A REPORT TO Canadian Vintners Association Final Report on the Industry 21 St. Clair Avenue East Stakeholder Forums Regarding Suite 800 Toronto, Ontario ICB/CIC Product Labelling M4T 1L9 Tel: 416‐975‐4465 Fax: 416‐975‐1883 www.thestrategiccounsel.com November 2016 TABLE OF CONTENTS 1 Summary of Discussion with Wine Producers in Ontario, Quebec, and Nova Scotia 3 2 Summary of Discussion with Wine Producers in British Columbia 10 3 Overall Summary and Recommendations 16 SUMMARY OF DISCUSSION WITH WINE PRODUCERS IN ONTARIO, QUEBEC, AND NOVA SCOTIA 3 Summary of Discussion with Wine Producers in Ontario, Quebec, and Nova Scotia Introduction The Toronto forum was attended by 18 participants, including 16 industry representatives (Ontario, Quebec and Nova Scotia) as well as one representative each from CFIA and the LCBO. Both VQA and VQA/ICB (CIC) producers took part in the session. The full day session consisted of three morning presentations, followed by Q’s & A’s, and discussion. Afternoon breakout sessions divided participants into two groups to discuss labelling and the differentiation of blended and VQA/100% Canadian wines. At the end of the day, each group reported on their discussions and points of view, and provided final comments. The three morning presentations included: • Overview of the key findings from the interviews undertaken by The Strategic Counsel of producers and retailers; • Overview by the Canada Food Inspection Agency (CFIA) on country of origin labelling for wines and the regulatory environment for food labelling; and • Statistics and trends in wine consumption in Ontario, presented by the LCBO Vice‐President, Products, Sales & Merchandising. THE STRATEGIC COUNSEL C O N F I D E N T I A L 4 Summary of Discussion with Wine Producers in Ontario, Quebec, and Nova Scotia (Cont’d) Key Points from Presentations The CFIA representative made the point that the Agency is undertaking a food labelling modernization review and encouraged input from the CVA process be submitted to CFIA for review and possible incorporation into the new framework. The new labelling regulations will be drafted in early 2017 with a goal of being incorporated into law in late 2018. The presentation of LCBO research made a number of points that participants found relevant to the discussion: • VQA and ICB/CIC wines do not compete with each other; buyers are very different in demographics and in consumption patterns; • Both VQA and ICB/CIC categories continue to deliver significant year over year increases, by volume and dollar sales –a trend LCBO would like to see continue; • Average VQA wine price is $14.16 compared to $7.72 for ICB/CIC products, with almost all VQA wines are sold above $10 and most ICB/CIC wines are sold below $10 per bottle; • VQA wines are sold in 750ml formats, while the vast majority of ICB/CIC wines are sold in formats of 1.5L or larger; • Local and quality are key determinants in the growth of VQA product sales in Ontario; and • Price and brand recognition are of uppermost importance to ICB/CIC consumers, with appellation not being a key influence in wine selection. THE STRATEGIC COUNSEL C O N F I D E N T I A L 5 Summary of Discussion with Wine Producers in Ontario, Quebec, and Nova Scotia (Cont’d) Key Points from Presentations (Cont’d) In the morning discussion, many participants made the point that the debate around ICB/CIC labelling needs to be resolved for two reasons: there are more important issues that the industry should be dealing with, and any negative publicity within the industry hurts the entire industry because it creates confusion and distrust among the wine buying public. All agreed that using media was not the way to deal with the ICB/CIC labelling issue as it damages the reputation of all wines produced in Canada in the mind of the wine consumer. It was agreed that when there are public questions about ICB/CIC wine, it is detrimental to the future of both VQA and non‐VQA wines. In the afternoon, two breakout sessions (A and B) were facilitated by The Strategic Counsel to engage participant discussion. There was broad agreement on the following points: • The LCBO research indicating that ICB/CIC and VQA wines and wine consumers were very different, and represented two distinct wine buying categories, was correct; • The terminology “Cellared in Canada” is outdated, unclear and should be amended; and • Listing all countries of origin on ICB/CIC wines was not workable/realistic and was rejected as an option. THE STRATEGIC COUNSEL C O N F I D E N T I A L 6 Summary of Discussion with Wine Producers in Ontario, Quebec, and Nova Scotia (Cont’d) Value Statement Both groups approached the label discussion differently. Group A agreed that “Blended and Bottled in Canada” was a statement of fact and, as such, was an honest and transparent statement. It also demonstrated the value that ICB/CIC wines provide to the Canadian economy. Group A participants discussed whether including “and Bottled” in the value statement was necessary. Some felt “Blended and/or Bottled” might be more appropriate, but it was raised that permitting “Bottled in Canada” could allow for the bottling of a wine from one country to be included for sale in the ICB/CIC category and was rejected as an option. Group A also discussed removing “Canada” from the value statement and simply having “Blended and Bottled by (name and address of winery).” This approach was dismissed by Group A on the grounds that the economic value was truthfully added in Canada. Group B agreed that the label value statement should be simplified to read “Blended from …” removing any reference to Canada as it was known to be a point of contention with some in the industry. The group believed that “blended” was an accurate description of the value‐added process and the term would be clear for consumers. There was further suggestion that another acceptable alternative was to change the statement to “Blend of…”, which was also viewed as being very clear. THE STRATEGIC COUNSEL C O N F I D E N T I A L 7 Summary of Discussion with Wine Producers in Ontario, Quebec, and Nova Scotia (Cont’d) Country of Origin Statement Group A and Group B agreed that the country of origin portion of the label claim should be “from imported and domestic wines” which confirmed that the wine was made up of both imported and domestic content. Group A recognized that Ontario has a regulated content requirement of 25% for ICB/CIC wines and that other provinces did not have the same content regulations. This led the discussion to the value of establishing a content threshold for use of the term “from imported and domestic wines” on the label and, if the Canadian content was below the threshold, the label would claim “from international wines”. Ontario representatives suggested their 25% content threshold for the use of “domestic wines”, but there was no agreement on this point. Nova Scotia stated that this was unfair as it would restrict producers outside of Ontario from communicating that their blended wines include Canadian content which is available to all other food products sold in Canada. Group B agreed that the country of origin portion of the label claim should be “from imported (or international) and domestic wines”. Participants in Group B did not feel it appropriate to discuss specific thresholds as it is a provincial consideration. During the discussion, there was a suggestion put forward to use “from international wines” when a notable percentage of “domestic” content was not used in the blend. The majority of Group B representatives felt that this failed to adequately recognize Canadian content and that there is no federal audit process to monitor and enforce content. Group B discussed the value of including a voluntary statement, such as “Blend of Imported and Domestic Wines” on the principle display panel as additional information for consumers to recognize that this is not a 100% Canadian wine. This would help differentiate brands that have similar VQA and ICB/CIC wines. It was suggested that having shelving and signage that reflected the value statement on the wines would also help with addressing consumer clarity. THE STRATEGIC COUNSEL C O N F I D E N T I A L 8 Summary of Discussion with Wine Producers in Ontario, Quebec, and Nova Scotia (Cont’d) Conclusion When both groups convened, there was general agreement that the value statement “Blended and Bottled in Canada” was truthful and acceptable. Although general acceptance of Group B’s suggested “Blended by” or “Blend of”, there was resistance from some industry members and the LCBO, who felt that “in Canada” was accurate, truthful and recognized the economic contribution of the wines. There was significant disagreement over regulating a Canadian content threshold in order for a wine label to use “from imported and domestic wine” versus “from international wines”. THE STRATEGIC COUNSEL C O N F I D E N T I A L 9 SUMMARY OF DISCUSSION WITH WINE PRODUCERS IN BRITISH COLUMBIA 10 Summary of Discussion with Wine Producers in British Columbia Introduction The Penticton forum was attended by 16 participants, including 14 industry representatives (British Columbia, National) as well as one representative each from CFIA and the BC Liquor Distribution Branch (BCLDB). Both VQA and VQA/ICB (CIC) producers took part in the session. Key Points from Presentations The full day session consisted of three morning presentations, followed by Q & A’s, and discussions. The three morning presentations included: • Overview of the key findings from the interviews undertaken by The Strategic Counsel of producers and retailers; • Overview by the Canada Food Inspection Agency (CFIA) on country of origin labelling for wines and the regulatory environment for food labelling; and • Statistics and trends in wine consumption in British Columbia, presented by the BCLDB Executive Director of Retail Operations.