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Public vs. Private Liquor Retail

liquor store coolerA report on the liquor industry in western Canada has been sitting on my desk for the past few weeks awaiting me to get around to reading it. The time off during the holiday season gave me a little free space to finally pick it up (yes, reading policy wonk reports on my Xmas holidays – feel free to call me a loser). The report, called Impaired Judgement, conducted by the Parkland Institute at the University of Alberta examines liquor policy and outcomes in B.C., Alberta and Saskatchewan (here is a link to the report).

Here are some of the highlights:

  • liquor prices are consistently higher in private retail stores in B.C. and Alberta than in publicly-owned stores. For example, a 12-pack of Canadian is 11% more in Alberta than Saskatchewan (they only priced common items, so no sense of the craft end).
  • Alberta’s per capita and per-litre revenues from liquor have dropped substantially since privatization, due to its flat-rate approach to taxing liquor.
  • The report suggests Alberta’s liquor retail system is in danger of becoming an “oligopoly”.
  • Alberta has higher store density, longer hours and less enforcement of minimum drinking age laws than the other provinces. The report argues these tendencies undermine public health.

Much of this is not new. Multiple reports and studies have demonstrated that Alberta has the highest beer prices in the country (I have reported on this a number of times - here and here for example). Alberta’s decision to move to a flat rate per volume tax levy, rather than the more common percentage of price, occurred in 1993 and it has been known for a while that it led to a reduction in revenues gathered from alcohol (page 11/12 of the report does a nice job summarizing the difference between the two types of taxation).

Why write about it here? For a couple of reasons. First, this website is interested in the mechanics of the beer industry as much as the product it puts out. Second, liquor privatization is once again becoming a hot political topic. B.C. recently backed away from plans to privatize liquor distribution. Saskatchewan continues to mull privatizing the retail system (and is making baby-steps towards it), and the Ontario Tories have made it a key plank in their platform. Third, I get tired of people talking about “how much better” Alberta is for liquor than other provinces, despite ample research showing the picture is far more mixed. So I like to put the information out there.

For me, there are three takeaways from this report. First, the case that privatized retail has led to higher prices is a slam dunk. Repeated studies (with different methodologies) have come to the same result over an extended period of time. Add a couple layers of middle men and the profit motive and, viola, higher prices. Besides, public monop0lies can take advantage of economies of scale that the (increasingly rare) mom and pop shop cannot. Maybe that is an acceptable consequence if other outcomes improve – but that is in the eye of the beholder.

I can hear many of you muttering that you don’t care about the price of Molson Canadian. Fair enough. Neither do I. But those extra layers of profit-takers affect the price of my favourite beer, too. In general, I am an advocate for consumers, and soa move that takes money out of Joe and Jane Six Packs’ pockets and into a corporation’s, for little discernible advantage, raises a red flag for me. Plus, I care about good public policy. Learning about the unintended consequences of policy decisions helps us prevent mistakes in the future.

Second, the report echoes my growing concerns of the concentration of retail store ownership in the province. A handful of companies control a large portion of Alberta’s liquor sales. If we replace a public monopoly – with some semblance of a public interest mandate and accountability – with a private oligopoly, with no accountability, are we really improving the system? Yet another unintended (but not unpredicted) consequence.

Third, the report causes me some discomfort when it discusses public health and liquor. I understand very well the social, physical and mental consequences of liquor consumption – I am no denier around this stuff. Liquor is a factor in a variety of social ills and medical ailments (including cancer). There are significant social and financial costs to liquor use. The report authors make perfectly valid (and troubling) points about the lack of enforcement around sales to minors and the problem with high-octane discount liquor.

But the authors have a subtle moralistic tone to their argument that reveals an assumption that the way to reduce alcohol’s negative consequences is to restrict access to alcohol. Of that I am not convinced. The problem feels far more complex and multi-layered – poverty, mental health, inadequate social safety nets and family support structures, a culture of consumerist excess,¬† a moralist message to youths that alcohol is “forbidden”, and so on. Alberta doesn’t have alcohol-related social ills because we have more retail outlets. Saskatchewan is not safer because the government has more control over what product gets sold.

I know the authors are economists simply discussing the economics of the issue – which is fair. But embedded in their numbers are some moral assumptions that reflect what I think is a growing trend. In recent years public debate about alcohol has been imbued with this sense that it is inherently “bad”. We are back to talking about “just say no” rather than responsible consumption. I am broadly concerned with where this tone is taking the debate. I suspect this is a topic for another day, but I thought I should highlight that lingering concern.

In summary, the report proves to me, yet again, that making policy in liquor is no easy task. So anytime a politician tells¬† you that all your problems will be solved if we just privatized our liquor stores, don’t believe them. And ask them who is donating to their campaign. Because it isn’t the consumers’ interests that politician is looking after when they tell you that. That I do know.

14 comments to Public vs. Private Liquor Retail

  • Graham

    I may be making broad assumptions here, but it would seems that the AB privatized system doesn’t encourage craft beer in a meaningful way. I only say this in comparison to the LCBO, where not only is it actively marketed but lower and stable pricing makes it more accessible and a reasonable option compared to discount and big brand products. Although I am now conditioned to shelling out for rare or excellent beers, I don’t think that the Average Joe or the craft curious feels ready to make the jump if they don’t have the money to gamble on strange products. You only have to follow the markups and by the time you see a bottle or pint of a high-end beer in a bar (not all but some), it is totally unreasonable to the point that I wouldn’t buy it just out of principle. From ten dollar sleeves to double or more priced bottles, Alberta is going to make finer Craft beers elitist products if it’s not careful. Fortunately there are knowledgeable consumers willing to pay and those with the money to blow, but like I said, the average person will probably continue to stick with the more obvious stuff. No real evidence behind my opinion, just some thoughts.

    • SDot

      The Ontario system is kind of a unique case. Relatively little beer is actually purchased at an LCBO store (less than 20% of all beer sales), unless you live in a small town where that is the only outlet. But the LCBO (controlled by the Government) does a good job of promoting local products, beer, wine and spirits, especially in conjunction with the Ontario Craft Brewers.

      The larger problem for smaller brewers in Ontario is The Beer Store (Brewers Retail), which is owned and operated by AB-InBev, MillerCoors, and Sapporo. Craft brewers there have a very unique problem. The Beer Store is allowed to charge listing fees for the “non-shareholder” brewers. This gives small brewers a huge disadvantage if they cannot afford the listing fees, restricting them from the largest market which is controlled by their largest competitors. Up until recently the listing fees were discounted for small brewers but this has changed. Additionally, The Beer Store is now implementing a policy where they can delist products if they don’t meet a set sales threshold.

      I grew up with the Beer Store and am used to it, but from an outsider’s perspective it must seem so strange. Imagine Pepsi being forced by law to sell its product in stores owned by Coke.

  • old coyote

    I have bought beer in 5 provinces in the last year and Alberta is always the cheapest – don’t understand a methodology that puts them highest in theory but not in practice. Where do you buy the cheap beer in other provinces, I would love to find it.
    I bet it has something to do with taxes charged in other provinces, but to me the price of beer is the price you pay to carry it out of the store. I lived in Lloyminster for a number of years and I can tell you that the Government store on the SK side was never very busy – I guess the people like to pay more……..

    • beerguy

      Old Coyote,

      Can’t speak to your direct experience, but multiple studies have now shown something otherwise. Most are measuring actual retail prices, not theoretical prices. One of the issues might be that Alberta has no consistent retail price – each store (or, more commonly, chain) has the right to charge as it sees fit, meaning there will be more range in Alberta. Maybe you are going to cheaper stores. The other question is what beer you are buying. Most of these studies do a survey of main brands (Canadian, Bud, etc.) so there is a limitation in that they don’t measure craft prices.

      As always with these kind of things – your mileage may vary.

      Thanks for posting.

  • Alberta has a great selection of craft beer, however, I am restricted by how much of it I can buy due to the cost. Craft beer in SK priced similarly with poorer selection. I couldn’t imagine being a craft beer fan in either province, and NOT also be a homebrewer…

    I buy most of my commercial beer in the US, where price and selection are excellent.

  • Brad Goddard

    Another great, thought-provoking article, Jason.

    I’ll note, only because of intimate knowledge, that the savvy shopper in Alberta can easily find Steam Whistle cheaper–or on par–than what it goes for at the Brewery itself. That’s the free market–and the smaller shops I tend to do my own personal shopping at tend to feature Steam Whistle on an average on par or higher than the Brewery–so it’s difficult to pass a unilateral judgement. That the market is dominated by few “price competitors” means that the overall average does go up; but those willing to spend the time (and gas) can still score some good deals in AB.

    As to the market being Craft-friendly or not–it has changed a lot in the seven years that I’ve sold Steam Whistle here. Back in 2005 there was still a stronger mom-and-pop presence and small chain presence than there is now–which means presently that the more difficult conversations (with chains) must happen earlier in the life cycle of a brand; but that there are several large chains, vs. one government body, means that one NO only closes one door. Shoe leather–which craft guys have in abundance–can still garner a lot of business.
    The most important change that has happened–for the better–is craft beer awareness. With some marquee bars and restaurants serving craft–and an incredible selection at retail–consumer habits are remarkably different now than they were seven years ago, which is a very good thing. More Alberta craft brewers have also added to visibility greatly–and taken their beers to the hearts of communities (which is what craft does best).
    The LCBO and BC Liquor still specialise in Ontario and BC beers respectively–and both provinces have many more brewers to stock those shelves; but other Canadian brewers, and brewers from South of the Border, still have challenges navigating those government channels (and gain visibility in provinces that also have historically spent provincial money to advocate and promote their “local” suds).

    The social ills argument makes me yawn. The Demon Drink thinking holds us closer to prohibition than an enlightened view on the role alcohol can responsibly play in our communities. Responsible use–not abuse–has often been found to have many health benefits; and–again, speaking personally–beer has helped support an awful lot of noble community events and organisations–a fact I feel is likely skipped over in many of these studies.

    Having said all this, we sell beer (to a degree) in every province West of Ontario, and Alberta has been one of the easiest to deal with from a “supplier” point of view.

    • beerguy

      Thanks, Brad. I am very conscious that there are many layers to this puzzle – and many perspectives to take into consideration. I just hate the “everything is better in Alberta” because of privatization argument. Just because Ralph Klein said so, doesn’t make it true. Like much of life, the reality is far more complex.

  • Jim

    I grew up in Wpg and moved to Calgary 15 yrs ago. I am now back (one month) in Wpg. Just my thoughts and no hard evidence other then ‘my’ experience which has shown me that the price of beer between AB and MB are similar depending on what you are looking for. In AB the prices will vary depending on where you go, and yes only a certain segment of people will spend more for a micro-brewed specialty beer. That said, lets keep in mind that on average – wages in Calgary are (if you are a good negotiator) minimum 20% higher then what I am seeing in MB (broad statement indeed and yes it does depend on what you do for a living I know) – there may be a bit more $$$ in the pockets out there for their beer choices – but I digress. The public would be afforded more options on specialty beers, wines, etc.
    While I definitley don’t profess to have nearly enough answers to sound like I should be speaking on this topic (I might just be a simple average alcohol drinking Joe), I know there are and will always be pro’s and con’s to both systems – however in my limited experience of living in Wpg for 30 years and then Calgary for 15 years – I would MUCH prefer privatization of the liquor industry in a heartbeat.

    I for one would like to see it privatized in MB. I would like to see less government involved. I would like to go to the grocery store (any of them) and then walk half way across the parking lot to their liquor store to get beer/wine and then go home. Ah, conveneince as in ‘convenience store’. Not have to find where the nearest LC is located only to find out (as I have in my month back) that they don’t carry quite a few specialty wines or beers that I was able to get at many liquor stores in Calgary. The selection is quite poor. Now again, this is from someone who does enjoy specialty wine/beer and will spend to have it. I would think that as a brewer, you would want privatization as you would be more likely to find your product in more outlets in hopes of increasing sales. As the government I would also think they would be for it as it would promote entrepreneurship in the private sector, provide more jobs in sales and construction (building outlets for private liquor stores), etc., etc. The government would still receive their tax grab from liquor sales.

    I would love to hear other peoples thought on this as well. Again – I don’t profess any kind of expertise on this other then personal experience.

    Bottoms up.

  • Paul

    No surprises here, Alberta has higher prices on average but a far better retail selection than other provinces. That’s a tradeoff I’m very happy to make given my experience living in Toronto.

    You mentioned that you found the authors’ slightly moralistic tone distasteful. I agree, but how you feel about the explicit ‘social responsibility’ aspect of government liquor stores? After all, they were created precisely to limit access to alcohol and this is still reflected (at least in Ontario) in reduced hours and few locations. A significant number of the anti-privatization arguments I heard in Ontario in the press, from friends and family, etc. also drew on the idea that ‘alcohol is bad’.

    • beerguy

      Paul,

      Indeed, that is one of the great contradictions of liquor boards. Craig Heron’s book “Booze” does a great job of showing how the post-prohibition system – largely still in place – was intended to restrict, rather than facilitate access to alcohol.

      There is no reason that longer hours and more locations (and more diverse forms of access) can’t be implemented within existing public structures. The Tim Hudak approach of scorched earth is rather simplistic and counter-productive, in my opinion. How politically feasible is that? I don’t know.

  • Interesting article with some real cause for concern. However, I’ve repeatedly heard that selection is much better in Alberta than anywhere else, and not just because of (wonderful) anomalies like Sherbrooke. My experience in other provinces, limited though it has been has shown this to be at least anectodally true. I’d rather have better prices, and I’m definitely concerned with the possibility of Liquor Depot controlling the vast majority of stores in the province, but for the time being I’ll take better selection over better prices if I have to choose (though, it shouldn’t have to be a binary).

  • Graham

    I guess growing up in Ontario, making a trip to the LCBO wasn’t so much of a problem, never needed a liquor store on every corner myself or booze at 1 AM. Admittedly the Beer Store isn’t about pushing craft, that is what it is, but I know a lot of great brands are still in the store and still relatively cheaper to purchase than from a typical AB independent retailer. Considering how much better paid and treated employees of both stores are compared to the average independent employee in AB, I wouldn’t be surprised if there is less rule-bending (re. intoxication, IDing, etc) since the jobs are more valuable. Alcohol creates issues everywhere, but I think the social benefits of a more regulated industry are significant. If you don’t agree you probably have your blinders on to the obvious problems in this city.
    Yes, there is more selection in Alberta, but the difference between a $2+ pint of craft there and $3+ here is definitely significant for attracting new consumers from the big brand/discount segments. Just saying, the market is polarized out here. You get dirt-cheap, low-quality offerings targeting the ‘discount’ segment, and good-quality premium and craft beers marked up to the point where it becomes unaffordable for some to drink regularly. I’m hoping things balance out because there is already a ton of great beer that moves so slow it is becoming a gamble on freshness to purchase.

    • beerguy

      Graham,

      That speaks a lot to people’s experiences and expectations. That is a lot of the issue. I know that my expectations have jumped considerably in the last 5 years. And while pricing is not my main concern on a personal plane, I think you make a very good point about pricing creating a polarized market. That is worrisome. In the US craft beer is no more expensive than the corporate brands (or at least only marginally more). If the price spread is too big, craft limits its market scope. That is, ultimately, a problem of government policy around taxation and distribution rules.

      Thanks for the comment.

  • Kevin

    Public or private? I don’t know which is better. But I know we still have a public policy problem with alcohol in this society.

    As far as I am concerned the price of macro industrial lager can’t go high enough. I spent the past weekend with my dad and his borderline alcholic friends, and the volume of bad beer they drink in a weekend is staggering. And then they drive home.

    I think that is one reason I become a craft beer lover. I wanted a healtheir relationship with alcohol, which means consuming with purpose, not just as a (bad) habit. The government should be doing whatever it can to foster the same in all alcohol drinkers.

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