Canada: What's Up In B.C.?

It's been a beautiful and early spring in the Okanagan Valley of BC (sorry Eastern Canada!). Spring always tends to bring a renewed sense of optimism, and for the BC Wine Industry, there seems to be good reason for cautious optimism for what lies ahead during the remainder of 2015. Here are a few questions and thoughts that come to mind as we look ahead to the coming months:

1. Will BC wineries be able to sell all that wine?

Ideal growing conditions in 2014 led to one of the best grape harvests in recent memory. Not only were yields up, but the quality was also excellent. Many wineries were sent scrambling for extra tank space in order to take advantage of all the high quality grapes available. Virtually every winery we talked to over the winter indicated that they will be producing more than originally expected from the 2014 vintage.

Increased production means increased up-front costs, so many wineries have been experiencing a cash crunch over the past few months. As all that wine starts finding its way into bottles, the focus will be shifting to selling and turning wine in to cash. As we have discussed in past articles, even a year or two of production exceeding sales can lead to a cash-sucking build-up of inventory, and financial troubles for smaller wineries without deep pockets. So keeping the inventory moving will be critical.

This leads to our second question...

2. Will the Albertans come?

It's no secret that the province of Alberta provides a lot of the cash that fuels the local economic engine in the Okanagan Valley. So when oil prices collapsed this past winter, followed by concerns over lay-offs in the oil patch, the resulting nervousness has extended in to the southern BC Interior.

This not a new situation. There were similar concerns in the spring of 2013 when severe flooding hit Alberta. But the Albertans still came that year and I expect this year will be no different. In fact, a weaker Canadian dollar combined with low oil prices might actually convince many to consider a driving "stay-cation" instead of a more exotic holiday.

However, strong traffic to the wineries does not always translate in to increased sales. During the recent recession, many BC wineries reported that visitor numbers increased but the average spend per visitor decreased. BC wineries will need to convince this year's visitors that the 2014 vintage is an opportunity they don't want to miss.

Next question...

3. Will the Americans come?

Economic conditions continue to generally improve for our neighbors to the south. A stronger US dollar means increased buying power for American visitors. That is a good thing, because most visitors from outside Canada experience some sticker shock when faced with BC wine prices, which are inflated by a combination of high production costs of production and a convoluted system of government mark-ups and taxes.

There are encouraging signs that many Americans are starting to awaken to the quality wines and natural beauty of Canada's wine regions. Last fall, USA Today readers ranked the Okanagan Valley #2 in a list of the top wine regions IN THE WORLD they most enjoy visiting or would like to visit. One of my colleagues from California, on a recent first visit to the Okanagan Valley described it as "a combination of Napa and Lake Tahoe... only better"!

Out-of-province visitors will help buy some of that wine, but that leads us to our last question...

4. How effective will the new grocery store and farmers' market sales channels be?

The recent BC Liquor Policy Review recommendations have led to a flurry of changes to the regulatory landscape in BC. Back in February, the BC government issued its Policy Directive on the "Phased-in Implementation of Liquor in Grocery Stores". On April 1, 2015 and with much fanfare, the first (and so far, only) grocery store added BC VQA wines to its shelves. A little over a month later the pioneer store, a Save-On in South Surrey, is reporting strong sales and good customer feedback.

But there are concerns about just how effective this new opportunity will be for BC wineries. For one thing, there are no new store licences available. Grocery stores that want to stock liquor must acquire an existing licence or team up with an existing licence holder. Secondly, I don't see a lot of incremental convenience for consumers – I think most existing store owners figured out a long time ago that being located adjacent to a grocery store made sense. I think what most consumers had in mind when then asked for liquor in grocery stores is the type of bargain prices they see when they visit the large chain stores in the United States. Unfortunately, BC wineries simply cannot (and should not) compete on price with low cost imported wine. Still any new channel that has at least the potential to create more sales opportunities for smaller BC producers must be seen as a positive step for the industry.

Another new sales channel opened up for BC wine producers last year when the BC government announced it would allow liquor sales of BC products at local farmers' markets. According to the BC Association of Farmers' Markets, 39 local groups applied to allow liquor sales in the first year. Obviously, this is a great new opportunity for BC wineries to sell directly to both locals and visitors, and several took advantage. Selling direct-to-consumer is the name of the game for many smaller wineries and farmers' market are a perfect fit for growing consumer trend of buying local.

All in all, 2015 is shaping up to be an interesting year in the BC wine industry. There are lots of changes and new initiatives flowing out of the government Liquor Policy Review recommendations, and more to come. There are more new wineries all the time and lots of high quality wine to sell. If BC wineries can take advantage of new opportunities and if the tourists show up, it could be a very good year for many.

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