2010/07/01 Marketing Essay

"Do the regulated markets like Canada need

specific marketing approaches? Why ? How?"

Richard Sagala

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Introduction

Each of Canada's thirteen1 provinces and territories have a Liquor Board or Liquor Commission to oversee the distribution and sale of alcohol. Each jurisdiction operates on its own but all liquor boards are supervised by the Canadian Association of Liquor Jurisdictions (CALJ, 2010).

But for one exception (Alberta which has privatized liquor retailing in 1993), the sale and distribution of alcoholic beverages in Canada are controlled by Liquor Control Boards who are the single entry point to local markets into the ten provinces and the three territories (CALJ, 2010).

Beer and liquor stores sold $19.4B2 worth of alcohol by the end of March 2009, 3% more than the previous year (StatCan, 2010).

There is an asymmetry in terms of size of market value between provinces. Out of these thirteen markets, four: Québec, Ontario, British Columbia and Alberta represent 92.5% of all wine sales (Wine Alley, 2009). In the fiscal year finishing March 31st 2009, Quebec consumed 1.9 B$ worth of wine (7.8 million population), a little more than Ontario $1.85B (12 million population) where they sold for $1.86B of spirits. Spirits in Quebec sold $604M (StatCan, 2010).

Do the producers and those wishing to be active in the Canadian market need specific marketing approaches to be successful?

Yes, companies who wish to sell to Liquor Boards need a marketing approach based on holistic marketing. Holistic marketing recognizes that "everything matters" (Kotler et al., 2008). To sell an alcohol related product in Canada requires more than satisfying a need by the way of a product since there are more than one agenda at work when one deals with state run Liquor Control Boards.

Liquor Boards are part of the Canadian experience.

A remnant of Prohibition times where they were created to control the sales and distribution of alcohol (Wallace, 1948) the now thirteen Canadian liquor control boards compose the Canadian landscape for the distribution and sale of alcoholic beverages. Even Nunavut, a territory that got created the first of April 1999 soon established it's own Liquor Commission (Nunavut, 2010). Paradis and Sacy (2005) tell us that they still play a useful role and should continue to be part of the picture:

1 The 13 Canadian liquor commissions and boards are: 1- The Alberta Gaming and Liquor Commission, 2-The British Columbia Liquor Distribution Branch, 3- The Liquor Control Board of Ontario, 4- The Manitoba Liquor Control Commission, 5- The Northwest Territories Liquor Commission, 6- The Newfoundland and Labrador Liquor Corporation, 7- New Brunswick Liquor Corporation, 8- Nova Scotia Liquor Corporation, 9-The Nunavut Liquor Commission, 10- The Prince Edward Island Liquor Control Commission, 11-The Saskatchewan Liquor and Gaming Authority, 12- la Société des alcools du Québec, 13- The Yukon Liquor Corporation.

2 All amounts are expressed in Canadian Dollars.

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In the 21st century, a number of very important reasons justify the existence of retail alcohol monopolies... the protection of public health...The fulfillment of their social responsibilities by promoting public health is what clearly differentiates public corporations from private ones. (Paradis et al. 2005)

On the issue of social responsibility they add: Retail alcohol monopolies are less likely than privately owned companies to sell to minors and intoxicated people. According to Mosher (1995), privatization would create a marketplace in which there would be very strong economic incentives to discount the price of alcohol, and sell to vulnerable customers (Paradis et al., 2005).

The recent events in the U.K. of Tesco selling below cost adds to that argument (Barnes, 2010, Whalen, 2010). "Price discount are infrequently used in the government owned retail outlets in Sweden and Canada" (Loveless et al., 2009).

Retail alcohol monopolies place a high priority on educating the population they serve with regard to various matters, such as quality control, responsible drinking and the culture of taste as opposed to the culture of drunkenness (Paradis et al., 2005).

The Quebec Liquor Board (Société des Alcools du Québec) has developed a program "Les Connaisseurs" (The Connoisseurs) which is educating the people with courses in wine appreciation and food pairing. The program is very popular, there is a waiting list, and more than 50,000 people so far have followed them (SAQ, 2010). In Ontario, the Liquor Control Board of Ontario, LCBO, have an equivalent program (LCBO, 2010). For promoting responsible drinking, Éduc'alcool, an independent government approved institution was created and the Quebec liquor Board have subsidized it yearly since its creation in 1990. Last year contribution was $2.7 M (SAQ, 2009-10 annual report).

Monopolies are very powerful tools that can be used to increase taxes on alcohol whenever governments need money to build schools, improve the health system or simply decide to do so in accordance with a specific alcohol policy (Paradis et al., 2005).

Control Boards are a good source of revenue for the provincial governments (their only share holders) with increasing revenues in 2009 for all the thirteen monopolies (StatCan, 2010). The two majors Boards in Canada, the LCBO and the Quebec one, the SAQ has returned to their government record profits of $1.4B and $867,2M for their last fiscal year (LCBO 2010, SAQ, 2010).

Health and safety issues are important and "consumers in Sweden and Canada are used to a separate quality control by their state alcohol distribution monopolies" (Loveless et al., 2009).

Both SAQ and LCBO have world class laboratories where stringent evaluations of the quality of the products sold are conducted. At the LCBO, every year, more than 492,000 tests are performed on more than 22,000 products (LCBO, 2010). The American retailer Total Wine have a policy for not testing the products if they are SAQ lab approved (Marissal, 2009).

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When measuring the relative importance of sustainability for wine consumers amongst five countries, Canada has scored above average (Loveless et al. 2009) But, Liquor Boards can be real drivers of change for that matter: British Columbia, Manitoba, Yukon, Quebec and Ontario between 2008-2010 have all dropped the use of single use plastic bags (CALJ, 2010).

On the 27th of April 27 2006, LCBO and (Australian) Banrock Station Wines announced a five-year 1.2M$ project to help restore native Atlantic salmon to Lake Ontario, after an absence of more than 100 years due to habitat loss at the time of early settlement (LCBO, 2010).

Since 2004, the SAQ has subsidized a research Chair at Sherbrooke University for the study of industrial applications of used glass containers, a project to valorise the glass from the bottles in provenance of the 60 countries where SAQ sources its wine (SAQ, 2010). The question of light glass does interest both Ontario (LCBO, 2010) and Quebec.

Following a SAQ letter to the trade (Poids des contenants utilisés, juillet 2010, SAQ B2B) light glass will weigh more on the final "sustainability" grade products under evaluation receive before being accepted for selling in the Province. In the following Table it falls under "section 3- Sustainable development".

In July 2010, we are starting to see 10% lighter bottles appearing on the shelves of the 416 Quebec stores with a distinctive identification. (Appendix 1 and 2).

Table 1, SAQ Ponderation / Selection criteria

Source: SAQ B2B, 2010, Grille de Pondération / Selection criteria, [Online] Looking at the Table, one can find the weighted selection criteria against which a producer will be judged when submitting a sample. The above section with the words "Regular" refers to wine and "Specialty" refers to both wine and spirits.

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In the third section of the grille, under 3.0 Environment, one can see that 5% of the total score is being devoted towards sustainable development. There is intense competition for accessing the shelves of the 416 Quebec and 611 Ontario stores. In a may 2010 Letter to Trade it is stated:

LCBO WINES is interested in purchasing products that address environmental concerns. LCBO considers bottles that are under 420 g to be lightweight glass; this is particularly important for wines under $15. The usual qualities that we look for when evaluating a product for purchase, such as: exceptional price quality relationship, strong branding, varietal, exciting packaging will also apply, however lightweight glass and screw cap closures will be given additional consideration. ...LCBO has seen a growing demand for Organic and Biodynamic wines. Agents should ensure that pre-submission information clearly states wines that are certified Organic and/or Biodynamic (LCBO, 2010).

LCBO does not allow any precise percentage points as SAQ does towards the sustainability criteria.

However, there is an evaluation grille at page 13 of the LCBO Grille Product Profile Marketing Plan (appendix 3), (LCBO B2B, 2010, for complete form) that assesses the organoleptic criteria at 20%, the same as the SAQ. These tasting tests for both monopolies are conducted blind by an independent tasting panel (SAQ B2B, 2010, LCBO, 2010).

As previously stated, LCBO is looking for "exceptional price quality relationship", a criteria that the above SAQ grille rate at 15% for regular spirits, 35% for regular wines and 30% for specialty products (table1). SAQ and LCBO do consider themselves as market driven as their private equivalents. Both compete for "share of wallets, money that consumers may decide to spend with other retailers" (LCBO, 2010). And both want to "further differentiate the customers experience" (Strategic Plan 2010-2012, SAQ, 2010) to keep increasing revenues in the future. In October 2009 in Davos, Switzerland, SAQ CEO Philippe Duval "explained to us that one of the reasons behind the SAQ’s continuous success is the fact that it is run as a private company even though it is state owned " (Marie Ahms, Davos du vin 2009).

In the last ten years, LCBO has received more than 200 business awards and Strategy Magazine in 2008 named the LCBO "Integrated Marketer of the year" (LCBO, 2010).

During the fall of 2009, SAQ introduced "les pastilles de goût", eight taste tags, four for whites and four for reds to help consumers identify the general profile of the wines offered (appendix 4). The initiative was targeted at the low involvement clients segment. All 416 stores and 398 agencies, the major grocery chains and chains of restaurants have adopted them in less than a year, setting the base of a coherent communication platform in more than 1500 retail outlets (SAQ annual report 2010). In 2010 a free iPhone application got launched (SAQ, 2010) and the template of these taste tags are offered free of charge on the B2B website for producers and their agents to use and integrate in their promotional literature (SAQ B2B, 2010, Guide de Normes,)

Making a grand entrance into Canada Monopoly buyers rely on scores and medals to evaluate the notoriety of wines (Malizia, 2010). In the case of Super premium and Ultra premium wines SAQ, 25% of the total SAQ

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score goes towards notoriety (section 2.1 of Table1). To help evaluate notoriety, SAQ has graded the most significant magazines, writers and competitions (SAQ B2B, 2010, Listes de magazines, concours, critères de notoriété).

As a strategy to get exposure, Ricardo Valero recommends starting to sell first in the western part of Canada, private stores in Alberta make it easier to get in, and from there eventually get noticed by the two main liquor boards further east: LCBO and SAQ. Malizia (2010) adds that the LCBO would be the world's largest beverage alcool buyer (LCBO, 2010) if taken as a private company. Entering a monopoly market is hard because there is only one buyer for one country. Monopoly calls for tender are based on the monopoly needs. Prices are standardized under monopoly system. On the other hand this is simpler because wineries do not need to deal with intermediaries such as distributors or importers says Valero. (Malizia, 2010).

Conclusion Private retail and distribution companies may use sustainability to optimise their supply chains and their highest gains will come from reduction in waste, weight handling, etc., but their commitment towards sustainability may appear to be mainly driven by self-interest.

Loveless et al., (2009) showed us that the importance of sustainability in consumers mind ranked the lowest in the UK and Ireland where there are no monopolies on alcohol and where big retail have such claims but nevertheless seems to lose both the sustainability and social responsibility message. Loveless et al., (2009) have equally mentioned the fact that Canadian consumers may be above average in their sensitivity towards sustainability, but the real impetus comes from the monopolies. LCBO and SAQ are not only channel captains but are determined drivers of change in pursuing their own sustainability and social responsibility agenda. Holistic marketers will be aware and proactive in integrating this reality. Various information about sustainability are easily available for the industry and some stakeholders are readily positioning themselves accordingly. For example:

Lightweight glass is the most popular eco-friendly packaging alternative in this year’s poll, with 31% of the trade saying they already use it and 56% forecasting it will increase in the coming year (Nielsen, 2010).

Sustainability is multidimensional.

figure 2, the three pillars of sustainability

Dréo, J., 2006, [online] Available at: http://en.wikipedia.org/wiki/File:Sustainable_development.svg

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In the May 2010 SAQ report "Bilan de Développement Durable" (report on sustainability) (SAQ, 2010), one may notice that the concept for SAQ is inclusive of ecological practice towards products, process and packaging, social responsibility, fair trade etc. This is in line with the theory of full cost accounting and triple bottom line (People, Planet and Profit). There will be a blend of these factors when determining the final grade a product will receive. At the moment, it is set at 5% of the total for the selection process, but these 5% can make the difference for producers in winning or losing a tender of offer. Selling in Canada does require specific marketing approaches in being aware and willing to be part of the evolution towards sustainability, in being committed towards social responsibility, in helping finance2 institutions the like of Educ'alcool and/or promoting social responsibility along with your products. It requires as well to be eager to communicate in earnest and clearly about the quality and gastronomic value of the wines and alcoholic beverages one sells and even trying to educate as much as to communicate, promoting only quality products in markets where producers know that public safety will have them scrutinized, where they will be blind tasted and evaluated then graded to assess their value for money, this on top of proposing as well the conventional marketing efforts of: budget for promotion, discounts for volume and all that is stated in the required marketing plans. Laurin, (2009) in his critical book against the Quebec monopoly wrote that 75% of the grade for evaluating products at SAQ deals with financial and marketing issues (As graded in Table1).

He then adds that the process of selection is impartial, transparent and prevents corruption. Dealing with monopolies may seem fastidious at times, but may be rewarding at the end of the day when, like Michel Prunier a Burgundy producer, one could declare:

...In Quebec, what is good is the payment that comes in 60 days. There is no risk, this not always like that in the USA (Laurin, 2009).

2 "Alcohol I'm in control" Pernod Ricard's best practices around the world p. 42

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Appendix 1: light glass bottle + identification collar & taste tag July, SAQ, 2010

Picture: Richard Sagala 15th of July 2010

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Appendix 2, light glass identification collar (enlarged), SAQ, 2010

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Appendix 3, LCBO point form evaluation, LCBO, 2010

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Appendix 4, "Discover your taste profile" Reference Chart, SAQ, 2010

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