Dots dash hopes of business – March 14, 2015

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A number of unrelated topics comprise this weeka��s column although it doesna��t take much to connect the dots to see just how inter-related the business of wine is unless you are in government.

There will be a new pricing landscape in British Columbia on April 1. Industry was hoping for a true wholesale price but all it is really receving is a wholesale tax added to the distributora��s wholesale price. The model features a base markup of 89 per cent applied to the first $11.75 per litre of wine and a second tier mark-up of 27 per cent applied to the remainder. Although the provincial government insists prices will be the same and in some cases lower, the numbers would suggest any wine worth buying is rising in price.

We dona��t know the final price because under the new regime, government liquor stores will no longer operate within the mother monopoly but will be buying their products at the same wholesale taxed price as all private wine and liquor stores. From that point, all retailers will add their operating costs and profits and determine a final shelf price.

In the first go-round, distributors had to submit their wholesale price, (the producera��s cost and profit, plus shipping, storage, insurance and the distributora��s cost and profit) knowing only the new wholesale tax but without knowing how much BC Liquor Stores or the private wine store owners were going to add to account for their operating costs and profit. Ita��s anyonea��s guess what that number will be and it runs from 15-40 per cent. The former would close many private wine shops while the latter would ensure massive profits for government and that our sky-high prices will head even higher.

A California distributor said to me at the recent Vancouver International Wine festival that in all his 35 years, he had never submitted a wine bottle price to anyone in the business without knowing what the final shelf price would be. Given the uncertainty of what any retail-store owner would add to the price, wineries and distributors were left guessing what the final shelf price might be and with a falling dollar, inflation and much uncertainty, many likely added to the base price to protect their business. We know all this now because the BCLDB is saying it is willing to work with suppliers and distributors to better understand the new tax and hopefully encourage them to take even less profit to help government lower your wine prices for April 1.

Back to the dots. Restaurants will not be receiving a wholesale price; their reward for buying millions of dollars of product is to pay the same price as you and me, except they cana��t shop in their neighbourhood. All buying must go through a central government store, where service is less than attuned to the helter-skelter buying needs of the dynamic daily restaurant business. Expect to pay more than ever when you dine out, if there is anywhere remaining to dine out.

Private stores promised a level landscape will not be given the privilege of selling their wares to any licensed establishments, even if ita��s next door. The original 12 private wines shops that have done all the pioneering will have their government-endorsed discount removed in favour of the new wholesale tax, which on April 1 strips 50 per cent of their current operating budget from their bottom line to bring them in line with other private retailers and government stores. All will buy at the new wholesale-taxed price. The penance for being first means the original dozen wine shops will not be given the opportunity to sell beer and spirits like all others, government and private, unless they find a new location one km from any competitors.

As well as badgering suppliers and producers to cut their prices so the new wholesale tax at least looks equal on April 1, the government is moving to help its cause optically with new pre-tax shelf pricing, coincidentally appearing on April 1. Prices will drop 15 per cent, plus the bottle deposit but the savings will last only from the shelf to the cash register. That means a snappy looking $12 shelf price turns to $13.90 when the PST, GST and bottle deposit are added back in.

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