This discussion summarizes the rules related to wholesale pricing in the various distribution channels for BC wineries (both land-based and commercial). Significant topics covered include:
- Pricing in the Direct Delivery Channel for Private Retailers
- Pricing in the Direct Delivery Channel for Restaurants/Bars/Hotels (Hospitality Licensees)
- Pricing in the BCLS Retail Channel (Government Liquor Stores)
- Markup and pricing differences
Title: Wholesale Pricing for BC Wineries
Date: October 26, 2023
Author: Mark Hicken, BA JD
This document contains a general discussion of the issues noted which was prepared on the date noted above. It does not constitute legal advice and was not prepared for you specifically. If you or your business needs a legal opinion, you should contact a lawyer for individual and updated advice.
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Distribution of 100% BC Wine by a BC Land-Based Winery in the Direct Delivery Channel to Private Retailers and to Hospitality Licensees (Restaurants/Bars/Hotels)
Note: effective July 20, 2020, BC wineries are required to sell at their registered wholesale price in the direct delivery channel to all private retailers and to all restaurants/bars/hotels. Volume discounts and price variation between customers are not permitted. Prior to July 20, 2020, a different pricing system applied for hospitality licensees.
The winery can determine the registered wholesale price by adjusting the price with the LDB, although there are rules related to the timing and frequency of such adjustments.
This is the basic formula that the LDB uses for the sale of 100% BC wine by a land-based winery for direct delivery. Excise tax is now payable since the exemption for Canadian wine was eliminated. The wine is exempt from LDB markup in the direct delivery channel so long as the wine is produced from 100% BC grapes.
Supplier Cost of Wine
+ Excise Tax (0.70 per litre)
+ Container Recycling Fee (0.12 for containers less than or equal to 1 liter)
+ GST (5%)
= Wholesale Price
Example Including Certain Assumptions (Direct Delivery channel)
|
Type of Fee |
Amount per 750 ml bottle |
Example |
|
Production Cost |
$10 per 750 ml |
$120/case |
|
Cost per bottle |
|
10.00 per 750 ml |
|
Profit Margin |
Assumed at $2 |
12.00 |
|
Supplier Cost |
|
12.00 per 750 ml |
|
Excise Tax |
0.53 per 750 ml |
|
|
LDB Recycling Fee |
0.12 per 750 ml |
12.12 |
|
Wholesale Price |
|
12.75 |
|
GST |
5%: + $0.64 |
13.39 |
|
Wholesale inc GST |
|
13.39 |
|
|
|
|
|
Supplier (Land-Based Winery) Receives |
12.00 (supplier cost) |
$12.00 |
The pricing is the same as for a commercial winery distributing VQA wine (discussed below). The difference is that for land-based wineries the above applies to all 100% BC wine (not just BC VQA wine).
Distribution of VQA Wine by a BC Commercial Winery in the Direct Delivery Channel to Private Retailers and to Hospitality Licensees (Restaurants/Bars/Hotels)
Note: effective July 20, 2020, BC wineries are required to sell at their registered wholesale price in the direct delivery channel to all private retailers and to all restaurants/bars/hotels. Volume discounts and price variation between customers are not permitted. Prior to July 20, 2020, a different pricing system applied for hospitality licensees.
The winery can determine the registered wholesale price by adjusting the price with the LDB, although there are rules related to the timing and frequency of such adjustments.
This is the basic formula that the LDB uses for the sale of BC VQA wine by a commercial winery for direct delivery. Excise tax is now payable since the exemption for Canadian wine was eliminated. The wine is exempt from LDB markup in the direct delivery channel so long as the wine is certified BC VQA.
Supplier Cost of Wine
+ Excise Tax (0.70 per litre)
+ Container Recycling Fee (varies – approx. 0.12 for containers less than or equal to 1 liter)
+ GST (5%)
= Wholesale Price
Example Including Certain Assumptions (Direct Delivery channel)
|
Type of Fee |
Amount per 750 ml bottle |
Example |
|
Production Cost |
$10 per 750 ml |
$120/case |
|
Cost per bottle |
|
10.00 per 750 ml |
|
Profit Margin |
Assumed at $2 |
12.00 |
|
Supplier Cost |
|
12.00 per 750 ml |
|
Excise Tax |
0.53 per 750 ml |
|
|
LDB Recycling Fee |
0.12 per 750 ml |
12.75 |
|
Wholesale Price |
|
12.75 |
|
GST |
5%: + $0.64 |
13.39 |
|
Wholesale inc GST |
|
13.39 |
|
|
|
|
|
Supplier (Comm Winery) Receives |
12.00 (supplier cost) |
$12.00 |
The winery would deposit all sale proceeds into the bank account to which the LDB has access. There is no LDB markup paid in the above scenario because the wine is certified as BC VQA. Note that wine that is not BC VQA certified is subject to LDB markup for commercial wineries even if it is 100% BC wine. This obviously constitutes a significant disincentive for a commercial winery to produce non-VQA wine.
Distribution of VQA Wine by a BC Winery in the BCLS (Government Liquor Store) Channel
The BCLS (Government Liquor Store) channel has a more complicated pricing system than for direct delivery because BCLDB markup is applied in this channel, and then partially rebated (but only for BC VQA certified wines). Wineries will generally make less money in this channel although volume levels may be higher.
This is the basic formula that the LDB uses for the sale of BC VQA wine by a winery in the BCLS channel. Excise tax is now payable since the exemption for Canadian was eliminated.
\”Supplier Prime\” Cost of Wine
+ Excise Tax (0.70 per litre)
+ LDB Markup (89% of first $11.75 per litre of prime cost value plus 27% of excess prime cost value)
+ Container Recycling Fee (0.12 for containers less than or equal to 1 liter)
+ GST (5%)
= Wholesale Price
In order to generate the Supplier Prime Cost, the winery will have to \”work backwards\” from its registered wholesale price by allowing for the markup. Effectively, the winery will then be selling to BCLS at a price that is much lower than the registered wholesale price. However, the VQA Rebate program may then apply (for VQA certified wines only) under which the winery can apply for a partial rebate of the markup which is paid later and which amount is 50% of the Supplier Prime Cost.
Example Including Certain Assumptions (BCLS Channel)
|
Type of Fee |
Amount per 750 ml bottle |
Example |
|
Supplier Prime Cost per bottle |
|
6.35 per 750 ml |
|
LDB Markup |
89% of Supplier Prime Cost |
5.65 |
|
Supplier Cost |
|
12.00 per 750 ml |
|
Excise Tax |
0.53 per 750 ml |
|
|
LDB Recycling Fee |
0.12 per 750 ml |
12.75 |
|
Wholesale Price |
|
12.75 |
|
GST |
5%: + $0.64 |
13.39 |
|
Wholesale inc GST |
|
13.39 |
|
|
|
|
|
Winery Receives … |
Supplier Prime Cost |
$6.35 |
|
VQA Rebate Approx. |
$3.18 |
|
|
Total |
$9.53 |
The winery receives less in the BCLS channel than in the direct delivery channel. In addition, the winery amount would be even less if the wine was not VQA certified as the VQA rebate would not apply.
For wines that are not 100% BC wine (e.g. blended wines or wines from imported grapes/juice), the above calculation would apply except that there would be no VQA rebate and excise tax (approx. $0.66 per litre) would also apply.