E-Malt.com News article: Canada: Canada’s distilling industry crippled by high markups at liquor outlets

Crippling markups at liquor outlets are stunting the growth of domestic distillers and efforts to expand global markets for Canadian-made spirits, Patrick O’Driscoll, CEO of Hiram Walker & Sons, was quoted as saying by The Windsor Star on February 6.

“The spirits industry in Canada has the lowest profitability of any market around the world,” O’Driscoll said. “So, to try and push it any lower could be a very dangerous situation for this industry.”

In Windsor to celebrate the launch of a new C$9-million bottling line at the historic distillery and bottling plant, O’Driscoll said such investments are uncommon in Canada because of the high burden of taxation.

“The net result of high markups means that companies like mine are operating on lower margins, making it difficult to invest in future business,” he said. “Opening up new markets for Canadian whisky is an expensive investment, and that’s one of the things that has held back the development of Canadian whisky globally.”

In Ontario, 77 cents of every retail dollar goes to federal and provincial coffers, leaving suppliers with a gross margin of 23 cents – substantially lower than that of beer and wine, said O’Driscoll.

The Liquor Control Board of Ontario is under pressure to generate more revenue for a cash-strapped provincial government.

While he commended the LCBO’s marketing of Canadian-made whiskys and liqueurs, O’Driscoll said the industry cannot afford a bigger tax hit.

Genevieve Tomney, spokeswoman for the LCBO, defended the current markup structure as “consistent for many years and completely transparent.”

“The same mark-up applies equally to all spirits suppliers who compete on a level playing field for sales to Ontarians,” she said, adding that “LCBO prices are consistently among the lowest in Canada.”

Tomney said the LCBO was committed to investigate ways of expanding the spirits industry.

If Ontario were serious about growing the industry, it would lower markups and end the LCBO monopoly on the sale of spirits, said Jay Westcott, president of Spirits Canada.

“Unlike beer and wine, spirits, unfortunately, can only be sold in LCBO stores,” said Westcott. “It’s worth noting that although spirits account for only 29 per cent of all of the alcohol Ontarians consume, they pay 42 per cent of all the Ontario taxes generated by alcohol. The consequence of this over-indexing is that Ontario distillers like Hiram Walker and others have far less money available to invest in growing their businesses than do our direct competitors in the beer and wine sectors.”

High markups, he said, are hampering the industry’s efforts to capitalize on the growing global popularity of brown liquors in general and Canadian rye whisky specifically.

“Our industry exports are expected to total about C$700 million this year,” he said. “But we have the potential to reach C$1.5 billion.”

“There’s huge consumer interest in our brands. We’ve produced Canadian icons for decades — J.P. Wiser, Crown Royal, Canadian Club — many of which are made in the Windsor area. But you need money in your jeans to develop those markets. We don’t have the resources to do this.”

Hiram Walker & Sons is one of the region’s largest employers, providing jobs for 280 people.

The distillery and bottling facility also supports Ontario farmers by purchasing 4.2 million bushels of local grain annually.

Over the last 10 years, Hiram Walker has invested C$80 million into the Windsor site.

A new C$9-million production line will increase capacity by 230,000 cases per year. It will also allow the plant to produce small production volumes and build greater flexibility for new product innovation.

“Like our colleagues in Ontario’s other beverage alcohol sectors, our products are virtually 100 per cent made-in-Ontario from Ontario agricultural materials — corn, wheat, rye — and support jobs and economic activity right across the province,” said Jan Westcott, president of Spirits Canada. “Yet, we do not obtain the same consideration from government when it comes to accessing consumers, government support or the taxes imposed on people who buy and drink our products.”

The Windsor plant produces the following brands: McGuinness Liqueurs, Meaghers Liqueurs, Old Canada, Special Old, Lot 40, Pike Creek, Polar Ice Vodka, Wiser’s 18 YR Old, Wiser’s Legacy, Wiser’s, Wiser’s Deluxe, Nostra Nera Black Sambuca, Barclay’s Brandy.


13 February, 2015