Quebec Wine In C-Stores: Beginning Of The End For The SAQ?

Since November 2016, Quebec winegrowers and liquor producers can sell their products directly in groceries and convenience stores, without going through the SAQ.

Although limited in terms of commercial impact given the very small Quebec production (600,000 bottles sold at the SAQ vs. 17 million for California wines only – source La Presse), this liberalization measure is still the most important one affecting the province’s alcohol sales system since the adoption in 1974 of the latest rules confirming the SAQ monopoly.

Bill 88, an Act respecting development of the small-scale alcoholic beverage industry, has been unanimously adopted by the Quebec National Assembly on May 26. This bill brought three major changes to the sale of Quebec wines and liquors (under 16% in alcohol content):

  • The possibility for these products to be sold in groceries and convenience stores whereas previously, this right was only allowed to wines assembled in Quebec (with a few exceptions);
  • The possibility to be sold directly to retailers by winegrowers without any involvement of the SAQ;
  • The possibility of displaying the name of the vine and the vintage on the wine label (while those currently sold in groceries and bottled in Quebec will continue to not have this privilege).

The fact that Quebec wines can now be sold directly in groceries and convenience stores without going through the SAQ is without a doubt a major breakthrough.

That is because the SAQ normally applies a huge, even astronomical margin on the wines it sells.

The table below shows the SAQ (2014) surcharge applied to a Quebec wine sold for $ 5 per bottle by the producer and… $ 16.76 by the SAQ to consumers!

Method of calculating the selling price of alcoholic beverages (applied to a Québec wine) – August 2014

DESCRIPTION
COST PER CASE
TOTAL CASE
Supplier sales price ($5.00/bottle) to the SAQ
$60.00
$60.00
Transport standard / caisse
$0.67
$60.67
Federal Tax & Duty per case
$0.00
$60.67
Service fees per case
$4.90
$65.67
Éduc'alcool Program per case
$0.12
$65.79
Recycling Program per case
$0.48
$66.17
SAQ margin
$96.08
$162.25
Specific Tax
$12.60
$174.85
GST (5 %)
$8.79
$183.64
PST (9,975 %)
$17.54
$201.18
CASE TOTAL:
$201.18
BOTTLE TOTAL:
$16.76

The SAQ‘s revenue appetite illustrated here is quite striking: our good Crown corporation takes $ 96.08 over a $ 60 wine case, a gross margin of 160% and that, merely to act as an intermediary between the producer and the consumer, therefore not adding a significant value.

What other retail product category could possibly promise a 160% margin to retailers? The ultra-dominant position conferred by its monopoly grants such magic to the SAQ.

However, the government has just removed the punch bowl because for Quebec wines at the very least, this privilege is abolished. The surcharge of $ 96.08 is now gone forever and it’s up to the industry to use the savings in one way or the other:

  • By lowering the retail price, thereby benefiting consumers and increasing sales and volume (eg $ 10-12 per bottle instead of $ 17-20 for the SAQ);
  • By increasing the retailer margin, which benefits convenience stores and grocers and will encourage them to sell more;
  • Or by increasing the margin of producers and winegrowers, which will encourage them to invest more in their crop.

And also, of course, by doing the three at the same time, which is probably what is likely to happen: a little bit to everyone and everyone is happy.

Local winemakers bliss vs. foreign producers anger

Bill 88 adoption is a major victory for the Quebec wine industry, whose credit goes mainly to Léon Courville, owner of the Léon Courville Vigneron vineyard and Denis Paradis, owner of the Le Domaine du Ridge vineyard and current MP Of Brome-Missisquoi. These two Quebec wine personalities (see photo below) used their extensive experience in business and politics (one was a banker, the other former minister) to put effective pressure and build momentum on the successive Liberal and PQ governments for the last 10 years.

 

The Brome-Missisquoi Winegrowers Association celebrated the arrival of Quebec wines in the grocery store at the Metro Plus Plouffe in Bromont. Pictured from left to right: Patrick Plouffe, co-owner of Groupe Plouffe; Léon Courville, president of the Association des vignerons de Brome-Missisquoi and owner of Domaine Léon Courville; Pierre Paradis, Member of Parliament for Brome-Missisquoi and Minister of Agriculture, Fisheries and Food; François Bonnardel, Member of Parliament for Granby, Coalition Avenir Québec; Daniel Plouffe, co-owner of Groupe Plouffe; The Honorable Denis Paradis, Member of Parliament for Brome-Missisquoi, Liberal Party of Canada. (CNW Group / METRO INC.)

But what has also helped is the precedent set by British Columbia, Canada’s westernmost pronvince which passed a similar law in 2015, allowing its local wine industry — far more developed than Quebec’s — to sell their products directly in convenience stores and grocery stores.

However, this legislation is being challenged by the powerful Wine Institute, the lobby group that represents the interests of California’s rich wine industry. The latter filed a formal complaint with the WTO on April 29, 2016 and published a press release to that effect last November in which the organization denounced British Columbia’s legislation in very harsh terms:

On April 1, 2015, B.C. implemented its discriminatory plan to relocate existing and new 100 percent B.C. wine licenses to grocery store shelves. To date, imported wines may not be sold in B.C. grocery stores, while grocery store expansion for exclusively B.C. wines continues. B.C.’s program not only effectively prohibits imported wines on provincial grocery shelves, it denies B.C. grocery store consumers the opportunity to choose from the vast array of the world’s great wines – Wine Institute, November 2016

The same Wine Institute has just sent a letter of the same content to Prime Minister Couillard, while ensuring that the Montreal daily La Presse receives a copy.

The reporter summarized the letter by listing the various grievances of the Californian producers.

The vice-president of the Wine Institute, Tom La Faille, said in an interview that he monitors closely the evolution of sales of Quebec wine in grocery stores. The institute intends to work with the Trump administration to press the Quebec government to amend its law so that the provisions of the WTO and the North American Free Trade Agreement (NAFTA) are “fully applied” – La Presse

It is clear that the election of President Trump and the coming on stage of his protectionist agenda is timely for the Wine Institute, which sees it as an ideal opportunity to put the recalcitrant provinces in their rightful place.

But if Quebec were to bend, it’s a safe bet to assume that instead of going back to the old system and enrage the whole winegrower community, the consumers and the opposition parties alike, it would lean more toward granting foreign products with a similar access to convenience stores and groceries, thus putting a few nails into the SAQ monopoly coffin.

Politically, it is hard to see how a Prime Minister or Finance Minister could defend the privileges of the SAQ‘s handsomely paid executives and their 160% and $100 surcharges against at a local, legal and international wave of pressure to open up trade.

And this could be a fantastic opportunity for Quebec groceries and convenience stores, allowing them to sell all types of foreign wines, as is the case in many countries around the world, and as is the will of the majority of Quebec consumers.

In Spain (here in Barcelona), wines are sold freely in groceries and convenience stores … at much better prices!

In such a scenario, it will be said in retrospect that Bill 88 will have been the iceberg that finally ended up sinking the Titanic of the SAQ monopoly. And it is perhaps for this reason that it took so much effort to be adopted!

Metro: the grocer that stands out

But science-fiction aside, what about the commercial landscape since the Quebec wine is allowed in groceries?

According to our first impressions – and this is nothing scientific – only Metro has genuinely boarded the train and made a real effort to offer a wide range of Quebec products so far.

The grocery channel even distinguished itself by orchestrating a public relations operation, mainly in the Eastern Townships, to announce the new availability of Quebec wines in stores.

Then, during a few visits, the author of these lines was saw that Metro supermarkets throughout Quebec are offering a wide selection of Quebec wines and alcohol such as ice ciders, which are excellent by the way.

Prices are lower generally than at the SAQ, with bottles mostly in the $ 10-12 range.

At Loblaw (Maxi, Provigo) and Sobeys (IGA, IGA Extra), we could not find the same variety of products, if at all.

But it’s probably a matter of time before most if not all supermarkets jump on the opportunity, although the volume of wines and alcohols in Quebec is still very small.

As for convenience stores, there is not yet a large-scale distribution at this stage, but only localized distributions. This could change very quickly of course: a situation to follow!

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