Mr.

Tim Hudak Leader, Progressive Conservative Party of Ontario Room 381, Main Building, Queens Park Toronto, Ontario M7A 1A8 August 11, 2011 Dear Mr. Hudak: In anticipation of this falls provincial election, I would like to outline for you what we believe is a solid strategy to generate growth, jobs and prosperity in Ontarios grape and wine industry, enabling us to grow as an important economic pillar in the province, both in terms of creating jobs for Ontarians and also generating private and public sector revenue. Issues facing the industry have been well studied over many years with numerous options put forward to realize the full potential of the sector. While we applaud your commitment to establish a chain of VQA wine stores that are dedicated to showcasing Ontarios VQA wines, the Grape Growers of Ontario believe there is still great potential for the domestic grape and wine industry within the existing LCBO network. We believe the changes outlined below will lead to significant shorter-term growth that will create jobs and opportunities in the sector in a responsible way. We also believe our proposals will enable the Government of Ontario to demonstrate its strong commitment to the sector in a socially responsible manner, without significant financial investment or risk. As you know, Ontarios share of its own wine market still lags far behind competitors from other wine-making regions around the world. The domestic industry has been stagnant at about 44% of Ontarios market share for several years, while competing international wine regions hold shares upwards of 70% in their domestic markets. The picture becomes much bleaker when Vintages, Duty Free and private order sales are added in, bringing overall market share down to 39%. It is estimated that VQA wines, which are made from 100% Ontario grapes, only account for 7-8% of all wine sales in Ontario. Some of our competing regions and the market share of their domestic wines include: Australia - 90% California 63% of the entire U.S. market New Zealand 57% (New Zealand does not import grapes for wine, whereas Ontario includes blended wines as Ontario wines) Ontario 44% (7-8% VQA sales)

One of the key reasons for this challenging trend is the distribution channel available in Ontario. Most Ontario wineries are allowed only a single retail outlet on the premises of their winery, and access to the LCBO. However, only a small percentage of all the wines produced by Ontario wineries are available in the LCBO. We believe that changes to the way the LCBO treats and promotes Ontario wines can and will result in considerable growth for the sector over the shorter-term. Your support of our proposals will also show the Progressive Conservative Party of Ontario supports Ontarios wines throughout the province. We are also confident the changes we propose will not affect LCBO revenues while at the same time increase the overall economic benefit and resulting tax revenue to the Province of Ontario. Ontarios grape and wine industry directly and indirectly generates an estimated $1 billion for the Ontario economy a figure that would grow as the market share of Ontario wines grows. This doesnt include other public policy benefits such as underpinning the local agricultural industry to help alleviate pressure to find alternative, non-agricultural uses for land in the Greenbelt. It is our belief that increasing the choice available to Ontario consumers by increasing the selection of wines grown in Ontario and available in the LCBO will increase sales of Ontario wines, promote Ontarios wine regions as tourism destinations and lead to job growth and increased market share of Ontario wines in their own market. Increasing the choice and promotion of wines grown in Ontario and t in the LCBO is something on which both the GGO and the Wine Council of Ontario have found common ground, and together we have previously established a number of ways in which this can be achieved. Changes to LCBO inventory policies can increase the choice of Ontario wines Ontario consumers have in their local LCBO outlets:

Protect Ontario wines from delisting if they are meeting quotas by eliminating the one in, one out policy where new Ontario listings push existing ones off the shelf, even if they meet sales quotas; Allow wines with strong sales commensurate growth space within the LCBO; Align the Ontario share of product listing to 30 per cent of wine listings with planned growth from todays market share, creating the potential addition of 50 new Ontario product listings at the LCBO. With more efficient use of LCBO shelf space, it is possible to give Ontario wine consumers more choice in terms of Ontario VQA wines available without compromising the variety of imported labels offered at the LCBO; and, Expand VQA fixtures by at least 20 per cent.

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P.O. Box 100, Vineland Station, Ontario L0R 2E0 P. 905.688.0990 F. 905.688.3211 E. info@grapegrowersofontario.com grapegrowersofontario.com

Currently, the LCBO only gives Ontario wines a significant promotional push in September, during the harvest. Over the course of the rest of the year, the LCBO regularly promotes imported and foreign wines to the detriment of Ontarios domestic industry. From the perspective of an Ontario grape grower or winemaker, seeing provincial resources put into a marketing effort for foreign wines is akin to seeing Foodland Ontario promoting Georgia peaches, or Tourism Ontario promoting vacations in Spain. There is great potential to increase promotional opportunities for Ontario wines within the LCBO. Ensure Ontario wines arent blocked out of promotional periods for the purchase of promotional space, as is currently the case; Increase Ontario wine presence on the promotional calendar to at least three major promotions a year and additional promotions in each quarter; Increase Vintages promotion activity to at least parallel that of the general list to keep premium Ontario wines in the marketplace all the time; Institute a permanent promotion like the GO LOCAL WEEKEND to ensure Ontario wines have a permanently-featured presence in LCBO stores yearround; Double opportunities for wines grown in Ontario to participate in programs such as Superstars, Popular Picks and On Tour; Allow Ontario wineries to purchase promotional space in all promotional periods; and, Expand in-store merchandising opportunities for Ontario wines and give store managers leeway for even further expansion of the same like block piling, test marketing drinks fixtures, harvest tables and nesting fixtures.

It is also within the governments capability to make changes to the LCBOs Performance Metrics so they bring both financial and economic benefits to the Province of Ontario: Require LCBO to report to government on economic impact as well as on financial performance; Recast performance goals for the LCBO management team and Ontario category teams to reflect the overall impact on the economy of Ontario wine sales; Make it acceptable for the LCBO to make changes that support the growth of wine sales grown in Ontario, even though it may not lead to an optimal bottom line in the short-term.

These proposed changes should not be construed as measures that will have a negative impact on the revenue stream of the LCBO; in fact, given the economic impact of the sale of a bottle of Ontario VQA wine is more than 17 times that of an imported bottle of wine, there is great potential for increased presence of Ontario
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P.O. Box 100, Vineland Station, Ontario L0R 2E0 P. 905.688.0990 F. 905.688.3211 E. info@grapegrowersofontario.com grapegrowersofontario.com

VQA wines in the LCBO to not only benefit the bottom line of the LCBO and the direct revenue it provides to the Province of Ontario, but also the indirect revenue it provides through increased private sector economic activity and success of the domestic grape and wine sector. With a more efficient use of shelf space that increases the variety of Ontario wines available without impacting the variety of imported wines, we believe the increased focus on Ontarios wines will also be well received by the provinces wine consumers. In particular, we believe these proposed changes would be very well received by those living outside of Ontarios four wine-producing regions Niagara, Prince Edward County, Lake Erie North Shore and Pelee Island where they dont have ready access to the many Ontario VQA wines that arent available in the LCBO. Growth of Ontario VQA wine sales in the LCBO is critical to the growth of the Ontario grape and wine industry. Your proposal for VQA stores is a clear indication that you understand this reality, but we can do so much more without worrying about the potential of trade challenges from our economic partners. Ensuring more wine grown in Ontario and available to more Ontario wine consumers through the worlds largest beverage alcohol distribution system is a winning strategy, one we believe is the most socially responsible and achievable way to accomplish our goals. We look forward to continuing to work effectively with you after the election to grow Ontarios grape and wine industry and bring new jobs in the provinces agriculture, wine-making and tourism sectors. Sincerely,

Bill George, Chair, Grape Growers of Ontario

Debbie Zimmerman, CEO, Grape Growers of Ontario

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P.O. Box 100, Vineland Station, Ontario L0R 2E0 P. 905.688.0990 F. 905.688.3211 E. info@grapegrowersofontario.com grapegrowersofontario.com