Red Wine Import to Canada - Rezwine Pvt - Case Study Example

Red Wine Import to Canada Feasibility Report of Possible Expansion into Canada by Rezwine Wines Pvt. Ltd. Contents Page Numbers Executive Summary 2 Company Profile 2 Product Profile 3 Canadian Economy 4 PESTEL Analysis 7 Canadian Market Statistics 10 Local Competition 12 Entering the Canadian Wine Market 13 Possible Marketing Strategies for Rezwine 14 Conclusion 16 References 17 Executive Summary This paper discusses the feasibility options for Rezwine Pvt. Ltd., a wine manufacturing company based Australia, to enter the Canadian wine market as an Exporter. Considering that Canada is a very strong market for Australian wine, and is dominated by imported wine, the paper presents a PESTLE analysis of the Canadian market and discusses various possible market entry strategies for Rezwine. Further, the report discusses the local and international market competition and tactics which Rezwine can use to handle and beat this competition.   Company Profile: Rezwine Wines is a decade old wine manufacturer based in the Barossa Valley. We specialize in producing Red wine and over the years we have carved a niche four ourselves in the domestic wine market. Rezwine was founded by Mark David with an aim of bringing together a range of premium Australian wines from small high quality winemakers to the world market. We realize the significance of the growing demand of wine in the Canadian market and now seek to promote our highly relished red wines in to that region. Rezwine strives to ensure our wine customers and distributors have the very best quality Australian Wine to offer their clients. Following are some facts about Rezwine: Company Type Pvt Ltd. Company Owner Mark David Years of Existence 12 Staff Strength 150 Products Wines Export License Yes Product Profile: Why Red Wine? Australia is the home for world’s classic premium red grape varieties which are extensively used in the manufacture of high quality red wine. Also, according to some recent studies, wine consumption per head in Canada now stands at 11 litres per annum, higher than 8.3 litres in 2000. Consumption of red wine in Canada has also grown significantly over the period. Though the consumption of red and white wine were relatively even in 2000, red wine now accounts for 62 percent of still wine consumption in Canada. Strong Sales of Red Wine in Canada A highly regulated environment, supported by well established Provincial Liquor Boards further promotes exporters to bring in new brands to the domestic market. Out of the different wine varieties, red wine dominates the Canadian wine market. Canada has witnessed a sharp increase in wine imports during the period of 2005-2007. Wineries and liquor stores and agencies sold $5 billion worth of wines in 2006/2007, up 9.5% from 2005/2006. In terms of volume, Canadians bought 405.7 millions of litres of wine, up 7.1% from the year before. Red wine is a prime trigger behind these increased wine sales. Sales of red wine accounted for 61% of the total volume of red and white wine sold. Red wine sales include sales of red and rosé wines. Moreover, Red wine dollar sales have increased 130% since 2000, while white wine dollar sales increased a substantially lower 33% over the same time frame. (Control and sale of alcoholic beverages, The Daily, 2008) Market experts predict this trend to continue in future as well. Growing income and increasing health awareness amongst Canadian wine consumers have shifted their focus toward premium red wines. Importantly, three-quarters of all red wines sold in Canada were from other countries, compared with just over 60% of white wines. Therefore, there is great business scope in exporting premium red wine to Canada. The province of Quebec, the target entry point for Rezwine accounts for 34% of all wine sold in Canada in 2006/2007 and 42% of all red wine sold. Rezwine aims to leverage Australia’s red grapes to feed the increasing demand of red wines in Canada. Canadian Economy: Canadian economy is considerably dependent on its economic treaties with US and Mexico through the North Atlantic Organization (NATO). Though the recession hit economy of the US has had its impact on Canada as well due to Canada’s dependency on bilateral trade, nonetheless, Canada’s wine consumption trends indicate towards an increase in wine exports. The wine market in Canada is dominated by imported wine. In 2007, the total value of imports of Australian wines to Canada was C$306 million, a sharp hike of almost five per cent compared to the previous year. Moreover, with growing popularity of Australian wine in Canada, Australia is all set to become the second largest supplier of wine to Canada. Canadian wine consumers have a strong preference for imported wines over domestic counterparts. According to a survey conducted for the time period of 2000-2005, more than 60 percent of wine sold in Canada was imported. Also, it was found that sales of imported wine increased by 23 percent during 2000-2005. (Wine in Canada to 2008) An increasing preference for red wine has helped in increasing the wine sales. Therefore, there is a great business opportunity to explore in the Canadian wine market. Consumer trends that affect wine sales in Canada include: • A strong economy that provides a boost for the wine market. The wine market grew at a rate of 8.2% from April 2006 to April 2007. • Canada has an aging population that is concerned about a healthier lifestyle and is spending less as it ages. Although there has been a trend toward drinking less, there definitely is a trend among wine knowledgeable to “drink better.” • There has been a significant increase in the number of outlets where consumers can go and make their own beer and wine. Without the tax burden imposed on wines sold through the government liquor stores, consumers can “make” wine for approximately $ 3.00/bottle. • Globalization – consumers expect to have convenient access to products from around the world. Canada has well regulated provincial wine boards that control import and distribution of wine in different provinces. However, since the boards have individualistic approach, following a common promotion strategy for all provinces is not a feasible option for Rezwine. The Vintners Quality Alliance (VQA) is a general body that keeps a check on the provincial wine boards. VQA works in collaboration with the provincial wine boards and has laid down specifications for wine import into Canada. The body also issues labels to determine wine quality. It is mandatory for all exporters to use the assigned labels in their bottles. In addition, while importing wine to Canada, it is the sole responsibility of importer to ensure that his label is in compliance with both the Food and Drug Regulations and the Consumer Packaging and Labelling Regulations. According to the import regulations, it is mandatory for the wine importers to show the beverage’s common name, its net quantity in metric units of volume, and alcohol by volume declaration in both English and French languages. Along with the custom import duties and excise duty, imported wines are also subject to provincial levies, taxes and mark-ups. In addition, all imported wines in Canada must comply with the Canadian Federal packaging and labelling regulations, The Canadian Association of Liquor Jurisdictions product identification standards for use in the distribution of beverage alcohol ,The Liquor Boards product packaging standards and the Liquor Boards laboratory guidelines for chemical analysis testing of wines. (Wine to Canada, 2008) Canadian economy is a strong going economy and hold excellent business options for exporters. Productivity gains, strong business investment, technological innovation, moderate wage increases and a favorable exchange rate are keeping the Canadian economy competitive in world markets. Inflation has been low and stable and interest rates have reached record lows. Since Canada's economic outlook is tied very closely to the economic situation in the United States, exporters entering Canada stand a good chance of entering US markets as well. Political Analysis of Canadian Wine Market The Government of Canada has successfully balanced its budget over the last several years and as indications suggest, Canada is forecast to lead all G-7 nations in GDP growth during 2007. (Business Wire, 2007 ) Real gross domestic product (GDP) growth for Canada has been high but is forecast to ease to 2.5 per cent in 2007, as the high-flying Canadian dollar will hurt net exports. Economic growth is expected to accelerate to 3.2 per cent in 2008, helped by a better trade performance and steady domestic demand. Spending by all levels of government is expected to continue growing at a strong and steady pace. The government has further reduced the sales tax to 5% from 6% in the last financial year. However, along with the sales tax, the Goods and Services Tax (GST) registration is also mandatory for all businesses in Canada. The GST is a 5 % tax on most Canadian goods and services. In addition to GST, some provinces also levy a Provincial Sales Tax (PST) on some goods and services. In the province of Quebec, which is one of the strongest wine markets in Canada, the Ministère du Revenu du Québec (MRQ) regulates the GST and HST for the Canada Revenue Agency. Further, the province of Alberta province does not levy any additional tax apart from the Federal sales tax. In the provinces of Nova Scotia, New Brunswick, and Newfoundland, the PST is combined with the GST, resulting in a Harmonized Sales Tax (HST) of 13 percent. (Doing Business in Canada – GST/HST Information for Non-Residents, Report by Canada Revenue Agency, 2009) In addition to the federal and provincial sales taxes, Canada also levies an additional tax on wines depending on the percentage of alcoholic content in them. The rate of taxation according to the alcoholic content is as follows: Wines with more than 7 % absolute ethyl alcohol content by volume- C$0.5122 per litre Wines with 1.2 -7 per cent absolute ethyl alcohol by volume- C$0.2459 per litre Wines with less than 1.2 per cent volume - C$0.0205 per litre. Australian wine in particular is quite popular amongst Canadian wine lovers and there are numerous opportunities educate the consumer about the Australian wine industry, regions, varietals vs. regions, new and interesting boutique wines from Australia. Owing to this popularity that Australian wine enjoys in Canada, the bilateral trade between the two countries has significantly strengthened in the past few years. Trade between these two countries touched A$3811 million in 2007-2008. To further promote Australian wine in Canada, several international agreements have been made. By its membership of World Wine Trade Group (WWTG), Australia is also a member to the Agreement on Mutual Acceptance of Oenological Practices (MAA), a multilateral treaty involving Australia, New Zealand, Chile, Argentina, Canada and the US. Under the terms of the MAA, wine made in accordance with Australia’s winemaking practices can be marketed in each signatory country whether or not those practices are legal in the importing country.  The WWTG member countries have also signed a wine labelling agreement in Canberra in January 2007. (Australian Wine and Brandy Corporation, 2008) Canada is a member of NATO, Asia-Pacific Economic Cooperation (APEC), Organization for Economic Cooperation and Development (OECD) and North Atlantic Free Trade Agreement (NAFTA) among others. It is imperative for the businesses that are legible to pay GST/HST to register themselves with the Canada Revenue Agency. Once registered, the business is issued a Business Number (BN) by the Government of Canada. To facilitate exporters and expedite the process, the registration can also be done online. Economical Analysis Canada has scarce population with a high living standard. Further, Canada has very close economic ties with the US where 79% of her imports are to the US. Also, Canada sources almost 65% of her imports from the US as of 2006 (DFAT). No doubt then, that the recession hit economy of the US ahs impacted Canadian economy as well. But despite the recession, the Bank of Canada is expecting a recovery in 2009 with a projected 3.8% GDP growth in 2010 though empirical evidence shows otherwise (DFAT). Per capita income in the country is higher at US$39,300 as compared to Australia’s of US$38,100 according to 2008 estimates (The world fact book at https://www.cia.gov/library/publications/the-world-factbook/print/ca.html). Sociological Analysis The increasing disposable incomes in Canada have resulted in trading-up to more expensive wines. Specially, as the population ages, health concerns prompt more red wine consumption and the increased disposable incomes encourage this behavior. The significant growth in the wine can be partially attributed to the increasing consumption of wine among young professionals. As indicated by these facts, Red wine is expected to lead the growth in both volume and value terms, with white and rosé expected to grow in smaller volumes (Wine to Canada, 2008). This is indicative of a substantial business opportunity for Rezwine in Canada. Technological Analysis Business today is extremely intertwined with technology. In the case of wine industry, right from the grape fields to wine processing, technology plays a significant role. Technological advancement has been quite significant in Canada. This is substantiated by the fact that Canada has developed several high yielding varieties of French and American grapes. Moreover, in the view of the high revenue returns from the wine trade in the country, the Government of Canada has initiated several technological methods for improved farming and processing of grapes. (http://www.ecask.com/french-american-hybrid-wine-grape-varieties.html) Making the GST/HST registration online and several other similar initiatives are indicative of faster and technologically advanced communications and distribution channels in Canada. Thereby enabling aspirant entrants like Rezwine to approach and distribute its red wine in the various provincial markets. Legal Analysis The Canadian market for imported wine is highly regulated and characterised by government monopolies. Provincial Liquor Boards have sole authority to import wine into Canada. An exception to this is the Alberta Gaming and Liquor Commission, which has now privatised its entire retail network. All the other provincial liquor boards import, warehouse and distribute imported wines through their various retail outlets. (Wine to Canada, 2008) Though broadly regulated by common government policies, each province’s Liquor Board has its own procedures and regulations governing the listing, pricing, packaging and promotion of wine to which all suppliers must follow. Environmental Analysis Lately, the increasing global emphasis on the environment coupled with food safety and allergy concerns has contributed to the increased demand for organic wines. Consumers are now focusing on ethical and environmental values while picking up a wine brand. (Wine to Canada, 2008) Waste reduction has also been a key issue related to wine markets in Canada and has prompted the Provincial Liquor Boards to implement numerous eco-friendly initiatives, like innovative, lightweight and convenient alternative packaging for wine. The Canadian Wine Market Statistics In the past years Canada has emerged as a strong market for Australian wines. Presently Canada is the third largest market for Australian wine exports and is still growing at a fast pace. In 2007, the total value of imports of Australian wines was C$306 million, an increase of approximately five per cent compared to the previous year. Various trade experts indicate that there is still enough room for continued growth in the rose and blush categories (Kathleen Wainio, 2007). In the last ten years, the red wine dollar sales have surged 130 per cent since 2000, while sales of white wine increased 33 per cent during the same time period. Provinces of Quebec, Ontario, British Columbia and Alberta are the largest wine markets in Canada. The two most populous provinces, Quebec and Ontario, represent about two-thirds of the total Canadian wine market. Québec sells over 37% of all table wines and together with Ontario, account for more than 68% of the total volume of table wines in Canada. Combined with BC and Alberta, these four provinces make up more than 92% of the Canadian wine market. Quebec is an ideal market for Rezwine to make its entry in the Canadian wine market. (R. Soma & Associates Ltd.,2007) The total wine sales figures in Canada during 2007 were a whopping C$5 billion, a straight 9.5 per cent hike from the previous period. Additionally, most of these sales are dominated by imported wines as 75 per cent of all wines consumed in Canada are imported. The openness of Canadian wine drinkers towards foreign wine brands has largely contributed to the rise in demand for wines from countries like Australia, New Zealand, South Africa, Argentina, Spain and Chile. Since imported wines dominate Canadian markets, the competition is very stiff. Though Australian wines have been particularly successful in Canada, in view of increasing competition, focused and creative strategies and promotional activities are required to promote the Australian wine brands. The Canadian wine market is overall very mature and was valued at over CAD $6.6 billion in April 2006, recording a growth of ten percent in value and six percent in volume during 2005. For imported wines, France and Italy are the top providers, followed by Australia. Growing demand of Australian wines is likely to make Australia the second largest wine provider in Canada by overtaking Italy in near future. It is interesting to note that in contrast to other major markets, In Canadian market there is a trend towards higher-priced wines, with a greater focus on quality than price. This can be attributed to the sophisticated Canadian wine drinkers who tend to rate quality over price. High-quality imports are leading the growth in this category over domestic products and imported blends. Local Competition Though the Canadian market is well served with high quality local and imported wines, yet there are sufficient opportunities for new aspiring entrants like Rezwine. With the prefect blend of right marketing with our high quality red wines, Rezwine is confident of making Canadian wine consumers habitual to Rezwine’s exotic flavours. Establishing a new market presence in Canada requires heavy promotion, price keenness, and a concentrated marketing and public relations effort.  Though the overseas business legalities are well defined due to various agreements between Canada and Australia, yet sincere efforts need to be put for establishing Rezwine as a popular red wine brand. To beat the local competition in Quebec, Rezwine must establish its wine so that everybody wants it, a brand which nobody else has at the right price! This will be the key to our business strategy in Canada. Taking example from the success of Anzie wines, another Australian wine exporter to Canada, Rezwine needs to set up and surpass marketing strategies used by Anzie. While retailing our wine in Canada, we would ensure that our agents have well defined criteria for selling and promoting Rezwine. Apart from being aware of the volume of stock held in relation to turnover, the agent must also be aware of how that affects cash flow, and ability to respond to the constant flux of supply and demand.  From our experience, we have learnt that effective category planning ensures a store’s range reflects it’s demographic appropriately, and not necessarily the buyer’s own personal preferences!  To keep up in the competition, Rezwine needs to be aware of the h changing and fashionable wine styles and tastes, the shelf life of certain styles, and match up to consumer requirements. Moreover, roping in a highly qualified and professional staff will be our focus area in promoting Rezwine in Canada. The staff could be Australian, or Canadian locals, but will be well equipped with knowledge of wines and capable of excellent customer service. The flexibility to take in consumer feedback and implement changes will also be a key highlight of Rezwine strategy to cut the competition. Entering the Canadian Wine Market Since the Canadian wine market is dominated by government monopoly, the only possible and best way to enter the market is though registered agents of the liquor boards. Direct marketing of wines, sans these agents would be more time consuming and extremely expensive. Getting in through the agents makes it easier for exporters to get familiar with the market in a short span of time and also saves tie wastage in numerous legalities of the trade. According to the Liquor Boards it is mandatory for all wine to exporters sell their products through registered Canadian agents. It is important that the aspiring entrant must approach the liquor boards through a local liquor agency or representative, who must be registered with the respective provincial liquor authorities. Further, for establishing a new wine brand, the Australian exporters need to establish the right combination of price, package and quality and then negotiate distribution. It is important to note that Liquor Boards are increasingly focusing their buying decision on wines that have won international awards, have received good reviews from well known international and domestic wine writers/media. Every wine that is submitted to the Liquor Boards to assess for purchase is required to be accompanied with information on awards and third party reviews. Some key considerations for Australian wine exporters to Canada are: The exporter must ally with a local liquor agency/ representative, who must be registered with the respective provincial liquor authorities. It is important for exporters to have a local representation while dealing with the Liquor Boards. Personal visit to the target markets to appoint suitable agents is encouraged. Participation in wine fairs like Austrade Canada is a good platform for new wineries seeking representation in Canada. Considering the high competition and challenging nature of the Canadian wine market, it is very important that wine exporters develop a long-term business/marketing plan in concert with their local agents. The time taken to appoint an agent, submitting a list of products to the Liquor Boards for review and receiving their first purchase order can vary from 6 to 24 months. (Wine to Canada, 1998) Possible market entry strategies for Rezwine To enter the provincial wine Market in Canada, Rezwine would appoint a suitable agent, who is listed with the Provincial Boards. For making a successful entry choosing the right agent is vital. Proven sales performance and strong relationships with the liquor boards will help us in securing listings and win repeat orders. Further, Rezwine is looking at promoting environment friendly packaging and being an active contributor towards local environmental initiatives. As these initiatives reflect the growing consumer and industry awareness of environmental sustainability issues in Canada, they represent a good chance of establishing the Rezwine brand. Further Rezwine aims to be a full-service retail merchant of red wines in Canada. We will distinguish ourselves from the competition and capture market share by securing a prime storefront location in the growing Quebec residential neighborhood. We would also follow all the best practices as established by the Provincial Liquor boards, with particular emphasis on excellent customer service, a broad selection of quality inventory, and competitive pricing. Rezwine will be located in the newly developing Morison residential project in Quebec. Since the site is one of the densest and wealthiest markets in the country, Rezwine can leverage its high end clientele. Some of the key points that Rezwine will follow to establish its business brand in Canada include: Developing a reputation for great wine, competitive prices, and excellent customer service. Developing strong relationships with our agents. Maintaining an awareness of about our wine brand through regular advertising to our target community. Entering contracts with potential wholesale clients to promote our red wines. Indulging in activities such as wine tasting, matching wines with food, and sharing interesting and educational wine knowledge, publishing a newsletter, offering customer service through a website. Pricing products based on competitive parity guidelines as set up by the Provincial Liquor boards. Conclusion: With the market ageing and health concerns growing, Canadian consumers are attracted to red wine's reported health benefits. This has resulted in a steadily increasing per capita consumption of wine in Canada. Furthermore, market consumption volumes increased of wine increased by 1.2% in 2001-2005, to reach a total of 18.9 billion litres in 2005. The performance of the Canadian market is further set to accelerate, with an anticipated increase of 2.7% for the five-year period 2005-2010, and is expected to drive the market to a value of $243.7 billion by the end of 2010. These indications present Canadian market as a profitable business opportunity for Rezwine. References 1. Australian Wine and Brandy Corporation, http://www.wineaustralia.com/AUSTRALIA/Default.aspx?tabid=279 2. Control and sale of alcoholic beverages, The Daily, 2008 3. Information from the Department of foreign Affairs and Trade, Australia http://www.dfat.gov.au/ 4. From the Vine to the Glass:Canada’s Grape and Wine Industry, Penny Hope-Ross 5. Future Trends and Developments across the World Wide Wine Market, Business Wire, 2007 6. http://findarticles.com/p/articles/mi_m3723/is_1_11/ai_54133471/ 7. http://www.wineaustralia.com/australia/Default.aspx?tabid=361 8. http://www.ecask.com/french-american-hybrid-wine-grape-varieties.html 9. StatsCan, http://www.cbc.ca/consumer/story/2008/06/09/alcohol-statscan.html 10. The present and future of the international wine industry, Linda Bisson, Andrew Waterhouse, Susan Ebeler, Andrew Walker and James Lapsley, In: Nature, 418:696-699, 2002 11. The world fact book at https://www.cia.gov/library/publications/the-world-factbook/print/ca.html 12. Uncorking Canadian wine imports - prospects for US wine importers, AgExporter , Jan, 2007 by Kathleen Wainio 13. Understanding the Byzantine Canadian wine market, Tony Aspler 14. Wine to Canada, http://www.austrade.gov.au/Wine-to-Canada/default.aspx 15. Wine Statistics, http://www.canadianvintners.com/canadianwines/statistics.htm 16. 2007 Market Report, R. Slomka & Associates Ltd., August 2007 Read More