mitham and Wines and Vines for writing about this critical issue. We are the busiest VQA Store in British Columbia and have been for 6 years. We would like to clarify that Discover Wines LTD. adamantly opposed any proposals by the BCWI to increase their fees to wineries. Wineries saw their fees for wines sold through VQA stores double in 4 years from 2% to 4% for all BC wineries producing VQA wines. This fee hikes were passed by the Board of Directors of the BCWI and unfortunately VQA stores have no voting authority. The mentioned fees are utilized to fund approximately half of the BCWI budget. VQA Stores are independently owned businesses. The BCWI has absolutely no responsibility or accountability for our business as emphasized in our contract. These and other policies continue to financially harm our small business. To now impose a 10% fee for non-members during a recession is fiscally irresponsible and is creating further hardship to wineries and VQA Stores. We look forward to more progressive discussion on this topic.
T. Gray & S. Mick, Discover Wines Ltd.
Kelowna, BC Canada

Posted on 06.11.2009 - 13:02:46 PST
Dividing the spoils of commerce is one thing, ladies and gentlemen, but providing all with a legal playing field that attempts to control yield, varietals, terroir, etc. and acts as quality assurance for BC viniculture, via lab/panels??? - whatever QA means - by recognizing its legal standing as progenitor of the province's wine quality (as in AOC en France), VQA deserves some kind of premium IMHO. By so doing VQA assures all of minimum standards & as we all know, compliance is expensive. Only a marketing organization? - not QA!- tho one could argue its product and profit come together.
Sausalito, CA USA

Posted on 05.15.2009 - 11:36:37 PST
"unfair surcharge introduced earlier this year by wine retailers" This is totally misleading. First of all the BC VQA stores have done an outstanding job in promoting BC wines. They are all privately owned but are under contract with the BCWI to sell VQA wines. And there in lies the problem. The definition of a "contract" is usually "a written AGREEMENT between 2 or more parties". There is no such thing as agreeing. The store owners are told to sign the contract written by the BCWI. Sign it, whether you agree to the terms dictated by the BCWI or not or they will take away the "privilege" of selling BC wines.They are simply a cash cow for the BCWI and these licences should be turned over to the individual owners so all BC wineries may have the opportunity to be represented.
Malahat, BC Canada