Nothing to whine about

Ontario’s liquor laws offer bittersweet local market protection

When David O’Connor buys wine for his Wellington restaurant, East & Main Bistro, he pays the same price any consumer pays either at the LCBO or at the winery. Wine producers, unlike any other of David’s suppliers, are prohibited from extending wholesale or volume pricing to restaurants like East & Main. East & Main Bistro has made a business decision to feature County wines even though there is no financial incentive to do so or a means to negotiate a better deal with local producers. Foreign wines compete on the same basis as County wine.

The Canadian Restaurant and Food Association sent provincial finance minister Dwight Duncan an open letter last week calling for the government to ease pricing restrictions on wine and other regulated beverages.

“One of the biggest barriers to growth and job creation for Ontario’s restaurant sector is the outdated pricing model for beverage alcohol,” wrote Ron Reaman, vice president of CRFA. “Licensees in our sector are forced to pay close to, or in some cases more than, retail prices for the wine, beer and spirits they serve in their establishments. Every other product that is purchased for resale by business owners offers wholesale pricing. Why is this not the case with the LCBO?”

Lynn Sullivan is chair of Prince Edward County Winegrowers Association and a principal of Rosehall Run Winery in Hillier. Sullivan says it is one of the many peculiar aspects of selling wine in Ontario.

“Even though we run private businesses we don’t have the freedom to negotiate different prices for different customers,” said Sullivan. “If I have a chardonnay that I sell at the LCBO at $15 I have to sell it to a restaurant for $15. They pay the same price as anyone else pays at the liquor store. It feels very strange not to be able to respond to the needs in the marketplace.”

Sullivan says eliminating fixed pricing might be beneficial to County producers but might also create some unintended consequences.

Currently, the regulated pricing structure prevents larger more muscular producers from invading the County and buying market share by undercutting the price of local producers.

O’Connor agrees the current pricing structure, though awkward in a free market sense, serves his desire to feature County wines just fine.

“It’s not all bad,” says O’Connor, a principal with both East & Main Bistro and the soon-to-open Pomodoro in Wellington. “Fixed list pricing does mean that big producers can’t come in and undercut local wine makers as they do in some European markets—where large beverage firms own the menu.

“We are free to pick and choose the wine we want to serve. If Closson Chase is doing a fabulous Pinot Noir and someone else is selling mediocre Pinot Noir I can choose which one I choose to carry without worrying whether my competitors are undercutting my prices.”

O’Connor says there is also a risk to quality in committing to large volumes.

“I don’t have to commit myself too greatly—I’m not driven by my negotiated deals but rather by the product I want to offer my customers. I am not wild about huge volume deals because it is difficult to ensure the consistency of the quality of wine from the beginning to the end of the contract.

“The system works well and allows me to serve the best of the County. I know that the bottle I serve will be as good as the bottle they purchase at the farm gate. Eliminating list pricing would minimize what we could put on my wine list and eventually it makes restaurant owners beholden to producers.”