The document discusses how Bill C-311 could help BC wineries by allowing individuals to import wine between provinces for personal use. It summarizes that Canadians are drinking more wine but BC wineries only represent a small portion of wine sales. Direct-to-consumer sales channels are more profitable for wineries than government stores, and shifting some sales from stores to direct channels could significantly improve a winery's margins, profits, and valuation without much additional cost.

1. Uncorking Provincial Borders
Will the long awaited
changes resulting
from Bill C-311 help
BC Wineries thrive?

2. What is Bill C-311?
• The Federal
Importation of
Intoxicating Liquors Act
(IILA) from 1928
prevents shipment of
alcohol between
provinces unless it is
arranged through
provincial liquor
agencies
• Bill C-311 is an
amendment to the IILA

3. What Bill C-311 allows
• The importation of wine from a province by
an individual for personal consumption
– Not for resale or commercial use
– “brings the wine, or causes it to be brought
into another province”
• In quantities as permitted by the laws of
the destination province

4. Bill C-311: Where are we at?
• On June 28, Bill C-
311 became law
• Federal law now
allows individuals to
import wine between
provinces for personal
use
• Subject to
law/regulation of the
destination province

5. Dragging the
Provinces kicking &
GOVERNMENT
screaming MONOPOLY
•BC adopting a weak BILL C-311
“let’s let the Provincial
Liquor Boards work it
out” attitude.
PROV.
•Ontario implementing a LIQUOR
BOARDS
task force
•Wording of Alberta and
Manitoba law already
allows importation for
personal use
FREE TRADE
•See WINELAW.CA for BETWEEN PROVINCES
ongoing updates

6. Per capita wine consumption

7. Wine sales in BC by Origin

8. The Opportunity
• Canadian per capita wine consumption
continues to grow but we are just now
approaching the world average
• In BC, sales of BC VQA wine still only
represent <20% of all wine sold
• Canadians are drinking more wine and there
is room for Canadian wineries to capture
more of the growing domestic market
• Because of the IILA, only a small fraction of
BC wine labels are currently sold outside BC

9. Profitability of Dtc sales vs other
sales channels
SOURCE: M. Hicken – “FreeTheWine” website (2008)

10. Out-of Prov.
Winery Visitor
More winery Online
visitors Customer
DIRECT TO
CONSUMER
More online Shares with
orders / Out-of- others (word-
province “fans” of-mouth)

11. DTC (Direct to Consumer) wine
sales – US numbers
• DTC sales accounted for 3% of total wine
sales for the year ended April 2011
• Breakdown of 3%:
– Phone, internet, clubs 40%
– Wineshop sales 60%
• DTC more important to smaller wineries
• DTC grew by 11.6% - over twice the
overall rate of wine sales growth in the US
(SOURCE: ShipCompliant & WinesVines DATA)

12. What do DTC sales mean for a small to
medium sized winery?
• Moss Adams study
(no Canadian study
available)
• CA, WA & OR
wineries
• 2007 & 2008 data
• 71% of respondents <
50,000 cases

13. Findings regarding Sales
Channel Strategy
Smaller wineries are more reliant on DTC sales than larger
wineries

14. Findings regarding
Sales Channel Strategy
Wineries that sell more wine DTC tended to
have better revenue per case sold

15. Findings regarding Sales
Channel Strategy
Wineries that sell more wine DTC tended to have
better margins

16. Findings regarding Sales
Channel Strategy
Wineries with a higher proportion of DTC also tended to have higher selling
and admin cost

17. What does DTC growth mean for a
BC Winery?
ASSUMPTIONS
• $1,500,000 wine sales from 7500 case
volume
• Retail prices: reds = $26.00; whites = $21.50
• Sales mix 58% red; 42% white
• Sales channel mix BCLDB 40%; LRS stores
30%; DTC (wineshop) 30%
• Margins & balance sheet ratios = StatsCan
2010 data for BC wineries < $5 million in
sales

18. 10% shift from BC LDB to DTC
Before After
Gross margin = 53% Gross Margin = 54.85%
Pre-tax earnings = $40,000 Pre-tax earnings = $81,500
RONA = 4.0 RONA = 5.4
Interest coverage = 1.62 Interest coverage = 2.25
Net revenue/bottle = $16.67 Net revenue/bottle = $17.35
Valuation* = $945,000 Valuation* = $1,318,500
* Assuming a EBITDA multiple of 9

19. Worth the Effort?
• An investment of $20,000 generated an after
tax return of $35,978; ROI = 180% in first
year!
• By shifting sales from government stores to
DTC, your winery keeps significantly more of
the retail price.
• Incremental costs are fairly minimal, therefore
most of the increased margin falls right to the
bottom line
• In our example, this one change increased
the value of the winery by over $370,000

20. SUMMARY
• Canadians are drinking
more wine
• Bill C-311 should make it
easier for BC wineries to
sell more wine DTC in
other provinces
• The DTC sales channel is
the most profitable for BC
wineries
• Selling more wine DTC
vs. Government stores
improves profitability &
ultimately value for BC
wineries

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