Alberta. Land of big skies, big ranches, big cowboy hats and, until the global crash of 2015, big oil and gas money. Though geographically not the westernmost Canadian province – that would be the Pacific-rimmed, coastal forests of British Columbia – Alberta has always rightfully laid claim to the title of the Wild West. Proud prairie pioneers, with a thriving economy based on land resources since the Hudson Bay Company established trading posts here in the mid-18th century, taking the last flat lands before the imposing Rocky Mountains. Agriculture has played a significant part in the province’s history and current day economy, with over 3m cattle supplying 50% of the country’s need for quality beef, along with major wheat and canola production, and exports.
Of course, the richest resource that Alberta has is its vast oil and gas reserves. In recent years, the province has been the world’s second- largest exporter of natural gas and the fourth -largest producer, positioning their economy as one of the strongest globally.
As intrinsic as these land ties are, Albertans’ progressive nature hasn’t just been linked to natural resources. On 2 September 1993, the provincial government made an unprecedented decision to leave the liquor retailing industry, ending a 69-year government-run monopoly. According to Gurvinder Bhatia, a wine retailer and consultant with more than two decades of experience in Alberta, “The government announced it on a Friday, and by Monday it was done. There was no time for the unions to act.”
A new monopoly arises
Bhatia’s memory isn’t an exaggeration. On 4 September 1993, the government-run Alberta Liquor Control Board (ALCB) began to sell or close all government-run liquor stores. The first private liquor retailers opened in October of that year, and by 5 March 1994, the last ACLB run store was closed. Bhatia notes, “The government, owners of the liquor store real estate, sold off all the properties to pay off the unions.” Suddenly, a brave new liquor retail industry was born.
At the time of privatisation in 1993, there were 208 retail liquor stores with 2,200 different products available; 2.13m hL of sales by volume were reported across all products (beer, spirits, wine and coolers/ciders respectively). The revenue to the government was C$404.8m ($292.6m).
For the first time, and fairly dramatically, the market was cracked open. Anyone could apply for a Retail Liquor License, provided they filled out the paperwork, provided proof of suitable premises, and paid the annual license fee (C$700.00 in 2016). Similarly, the route to becoming a liquor importer in the province became simple and easy; little more than Alberta incorporation, registering your agency and paying the minimal fee is required. In 1996, the responsibilities and operations of the ALCB were combined with Alberta Lotteries, the Alberta Gaming Commission, Alberta Lotteries and Gaming, and the Gaming Control Branch to create the Alberta Gaming and Liquor Commission (AGLC).
One major monopoly remains, however: distribution. Though it is internally reviewed every five years, warehousing and distribution of alcohol is run by a privately operated monopoly, Connect Logistics. As massive as the monopoly is within the province, it is still just one cog in a greater, worldwide wheel. Connect is a division of Exel, the North American leader in third-party logistics, acquired by DHL in 2005. As of early 2016, Exel changed their name formally to DHL Supply Chain.
Within Alberta, Connect Logistics is responsible for receiving all products entering the province, storing them in their warehouses and assembling and shipping all orders to licensees. When a warehouse receives a shipment, the suppliers (or their agents) set a price that reflects the cost of the product, which includes the manufacturer’s cost, insurance, marketing and promotion, transportation to the warehouse, warehousing charges and a profit margin. The AGLC calculates a wholesale price using the supplier's price then adding federal customs and excise taxes and duties, a recycling fee, a container deposit and the flat markup. Mark-up rates depend on product type and alcohol percentage and are assigned according to a rate schedule that is reviewed regularly, though not on a fixed schedule.
This flat tax is how the government is able to maintain high levels of revenue, without being involved in operations. As of 31 December 2015, there were 2,071 liquor retailers in Alberta, and 21,816 products available: 3.8m hL of sales by volume were reported, and the revenue to government for the 2014-15 fiscal year was C$766m.
Fair profits
According to Brad Royale, wine director for Canadian Rocky Mountain Resorts and one of the largest fine wine buyers in Alberta, the flat tax is one key factor contributing to the successful wine industry.
“It’s really amazing to work in the industry here, compared to the rest of Canada. Having a flat tax is hugely beneficial for fine wine, because your markup on a bottle of C$100.00 wine is the same as on a bottle of C$10.00 wine.” With seven lauded restaurants, both freestanding and in resorts around Alberta, Royale knows about the importance of sourcing, selecting, storing and most importantly, selling wine. “The most important thing, however, is the wholesale market. I can purchase wines at a fair price, apply a fair markup, allow for cellaring as needed, and truly build a wine program. I don’t see how that would be economically feasible without wholesale pricing.” Royale is also a fan of Connect Logistics, and their user-friendly website, LiquorConnect.com. “Everything is all here, a one-stop-shop for all the products I need. I place one order, and it arrives relatively quickly, with a high degree of accuracy.”
All licensees purchase their liquor products at wholesale prices, and the retail or restaurant price is set by each business. This model allows for a huge deal of personalisation and specialisation, though as pointed out by Bhatia, it also creates a very fragmented market. “Most licensees are driven by price, with the remainder driven by quality. Having overlap of both, creating value, is rare.” With low barrier to entry as a licensee, the range of aim and education of liquor retail varies vastly. “There are maybe twenty or so really great wine boutique shops throughout Alberta, driving wine culture. The rest are either the massive chains, like Costco or Sobeys, or mom and pop corner shops, both of which two are basically entirely focused on price.” It puts the onus on the consumer to seek out unique, special products, especially outside of the main cities of Calgary and Edmonton. “Wine culture is still evolving in Alberta,” according to Bhatia, a respected wine educator himself. The top 1,000 SKUs make up nearly 80% of wine sales in the province. It’s easy for the great products to become lost in a sea of average stuff.” However, from both Bhatia’s retail point of view and Royale’s restaurant point of view, what is evident is that the consumer is keen and interested. Though wine education varies greatly, all the wine boutiques employ educated staff and hold regular consumer tastings, and there are numerous trade options available for WSET education throughout the province.
While the open market has allowed a flood of agencies, retailers and wines, the competition has also allowed the cream to rise to the top. Mark Kuspira founded Crush Imports in 2003, launching with one brand and three wines. His background at the Culinary Institute of America and completion of the International Sommelier Diploma has positioned the educated and passionate Kuspira to smartly capitalise on the open market opportunities, even with more than 400 agencies active in the province. Today the company is present in Alberta and British Columba, has a diverse portfolio of more than 300 wines and spirits from around the globe, and has doubled sales in the last three years, all while adhering to his founding principle of finding great wines produced by small, family-run producers. He cites the easy access to market and low government intervention as huge benefits of Alberta’s industry, as is his allocation control of products. However, he notes that the promise of easy sales in Alberta can work against the market. “Alberta can become the dumping ground for national agencies that need to move product at any price.”
What’s on the menu
Even with the current financial downturn, Kuspira remains true to his model. “Currently with low commodity prices and a low Canadian dollar we are seeking wines that over-deliver for the price point from around the world. I am looking more and more at Australia, and organic and sustainable wineries also are of growing interest. Premium American wines are decreasing.” With the crashing oil prices and skittish market, Kuspira has seen his sales shift from restaurant to retail. This year, however, the weak Canadian dollar means tourist traffic will increase, and restaurants should see a rise in sales.
Though people may not be ordering the ultra-premium wines as often on Royale’s restaurant wine lists, the educated customer remains. “We are quite fortunate here. The wine scene is amazing. Compared to other provinces, really, there are no drawbacks.”
Alberta at a glance
As of 31 December 2015
Population: 4,146m
Retail liquor stores: 1,402
Off-sales (hotel, manufacturer, other): 462
General merchandise liquor stores: 96
Other liquor retailers (e.g. delivery service): 111
Total liquor retailers: 2,071
Products available: 21,816
Source: agl.ca
