By: Tod Stewart
Dubbed the Great White North, Canada has stereotypically been viewed as a country perpetually shrouded in snow – where herds of caribou and roaming packs of wild wolves play survival games in the streets, where the inhabitants (clad in parkas and donning toques and snowshoes) emerge from their igloos to dine on seal blubber and polar bear meat. And beer.
Okay, that’s pushing it a bit far. Anyone who lives in all but the most northern reaches can regale you with stories of asphalt-melting, paint-peeling summer heat. Interior British Columbia’s Okanagan Valley has literally caught fire on some occasions, with daytime temperatures reaching higher than 120 degrees Fahrenheit. In Winnipeg, Manitoba, you’re more likely to be eaten alive by ravenous hordes of summer mosquitos than a murderous hibernation-starved grizzly. No, the country’s really not a wasteland of frozen tundra. That being said, when it comes to the distribution and sale of beverage alcohol products, Canada has a ways to go before it really emerges from the Dark Ages.
For example, there are antiquated liquor laws that haven’t changed dramatically since being imposed in the 1920s, combined with an inability to shake off the chains of the Ghost of Prohibition Past. Health Canada has recently proclaimed that no amount of alcohol is safe, and any more than two drinks per week – yes, you read that correctly – increases your odds of being dead). Additionally, federal and provincial government bodies have gotten rather intoxicated on the gold they have mined from drinkers. All of these things together to create an odd cocktail of private, public and government interests. So, how does this all affect a producer – perhaps you – who wants to break into the Canadian market?
First, it’s important to understand that alcohol importation, distribution and, ultimately, sales are pretty much the sole domain of government liquor monopolies (“liquor boards”). Each province behaves somewhat differently in its approach, but all function in a fundamentally similar way. Let’s focus on Ontario (mainly because that’s where I live, and my knowledge of “the system” here is probably better than the workings of other provinces).
Second, it’s equally important to understand that provincial liquor boards exist to feed provincial government coffers. That’s it. That’s all. This wasn’t always the case. The Liquor Control Board of Ontario (LCBO), for example, was originally envisioned as a transitional mechanism to ease the province from prohibition (via a system of “controls” – many of which would likely today seem in violation of personal privacy if not being downright racist) back into the private retail sector. It wasn’t supposed to be still with us today. Of course, the original mandate was rethought over time as successive governments realized that in controlling booze sales, they had given birth to a proverbial golden revenue goose.
The upshot of this is that, though you may be convinced you’ve developed the most wondrous elixir thus far known to man (confirmed by family and friends), it really means nothing to the liquor board. What matters is how much money your concoction will rake in if the decision is made to give it a shot in the market. As with many other businesses, the salaries and bonuses of LCBO executives (which are substantial) are directly tied to “corporate performance” (read, sales numbers). If you can’t help them, they can’t help you.
There’s a saying: “If you want to make a small fortune in the wine industry, it’s best to start with a large one.” The same is true with trying to break into the Ontario market. Having a decent chest of loot socked away to market and promote your product – primarily through LCBO-controlled programs that you will be “strongly encouraged” to participate in – will significantly up the shelf space ante.
“Okay,” you say, “I get it. It’s all just business…but I still want a piece of Ontario action and I’ve got the resources to give it a serious go. So, how do I do it?”
Assuming you are a producer of “craft” products and don’t have a global corporation with an international sales force to help you, you will need someone in Ontario to act on your behalf. A “manufacturer’s representative” (aka, an “agent”) essentially acts as your sales and marketing (and often PR and government relations) wing in Ontario. A good agent likely has a decent working relationship with LCBO buyers (and possibly LCBO executives), knows how to navigate the system and work through the reams of often byzantine paperwork, knows which LCBO sales channel (and there are several) would work best for you, knows the market, can assist with pricing decisions and – perhaps most importantly – has the patience of a saint and the tenacity of a limpet. While you may luck out and get a bite on your first cast into LCBO waters, this typically isn’t the case.
Suppliers often become frustrated and blame their agents for the lack of LCBO purchase orders. Truth be told, it’s very rarely a failure on the agent’s part. Even the most seasoned of them are often left scratching their heads when it comes to explaining why a product was rejected, though there’s really no mystery (see “provincial liquor boards” paragraph five above).
Agents come in various shapes and sizes, from a one-person shop servicing Ontario only to corporations representing producers in each province and territory. Each type has its upside and down. Larger agents have a greater range, bigger budgets and more salespeople in the field. It’s also no secret that the LCBO tends to favor larger agencies when it comes to new and subsequent listings. The downside is that, as a craft producer, you may not have the volume of product to meet a large agent’s financial needs. Also, large agents often give the most attention to the suppliers in their portfolio that generate the most income. This might not be you.
A smaller agency, while not having the range or resources of the big guys, typically has a smaller portfolio and can dedicate resources to building your individual brand in the market. In any case, any agency will be projecting a bottom line and weighing the effort needed to reach it before taking on any new supplier.
Having an agent (of whatever size) doesn’t mean you can simply sign an agreement and then sit back and watch the revenue roll in. You and your agent must present a marketing plan to convince LCBO buyers to take a chance on an unknown brand. This chance will be better if your marketing plan includes numerous accolades and high scores from critics and the media.
Once accepted, you still have to physically get your goods into the province. Large orders – or orders within reach of convenient co-loading ports – are usually easy to deal with. In fact, the LCBO will take care of most of the shipping and customs clearance responsibilities (while marking up any incurred costs and applying that to the cost of your shipment). Looking to ship in five cases of craft spirit from upstate New York? Though Ontario might literally be just across the lake, getting these cases into the province can pose challenges and requires that you, the supplier, do some homework before attempting to ship.
Of course, once the goods do arrive, it’s not like the items are immediately shipped out to stores or offered for online purchase. The LCBO chemically analyzes all beverage alcohol products destined for sale in the province. It also holds the agent and supplier to specific labeling requirements (details here: https://www.doingbusinesswithlcbo.com/content/dbwl/en/basepage/home/quality-assurance/quality-assurance-policies—guidelines/labelling/-lcbo-product-packaging-standards-and-guidelines-for-chemical-an.html). Lab testing isn’t provided free of charge. If your product fails well, you have the option of having it shipped back (on your dime) or destroyed (also on your dime). If “corrective labeling” is required to make your labels compliant, you’ll be charged for that, too. Be forewarned, the time it takes to have your stuff available for sale once it landed can be frustratingly long, and the reasons given (or typically not given) for the delay will almost be guaranteed to cause further frustration.
You might also be (unpleasantly) surprised to find out what the retail price of your product will be once it’s available for sale (though, to be fair, you will know this before you even decide whether a sale to Ontario is worth the bother). To quote the LCBO’s website: “The price that is seen in a store or online is a combination of the supplier’s price plus import duties, freight, levies, a standard markup, HST and container deposit.” The “standard markup” on spirits is a modest 139.7 percent. The Harmonized Sales Tax (HST) is 13 percent. All of these costs are passed on to the end consumer.
Things aren’t much easier if you’re a craft brewer. You might have heard of The Beer Store (TBS) and think this might be a way around the burdensome LCBO process. Think again. TBS is simply another monopoly, only rather than being run by the government, Canada’s three big brewers run it. If you think they are interested in offering competing products on their store shelves, keep dreaming. As with distillers, foreign brewers really have no choice but to deal with the LCBO.
Finally (at least as far as this story goes), getting your product into the LCBO system is no guarantee it’ll stay there. You’ll be expected to meet sales quotas. If you do, reorders are likely – probably in larger amounts than your initial order. If it looks like you can’t, well, you can always try throwing more money into marketing, promotion and advertising. But in the end, if the consumer judges your product to be a dog or has no interest in trying it, it’s off the shelf – which is really no different from most retail products.
Believe it or not, I’m not trying to discourage any beer or spirits producer reading this from trying to get a toehold in the Ontario – or Canadian – market. Personally, I’d love to be able to sample your wares. It won’t be easy, but it could be worth it, given the adult populations of major centers. Look on the bright side, if things go well, you might be able to unload your entire annual production on one customer – and with that customer being a government agency, payment is hardly ever an issue. Or you might decide that the LCBO is just another four-letter word.