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What the Alberta Budget Means for Beer

Photo-Budget2015Last week’s Alberta budget, as the whole world already knows, increased liquor taxes. A case of beer in Alberta will cost 90 cents more than a week earlier. I know no one is particularly happy to pay more for their favourite beverage, but I personally am not going to get wound up about it, especially given cutbacks to health care and education and other, more significant tax increases.

Before I get to my main point of the post, a quick aside. The new mark-ups took effect Friday, March 27. This does NOT mean beer prices went up that day. The new mark-ups apply only to any product purchased by stores and bars from Connect Logistics after that day. Any product that was already on their shelf/on tap is unaffected. I say this because this is a grand opportunity to find out how honest your liquor supplier is. Did they hike their ALL their prices immediately? Or are they planning on phasing in the new prices as old stock is replaced by newer, more expensive cases? I know my regular store (loyal readers know of whom I speak) is planning a colour-coded system indicating when old stock has been replaced by new stock, thus justifying the price hike.

However, the price of beer is not my focus of attention today. I wanted to take a closer look at HOW they distributed the mark-up among the different sized breweries. As many will know (and those who don’t, get a primer here) beer is marked up based on the production size of the brewery. Small brewers get the lowest rate, while the big boys pay full share. A sound policy and one replicated in many jurisdictions.

The political issue in Alberta over the past few years has been that the smaller rates are given not just to brewers who produce in Alberta but to any brewery, regardless of their point of origin. The ever-controversial Minhas, based in Calgary but who brews the vast majority of their beer in Wisconsin, is a particular lightning rod.

So, what did Mr. Prentice and Mr. Campbell do to address this situation? Well, they made it sorta worse and sorta better. See my not-so-fancy little chart.

Brewery Size

Old Mark Ups (per litre)

New Mark Ups (per litre)

Less than 20,000 HL

.20

.20

20,000-200,000 HL

.40

.51

200,000-400,000 HL

.40 on first 200,000
.98 on second 200,000

.51 on first 200,000
1.20 on second 200,000

Over 400,000 HL

.98

1.20

First the bad news. Mid-sized breweries got hit with a 27.5% hike in mark-ups. The largest breweries received a 22.4% increase. Admittedly this is a fairly large jump in either case, and I can see that the government doubled the dollar increase for large breweries (22 cents vs. 11 cents). But it still seems a bit perverse to me that smaller breweries are hit harder than the big multinational breweries.

Big Rock is already crying foul (read here) and I can’t say I blame them. Although I will note the story completely got wrong who is paying for the increase. Big Rock is not paying more in “taxes” as stated in the story. This is a levy added after the beer leaves the brewery. It makes Big Rock’s beer more expensive, but it is taking nothing directly out of their pocket. Only the brewery’s competitive position is being harmed, not its bottom line.

What is more is the differential between the full rate and the middle rate has increased, from 58 cents to 69 cents. This shift will exacerbate the controversy about out-of-province breweries. The so-called “subsidy” (it is more a case of lost revenue) will grow by 19%. That will hardly sate the voices calling for the lower rates to be applicable only to beer made in Alberta.

The good news is that the spread between the small brewers and everyone else got bigger. Since every Alberta brewery except Big Rock is in the smallest category, they are net winners in this shift. By sparing them the increase their beer becomes cheaper relative to other options. I am not sure how much this will impact purchasing decisions but it likely can’t hurt. So it is a relatively good day for the small guys in Alberta.

Still, a more pro-active agenda of supporting local production and helping with promotion, marketing, etc. would be a much better step, and one that wouldn’t affect the budget balance. However, that will clearly need to wait until another day (we hope).

In short, this budget tinkered on the edges but ignored the big issues. On the thorny issue of mark-ups, the government ducked the structural issues and just went for a cash grab to fill their strained coffers.

And soon there will be an election in the offing. So put this into your broader factors for who to vote for.

 

 

 

2 comments to What the Alberta Budget Means for Beer

  • You can count me as one of the people who is asking why, if they wanted to increase revenue, didn’t they remove the applicability of the small brewer markup for out-of-province brewers. I have yet to hear of a single jurisdiction giving reciprocal benefits after all these years. Sure, it is nice to drink beer from other jurisdictions, but I suspect imported craft beer is not so price inflexible that $0.33 a bottle is going to kill the import trade. That two bucks a six pack, however, will likely make a difference for small Alberta brewers who want their product to be our “Go to” craft beer. I go to various stores and see import craft beer selling at $20.00 a six pack and more and I wonder if the small brewer markup rate is life or death for imports.

  • Gus Topper

    The markup is only .44 per 6 pack (.88 per 12 pack or .22 per litre, approx. )for the large brewers, even less for mid size brewers, so the math seems to be off a bit. Have a look at the markup per litre chart. If you look at how liquor stores in Alberta markup beer in general, big beer is marked up approx between 18 – 22 %, craft beer is approx 22 – 40 % depending on who you buy from. This may help even things up a bit. It may help reduce the free stuff that the bigs guys buy bars off with, yes even over own Big Rock will have less money to spread around ( or free kegs ), but we never talk about that.

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