Alcoholic Drinks in Canada 2024 Market Summary
EXECUTIVE SUMMARY
Alcoholic drinks in 2023: The big picture
Alcoholic drinks in Canada in 2023 presented a mixed picture. While overall volume growth remained modest, strong performances by Ready-to-Drink (RTD) beverages and non-alcoholic drinks masked a decline in traditional alcoholic beverage consumption. This decline is largely driven by evolving consumer perceptions and behaviours surrounding alcohol, with health concerns taking centre stage. Manufacturers are responding to this shift by prioritising innovation in non-alcoholic product lines.
2023 key trends
Innovation and new product development (NPD) are concentrated within spirit-based RTDs and non-alcoholic beverages, reflecting the significant growth potential of these niche categories. Overall alcohol consumption is declining, and social acceptance of non-drinkers is increasing. This "sobering down" trend in Canada represents a significant shift in consumer behaviour, further compounded by the continued dampening effect of high taxation rates on alcoholic beverages, particularly in the current inflationary climate. However, the government's temporary relief measure of capping excise duties on alcoholic drinks in 2023 provided some breathing room for the industry.
Competitive landscape
Despite efforts by leading manufacturers, many are experiencing flat or declining market share. While premiumisation strategies are yielding slight gains for some brands, such as Diageo and Molson Canada, overall volume declines reflect the broader trend of reduced alcohol consumption. Companies are combating this trend by introducing a wider range of non-alcoholic options alongside their traditional offerings. Additionally, they are investing heavily in RTDs, a category attracting new players.
Innovative communication and marketing tactics are playing a crucial role in reaching target audiences. Diageo's utilisation of Artificial Intelligence for digital advertising exemplifies this approach. Social media has become an essential tool for engaging with Gen Z, and many companies have established a strong presence on these platforms.
Craft breweries and distilleries are gradually expanding their share of the market, particularly in the beer segment. Consumers increasingly seek out "local" and "unique" flavours, bolstering the local beer industry.
Retailing developments
E-commerce continues its post-pandemic boom, with small, independent retailers establishing online presences to reach wider customer bases. Specialised online stores catering to non-alcoholic consumers, like Upsidedrinks.ca and Sobersips.ca, are experiencing rapid growth and even expanding into brick-and-mortar retail, with The Sobr Market in Winnipeg serving as one example.
On-trade vs off-trade split
On-trade channels remain the primary driver of growth, with volumes recovering to near pre-pandemic levels. Canada's population boom, fuelled by a record influx of over one million residents in 2023, has led to a significant expansion of the foodservice sector. Bars and restaurants are actively promoting their offerings, including extended hours during special occasions like New Year's Eve, contributing to the on-trade sector's dynamic growth.
What next for alcoholic drinks?
Ontario, Canada's largest province, has announced plans to allow convenience stores to sell beer, wine, RTDs, and cider/perry from 2026 onwards. This policy shift will expand distribution channels and offer greater convenience for consumers.
While the excise duty on alcohol (known as the Federal Escalator tax) was paused in 2023, it is expected to rise by 4.7% in 2024, further pushing up the price of alcoholic drinks. Though food inflation is expected to moderate in the coming months, it remains high. The industry is lobbying for a continued pause on the excise duty increase.
Canada's thriving young population will continue to demand fresh and innovative beverage options, driving further growth in the RTD sector. Increased NPD activity is anticipated as manufacturers vie for a share of this lucrative area. Concurrently, the "sobering down" culture and heightened health consciousness will propel the growth of low/non-alcoholic beverages in the years to come.
MARKET BACKGROUND
Legislation
Legal purchasing age and legal drinking age
Each of Canada’s provincial governments has the power to set its own legal drinking age. In Quebec, the legal purchasing age and drinking age is set at 18, and in all other provinces and territories it is 19. However, many drinks specialists throughout the country participate in the Check 25 programme, which encourages employees to ask for government-issued IDs as proof of age from anyone who looks under the age of 25.
According to reports by the Liquor Control Board of Ontario (LCBO), every year the employees of its chain of drinks specialists challenge many millions of customers who appear to be either underage or intoxicated. As a result, LCBO refuses to sell alcohol to hundreds of thousands of people per year, with the vast majority of these cases related to the customer being unable to prove that they are not underage. Although the legal purchasing age is strictly enforced, many teenagers in Canada still begin drinking well before they reach the legal age. In 2015, the Centre for Addiction and Mental Health’s Ontario Student Drug Use Survey found that 45.8% of children aged 12 to 17 had consumed alcohol during the 12 months preceding the survey. The incidence of drinking increases significantly by age group, rising from 9% in grade 7 to 72% amongst grade 12 students, with 16% of these students reporting having been intoxicated at least once.
Drink driving
Drink driving is considered to be a very serious offence in Canada, and the policing of this crime falls under the jurisdiction of the federal government. Under the Criminal Code of Canada, driving with a blood alcohol concentration of 0.08% is an indictable criminal offence. Driving licences can be suspended for 24 hours if the driver has a blood alcohol concentration of 0.05%, or refuses to take part in a breath, blood or physical test.
A number of legislative initiatives have sought to reduce the number of deaths related to drink driving. For instance, the government of Ontario introduced the rule that anyone under the age of 21, regardless of their licence, is subject to a zero-tolerance policy. Previously, drivers with G1 or G2 classified licences had a strict zero-tolerance policy for alcohol, whilst full G-licensed drivers did not. Manitoba has brought forth new legislation that if passed would establish a tiered suspension. Drivers will have their licences suspended for 24 hours for a first violation, 15 days for a second, 30 days for a third and 60 days for a fourth or subsequent violation. Other provinces have also tightened legislation and are set to further tighten drink driving laws. The number of impaired driving charges in Canada has steadily dropped to just over 69,000 in 2017, down from a peak of 89,600 in 2011.
Drink driving is also regularly discussed in the media in an effort to highlight the dangers of driving when intoxicated. Numerous campaigns and public awareness videos have been instigated by Mothers Against Drunk Driving (MADD), a non-profit organisation dedicated to stopping drink driving. In addition, LCBO has also launched its “Deflate the Elephant” television campaign to encourage Canadians to stop ignoring the issues.
Advertising
The advertising of alcohol is monitored by the Canadian Radio-Television and Telecommunications Commission. Introduced in 1996, the Code for Broadcast Advertising of Alcoholic Beverages offers strict guidelines for all commercial messages promoting alcoholic drinks. Highlights of the 17-part code include that there must be no advertising directed at persons under the legal drinking age and no references to youth. Furthermore, there must be no scenes in which the product is being consumed in excess, and no attempts to establish the product as a status symbol.
All alcohol advertisements are reviewed by Advertising Standards Canada (ASC) before they are broadcast to ensure they follow all provincial and federal laws. In addition, the Association of Canadian Distillers has a Code of Good Practice for Alcohol Beverage Advertising & Promotion. The code mostly follows the CRTC guidelines, provincial legislation and the association’s own beliefs.
Smoking ban
Smoking bans is another area of Canadian law that is under the jurisdiction of provincial governments. In 2003, Prince Edward Island became the first territory to introduce a public smoking ban, and October 2004 saw Manitoba, New Brunswick, Northwest Territories and Nunavut instigate bans on smoking in workplaces and public spaces. The current laws in these provinces also state that specially ventilated smoking rooms are not allowed in bars and restaurants. Newfoundland banned smoking in public places in 2005. However, ventilated smoking rooms are allowed under this law. Nova Scotia introduced a similar law, with ventilated rooms permitted, in 2006. During the same year, Ontario and Quebec introduced smoking bans and eliminated the exception for ventilated smoking rooms. Saskatchewan banned smoking in public areas in 2005 and banned workplace smoking in 2009. In January 2008, Alberta banned smoking in public spaces, including within five metres of a door or window and workplaces. Yukon was the last province to ban smoking in public places, passing its legislation later in 2008.
Strict policies for smoking in one’s own car and open areas such as parks are also being pursued in some provinces and municipalities. For instance, in Victoria, British Columbia, 2014 witnessed the adoption of a ban on smoking in all public places and workplaces, including within a 3-metre radius of doors and open windows and within a 6-metre radius of such openings in the city of Vancouver.
Opening hours
Opening hours for drinks specialists vary from province to province and they are subject to provincial regulations. Prior to the outbreak of COVID-19, most stores were open seven days per week from morning to early evening, with later hours common at weekends. In most jurisdictions, stores must not open on Christmas Day, and although they are not bound to by law, many stores choose to close on other holidays, such as Canada Day, New Year’s Day and long weekend holidays. Drinks specialists are also forbidden by law from opening on voting days for provincial and federal elections.
Due to the outbreak of COVID-19, the Ontario government amended a regulation, allowing bars and restaurants to temporarily sell alcohol as part of a food order for takeout or delivery. Regulation 719 under the Liquor Licence Act was altered. Venues could not, however, sell alcohol without a food order. Third-party delivery services could also provide alcohol on behalf of the licensee, however they needed to obtain a Smart Serve licence.
These new regulations were introduced in British Columbia, Ontario, Nova Scotia, Manitoba, Saskatchewan, Alberta and Quebec, with specific ordinances varying between jurisdictions. For instance, a purchase of food is not mandatory in Alberta, while Nova Scotia requires that the alcohol cost is not more than three times the value of the food ordered.
During the FIFA World Cup, certain provinces in Canada, such as Ontario and British Columbia, have implemented temporary measures to allow licensed businesses to extend their opening hours. Ontario, for example, is permitting establishments to open as early as 7 AM, while British Columbia has also granted permission for bars and pubs to operate with extended hours.
On-trade establishments
Prior to the outbreak of COVID-19 in Canada, on-trade establishments remained popular for the consumption of alcoholic beverages. Pubs and bars were typically the most common in the country. However, wine bars were the latest on-trade trend. Since pubs are not the ideal location to try a variety of wines, wine bars that offer a wide array of wines and tasting events were becoming more prevalent across the country.
Due to the outbreak of COVID-19, government aid was important for the survival of on-trade establishments. In October 2020, the Canadian restaurant association estimated that CAD600 million in aid was necessary for the survival of the industry.
On-trade players had to adapt to COVID-19 rules and regulations, however, 50% of independent restaurants are expected to not survive the impact of the pandemic.
In addition, on-trade establishments also face the challenge of consumers changing behaviours. Many consumers have stated they will cook more from home when the pandemic is over, with younger people expressing the most intent.
TAXATION AND DUTY LEVIES
The 2001 Excise Act came into force in 2003, and updated the original Excise Act of 1985. Whilst the 2001 Excise Act updated wine and spirits excise rates, beer is still subject to the duties laid out in the original act. The excise rates vary, and for spirits – the most heavily taxed beverage – tax can amount to 15% of the final price. To eliminate the possible competitive advantage that imported drinks may gain, tariffs on imported products are equal to the excise duties on domestic alcohol. Although excise duties are imposed at the site of production or distribution, they only become due after the beverage is sold. In addition to the federal excise tax, there is also federal VAT, known as the Goods & Services Tax (GST).
Every province has a provincially-run liquor board that is federally mandated to be the official importer of alcohol and to control the sale of alcohol within the province. In most provinces, these boards also run drinks specialists that, depending on the province, may be the only alcoholic drinks retailers. Therefore, provinces often charge a series of levies and mark-ups that are ostensibly due to the service the board provides, but are generally applied to all products. This, in effect, means that the retail mark-ups on alcoholic drinks in Canada are equivalent to a general provincial tax, monies from which go to the maintenance of the provincial distribution and retail system.
The tax systems within each province vary considerably, and there are different rates of tax applied to numerous different products. Thus, they are too extensive and complex to detail fully in this report. However, it is useful to consider a summary of the more interesting and general features. In 2010, Ontario and British Columbia adopted a harmonised sales tax (HST), which effectively merged the provincial and federal sales taxes. The new sales tax also affected a number of products that traditionally had not been subject to provincial taxation systems, thereby effectively increasing the final retail price of a number of products, such as tobacco. However, as far as alcoholic beverages are concerned, the new HST actually led to a lower sales tax – from 15-17% for federal and provincial taxes combined before HST came into effect, to a 13% flat HST. Trade sources indicated that lower sales tax was being compensated for by increases in base prices of alcoholic beverages and other fees. However, in 2013 the province of British Columbia cancelled the HST, under much pressure from businesses and consumers, and returned to what the government called improved PST (provincial sales tax). The new system was said to be simpler and clearer and only applies to goods and services that were subject to provincial sales tax before the HST and the new PST.
Many small brewers receive tax subsidies from provincial governments that are exclusive to the specific province in Canada. In provinces such as Ontario, the tax rates for microbrewers (total beer production no higher than five million litres a year) are different from other beer manufacturers. The mark-up charged by provincial liquor boards are periodically adjusted. For example, LCBO increased the mark-up for wine by two percentage points in June 2016, raised it by two additional percentage points in April 2017, and by one further percentage point in April 2019.
Non-Ontario wine purchased at a winery retail store was set to increase to 20.1% from June 2020. Ontario wine purchased at a winery boutique was set to increase to 11.1%, and non-Ontario wine purchased at a winery boutique, from 26.6% from June 1, 2020.
However, given the economic challenges being faced by Ontario businesses and consumers, the government decided it was in the public interest to suspend tax increases until December 31, 2020, and to propose legislative amendments before the end of 2020 so that the Legislature can consider, as it has done in previous years, the appropriateness of further suspending or cancelling these tax increases.
The beer basic tax rates were scheduled to increase by an adjustment factor on December 1, 2020. The Minister of Finance signed an amendment to O. Reg 257/10, made under the Alcohol, Cannabis and Gaming Regulation and Public Protection Act, 1996 to delay the date of the next scheduled adjustment to March 1, 2022. As a result, the current beer basic tax rates will continue to apply until February 28, 2022.
In 2023, the Federal excise tax was capped at 2% for one year only and is expected to increase in 2024.
OPERATING ENVIRONMENT
Contraband/parallel trade
The illicit alcohol market in Canada includes cross-border movement, illicit manufacturing and the clandestine distribution of stolen products. Criminal Intelligence Service Canada (CISC) has identified a wide range of participants in these activities, including independent entrepreneurs and loosely organised criminal groups. The US remains the primary source of alcohol smuggled into Canada. The heavy taxes on alcohol in Canada are the main reason for contraband/parallel alcohol trade in the country. It has been reported that alcohol producer associations overestimate the size of the contraband/parallel trade in a deliberate effort to place pressure on the government to reduce taxes, whilst the state-owned chain of drinks specialist retailers tends to underplay the effects of the black market in an effort to counter the associations’ claims. The LCBO estimates that 19.7% of the Ontario alcoholic drinks market is accounted for by illegal sales. Although this figure may not be accurate, it nevertheless demonstrates that contraband/parallel trade is significant.
Duty free
There are two distinct types of duty-free stores in Canada: stores located in proximity to the land border with the US, and stores located in international airports. There are 28 land border duty free shops across Canada, and these are independently owned. These stores tend to represent good value for money, as they have lower operating costs than airport stores. Airport duty-free shops are often owned by airports and are more popular than land border stores.
Duty free purchases are made by outbound passengers from Canada. Consumers must be of legal purchasing age and have a valid airline ticket. The volume of duty-free purchases is fairly low, however, and does not have any significant impact on sales of alcoholic drinks in the country. Trade sources estimate that approximately 90% of Canada’s duty-free sales are made in Ontario, largely because Toronto’s Pearson International Airport is the busiest airport in the country.
Since the terrorist attacks on 11 September 2001, sales through duty free channels have been significantly restricted due to much tighter security measures and border controls, according to trade sources. Hence, sales through the duty-free channel are relatively low compared to what they once were.
Cross-border/private imports
Privately importing alcoholic drinks outside of the regular duty-free system and/or without paying customs duty is illegal, and any purchases made from foreign countries must be in duty free shops. In addition, no alcoholic drinks can be sent to Canada from another country by regular post. Anyone wishing to post or receive mail containing alcoholic drinks must first receive clearance from their local liquor board. In addition, they must use a courier service such as UPS or FedEx, as Canada Post will refuse to deliver the package. During June 2012, Canada adopted federal Bill 311, which removes restrictions on the interprovincial trade of wine for direct-to-consumer shipments. Although applauded by the industry, the bill has yet to receive the full support of provincial governments and liquor boards, as many people have voiced concerns, with Alberta announcing official outright reservations to the bill and its implementation in its jurisdiction. At the end of the review period, trade sources indicated that British Columbia was the province most supportive of the proposed changes.
KEY NEW PRODUCT LAUNCHES
Tequila-based RTDs: Mexico's Cazadores brand entered the Canadian market in 2023 with two RTD flavours: Paloma and Margarita. These pre-mixed cocktails are made with 100% blue agave tequila, catering to the growing demand for convenience and premium ingredients.
Earl Grey Gin: The Forest Distillery launched its Earl Grey Forest Gin in Canada in 2023. This unique spirit features Oolong tea, bergamot, and cornflower infusions, packaged in a premium ceramic bottle to elevate the consumer experience.
Outlook
New product development (NPD) is expected to be most prominent in the rapidly growing RTD category, where ample room for innovation exists due to its niche status. Furthermore, the low/non-alcoholic drinks segment is anticipated to see a significant rise in NPD activity as consumer preferences shift towards reduced alcohol consumption.