Steve Beauchesne is delighted at the prospect of getting his brewery’s flagship Lugtread Lagered Ale onto the shelves of 8,000 more stores.
But that delight isn’t completely unreserved.
As Ontario looks to open up beer and wine sales to corner stores, the president of Beau’s All-Natural Brewing — and others in the wine and beer industry — say the devil is very much in the details. Some of those details could be coming in this week’s provincial budget.
Expensive shelving fees, tiny fridge space, and the costs of a more complex distribution system are just some of the concerns for brewery and winery owners.
“Opening up more access is really exciting. Without any sense of the details, it’s hard to be completely confident,” said Beauchesne, who’s also the vice chair of the Ontario Craft Brewers, a trade association representing most of the province’s independent breweries.
“We’re excited and scared at the same time,” said Paul Speck, president of Henry of Pelham winery.
Last month, Ontario finance minister Vic Fedeli announced the provincial government would be expanding alcohol sales dramatically. There are currently roughly 3,000 stores selling alcohol in Ontario, including more than 660 LCBO outlets, and 450 Beer Store locations. There are more than 8,000 convenience stores across the province.
“Our government is actively working to expand the sale of beer and wine to corner stores, box stores, and even more grocery stores,” Fedeli told an audience of business leaders March 28. Former Alberta cabinet minister Ken Hughes has been appointed to advise Premier Doug Ford on how to bring alcohol into corner stores. Ripping up the province’s existing 10-year agreement with The Beer Store — reached when the Kathleen Wynne administration expanded beer and wine sales to grocery stores in 2015 — could cost the government up to $100 million in penalties.
One of the biggest concerns Beauchesne has is whether there will be a ban on shelving fees at corner stores. Shelving fees have become a lucrative part of the business model in the grocery industry, with suppliers paying for the opportunity of having their products stocked.
When beer and wine sales were extended to grocery stores under the previous provincial government, shelving fees were banned for alcohol sales.
“If that gets opened up, it would be a big problem. Because who has deeper pockets to pay those shelving fees? It isn’t craft breweries,” said Beauchesne.
Nor, said Speck, are shelving fees something Ontario’s wineries could afford.
“Wineries are farmers and small businesses. We don’t have the money to pay shelving fees,” said Speck, president of Henry of Pelham winery.
Richard Linley, president of Ontario Craft Wineries, the Ontario wine industry’s main trade association, is cautiously optimistic about adding convenience stores to the retail mix, saying “it could be very positive.”
Linley is more focused on cutting the LCBO’s mark-up, which is currently 71 per cent, but with other fees can effectively come out to 100 per cent.
“Our priority is on changing the tax structure. And then we’ll see what the distribution looks like,” said Linley. “There’s no point in giving greater retail access if the margins are still so low.”
In many U.S. jurisdictions that are fully privatized — and which also allow shelving fees — it isn’t the wine and beer lover’s nirvana many Ontarians seem to assume, Speck says.
“You go into a lot of those stores and see it’s big brands and low prices,” said Speck.
In fully privatized jurisdictions, there might be more choice in some prime urban locations, but it’s hardly widespread, says Beauchesne, whose brewery sells some of its wares in Quebec and the northeastern U.S.
“In some of those privatized jurisdictions, there are a handful of really great stores, and then everywhere else, it can be hard to find something worth drinking,” said Beauchesne.
Given that most convenience stores are relatively tiny compared to LCBO stores or grocery shops, space will be at a premium on refrigerator shelves. Ontario brewers and winemakers hope some of it will be set aside for them, as it is at the 350 or so grocery stores which currently sell beer and wine.
“The grocery stores have to provide a minimum of 20 per cent shelf space to craft brewers. In most grocery stores, it’s closer to 50 per cent craft beer because that’s what people are interested in buying,” Beauchesne said.
The head of the Ontario Convenience Stores Association says his members will give 30 per cent of the shelf space in their beer and wine fridges to Ontario products, and are against shelving fees. Small producers shouldn’t be worried, said Dave Bryans. The OCSA represents roughly 8,000 stores, including independent retailers and regional chains. There are another 1,750 convenience stores in the province attached to gas stations or which are affiliated with national chains like Circle-K.
“We’re 100 per cent committed to craft brewers, and to Ontario wines,” said Bryans, who argued that convenience stores would be a far better partner to small brewers than The Beer Store and LCBO have been. The Beer Store, which started in the post-Prohibition era as a brewers’ cooperative warehouse is now majority owned by Molson-Coors, AB-InBev (through its Canadian subsidiary Labatt), and Sapporo (through its Ontario subsidiary Sleeman).
“If you go into a grocery store, craft beer is 20 per cent of the shelf space. At The Beer Store it’s about 2 per cent. At the LCBO, you’ve got to grovel to get a spot on the shelf,” said Bryans.
Another big question mark is the logistical complexity — and cost — of delivering to 8,000 small stores scattered across the province. It will be a challenge no matter who does it, whether it’s the LCBO, The Beer Store, convenience stores’ existing distributors, or some other new companies which spring up to fill the gap.
“All of a sudden, you’re distributing to 8,000 stores. The cost of distribution goes up. You could get another tier of distribution like you have in many U.S. states,” said Beauchesne.
Still, said Beauchesne, having a new way to get your product into the hands of customers is on balance a good thing.
“Change is always scary,” said Beauchesne.
Josh Rubin is a Toronto-based business reporter. Follow him on Twitter: @starbeer