Wines Limited (SFW) was a new farm winery located in Falmouth, Nova
Scotia. In the spring of 1990, Suzanne Corkum, president and
co-owner of Sainte Famille Wines, looked over the racks of bottled
wine from the first vintage. They were nearly ready for sale and the
industry's peak season would soon begin. As she turned the bottles,
she thought about how she would sell this wine. She had many final
decisions to make over the next couple of months.
The Wine Industry in
Wines fell into
one of three categories: 1) commercial and table stock, 2)
specialty, and 3) investment wines. Commercial and table stock wines
were produced in high volume and were the lowest in quality and
price of the three categories. Specialty wines were usually produced
in small volumes by cottage or farm wineries. They were sold at a
premium price and did not have wide distribution. Investment wines
were purchased for the purpose of subsequent resale at a higher
This case was prepared by Shelley L MacDougall of Acadia
University for the Atlantic-Entrepreneurial Institute as a basis for
classroom discussion, and is not meant to illustrate either
effective or ineffective management. Some elements of this case have
Copyright © 1992, the Atlantic Entrepreneurial Institute.
Reproduction of this case is allowed without permission for
educational purposes, but all such reproduction must acknowledge the
copyright. This permission does not include publication.
In Canada, a full
range of commercial, table stock, and specialty wines were sold.
These wines came from all over the world, imports representing
fifty-two percent of wine sales in Canada and thirty-five percent in
Nova Scotia. (See Exhibit 1)
market was dominated by several large Ontario-based companies, which
included Andres Wines Limited, founded in 1961, and TG Bright and Co
Limited ("Brights," 1874). Both of these companies sold primarily
commercial and table stock wines. They had manufacturing facilities
across Canada and sold in every province. Inniskillin Wines, Chateau
des Charmes, and Hillebrand Wines, also all of Ontario, were large
farm wineries. They sold most of their wines in Ontario. Very few of
the wines from these wineries were sold in Nova
The wineries in
Nova Scotia were Grande Pre Estate Wines in the Annapolis Valley,
which sold approximately 25,000 cases per year, and Jost Vineyards
Limited of Malagash, with sales of approximately 48,000 cases.
Although these wineries sold some specialty wines, they sold mostly
commercial and table stock wines.
forty-six vineyards in Nova Scotia, totalling 160 acres of certified
production. These produced 130 tonnes of grapes each
The source of
grapes used by a winery varied. Some wineries used only the grapes
grown in their own vineyard. Alternative sources included grapes
purchased from other local grape growers and bulk wine or
concentrate purchased from other producers in Canada and abroad. The
use of these sources allowed the winery to greatly expand output, as
they did not have to invest the time and money in growing and
processing grapes themselves. Quality was harder for the winery to
Forty percent of
the typical year's wine sales were made in the period from May
through August. Demand dropped off in September and October, picking
up again in November and December for the Christmas season.
Approximately thirty percent of annual sales came from the Christmas
season. January to April was typically a very slow period for the
provides sales data for wine in Nova Scotia and
industry sources, the 1988 Canada-United States Free Trade Agreement
(FTA) had a detrimental effect on Canadian grape growers and
producers of commercial and table stock wine. After having been
subsidised and protected by import duties for years, wine
manufacturers found their preferential price markups phased out over
a seven-year period. This had Canadian wineries competing directly
with very large producers from the United States.
which was very capital intensive, was much less expensive on a per
unit basis as large volumes were produced. A company such as Gallo
Wines of California, with more favourable growing conditions and
very large-scale production, could easily supply the Canadian market
at a unit cost substantially lower than either Andres or Bright's -
even after adding shipping costs.
between American and Canadian producers seemed limited to commercial
and table wines. Premium quality wines were not in competition with
the products of the large US wine producers. Most American specialty
wine manufacturers had much smaller operations, limited
distribution, and charged a premium price for their
also suffered from US competition. Prior to the FTA, Ontario and
British Columbia wine manufacturers were required by law to use
mostly Canadian-grown grapes. Once free trade was instituted,
Canadian wine manufacturers were permitted to use unlimited
quantities of cheaper wine concentrate and bulk wine from the United
States. Grape growers in British Columbia and Ontario were pulling
up entire vineyards as a result.
Brights, and the vineyards that supplied them, suffered most from
the effects of free trade. Inniskillin, Hillebrand, Chateau des
Charmes, and other cottage and boutique wineries welcomed the FTA.
In fact, Inniskillin invested an additional $500,000 into barrel
aging as a result of it.
As described by
the company's new brochure, "Sainte Famine Wines Limited [was] a
small, family owned vineyard and winery located on an original
Acadian Village site known as La Paroisse Sainte Famine De Pisiquit,
settled in about 1685. The region [later came to be] known as
Falmouth, Nova Scotia, the gateway to the beautiful Annapolis
Valley. Sainte Famine Wines [was] dedicated to the art of growing
quality grapes and vinting them into elegant premium
Sainte Famille Wines Limited brochure.
purchased their farm in 1980 to grow strawberries. While plans to
prepare the land were being made, the Nova Scotia strawberry U-pick
industry went into decline. As a result, Suzanne and her husband,
Doug, began to evaluate other commercial crops.
Around this time,
Suzanne saw Roger Dial, president of Grande Pre Estate Wines, on
television discussing the merits of grape growing in Nova Scotia.
Suzanne had made wine in her home and enjoyed quality wine. As
grapes might be a good alternative crop, Suzanne and Doug began
researching the wine industry. They decided to experiment by
planting one acre of grapevines. The vines did well in the warm
summer climate of interior Nova Scotia. The following year, they
planted a second acre. They worked these two acres for several years
while learning the art of growing grapes and managing vines. "It was
a trial-and-error process," explained Suzanne. Both research and
crop results showed the land and climate were suitable for growing
In 1985, Suzanne
became involved in the Grape Growers Association of Nova Scotia.
Together with Roger Dial of Grand Pre Wines and Hans Jost of Jost
Wines, she developed Nova Scotia's farm winery policy, approved by
the Nova Scotia government in 1986. This legislation allowed
wineries to sell 350 cases of wine directly to the consumer at
retail prices for every certified acre in production.2
Prior to this development, all wines had to be sold through the
government-operated Nova Scotia Liquor Commission
2 If a
farm winery sold over the 350 case per acre quota, the NSLC
collected the profit on the excess sales.
Before a winery
could sell its product through the ninety-seven NSLC outlets, it had
to guarantee enough supply to meet the demand. The NSLC did not want
stock-outs of general listed wines, a requirement that was onerous
for a small winery with limited production. If stock-outs occurred
regularly, the NSLC would delist the offending product. Enactment of
the farm winery policy enabled a small winery to enter the market
independent of the exclusive NSLC distribution network. It was then
possible for Suzanne and Doug to start a farm winery. They did so in
At this time, the
Corkums travelled throughout Oregon, New York, Pennsylvania, British
Columbia, and Ontario looking at the types of wine various cottage
wineries sold, how the wineries were built, what volumes they sold,
and what equipment they used. The following year, they went to
Europe to look at estate wineries.
Suzanne and Doug
planted additional grapevines, and Suzanne prepared the business
plan. In February 1989, the plan was completed. Production goals and
sales projections were for 2,500 cases in the first year (1989
vintage), 3,500 cases in the second year, 4,800 and 6,000 cases in
the third and fourth years respectively. There were twelve 750mL
bottles to a case.
submitted to banks and the Atlantic Canada Opportunities Agency
(ACOA) for funding, the Nova Scotia Liquor Commission for a farm
winery permit, and the provincial government for a vendor's licence.
An ACOA grant was approved in August 1989. All other applications,
being contingent upon the grant, were subsequently
the building that would house the winery began soon after. SFW built
facilities for a production volume of 6,000 cases. If demand
exceeded this amount, Suzanne envisioned increasing production to
7,500 cases with existing facilities, but was reluctant to expand
beyond this level.
Included in the
plans was a wine and gift shop where SFW would sell wine, gift
baskets and local crafts. The gift shop would overlook the
The winery was
not ready in time to process and store the first harvest. In the
fall of 1989, a make-shift winery was set up in a vacant warehouse
on the property until construction of the permanent winery was
complete. The 5,000 gallons of aging wine were transported to the
new winery in the spring of 1990.
the winery to be open to the public in June 1990. At that time,
there would only be white wines ready for sale. The red wines would
not be released until November, although they would be still fairly
"young", having had only a little over one year to ferment. They
would be pleasant to drink, although not yet at their
The Owners and
was owned jointly by Suzanne and Doug. Suzanne had a degree in
business administration and spent two years in an agricultural
science programme. After staying at home to raise children, Suzanne
worked for Canada Mortgage and Housing and the Nova Scotia Housing
and Mortgage Commission from 1969 to 1979. For the next five years,
she was a self-employed broker of confectionary goods. From 1985 to
1990, Suzanne was manager of the Nova Scotia Fruit Growers
Association, before devoting her energies full-time to her wine
business in March of 1990.
forty-seven, Suzanne was energetic and optimistic by nature. Having
grown up on a farm, she enjoyed farming and was familiar with the
business. This is the primary reason she and Doug purchased the
worked full-time as executive director of the Halifax Industrial
Commission and planned to continue there until retirement, which was
several years away. "I do the 'grunt' work on the farm," said Doug,
smiling. "Suzanne tells me what needs to be done in the vineyard and
I do it."
Suzanne was the
nerve centre of SFW. While she and Doug made major decisions
together, Suzanne made the operating decisions. She was responsible
for overseeing the development and maintenance of the vineyard,
personnel, ordering of supplies, financial management and
SFW employed a
professional winemaker on a consulting basis. This arrangement was
to continue for the first two years of production (1989 and 1990
vintages). It was his job to develop the wines and train Suzanne in
wine production. After that time, he would be paid a retainer to
that staffing needs would be two to six employees, depending on the
time of year. A store manager would be employed full-time during the
summer and Christmas season, part-time for the rest of the year.
Others were hired for pruning vines and picking grapes, and to work
on the bottling line as needed.
produced specialty wines from grapes grown in the company's own
vineyard. The 1989 vintage consisted of eight white wines and two
red wines, mainly varietals.3 (See Exhibit 2) Suzanne and
the winemaker were developing blends to appeal to those customers
who preferred them. SFW also planned a limited quantity (sixty cases
or 2.4 percent of the first year's total production) of a wine
called Apple Blossom Special for the region's summer
Varietals are wines made from at least eighty percent of one type of
grape, in contrast to a blend of two or more types. Many of the
wines on the market were blended wines.
strongly about using only her own grapes. Partly for this reason,
SFW's volume was small by industry standards. This, Suzanne
reasoned, allowed her to maintain Sainte FamiIle's unique taste and
quality was considerable, and premium wines were the result. John
Schreiner of the Financial Post would later give accolades to SFW
after comparing its wines with other Nova Scotian wines. He
described the Sainte Famille Chardonnay as "a clean, vivacious wine,
with an elegant balance of light fruit and understated
also considered selling some wine under specialized labels, for
example, displaying a corporate logo. This was intended for
supplying conventions, company dinners, Christmas parties, weddings,
etc. A direct sales effort would be needed for this purpose, and
Suzanne believed a part-time sales person would meet her needs
should she decide to sell to corporate clients.
had twelve acres of grapevines. All of these acres were
certified5 under the farm winery policy, although only
ten had vines mature enough for wine making. The vines on the
remaining two acres would not be sufficiently mature until 1992.
There were twenty-three acres on which to plant additional vines in
A new grapevine
usually could not be fruited (grapes picked and used for wine) until
its third year. Some varieties required an additional year before
fruiting could begin. A vine was not in full production until its
fifth or sixth year. It takes ten years for a vine to "settle down"
and produce consistent yield, sugar, acid, etc.
picked in autumn, and processed and fermented over the winter. White
wines required ten months to ferment, whereas red wines required
twelve to twenty-four months.
Financial Post, Volume 84 (46) November 3,1990,
acre of vines was certified by the Nova Scotia Department of
Agriculture if it was maintained (sprayed, weeded, cultivated, etc.)
according to guidelines set out by the farm winery
aged the red wines in oak casks. This required additional
fermentation time, but resulted in better quality wines with a
distinctive flavour. The first harvest, the 1989 vintage, would be
available for sale early in the summer of 1990. Suzanne expected
there would be enough wine from this crop to meet demand until the
summer of 1991. Sainte Famille's production in the first year (1989
vintage) was 2,500 cases of wine, approximately 22,500
SFW had several
choices for distribution of its wines: sales through Nova Scotia
Liquor Commission specialty stores, through all the NSLC stores, or
direct sales from the winery to final consumers and
To sell wine
through the Nova Scotia Liquor Commission, a winery had to apply for
a "listing." Wines had to meet a minimum quality standard, as judged
by a NSLC panel of wine tasters, to obtain a listing. There were two
types of listings under which the wine could be distributed: special
Wines that were
sold under a special listing were available only through the two
"Port of Wine" stores in Halifax and the specialty sections of eight
regular NSLC stores. A special listing was primarily for
high-quality varietals; and specialty wines. Being high-quality
varietals, most of the Sainte Famille wines would likely qualify for
a special listing.
Wines with a
general listing were sold in the ninety-seven regular NSLC stores
throughout the province. Quality standards were lower for general
listings than for special listings, and retail prices were usually
lower. Table stock wines usually sold under a general
A NSLC listing
brought both problems and benefits. There was a one hundred dollar
fee for a general listing (no charge for a special listing) and a
high markup. Furthermore, the NSLC's requirement of guaranteed
supply was a risk for a winery the size and age of SFW. Suzanne told
the story of a local competitor, which, as a result of the large
volume required by the NSLC, depleted the original supply of its
listed wine. To accommodate the NSLC, the winery substituted with
bulk wine purchased from other producers and sold it under the same
label. The product was inconsistent - each time a customer bought
the wine, it had a different flavour. Suzanne felt this resulted in
a loss of integrity; the general listing did more harm than good in
that case. The NSLC was more tolerant of stockouts for special
listed wines, as these were frequently produced by small farm
Under the farm
winery policy, SFW was permitted to sell a maximum of 350 cases of
wine per certified acre direct to restaurants and consumers. Doing
so would involve making sales calls to restaurants, delivery, and
follow-up by SFW staff.
direct from the winery and through Nova Scotian restaurants would
allow SFW to retain more of the markup by avoiding the NSLC.
However, the winery would have to incur more selling expenses.
Direct sales would not provide the market penetration and product
turnover achievable with a NSLC listing.
consumers of table stock wine were quite price sensitive, those
consumers who preferred a good quality wine were willing to pay a
reasonable premium. Many consumers perceived a positive
price-quality relationship for wines.
Suzanne had to
finally decide on prices for her wines. The prices would be
functions of the costs of production, overhead, taxes, consumer
demand, the prices of competing products, positioning, and, of
course, desired profit.
Prices for the
various SFW wines would differ. The Chardonnay, for example, was
more expensive to produce than other types. Much of the pricing
decision, however, depended upon which method of distribution
The NSLC reserved
the right to determine the retail price for a general-listed wine.
They categorized wines; each category had a set minimum and
suggested range of retail prices. For instance, the retail price for
a Canadian white blend would fall between approximately $6.25 and
$7.60 per 750mL bottle.6 As a result of this structure,
prices of all the wines in the category were quite similar. Examples
of Canadian wines and prices at the specialty stores and the regular
NSLC stores are in Exhibit 3. There were no set price ranges for
special-listed wines, although the NSLC did require prices be
reasonable vis-a-vis similar wines.
The NSLC markup
was approximately sixty-nine percent. For instance, the NSLC would
pay Sainte Famille $2.70 for a bottle of wine, which it would then
sell to the consumer for $6.90. (This differential includes sales
and excise taxes - see Exhibit 4 for the breakdown of
If SFW's wines
were not listed with the NSLC, the winery could charge prices that
were competitive and retain the NSLC markup. If Suzanne sold the
same bottle of wine direct to the consumer, she could likewise
charge customers $6.90 per bottle and earn an additional
contribution of $2.43 per bottle. The average variable cost for a
bottle of SFW wine was approximately $2.21.
price range is for a general listing.
anticipated that she would have enough 1989 Chardonnay, SFW's
premium white wine, to support a listing with the NSLC for a
restricted number of stores. She inquired about a special listing.
The NSLC set a retail price of $13.20 per 750mL bottle of SFW
Chardonnay. This was based on the prices of other Canadian
Chardonnay wines. If SFW obtained this listing, all its Chardonnay
would have to be sold at this price, even those bottles sold direct
to the restaurants and from the wine shop. Suzanne wondered whether
$13.20 was too high a price for her Chardonnay. Not only would it
have her competing directly with larger wineries, but it might be
too high to encourage consumers to give a new wine a try. The only
way she could have her wine listed at a lower price was to lower her
that by late 1991, she would also have enough Gold Bell and
Johannisberg Riesling to support a NSLC special listing if she so
approximately $10,000 to $11,000 to bring one acre into production
with hired labour. This investment was made over the five years that
new vines were non-producing or in low
investment in the building, equipment, and vineyard was
approximately $500,000. This was financed by equity, a mortgage, and
a $50,000 ACOA grant. (See Exhibit 5 for financial
financial data for the company is disguised.
and sales of the 1989 vintage were 2,500 cases, under "normal"
economic conditions. A recession was looming, and a new federal
goods and services tax (GST) was proposed for January 1991. How
these factors would affect SFW's sales was
considered producing wine for the "screw-cap" market and selling
bag-in-a-box wine (table stock and commercial wine sold in
twenty-litre bags). A twenty-litre bag of wine sold for $95 at the
NSLC and provided higher margins due to savings in packaging.
Average variable costs would approximate $28. Yet, the fixed costs
and necessary volumes would be very high. Facilities would have to
be expanded to accommodate these volumes. Although quality might be
compromised, SFW could be more price competitive on all its wines
with the larger facilities.
When asked about
SFW's limited capacity, Suzanne responded, I don't think it is a
problem to 'short' the market if demand exceeds supply People will
know to buy early in the year. I do not want to grow too large. For
one thing, I would lose control."
the facts over in her mind again and again. What prices should she
set for the wines? Should she go with NSLC listings? Bypassing the
NSLC would require a greater selling effort on her part and a much
slower penetration of the market. Yet, she would have more control
over prices, which she felt might be important for positioning and
acquiring market share.
start-up costs were large. "Quality is very important to us, but
without volume sales, it will be hard to pay the
Sales of Wine In
Nova Scotia and Canada
Source: 1990 Annual
Report , Nova Scotia Liquor Commission
Sale of Red and
White Table Wines in Canada
Market Share by
Country of Origin
1986 vs. 1990 (years ending
Source: Canadian Wine
Institute 1990 Annual Report
Five Year Sales by
% of Total
Year Ending March
Source: 1990 Annual
Report, Nova Scotia Liquor Commission
Grapes and Wines
Grape Varieties Grown by
Sainte Famille Vineyards:
Wines Produced by Sainte
Famille Wines Ltd:
Michurinetz (not available in 1990
Red blend (new 1990
Apple Blossom Special (60 cases
Chablis (planned for 1990