Breaking The Beer Store Monopoly

Posted on 18. Apr, 2014 by in Politics

In an attempt to generate support for the upcoming election the Ontario Liberal Party is proposing changes to the liqour control legislation in Ontario so that alcoholic products could be purchased at convenient stores. While this might seem like a purely political maneuver considering the Liberals have so far failed to tackle the issue since taking office in 2003, the issue of changing how people purchase their Alcohol in Ontario is still something that needs to be addressed. Currently Beer can only be purchased by consumers from the LCBO, directly from the breweries, and from The Beer Store. While the LCBO is a crown corporation,  The Beer Store (Brewers Retail Inc.) is actually owned by a series of beer multinationals, only one of which is partly Canadian-owned. So while the idea of a crown organization like the LCBO might be acceptable, or maybe just a debate for another day, The Beer Store is a private company in a government-controlled monopoly where only a fraction of the revenue goes back to the Ontarians.

The Beer Store, who clearly sees this proposed legislation as a threat to their monopoly, have launched a website to try and “educate” Ontarians about bow the proposed changes will have “negative consequences for Ontario”. On this Ontario Beer Facts website they highlight five “common myths” about what would happen if alcohol was to be sold in convenient stores: Price, Product Selection, Tax Revenue, Sale to minors, and Recycling.

The first “myth” the site brings up is that Ontario has the lowest beer prices across the country. A poll conducted by Ipsos-Reid claims that across BC, Alberta, Ontario and Quebec the price of a 6-pack is $16.12, $16.00, $10.88, and $15.00, while a 24-pack will cost $45.58, $46.57, $32.08, $35.68 respectively. These prices have been adjusted to Ontario’s alcohol tax rate so that they can claim to have lower prices when in actual fact the price consumers pay in other provinces is much lower. Even with these tax adjustments their numbers are still wrong because there actually isn’t a $32 24-pack at The Beer Store right now (for comparison a 24 of Canadian is $40). Secondly, as someone who lives right across the river from Quebec will tell you, going to Quebec to buy beer can be significantly cheaper. So with the price of beer in other provinces being inflated to make prices in Ontario lower, there really isn’t a large difference in price between the public and private stores in different provinces. Furthermore, when it comes to The Beer Store attempting to advocate for lower prices on behalf of consumers they are creating a conflict of interest because there is no reason why The Beer Store wouldn’t benefit from an increase in price. Should prices increase after opening up the market, The Beer Store could keep their prices lower than the new competition and attract more customers, or alternatively they could they could raise their prices along with the new competitors and see larger profit margins. With either of these options The Beer Store is still in an advantageous market position.

The Beer Store is of the opinion that due to space restrictions convenient stores will not be able to offer the same selection as can be found at The Beer Store. This consumer advocacy is again an interesting stance for The Beer Store because the inability of convenience stores to offer a large selection could help keep customers coming back to The Beer Store. Though a wide range of products is offered at many Beer Store’s their comments about selection are ironic considering the process by which the products they carry are are hardly being determined by free market forces, but instead by the decisions of a monopolistic multinational. While it is true there are many smaller convenience stores which would not be able to carry quite as large a selection, there will be many other larger convenient stores which could accommodate a seizable selection. Regardless of the availability of products at convenient stores any gains in competition, product selection though market forces, and an increase in the number of points of sale outweigh any possible selection shortcomings.

Taxes, and the revenue it creates for the government, will never be a selling point of any consumer product. Unfortunately, this is exactly what The Beer Store is trying to advertise about the high alcohol tax rates in Ontario. Somehow people should be happy to hear that Ontario’s alcohol tax, which “is more than double Quebec”, is going to “fund important services like healthcare and education”. While it is important that these projects get funded, the issue here is selling alcohol in convenient stores has nothing to do with the alcohol tax rate. People recognise that taxes are necessary to fund public programs but are reluctant to pander to tax increases to compensate for the inefficient use of their existing tax dollars. The websites goes on to compare the percentage increase in alcohol tax revenue since 2002 between Ontario and BC, for which revenue growth in in Ontario has been twice that of BC. What they fail to mention is that BC has a balanced budget while Ontario has a budget has a deficit of $11.7B. Without getting into the issues surrounding misuse of government funds it is also important to note that when they make a claim that Alberta has forgone $1.5B in tax revenue since its privatization they are also pointing out that consumers have saved $1.5B since privatization, money they were able to save or spend elsewhere. The real discussion about tax revenue from alcohol sales should not be about where to money is going  but instead about a reduction in taxes that lowers prices and provides overall growth to the industry by attracting more consumers.

The Beer Store continues with their propaganda by taking a stab at the credibility of convenience stores and their ability to properly check for ID. While there is always the possibility for abuse with ID-checking, it is unfounded to claim that there is going to suddenly be a major influx of under-age people buying alcohol. Something The Beer Store should consider is that many many under-age people still have access to alcoholic products even with 21 being the minimum age necessary to purchase alcohol in the US. When it comes to the inability to enforce these age restrictions I see no reason why convenience stores couldn’t be just as responsible as The Beer Store by implementing something similar to their “we ID 25” program.

The final “myth” put forward by The Beer Store is that their bottle return program makes them better suited than convenience store to deal with the sale of beer. While the level of success of the program is commendable, it is possible for the convenience stores to run a similar program using new or existing distribution channels. So while The Beer Store might have a slight advantage due to their existing infrastructure, it is not inconceivable for other companies that start offering alcohol to run a similar program in the future.

Should the people of Ontario’s choice of opening up alcohol for wider distribution result in higher prices, market forces will mean people will simply go and buy somewhere else at the price they want. So having considered all the arguments put forward by The Beer Store about how changes in alcohol legislation will hurt consumers, it would be remiss to ignore the simple fact that Ontarians should have the right to choose from who and where they buy their alcohol.

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