Although the U.S. economy performed surprisingly well in 2023, the wine business news columns were filled with gloom and doom as wine demand lagged behind the growth needed to sustain the industry. The problems affected the wine sector at all levels, but were most obvious in the vineyards. I’ve heard reports from all aroound the world of vineyards simply abandoned for lack of a market for the grapes or grubbed up and repurposed to a more profitable use.

2023 was a bad year for wine, but that’s not the whole story. Stagnant and falling demand has been here for more than ten years. And wine isn’t alone. I track the beer and luxury goods industries because I think they can tell us something about trends affecting wine. Beer is down, too. And all but the very top of the luxury goods market is suddenly stalled after a prosperous pandemic period.

There is one corner of the wine world where optimism can be found, however. Not the giddy optimism that comes when you don’t really appreciate how challenging conditions are, but the realistic optimism that comes when you have studied the problems and devised a plan to turn things around. Where is this magical place? Welcome to Ontario, Canada, and the dynamic Niagara wine region.

Uncork Ontario

The Canadian wine industry is concentrated in Ontario and British Columbia and has not been immune to the economic problems (declining demand) and natural crises (widespread wildfire damage in British Columbia) that face winegrowers all over the world. Significantly, they have decided that they need to try to take control of the situation to the extent possible. The result is a strategic plan called Uncork Ontario that is designed not just to stabilize the wine sector but to harness it into an engine of economic growth.

The first step in this process seems to have been the recognition that the various players could not achieve much on their own. They needed to work together to get traction. So an alliance of sorts was formed that combines Ontario Craft Wineries, an association of about 100 small- and medium-size wineries, and Wine Growers of Ontario, a broad group that includes some of the largest wineries, including the producers of that distinctive Canada product, IDB wine (for International-Domestic Blend).

This kind of alliance is not common because, while all the firms are in the same business and so share many broad interests, they often focus more on narrow strategies such as taking market share from each other instead of growing the overall market pie. Add to this the usual tension between larger firms that focus on commercial products versus smaller firms that want to see resources used to support their part of the market, and you can see why cooperation can be very hard to achieve.

The third partner is the Tourism Partnership of Niagara because wine tourism is an important economic force in a region located so close to major population centers in both Canada and the U.S. Tourism and wine are best friends, but cooperation is often limited because each group would prefer to focus on its narrow interests. An important informal fourth partner was soon enlisted, as I will explain below.

The Wine Industry Eco-system

Knowledge is power, so Team Ontario contracted with consultant Deloitte to produce a report titled “The Niagara Cluster: Ontario’s Untapped Economic Engine.”  The Niagara Cluster? Let me explain.

The Deloitte report uses an analytical framework made famous by Harvard economist Michael Porter, author of many books including Competitive Advantage: Creating and Sustaining Superior Performance. Prof. Porter’s key insight, which he developed by studying highly successful industries worldwide, was that successful firms don’t exist in a vacuum.

The greatest success is achieved when key firms are surrounded by effective supporting industries; have access to skilled talent, advanced research, and high-quality resources; face intense competition; and  must satisfy demanding customers. When conditions are right, the whole cluster grows as competition drives it ahead. Take away important factors, however, and things fall apart.

I like to think about Porter’s clusters as eco-systems (which is a term the Deloitte report also uses) and I am a fan of this kind of strategic analysis. (The Wine Economist reported on the Porter-style cluster analysis of the Walla Walla wine cluster in 2014.)

Strategic Partnerships

The Deloitte report makes interesting reading for anyone in the wine business for several reasons. First, it uses Porter’s analytical framework to break down the key elements of successful wine industry clusters. Second, it identifies “best practices” for each element, so there are specific targets to shoot for. Third, it frames the growth goals of the wine sector not in narrow terms (sell more wine!) but in terms of the broader economic impact on the communities involved. All of this is relevant to any wine region.

Two additional factors struck me as particularly important. First, the study doesn’t set an unrealistic goal such as “become the next Napa Valley” as sometimes happens. No, the report proposes that the Niagara region aims to be as important in its wine market (Ontario) as the Okanagan Valley wineries centered in Kelowna are to their region (British Columbia). The economic impact of such a development is large, both for wine and more generally.

But, the report found, one more partner was needed: the government. Ontario tax and regulation regimes discouraged the wine industry’s growth. That needed to change and, what’s more, the “best practices” model calls for the government to take an active role in promoting industry growth.

Time Has Come Today?

Incredibly, the provincial government seems to have heard this message and, although the situation is complicated and it is still early days, it looks like changes are coming, initially to the retail sales and taxation regimes. The introduction of retail competition is a major change and will really shake things up. The powerful Liquor Control Board of Ontario (LCBO) will retain its monopoly on spirits sales,  but open up competition for beer and wine. It won’t happen overnight, but the biggest market reforms since the end of Prohibition are on their way.

I need to learn more about what’s going on, so I will be heading to Niagara later this year to speak at the Ontario Craft Winery Conference. I am sure there is much more to the story and I may have made mistakes fitting the pieces together. But one thing is clear: even with all the gloom and doom in the wine sector, it is possible to make the case for growth.

But it doesn’t just happen. Everyone’s got to work together. And that’s hard. Ontario’s journey is just beginning, but they are off to a good start.