A few times recently I have made some observations about the positives and negatives of Alberta’s unique liquor system. Every time I do, a number of readers ask me to expand upon those passing thoughts and offer a fuller analysis of Alberta’s beer industry. I have wanted to, but they are the kind of posts that time to create – something in short supply in my life these days. However, I have finally forced fingers to keyboard to lay down a more complete analysis. Even then, I think the topic is so large that I need to break this into two parts (how many words do you want to read from me in one go, anyway?). In this post I will look at the consumer-end of the system – distribution, retail and supply. In a couple of days, I will look more closely at production rules and their consequences.
The analysis comes from a blend of hundreds of conversations with people involved at various levels of the beer industry and my own deciphering of the policy (using my day-job skills). The overview in the next couple posts will undoubtedly oversimplify, miss many important details (I am not writing a PhD Thesis here!) and overlook other factors. Such is reality. It will also spark much debate, and I am fully expecting people to tell me I am wrong. This is what happens when a beer blogger deigns to delve into politics.
Let’s start with a primer on Alberta’s beer system. In 1993, the Conservative government privatized liquor retail in the province, selling off the government stores and allowing hundreds of other operators. It also privatized warehousing, but to a private monopoly, what we now know as Connect Logistics. The government, through the AGLC, remains the official purchaser of all product, and uses Connect for distribution. All imported products must be distributed through Connect. The big brewers (Molson, Labatt) [edited to correct re: Sleeman] have their own parallel distribution system, Brewers Distributed. And the government permitts Alberta-based producers to self-distribute, meaning they have the option of delivering themselves or using Connect (most do both). What few know is that at the same time as they implemented these rules, they altered the liquor mark-up system which had the effect of lowering prices on spirits and increasing prices on beer.
Since that time,the retail system has come to be dominated by one very large chain and a network of grocery-affiliated stores, with hundreds of small, independent operators feeding on the leftovers. Importing into Alberta is easy – essentially a two-page form and a few labeling requirements. There are no limits, no panel to decide what deserves to enter the market, no quotas. However, there is also no one ensuring your product hits store shelves. Sure, ship it into Alberta, but without a good representative (who must be licensed) it will just sit in the warehouse and rot.
What has been the result of this system, in terms of beer? I argue the following:
- Alberta has the highest average beer prices in the country. I have written about this before, and there is a recent Calgary Herald piece on it. This is partly about tax rates and partly about the increased numbers of middle-men in Alberta’s system. From the wholesale rate, liquor reps mark up, Connect takes its cut and then the retailer needs their profit as well. Cost per bottle of distribution is higher in Alberta than in provinces with government-run retail.
- Depending on how you look at it, Alberta either has the best beer selection in the country, or one of the worst. There are more beer SKUs (the identifier for individual products) in this province, even if you remove the 90-different ways Molson and Labatt package their same bland beer. However, you would be more likely to stumble into a mountain lion on Jasper Avenue than you would 95% of the listed beer in an average liquor store. The chains tightly manage their selection, using criteria that is more about profit margin than quality, while small mom-and-pop shops simply don’t have the shelf space. This may not matter for beer geeks who know where to go, but in terms of building a beer culture, it is not helpful.
- Lack of guaranteed distribution gives a big advantage to the big brewers and their parallel system. It takes a lot of resources to reach the thousands of stores in the province. Plus, Connect is not particularly beer friendly (their warehouse isn’t even refrigerated).
- The scourge of “inducements” that plagues every jurisdiction’s pubs and bars, where the operator receives a range of rewards for stocking a particular beer (freebies, discounts, expenses covered, etc.), has spread to liquor stores. While government stores clearly have their headaches, at least there is a level playing field on this front. Again: Advantage Big Boys.
- Liquor stores have become low-wage service job ghettos, where disaffected young people toil until they can find something better. I have a problem with turning what were quality, well-paying jobs into minimum wage McJobs (someone scoops up the extra profit in this scenario – and it ain’t you and me), but many of you may not. But consider this. Long-term, trained, educated government store staff understand their product and can assist consumers and be a part of building a sense of beer. Not that they always do, but to be honest every time I have gone into a government Liquor store (which I have done in 7 provinces) , I have found them fairly knowledgeable and very helpful. Not so much in Alberta. Even my favourite places leave a bit to be desired in staff beer training.
- Alberta has been the recipient of some of the most amazing beer on the planet. The system has, unquestioningly, produced a steady (and growing) supply of quality beer from around the world. This is a real gift. Of course, it also has had an influx of lots of crappy beer, but that is par for the course. I know even from 2002, when I was studying for my beer judge exam, that the number of classic beer style examples available in the province has grown exponentially.
- Related to #6, Alberta has become a useful destination for small craft brewers to expand in a controlled fashion. The ease of entry, the lack of any minimum quantity (unlike Ontario), and the flowing of oil money make Alberta a very attractive market. It has been a real boon for Canadian brewers, like Half Pints, Phillip’s, Paddock Wood, and many others – who can’t really afford to export to government-controlled jurisdictions given their requirements and hurdles (and occasional stupid bureaucratic decisions). Alberta is simple, and you don’t have to commit to much to make some headway.
There are likely other consequences of the system, but that will do for now. Plus I think the point is made. The easy argument of “privatization has meant more beer” is far too simplistic. In any policy change, there are myriad consequences, some intended, some not. My goal is just to highlight the complexities of Alberta’s decision to privatize. It hasn’t been all lightness and goodness.
As I say this, I am well aware that many of the things I point out happen everywhere. No matter the system, the multinational corporations that run the big breweries get an advantage. They get just as much shelf space in Ontario as they do Alberta. That is because no public policy can counteract the power of economic leverage. The financial resources the big breweries can mobilize dwarfs even any kind of collective effort by smaller, craft brewers.
But, even given that reality, it is important to evaluate the direct effects of the system Alberta has implemented. Personally, I believe it has strengthened the hand of the big brewers at the expense of small brewers, and in particular Alberta-based brewers. In particular these issues trouble me: higher prices make it harder for craft to insert itself in the mainstream market; chaotic and decentralized retail creates hurdles for small players; and the creation of new dominant players (Connect, retail chains) embeds a culture of accountants-over-brewers. In general, I believe that even though the system has given us dozens of world-class beer to drink – something that I am forever grateful for – on the whole its effect has been to stifle the development of a real beer culture in Alberta. It is too hard for an average consumer to find a decent craft beer in this province, and even if they locate one, the price-point is likely too high.
But this is only part of the puzzle. Next time I will look at the producer end – production regulations, mark-up rates and import vs. export policy. I also won’t yet go into my suggestions for solutions – something many of you have asked for – as I think that needs to happen only once we have discussed the system as a whole.