When I first met with the head honchos of First Growth Holdings (TSX:V.FGH, Stock Forum) late last year, and heard their plans for what was then a freshly minted shell, I have to admit, I didn't give them much hope for success.
The plan was to start the first truly national online wine seller. And anyone who knows the regulatory landscape in Canada knows getting every province to agree on liquor laws is something akin to getting the leaders of the world's religions to work together on an off-Broadway production of Caligula.
The way things stand in Canada, if you're in BC and you want to buy a wine out of Alberta, you need to put some snow tires on. A cheeky red listed for sale in the Ontario wine catalogue? If you don't live there, you'll want to settle for something less Ontario-y.
This is, of course, insane. Grown-ups should be trusted with the ability to buy whatever kind of wine they like, but that's not how it works in Canada, where drinkers only just recently got the right to have Happy Hour in BC, and restaurants pay the same price for their wine as retail customers do because the government regulatory bodies make a bigger wedge that way.
Something's gotta give. First Growth wanted to be that something. After all, in other first world countries, 12-15% of all wine sales are online sales. In Canada the number is less than 1%
“We'll go province by province and work with the authorities to change, adapt or work within the rules to create a network that can get customers what they need without breaking the rules,” said FGH President J. Paul Guedes when we talked to him early in the year.
Guedes pointed out, back then, if WineOnline.ca could do just 4% of Canada's wine sales, it'd be bringing in $300 million per year, based on the Canadian wine sector doing approx. $7 billion in sales per year.
'Good luck, Paul,' was the general consensus among the Stockhouse editorial team at the time.
Well, the joke was on us, because First Growth is coming along, mostly through it's WineOnline.ca ecommerce portal, which is selling crates of plonk in Ontario and Alberta. In Quebec it has its agency license selling wine to the SAQ and is working on the launch of the ecommerce site in 2015. Bottom line: WineOnline.ca is experiencing double digit sales growth, year over year, since 2010.
Those three provinces account for over 74% of all Canadian wine sales, by the way, so even if WineOnline isn't national just yet, it's hitting pretty close to the Pareto Principle, AKA: the 80-20 rule.
Aaron Bick, General Manager of North American Markets and Wine Procurement for WineOnline, said in a news release in May, "Selling wine online is still in its infancy in Canada and there is a lot of room to grow."
True that.
But to do that, the company will be making strategic moves in each province to expand their direct to customer sales model. Opening a single wine store some provinces, for example, or doing deals directly with vineyards in others. They'd attracted some heavy hitters on their advisory board in early 2014, the sort of folks who can kick open a provincial minister's door and engage in some 'smarten up' style lobbying, perhaps.
But the wheels on the Canadian provincial landscape turn slowly. If you told the BC Liquor Control Board that selling a single bottle of unlisted Mexican tequila would save the lives of 16 puppies and 87 nuns, you'd get a letter from the BC LCB 18 months later telling you that your request had been sent to committee for consideration but was contrary to provincial regulations and if you want to appeal that, you'll need to put the nuns and puppies on a ferry to Victoria, fill out 18 forms in triplicate, place a full-page ad in all newspapers for three months, bark like a dog, and then go whistle.
Okay, it's not quite that complicated, but it's complicated. It takes lobbying and lawyers and more lobbying, and some outside the box thought. First Growth will get there, but like any good wine, it takes time.
So what investors have been looking for through Q1 and Q2 was some indication - something – anything – that such channels were about to be blown open.
Or... they wanted something that would give the company some diversity. Another crack at the brass ring while we wait for the government to be dragged kicking and screaming into the 1960's.
And, credit where it's due: FGH has delivered on multiple fronts.
In Quebec, the company acquired an agency license and, in Alberta, talks have been ongoing at taking over a retail outlet. These moves will open those provinces up to online sales.
They've signed an LOI with the CRAFT Beer Market Restaurant to take that successful 120-beer tap Western Canada concept to China, a place where craft beer isn't such a big deal yet, but promises to be increasingly so as they are presently the largest beer consumers in the world by volume. FGH holds 70% ownership of the China joint venture, of which the two companies have committed to building 5 locations over the next 5 years.
Also going to China: The First Growth Wine Club, where the company will import big brand name luxury booze from around the world to a small number of 'whales', in a country that is going flat out nutty for vino right now.. In fact, the import wine market is growing at a whopping 60% per year right now in China. The club promises to be a high end retreat for that country's big fish to enjoy and access some of the finest wine in the world.”
Also going to China: An import agency/wholesale distribution business that promises to feed the massive emerging middle class with disposable income looking to improve their quality of life with western luxuries.
And, finally, the company has negotiated exclusivity deals with some big name luxury brands, offering consumers something unique that only they can get through FGH, and bringing ongoing attention that has seen WineOnline emerge as a serious online player.
These include Lookout Ridge, which FGH recently signed an exclusivity deal with on China sales, leading it to launch a series of big tasting events this week to announce the brand's arrival.
Other brands FGH is taking to Asia include Chateau Lafite Rothschild, Chateau Latour, Vinos Sanz, Jean Marc Burgaud, Santa Tresa, in France, Spain and Italy. The company is working very close with the brands it represents in Canada to see if China is an option for them, with one important name being Donald Ziraldo, the founder of Inniskillin Winery who put Icewines on the map in Canada. He's got a real interest in First Growth's success; he also serves on the advisory board of the company.
Regulatory questions persist, but First Growth is admirably working through those long lead processes, and establishing networks and exclusive deals that make the 'big picture' of a national Canadian online wine sales portal more and more real as an end goal to investors.
But the long lead time is reflected in the share price, which is slowly building and more recently has been pickling up considerable steam. As recently as early October, the stock was at $0.13, but touched $0.20 just a few weeks later.
One issue the company has faced has been the amount of stock held by tight hands and insiders. With low volume comes low volatility and tougher processes to get in an out of a holding.
That's begun to change of late, with the last two months of stock charts showing a considerable increase in volume, attention, and stock price.
At a recent wine tasting event in Vancouver's Yaletown put on by FGH, a who's who of the local broker community showed up, quaffing a considerable amount of what the sommelier on duty appeared to think was being wasted on the uneducated masses.
He wasn't entirely wrong. Some of us are a vile lot. But the wine was spectacular, either way.
Bottom line, if anyone is going to get a truly national online wine selling network off the ground, they'll have to catch up to the spadework already completed by First Growth Holdings.
And they'll have to have a Plan B, Plan C and Plans D through L in their back pocket.
News to come. Get it on your watchlists.
--Chris Parry
https://www.twitter.com/chrisparry
FULL DISCLOSURE: First Growth Holdings is a Stockhouse Publishing client