Preparing for beverage alcohol in Ontario in the countdown to 2026

While convenience stores have shown excitement at the announcement that the Ontario government will allow them to sell beer and wine from their premises by 2026, a range of questions remain as to how it will all come about and if it can do so successfully.

At the recent Convenience U CARWACS Show 2024 held in Toronto, a roundtable of industry veterans sat down to speak about the various regulatory and business challenges that still need to be addressed in the wake of the announcement.

While all the panelists agreed the announcement of beer and wine being sold in convenience stores is welcome news – especially with some stores seeing sales decline for tobacco and other nicotine items and increasing costs for operating a business – some wondered how some smaller stores will be able to successfully sell beer and wine with their limited physical footprint.

“We are essentially adding a new category [in the store], one which take up space and some stores are small and already full of products,” said Lisa Hutcheson, managing partner, with J.C. Williams Group, a retail consulting firm specializing in customer-centric strategy, market research, branding and marketing, retail operations, real estate, master planning, and foodservice. Many will have to take a hard look at the product categories they have to see which could be profitably replaced with beer and wine. “And there are issues with store design. Is there the space or the logistics to move things about to put beer and wine in. And then there are staffing issue to think about, the age requirements and training for that staff to sell them, and then there are the various issues around security to think about as well.”

Jamie Arnold, president, Little Short Stop Stores added that the announcement was a long time in coming, with discussions for bringing beer and wine into convenience stores having begun 40 years ago and with then Premier David Peterson campaigning on bringing beer and wine to convenience stores. Like Hutcheson, Arnold thinks convenience stores will face some logistical challenges ahead to get ready. 

“Cooler space is going to be a big issue,” Arnold said. "In some of our stores, we had a lot of freezer space that we thought was being underutilized, so we converted those freezers to coolers [for beer sales]. And we are looking at many of our other stores to understand their needs for selling beer and wine. I don’t have a crystal ball, but I think some [convenience] stores will be good to go right off the bat, and other stores will take some time.”

A worry is around the margins made on selling beer and wine. While all said alcohol sales will be a game changer for convenience stores others said that will only come about if the margins are there to make it profitable. When grocery stores in Ontario in 2015 were give the green-light to sell beer and wine under the Master Framework Agreement signed by the previous Liberal government, there were limits placed on the margins grocery stores could make on their sale, anywhere between 2% to just under 6%. Those margins have proved too small for some and as a result have either drastically reduced the space devoted to beer and wine sales or pulled beer and wine entirely from the shelves.

Kenny Shim, c-store owner and president of the Ontario Korean Businessmen's Association (OKBA) and the Ontario Convenience Store Association (OCSA) said that discussions are currently underway with the Ontario government about those margins. Still, even with small margins, Shim sees beer and wine sales helping bring additional sales for convenience stores going forward as customer will make other purchases at the stores when coming in to purchase beer or wine.

“As you know, the tobacco companies have a minimum pricing, a ceiling price, that they give to retailers,” Shim said. “Hopefully, that does not happen with beer and wine. I hear from a lot of U.S. critics that the wine margin is only 2-3%! We are going to be asking for a different profit margin.”

Anne Kothawala, president and CEO, Convenience Industry Council of Canada said there will need to be a lot of discussions around margins with the Ontario government as margins need to be set at a level to make selling beer and wine attractive to convenience stores. 

“As you all know, you also have the costs of delivery, taxes and fees that come from selling beer and wine,” she continued. “A lot of convenience stores will say ‘Well, if it is only a 3% or 4% margin, I’m out. I’m not going to do it. You want to encourage people to make money [selling beer and wine].”

Kothawala said something else that needs addressing are the licencing and fees that are paid to sell beer and wine. The government will need to be flexible on them to not discourage smaller stores and operators from taking on beer and wine sales. Grocery stores, because of their size and the volumes of product they can carry, have an easier time paying the fees and licenses currently than convenience stores.

“The licenses shouldn’t be expensive for a convenience store that, let’s say, is under 2,000 sq.-ft,” she added. “Obviously, they are not going to have the same sales volumes as a large grocery store that can allocate a whole lane or aisle to [beer and wine]. The cost of the license needs to be in proportion to the size of the store, as some convenience stores may only have room for a two-door cooler.”

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Jamie White, CEO and co-founder, Broadhead Brewing Company in Orléans, Ont., said the challenge going forward will be to ensure the new beer and wine market is not stacked in favour of the current larger brewers and against crafter brewers such as his operation to ensure their products get into the stores.

He pointed to the costs involved in shipping their products to stores. Without making sure there are rules and supports in place to help smaller players get product to convenience stores in a cost-effective manner, the costs for getting their product to distant convenience stores could be prohibitive for craft brewers.

“In my home market, I can deliver everything that I need easily and my margins because of that remain high,” he said. “Now, when I drive to say London or Windsor, you may be driving some 200-300 kilometres, then I’m paying the driver for say three hours behind the wheel of the truck, the cost of fuel, and all the impacts your margin.”