Markets | Ontario

Ontario is Canada’s most populous province with 14.5 million inhabitants and a GDP of $744 billion – a market bigger than some European and new world countries. The importation, wholesaling, distribution and retailing of all alcohol beverages is controlled by the Liquor Control Board of Ontario, an agency owned by the government of Ontario, reporting to the Ministry of Finance. In its fiscal year ending March 31, 2020, the LCBO gross revenue was $6.7 billion, with a net profit of $2.4 billion. Wine makes up 34% of LCBO revenue. The market share for wine is currently 25% domestic, 33% European and 42% new world.

The LCBO operates 632 retail stores and wholesales to a growing number of grocery stores and privately-owned agency stores in rural markets. It also regulates supply to the hotel & restaurant sector, which on January 1, 2021, was permitted to sell bottled alcohol off-premise, opening up thousands of potential new points of sale to the public.

The LCBO is the sole importer of all alcohol coming into Ontario, no matter how distributed. It is a tightly regulated organization, free of corruption and financially sound, so once you are involved the relationship can be very rewarding. And the LCBO always pays.  But nothing happens quickly in Ontario so suppliers and agents working patiently together is crucial for success.

And despite Ontario being a monopoly market, the monopoly is weakening and the market is diversifying in terms of retail product selection and sales, so there are growing opportunities for new suppliers. Market Matcher is here to help make the connection.

For further insight into the LCBO and the products/suppliers available please visit www.lcbo.com .

Every supplier dealing with LCBO requires an agent, which is why Market Matcher is key tool to finding those relationships. Agents are licensed by a separate (non-LCBO) government entity called the Alcohol & Gaming Commission of Ontario (AGCO) as Licensed Manufacturer’s Representatives. An agent can be the brand owner, but the vast majority are independent private companies who represent a portfolio of suppliers. Some agents operate in other Canadian provinces, but most only operate in Ontario. Agents earn commission which is added to the supplier’s price and the supplier pays the commission once it has been paid by the LCBO.

There are eight sales channels in Ontario, whether the end customer is an individual, hotel, restaurant, club or caterer. The first five below are LCBO-run retail channels where the LCBO selects the products.  And by the way, all LCBO orders, regardless of sales channel are subject to a $250.00 laboratory chemical analysis fee per SKU. The LCBO operates one of the best chemical analysis labs in the world.

General List products generate a huge 76% of LCBO revenue. Approximately 3,500 products are continuously available in many of the 632 stores, often the same international brands found in supermarkets around the world. Many sell tens of thousands of cases per year, a few may sell hundreds of thousands of cases.

Competition is intense for new listings, and openings are relatively few. The LCBO regularly notifies agents as to the types of products they want to purchase. When considering applications the LCBO looks at price, packaging, marketing, and third party product reviews and ratings, the latter being something Market Matcher provides via our expert tasting panel. Once a product is approved for General Listing it is assigned a sales quota based on its retail price and sub-category.

The LCBO ships the new product to about 100 of its larger retail stores. The agent must then secure additional retail distribution in more stores, convince the hospitality sector to purchase, create in-store merchandising and undertake marketing of the product beyond the LCBO. Failure to meet the sales quota may result in the product being delisted, and penalties may apply.

The LCBO also operates VINTAGES, a in-store retail channel for more premium priced products available in smaller quantities. VINTAGES sales in the last fiscal year were $974 million, or 9% of total LCBO revenue. That may not sound important, but  VINTAGES accounts for 30% of all wine sales, and 60% of all wines sold over $12 per bottle.

Within 210 stores space is set aside for a VINTAGES section, staffed by wine trained LCBO product consultants who also taste products before release. As with the General List, product calls are sent to agents. Once selected and purchased, they are scheduled into a bi-weekly release of about 120 items (often months in advance), that is preceded by the publication a bi-weekly VINTAGES catalogue and bi-weekly e-blast.

Annually, VINTAGES releases about 2,500 products, some new, others being popular brands repeated from well-established brands and suppliers. But there is no guarantee that VINTAGES will re-order. Order sizes vary based on the type and popularity of a product or category, price and the season.

VINTAGES operates other specialty programs as well, the most important being VINTAGES Essentials, a selection of about 120 brands that are available on a continuous basis and subject to higher sales targets.  VINTAGES also publishes a monthly CLASSICS CATALOGUE containing small lots of some of the world’s most rare and expensive wines, that are purchased on-line or by phone. VINTAGES also participates in pre-sales of Bordeaux futures, plus special curated offers from individual suppliers, and a very limited selection of products that can only be found in the VINTAGES sections of larger, all-inclusive LCBO Flagship stores.

A very few LCBO stores offer an enhanced selection from a particular country. Currently there are ‘Destination’ stores for France, Spain, Italy, Greece, Germany/Austria, Portugal, California, Australia/New Zealand, Argentina, Chile, South Africa and Asia. LCBO buyers request products for ‘Destination’ stores once or twice a year. These are very small orders and again there is no guarantee products will be re-ordered. However, products that do sell well may be ordered for VINTAGES or the LCBO General List, making this a good retail portal and testing ground for new products. Further information can be found at this link: http://www.doingbusinesswithlcbo.com/tro/downloads/Private-Ordering/Destination%20Collection%20Application%20Form.pdf

All products included in the retail channels above are also available via on-line sales in a web platform operated by the LCBO. This program is continually evolving, and some products may or not be made available on-line. Essentially, customers can order for direct delivery to their home or office, or to an LCBO store in their neighbourhood. On-line sales do not change any of the basic practices or parameters that apply to the retail channels above.

Since 2018 a limited but growing number of grocery stores (approximately 450 as of December 2020) can sell wine, beer and ciders. This channel accounts of 7% of LCBO revenue. The LCBO acts as the wholesaler providing the grocers with a discount, but the exact amount is LCBO proprietary information. Grocers order from a list of products provided by the LCBO. All products available to grocers must have a minimum LCBO price of $10.95.  Additional information is available at: https://www.lcbowholesaleoperations.com/home.html

Any agent, individual or licensee can place a Private Import order for products not available through the retail channels above. The agent solicits Private Import orders from their customers, sets the landed cost based on LCBO calculations then adds a service fee. This price is offered to the customer, who must pay a deposit of 25%, or have the agent pay on their behalf. The LCBO pays the supplier on terms of 30 days after date of arrival.  Additional Information may be found in this link: http://www.doingbusinesswithlcbo.com/tro/downloads/Private-Ordering/Private%20Ordering%20Guidelines.pdf

There are 130 agents operating within the LCBOs Consignment Warehouse program, selling about 850,000 cases a year with a value of $148 million. When an agent demonstrates they can sell 500 or more cases through Private Import (above) in a year, the agent may apply for space within the LCBO’s Consignment Warehouse, from which they sell landed products – not selected by LCBO buyers – directly to individual and hospitality customers. Until 2020 sales were by the case, but in a pandemic response to help small businesses, they can be mixed cases containing products from several suppliers.

Initially, the LCBO places a 125-case limit on how much stock the agent can have within the Warehouse, with another 125 cases in transit. These limits can be increased once the LCBO is confident in the agent’s ability to sell the inventory. The supplier is not paid until the last case has been sold by the agent and removed from the Warehouse. If products are not sold within 180 days, the LCBO reserves the right to mark it down and move it to one of their retail stores.

Hotels, restaurants, clubs and caterers represent 13% of LCBO sales. They can purchase products through any LCBO channel above, but a significant portion are sourced from the Consignment Warehouse program, with its slightly different financial arrangements. Due to the pandemic, the provincial government in 2020 allowed licensed establishments to sell alcohol along with take-out or delivery orders, so a growing number of restaurants have become ‘de facto’ wine shops. In January 2021 this situation was made permanent. For more detailed information about doing business with the LCBO go to http://www.doingbusinesswithlcbo.com/tro/Forms-Documents/pmpp/files/assets/basic-html/toc.html

Ontario is a market is bigger than many European countries. Despite being a monopoly market, there are good opportunities for new suppliers. The LCBO is a well-run organization, free of corruption and financially sound. Nothing happens quickly in Ontario; however, the process to enter the market is clear. Work with your agent to determine which of the channels best suits your products. Then develop a plan to enter the market with clear goals. Above all be persistent and patient in equal measure.