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Liquor Depot Restricting Big Rock

CBC Radio One in Edmonton this morning ran a story (you can listen to the whole story here) claiming that Alberta’s largest liquor store chain, Liquor Depot (who has 15% of all liquor stores in the province), is restricting supplies of Big Rock product in its stores across the city. The reporter, who contacted me for comment yesterday, contacted more than 50 Liquor Depot stores in the city and discovered most carried little or no Big Rock. This is a big change from a few months ago. Liquor Depot refused to comment on why they were restricting supply, but individual store clerks told the reporter that it was due to a feud between the large retailer and Big Rock.

Today it looks like the Edmonton Journal and possibly other outlets are following the story.

This story is more significant than it may appear at first, in my opinion. For me this story isn’t about one brewer – if it was I would ignore it. I think it is a good example of what may be going wrong in the beer industry in Alberta. While no one is talking on the record, there are rumours flying like crazy that Liquor Depot is intentionally punishing Big Rock for some reason.

Let me state VERY CLEARLY I do not know what is happening in this dispute, so I cannot comment on its specifics. What I can discuss is the dynamics in the Alberta liquor industry and their relevance to this story.

In Alberta’s privatized system, nobody gets guaranteed distribution. Every brewery, winery, and agent must persuade each individual liquor store owner to carry their product. Obviously some of the players – the big corporate brewers, the large wineries, etc. – have an easier time of that than others. Who is going to refuse to carry Bud Light? However, for small breweries, it can be a tough slog.

And what it means is this. There is a power imbalance out there. With limited shelf space and a surplus of potential product listings, liquor stores (and bars for that matter) are in a position to ask the producer to give them a reason to stock their product. This could be quality, popularity or niche marketing opportunities, but more often than not it is more likely to be price discounts, brandware (glasses, shirts, etc.), exclusives and the like.

And the bigger the retailer, the more power they hold. We know this is true in other sectors with similar supply chain structures. Wal-Mart, for example, uses its monster-sized market share to place extraordinary pressure on its suppliers for price cuts. It is a well-documented practice, and is embedded into the logic of modern capitalism. Not all industries operate this way, but I believe it applies nicely to alcohol retail.

In Alberta’s liquor retail industry, Liquor Depot is the big kahuna. It operates 184 stores in the province, and made a profit of $4.8 million in the period April-June 2010 (and this is down from previous quarters). That is pretty darned big. You can see why breweries don’t want to piss them off. Getting shut out of almost 200 stores is bad news for anyone’s bottom line.

Of course, retailers have their own pressures – tough price competition, balancing range of selection with focus on biggest sellers, etc. However, the rule of size remains. The larger retailers are able to set competition conditions that the little guys have to scramble to meet.

Everyone in the beer industry has stories of the kind of pressure placed on breweries to provide “inducements”. Of course, no one goes on the record with this kind of thing, making it hard to prove. I believe, having heard similar stories from dozens of industry folks, that it occurs on a regular basis. Taking a look at the legislation, there is an argument to be had that such inducements are illegal, but, like so much else in Alberta, enforcement is a complaint-driven process. And no one complains, so therefore nothing is wrong.

The core of the problem is Alberta’s decision to privatize liquor without offering any other controls. This has resulted in a concentration of liquor retail ownership, which has permitted power imbalances – which always exist – to be exacerbated. Combine that with a private monopoly in distribution and you have a system ripe for abuse and difficulty.

The irony is this kind of system leads to REDUCED selection for the consumer. Again, I don’t know if Big Rock did anything to anger Liquor Depot – I will leave it to others to ferret that out – but looking at the big picture offers some hints to what might be going on.

Yes, I know that similar issues (and equally problematic different issues) exist in other provinces, and so it is not like reversing privatization would produce a perfect system. Far from it. But we need to assess the effects of privatization honestly if we are to figure out how to fix the current system. The Alberta government unleashed market forces without considering the consequences for beer consumers and for local companies creating jobs in the province (or maybe they did and didn’t care – who knows).

At any rate I will be curiously watching how this story unfolds. More updates as events warrant. Film at 11. Yadda Yadda.

14 comments to Liquor Depot Restricting Big Rock

  • Ernie

    It’s a simple solution for me, though unfortunately we beer geeks are in the minority: support small brewers, support independent liquor stores, support small business in general. While they might not give us the lowest price, they will generally give us quality and selection.

    • Ernie,

      I agree entirely. And not just for beer. I try to follow that model with most of my consumer purchases. It makes sense economically – keeps money in the community, ecologically – lowers footprints, and ethically – less likely to have the product made by exploited children in developing nations (not that applies to beer…).

      However, we are in the minority. But maybe stories like this increase awareness of the need for local purchasing.

      Jason

  • Sid

    I did hear a rumour LD is being put up for sale again; could this be a reason for this pettiness?

    • Interesting thought. I can’t say for sure, but to be honest I don’t think that would affect this. Why would punishing the third largest selling brewery in the province help entice a buyer?

      Plus, the damned thing is a Trust, which means the dividends are stunningly separated from the actual operations of the company.

      Thanks for the info, though. I guess we will see in time.

      Jason

  • Paul

    I’m curious what you feel the consequences of privatization have been for beer consumers in Alberta, aside from slightly higher prices (I don’t know if this takes into account the fact that Alberta has no PST/HST, which may even things out a bit), and vastly increased selection and convenience.

    It sounds almost like you’re suggesting Alberta return to the days of government-run liquor stores. As a beer geek who just moved from Alberta to Ontario, I have a tough time believing that any beer lover would prefer the LCBO to Alberta’s system.

    • Hi Paul,

      I hear what you are saying. I am not advocating Ontario’s remarkably backward system. However, I am trying to evaluate the Alberta system honestly, and I believe privatization has been a bad thing for consumers. Higher prices, less selection in most stores, more instability for producers and a cutthroat culture in terms of sales.

      I believe the advantages of privatization could be achieved without fully privatizing the retail system. Alberta’s easy approach to listing has been a boon for beer geeks – we have the widest range of good beer in the country. However, you can do that without throwing the whole system into the mouths of the free market wolves.

      What I think the system should look like would take too much space here – maybe I will post on it one day. But I can say that I believe that a government-centred retail system, with built-in policies that encourage wide selection, innovation and specialization, can work for beer consumers. It would keep prices down and still allow for the kind of diversity we see at select stores in Alberta. I know it is more complex than that – but this is my 25-word summary.

      Thanks for the thoughtful question. I like engaging things at this level.

      Cheers.

      Jason

  • Barry

    Sorry to disagree, but the old ALCB system was even harder on small brewers. I speak from the experience of trying to get micros carried in stores outside of Calgary and Edmonton and it was really difficult. Yes there are difficulties with the new system but we have more choice than ever before, sometimes you just have to look hard to find the best stores. I think you are drawing a hasty conclusion on the Big Rock front, as that brewery in particular has been extremely difficult to deal with, in my experience.

    • Barry,

      Don’t apologize for disagreeing – differing views is what makes the world interesting. I hear your point; I am not arguing for a return to that system as it also had flaws. I do observe, however, that when privatization occurred craft brewing in Canada was in its infancy, so in a way it is comparing apples to oranges. I am not convinced that the ALCB would have necessarily responded poorly to the wave of new brewers.

      I am not sure to what you are referring when you say Big Rock is “extremely difficult” to deal with. I am not questioning you, I am simply not clear what you mean.

      Your points are well taken. Thanks for commenting.

      Jason

  • Ixion

    The problem developing here is not the result of privatization, rather is an example of the danger of monopolies. Liquor Depot is not a monopoly, but is approaching that status (which is your point, I think) — imagine if it were. Big Rock would be shut out completely. Monopoly is, in fact, the system that exists across the country — in every other province a small group of Board members decide which beers (or wine or spirits) will be offered to their public. At least in Alberta anything can get a listing, and potential market access.

    The problem is the market control obtained by Liquor Depot, not privatization per se.

  • Agree with Ixion. When privatization happened there were rules designed to prevent big guys winning. Safeway wanted to sell beer via their stores, as in the US. But, no, big retailers were not allowed to do this, liquor stores had to be free-standing. But since then the govt has fallen asleep and allowed things like consolidation. How many good, independent stores have you seen dumbed down into Liquor Depots over the years? Too many. All it would take is an AGLC rule that says one organization can only own x number of stores. Justification could be support of small business, support of Alberta business, etc. A half-way measure would be to actually enforce rules and regulations. It seems like Liquor Depot is getting away with under the table deals. Why not ask your local MLA about this issue? Mine is Heather Klimchuk, and I’m going to just that now!

  • Scott K

    I like the points that Ixion and Peter have made, but I also agree with Jason’s argument that the government decision to privatize the industry does not provide all the solutions to the seemingly complex business of liquor distribution. Especially, with an obvious “hear no evil, see no evil” approach to regulation enforcement.

    What? Capitalism isn’t our demigod and saviour!?!?

    I believe there will always be power imbalances in any system, but it is exactly the business environment created by the current Alberta system that encourages the development of monopolies like Liquor Despot.

    Peter is on the right track. Now where is my MLAs contact info?…

    Scott

  • Justin

    This is obviously an old ad seeing as most LD carry bigrock.

    • Justin,

      Not sure what you mean, but the post is only a couple of weeks old. This dispute is quite recent and still ongoing. The range of Big Rock selection has dropped significantly lately at LD – as demonstrated by the research done by the CBC reporter I cite.

      Feel free to clarify what you mean or offer evidence to the contrary. For now, the post remains accurate.

      Thanks for commenting.

      Jason

  • Dillon H

    I Used To Work At Liquor Depot,

    They Are CONSTANTLY Having Disputes With Their Suppliers Because They Demand Perfection. But THAT COMPANY IS A JOKE!
    They Cant Keep It Together Even If They Tried.
    Out Of The Whole Company, I Met 2 Staff In The 3 Months I Worked There, That Were actually Friendly,
    And Liquor Depot Is EXTREMELY Overpriced. Go To Superstore, They Are Cheaper

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