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lecture_11 notes 2012.doc

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York University
Administrative Studies
ADMS 1010

Business in the Canadian Context ADMS1010 – Summer 2012 – Troy Young Lecture 11 – The Canadian Wine Industry – July 19 2012 The Canadian Wine Industry - The Canadian Wine Industry, compared to other parts of the world, is relatively new. - Early wineries using local grapes were first started in the early 1800’s. The first commercial winery was started in Pelee Island in 1866. - There are wineries in many different provinces, with the main two wine producing provinces being Ontario and British Columbia. o The Vintners Quality Alliance (VQA), the Canadian regulatory and appellation system, only recognizes wines from these two provinces. - The Canadian Wine Industry suffered a major setback with Prohibition. - Regulation of alcohol was transferred to the provinces in 1927. o Ontario passed a moratorium on the issuance of new winery licences. - Many of the larger wineries consolidated by buying up some of the smaller licencees. - By 1974, there were only 6 wineries left. The Ontario Wine Industry - Don Ziraldo and Karl Kaiser were the first to be granted a licence to open a winery since 1929. They received their licence in 1974. - They introduced the first European grape varieties (Vitis vinifera) to Ontario by introducing Riesling, Chardonnay and Gamay grapes. - Prior to this, inferior local grape varieties were used to produce wines. - The Ontario Wine Industry is relegated to a few select areas of the Province: o Lake Erie North Shore/Pelee Island o Niagara Region o Prince Edward County Vintner’s Quality Alliance - The VQA Act was enacted in 2000. - VQA Ontario acts as the regulatory body for wine. o Administers Ontario’s wine appellation system. o Primary functions are wine testing, audits, inspections, compliance. Wine Appellations - These are defined geographic areas where grapes and wine are grown. - They often have additional restrictions including the variety of grapes can be grown for wine, the level of alcohol and other restrictions. - Often the appellation begins to be used to describe the wine itself. o In order to be legally called champagne, the wine in question must be from the Champagne region of France. - The first exclusive appellation is Chianti, in Italy, formed in 1716. The LCBO - LCBO originally started in 1927 to promote temperance as well as generate revenues; $12.3 million in sales the first year with 86 stores - Original stores were hidden, with product located in the back away from the customers - Slowly evolved over the years; in 1988 the government challenged the LCBO to become a major retailer - LCBO in 2009-10 provided the Government of Ontario with a dividend of $1.41 billion. It employs 6,500 people, has 613 stores in Ontario and had sales of $4.34 billion LCBO Support for Ontario Wines - Large product selection: LCBO WINES category offers 530 Ontario-produced wines, including 300 VQA wines. - VINTAGES, LCBO’s fine wine and premium spirits business unit, offered another 252 Ontario VQA wines, including 22 available year-round through the VINTAGES Essentials program. - In fiscal 2010-11, the LCBO sold more than 900 different Ontario VQA wines from over 80 different wineries. - Prominent shelf space/location: Ontario wines are allocated almost seven per cent more shelf space than their share of sales in LCBO stores. - They are prominently located at the front of most stores and there are specially- designed VQA wine displays in the 250 largest LCBO outlets. - In 2009, LCBO expanded VQA shelving by 20 per cent (4,000 linear feet more) in these stores. - WOW (World of Ontario Wines) Leaders: LCBO employees in 300 LCBO stores are specially-trained to promote Ontario wines with customers. - Small winery support: LCBO’s Go-to-Market program allows smaller Ontario wineries to direct deliver products to a small number of LCBO stores and the Wines to Watch program provides in-store presence for smaller Ontario wineries, helping them build sales for wider distribution. - The VINTAGES’ Go-to-Market program also gives access to VQA wines from smaller, quality-focused Ontario wineries. This program has been expanded in the last year to include more participating wineries and LCBO store locations. - LCBO sales of all Ontario-produced wines in 2010-11 totalled almost $320 million, almost seven per cent higher than the previous year. Wine Trade - In Canada in 2007, enough grapes were processed to make 56.4 million litres of Canadian wine. - By comparison, Canadian wineries imported an addition 77 million litres of bulk wine for blending. - A further 200 million litres of bottle wines were imported to sell to Canadian consumers. - Canadian Wines have less than a 50% share of the Canadian Market. o Canada is one of the few wine producers that do not dominate its domestic market - Canadian wine makers are dominated by two large producers with a large number of smaller players. o And one of those large producers was purchased by an American company in 2006, leaving only one truly Canadian large producer. - Canadian Wine Imports were over $1.5 billion in 2006. - Canadian Wineries produced approximately $784.5 million worth of wines o $749.5 million was domestic sales. o Only $35 million was exported. LCBO Sales of Wine - Total wine sales, 2009-2010: $1.121 billion. - VQA Wine sales were up 19% - Domestic wine sales account for 28% of all wine sales at the LCBO Canadian Wine Consumption - Annual per capita consumption increased between 2000 and 2007, growing from 11.3 to 14.6 litres. - This is still relatively small to other nations. o In France and Italy, wine consumption is four times greater than it is in Canada. - Brewing outperforms wine in Canada. Global Wine Production - The Canadian Wine Industry is dwarfed by such wine producing giants such as Slovenia (83,000,000 litres) Croatia (120,000,000 litres), and Moldova (397,600,000)! - Canada produces a small volume of wine by world standards with about 8,102 hectares of vineyards in 2007, compared to the EU which has 3.5 million hectares, of which France alone has 2.5 million hectares. Reasons for International Trade - Enables a country to specialize in those goods it can produce most cheaply and efficiently - Enlarges the potential market for goods of an economy - Major force of economic relations among countries - Is an extension of governmental policy Wine and International Trade - Wine is one of the areas in which we had a huge trade deficit. - If trade allows a country to specialize in what it does best, should Canada be producing wine? - If trade is meant to enlarge the potential market for goods in an economy, has the Canadian wine industry been helped by international trade? Trading Communities - To promote trade among countries that have common economic and political interest or are located in a particular region. - They favor member counties over non-member countries. o The Commonwealth of Nations o The North American Free Trade Agreement o European Union NAFTA – North American Free Trade Agreement - NAFTA is an agreement between the United States of America, Mexico and Canada, coming into effect on January 1, 1994. - NAFTA called for immediately eliminating duties on half of all U.S. goods shipped to Mexico and gradually phasing out other tariffs over a period of about 14 years. - An expansion of the earlier Canada-U.S. Free Trade Agreement of 1989. NAFTA – Canada/US Trade Agreement - The agreement removed several trade restrictions in stages over a ten year period, and resulted in a great increase in cross-border trade. - The agreement greatly liberalized trade between the two countries, removing most remaining tariffs. - Canada desired unhindered access to the American economy. Americans, in turn, wished to compete in Canada's energy and cultural industries. - Canada retained the right to protect its cultural industries and such sectors as education and health care. - Trade between Canada and the United States began to increase rapidly. The Goals of NAFTA - The Governments of Canada, the United States and Mexico resolved to strengthen the special bonds of friendship and cooperation amongst their nations. - To contribute to the harmonious development and expansion of world trade and provide a catalyst to broader international cooperation. - To create an expanded and se
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