Tales from the Wine Trail
Update: New LCBO New Consignment Program in Place - February 2009.
On December 1, 2008, the LCBO unilaterally imposed a contract on all Consignment Agents operating out of the Specialty Services warehouse. The new changes include a reduction of the length of consignment storage from a maximum of 210 days to 120 days and the imposition of storage charges after 60 days. They also created a set of ‘tiers’ built around the number of cases of wine moved by an agent through the warehouse on an annual basis -- placement at one of hte 'tiers' designates the agent's 'allowonce' for storage and for 'cases in transit'.
For Lexcellent Wines, these changes have lowered our logistical capacities for warehousing and for transportation by one-third (from 350 cases in each category to 250 cases in each), and, as we find ourselves sitting at the midpoint of one of these arbitrarily defined tiers, we don’t see much possibility of progress unless we change the focus of our portfolio. If the revisons any favour agencies it might be those that quickly move quantities of relatively inexpensive wines through the LCBO warehouse but it certainly mitigates against portfolios of quality wines such as ours.
If the intention of these new regulations is to force smaller, more specialized agencies out of business, it appears that it will be a great success. It is also affecting large agencies -- many of whom have access to a 'high-volume' container-load program for their lower-prices wines, but are still finding it very difficult to manage the 'interesting' end of their portfolios. Add the current economic downturn and it's safe to say that the selection of wines available through the consignment system is very likely to shrink significantly. Clients might want to consider getting these wines while agents still have stock or access to them.
When we pointed out that our wines return several times the dollars to the LCBO (in markups and taxes) per case than wines that generate higher volume turnovers, the LCBO representative agreed but said that no consideration would be given to the $ values involved –- only warehouse ‘turns’. As difficult to understand as this position might seem be, it should be pointed out that this approach to ‘retailing’ is the view of LCBO management at the highest levels. It may be a defensible approach to the marketing of tetra packs of 'beverage alcohol' but is a sad substitute for some basic wine savvy and interest.
We are, of course, going to do our best to manage our supplies under the new rules, but it will be difficult to maintain the variety and scope of our portfolio with one, if not two hands tied behind our backs. We have already notified some winemakers that we see no new orders forthcoming anytime soon, if ever. In every case, we will have to content ourselves with smaller, more frequent orders and will only be able to maintain continuous supplies of a very few wines.
To be frank, from our perspective, there don’t seem to be good reasons for these changes as they have been imposed. The Board claims that sales were up 17% through the Consignment Program last year (2007/2008)-- when we asked whether this was dollars or volume, they indicated ‘both’.
Consignment is a program where the agents do all of the work – they source the wines and form relationships with the winemakers, they select and order the wines, they find and service customers for the wines here in Ontario, they pay for the wines directly and deliver them to the customers, they collect payment, handle returns, and so on. They do this in consideration of a service fee that they add to a 'basic' price determined by the LCBO and this price includes the very same markups, service charges and taxes that the wines sold through the LCBO stores are subject to –- without the expenses of furnishing and staffing the stores, the very significant marketing that accompanies this and the logistics and management involved in operating some 500 retail outlets. In the Consignment program, virtually none of these charges apply, and yet the Board sees fit to limit rather than encourage consignment agents.
It’s difficult to see how the wine-buying public of Ontario is well served in these circumstances.