Faceless enemy

Government regulators tilt playing field in favour of large multi-national competitors and away from small County businesses

Ki is a fine upscale restaurant in downtown Toronto serving Japanese cuisine. Last year, Ki wanted to offer its customers a unique spirit called Shochu—a new rice-based product from 66 Gilead in Prince Edward County.

Ki contacted the LCBO in December. After filling out the necessary paperwork, the restaurant was assured it would get its product in a few weeks. Not exactly the timely turnaround the restaurant had hoped for— but manageable.

A few days later, a truck was dispatched from the LCBO distribution centre outside Toronto to Bloomfield to pick up two bottles of Shochu from 66 Gilead, owned and operated by Sophia Pantazi and Peter Stroz. Once the order was safely processed into the distribution centre— a call went out to the restaurant. The provincial liquor distributor would deliver only to its nearby LCBO outlet—not to the restaurant. The person who answered the phone at Ki didn’t know the location of the nearest LCBO store. Click.

Late in January, Ki telephoned the LCBO following up on their order. The LCBO couldn’t help them. It remains unclear, to this day, where those two bottles of Shochu went. Repeated calls have not shed light on its whereabouts.

Meanwhile, 66 Gilead still had to pay for the truck, to and from Toronto, to pick up the two bottles. Regulations prevented Pantazi and Stroz, both physicians working in Toronto, from delivering the order either to the restaurant or to the LCBO distribution centre.

They had already paid about $3 per bottle in federal excise tax. Worse, they had to pay the LCBO commission for the sale of the missing bottles of Shochu.

Just as winemakers do, 66 Gilead is obliged to pay the LCBO a cut of its sales even when those sales occur outside a liquor store. For example, every bottle sold from its tasting room at 66 Gilead is subject to a LCBO commission— even though it never touched LCBO hands.

COMPETITIVE ADVANTAGE
When Pantazi and Stroz opened their craft distillery, 66 Gilead, north of Bloomfield a few years ago, they understood they were heading into a tough and unforgiving marketplace. The entrepreneurs were looking to carve out market share against much larger and more powerful entrenched multi-national competitors. They were ready for that.

They had the distinct advantage of creating spirits in small batches, using only the most flavourful and freshest ingredients—much of it sourced nearby. They targeted consumers inclined toward a premium product with unique characteristics linked to PrinceEdwardCounty. They built their business to serve the special and unique needs of discerning customers and restaurants like Ki.

TANGLED IN RED TAPE
They weren’t ready for the onslaught of government regulators. They didn’t know, or fully appreciate, that nearly every week they’d be locked in pitched battles with a multi-headed beast in the form of government.

It’s been a tough few weeks on that front. A Ministry of Labour official came by the distillery recently. The distillery was already mired in a lingering administrative dispute with a federal excise agency over the form of security it had to provide to ensure the government got paid.

Meanwhile, the Ministry of Labour official left a work order with five items, to be completed within two weeks. Included on the list was a requirement for fencing around an elevated storage area, as well as enhancements to the distillery’s eyewash stations.

“Our distillery is just a couple years old,” says Pantazi. “Why are we only learning about this now? With just two weeks to ensure the modifications are done? Now we have to scramble.”

One item will cost them about $1,000. Another about $300. Modifying the eyewash stations will cost about $2,000.Yet another item requires the distiller to make available to its staff, a copy of a ministry publication— The Occupational Health and Safety Act for Industrial Establishments—but it is no longer in print. Pantazi and Stroz have yet to figure out how they will satisfy this requirement.

Solving the excise tax issue will inevitably tie up more of the couple’s capital.

These issues, it turned out, would pale in comparison with the blow the federal ministry of immigration was about to land.

A day or so earlier, Pantazi and Stroz learned that as a result of an administrative error, a key employee was no longer qualified to work in Canada—and was being sent back to New Zealand.

The job of a craft distiller requires a highly specialized set of skills. There are only a handful of such businesses in the entire country. So Pantazi and Stroz were compelled to look abroad.

Amanda Cook came to them looking for a new life in Canada. Pantazi and Stroz hired a lawyer to navigate through the monthslong visa process in order to hire Cook—paperwork that had to be renewed each year. Between 2013 and 2014, the immigration bureaucracy changed the hourly rate for Amanda’s job. Without notice.

Pantazi and Stroz filled out the forms just as their lawyer had done the previous two years. It proved to be a painful and costly decision. Their application was denied because it still had the 2013 hourly rate.

Immigration officials advised Cook that when her visa expires shortly, she must leave the country. With her will go her partner Matthias Luck, winemaker at Trail Estates— a brand new County winery set to open next month. Another business compromised.

Pantazi and Stroz may reapply on Cook’s behalf, but the process would begin totally anew—and would take several months to resolve.

In the meantime, Cook has concluded it is time for her to go home. She knew eventually she would return to New Zealand, but figured that was two years away. The decision by Immigration Canada only accelerated her timing.

66 Gilead hasn’t been thrown entirely into the abyss. Pantazi and Stroz have someone they can turn to in the short term—to fill in for Cook.

Yet it is one more hurdle and challenge to their business—not by competitors, but by government bureaucracy.

“So many government agencies say they are here to help small business and create jobs,” says Pantazi. “Meanwhile, there is an array of other government agencies working against me.”

Another example: The LCBO carries three of 66 Gilead’s current lines. Restaurants may only order from those three lines—or risk the experience that Ki endured with its order of Shochu. It is illegal for restaurants in PrinceEdwardCounty, or elsewhere, to carry 66 Gilead’s Rye Vodka, Duck Island Rum, Shochu or the distiller’s new whisky to be released in June—even if they go to the distiller and purchase it directly.

The LCBO is reluctant to sell 66 Gilead’s other lines—it is much easier selling foreign-made vodka, rum and whisky. More volume. More marketing support.

She notes that there is no pressure upon governments to ease the restrictions upon small distilleries or guide them through the miasma of regulations—the large spirit-makers are all foreign owned. They see the heavy regulation in Canada as a welcome barrier to entry by potential competitors.

“No one is lobbying for small distillers like ours,” said Pantazi.

But it is not for her sake that she is making these challenges public. She believes taxpayers should understand that wasteful, unresponsive and uncoordinated government bureaucracies are putting up roadblocks that make it difficult to grow her business and create jobs. She says the propane distributor and cheesemaker face similar hurdles

“We would like hire eight to 10 people to run this place,” said Pantazi. “But government regulators are inhibiting our ability to grow our business. Our backs are against the wall.”

Would they do it again—knowing what they know now?

After a long uncomfortable pause, both Pantazi and Stroz acknowledge they would.

“We like what we do and we are making a product people enjoy,” said Pantazi with apparent weariness. “That part is satisfying.”

The battles have left her bruised, but stronger and more defiant.

Yet she longs for the day when she can focus on her energy upon the competitive marketplace rather than the government agency on the other end of the phone line.