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Monday, March 16, 2015

Beer, wine in stores, but at what cost to consumers?

The Grits at Queen’s Park are at it again. Apparently, we are about to get more access to beer and wine through Ontario supermarkets. I have long looked forward to our legislators stiffening their spines and modernizing our archaic liquor laws, which have been stuck in the 1920-1930s era for decades, but I’ll believe it only when I see it.

I thought Liberal David Peterson might keep his 1985 promise of beer and wine in corner stores, but that measure never did get passed. In 1995, Tory premier Mike Harris pledged to sell the LCBO and open up liquor sales to private enterprise, but never followed through. In 2010, Dalton McGuinty’s Liberal finance minister Dwight Duncan mused about allowing some private investment in the LCBO, but that too went nowhere.

Readers might also remember former PC leader Tim Hudak opining about it being time that the government started treating Ontarians like adults and allowing the sale of beer, wine and spirits in corner stores and supermarkets. But that too went nowhere, of course, when PCs failed to unseat the Liberals in the general election that followed.

The main issue is, as I see it, our government has no philosophical or moral basis for maintaining the status quo. Instead of laws based on principle, Ontario’s liquor laws and regulations are filled with cynical contradictions and self-interest.

In the case of beer, Martin Regg Cohn’s Dec. 2014 article in the Toronto Star entitled, How The Beer Store lobby wins friends and influences politicians, tells us “[w]hy is it so hard to shake The Beer Store’s grip on Ontario’s politicians?” And, according to Regg Cohn, the primary beneficiaries of the current system—The Beer Store, its foreign owners and the union representing beer industry employees—collectively donated more than $525,000 to the three major political parties. Need I say more?

In the case of the LCBO, it’s mainly about the Grits paying off public service unions with cushy high-paying jobs for their members. In return, these unions support the Grits at election time with millions spent on anti-Tory election ads. Otherwise, alcohol could be freed from the government’s virtual monopoly and regulated and taxed in a manner similar to tobacco products. And, of course, it’s nice to have liquor board related contracts and appointments, etc., as patronage to be handed out to political friends and exchanged for political favours.

We hear a lot of nonsense from unions and government officials about government-mandated monopoly stores and their employees being best at maintaining a high level of social responsibility in the sale of beer, wine and spirits. But that’s nonsense, because the government already sanctions hundreds of private operators to sell alcoholic beverages in communities too small for the LCBO to service.

Moreover, there are more than 100 privately operated off-premises wine stores and tens of thousands of bars and restaurants that serve alcohol in the province. In the great majority of these, neither government employees nor union members of any kind are involved and our province is none the worse for their absence.

Quasi-monopolies as exist in Ontario’s alcoholic beverage industry are the antithesis of free-enterprise and have proven to be detrimental to the long-term health of societies that have experimented with socialism. Regardless of how much monopolies return to the government or on what good cause that money is spent, monopolies are wrong and harmful to our market-based economy.

Yet Ontario governments of all stripes have insisted on perpetuating this absurd system. What we have now amounts to a not-so-hidden tax on ordinary Ontarians to pay for inefficiencies throughout the value chain: high-end headquarters, wastefully expensive marketing programs, unnecessarily high retail overhead, retail price-gouging and fat management pay checks—see the Sunshine Lists and weep—and $50,000 plus a year being paid to some unionized retail workers to put a bottle in a brown paper bag.

True, this monopoly pays an annual dividend of more than $1.5-billion to the Ontario government—which is over and above the several hundreds of millions in taxes levied on wine, beer and spirits. But much of the dividend is from the hidden tax Ontarians pay in the form of hugely inflated  profit margins, which are about double what they are at a comparable retail operation in the U.S.

Here are just a few examples taken from a 2012 article in Toronto Life when the loonie was a lot closer to par with the U.S. dollar:

At Costco [U.S.], a bottle of Woodbridge sauvignon blanc costs $6.99; at the LCBO it’s $11.95. Costco sells Veuve Clicquot for $38.99 a bottle; the LCBO charges $66.30. When I [Jan Wong] asked for pricing examples for table wine, some markups were 137 per cent. For a wine that retails for $10.45 (the LCBO didn’t provide actual product names), it pays wholesalers $3.77 if it’s a U.S. or non-Ontario Canadian wine; $3.72 if it’s another imported wine; and $4.10 if it’s Ontario wine.”

And, of course, there is the muddle-headed thinking that seems to creep inevitably into too many government-run agencies. Consider this other example from the same 2012 Toronto Life article:

According to a recent report by Ontario’s Auditor General, Jim McCarter, the liquor monopoly is also minimizing profits by failing to use its enormous clout to negotiate the lowest possible wholesale prices from suppliers. Instead, the LCBO does something unique among retailers. It decides on the retail price it wants to charge for a product, and then asks suppliers to raise or lower their wholesale costs accordingly. Why? The LCBO claims it’s merely fulfilling its duty to be socially responsible—that by keeping prices high, it’s trying to discourage consumption. And yet, as McCarter reported, alcohol sales have gone up 67 per cent in the last decade.”

By all reports, we will almost certainly see the sale of beer and wine liberalized in Minister of Finance Charles Sousa’s spring budget. But increased freedom of choice will almost certainly be the sole benefit to consumers and, I bet, we’ll pay through nose for it.

To begin with, the government will likely issue costly licences to retailers—an additional hidden tax that will find its way into the prices consumers pay for these products. In other words, we may get more choice through expanded retail outlets, but the provincial government will maintain its strangle-hold on the industry, ensuring that consumers will continue to pay exorbitant prices.

The province is reported to be about to charge The Beer Store a $100-million franchise fee to keep their part of the beer duopoly so it’ll be interesting to see what that does to beer prices. And if beer prices increase at The Beer Store, count on similar (though unnecessary) price increases at the LCBO—you know, to be socially responsible, wink, wink.

Instead of limiting competition like we were some 1930s socialist state, our government could be turning the whole industry over to our robust free-enterprise system, with some reasonable regulations and taxes as is done in most parts of the modern world.

5 comments — This is a moderated blog and comments will appear when approved. Please don’t resubmit if your comment doesn’t appear immediately, and please do not post material that is obscene, harassing, defamatory, or otherwise objectionable.

  1. I find the articles by Cohn and other Toronto journalists very misleading particularly over the issue of LCBO possibly moving to sell beer in 24 packs. In dozens of communities outside urban centres, LCBO and The Beer Store share retail space and cash registers.
    Beer is sold in 6, 12, 15, 24 packs foreign, domestic craft etc.

    As you point out (and I usually post), the LCBO agency stores, convenience stores,sell wind liquor and beer in over 230 communities too small to warrant a LCBO outlet. This program extends back 60 years, but was greatly expanded in the past 20 years. Some of these grocery stores are within 50 miles of Wynne's own riding.
    Both McGuinty and Wynne have affected ignorance of this program, as they promise no sales of alcohol in convenience stores. This is absurd of course but the reason is not hard to understand. The LCBO union is adamant against the Agency store program and has bargained the last 2 contracts for a halt to it. the program remains on hold. Unbelievably, the union actually advocates cutting back the number of stores.

    The proposed changes trumpeted by Wynne will offer no improvements to customer service. The outlets in major grocery chain stores will be fully staffed LCBO outlets and the consumer will line up twice to pay. It is similar to having a LCBO outlet next door to the grocery store, already common.

    The template for private retailing of alcohol exists with the Agency program. There is absolutely no evidence of problems, we would have heard of them otherwise. The advantage to agency store sales is the convenience benefits to the consumer. An expansion of the program would alleviate some of the queues and inconvenience at outlets, particularly at The Beer Store.
    Wynne and her union masters have zero interest in consumer convenience these changes will go unnoticed by most Ontarians.


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  2. While I agree this doesn't go as far as I like, I would throw my support behind this as we've seen as mentioned above too many promises to liberalize alcohol sales go up in smoke never mind if you do it gradually the various groups claiming society will fall apart will have to less to stand on. Let's just hope this is the beginning of changes.

    Martin - I agree the agency program works well and they should get rid of the 10km rule and allow it in every community without an LCBO/Beer Store. I should note though interestingly enough OPSEU was the only union to endorse the NDP over the Liberals. As for the plan, from what I've heard 300 of the 1500 supermarkets could be licenced and it will only have to be in its own aisle (otherwise a beer and wine aisle). It will have the same checkout although you might not be able to use everyone of them as whomever rings up the purchase will have to be over 18 and smart serve certified, but unlike the LCBO Kiosks proposed earlier it won't be government workers. Off course we shall see what happens, but hopefully this is the beginning of the movement in the right direction even if slowly.

    I am a PC supporter, not Liberal, but my criticism is more their out of control spending and unwilling to tackle the deficit.

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    1. I agree with you, Anon 9:14 PM. What you describe would be a start in the right direction to be liberalized further by future governments. And I'd add to your list of criticisms the apparent lack of collective integrity and the breaking of election promises.

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    2. We will have to wait to see how this plays out; OPSEU is against it so maybe they are being cut out of the action this time. Limiting the sales to supermarkets perpetuates the problem of restricted sales on major holidays, but I guess It is one small step at a time for Ont.

      Every news source I read repeated Wynne's Big Lie of "no sales in convenience stores", without rebuttal. It is not just Wynne who remains disconnected, most of these reporters think Ont ends at Mississauga Road.

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    3. And count on the "small step" costing us more--consumers will have to pay for those licenses and franchise fees.

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