Category Archives: Privatization

The Biggest Change Since Prohibition…NOT!

Posted on by
Reply

Within days we will be entering a brave new world in Ontario with lots of competition in beer sales from private retailers, with wine following close behind.  At least that is the hype from the provincial government as it announces “the biggest change since the repeal of Prohibition”, with its recent amendments to the Liquor Control Act.  It’s now time to take a closer look at what these “changes” really are.  This post is more about beer than my usual wine theme, because that’s what’s happening right now, but the current situation illuminates the mindset of the folks who came up with this scheme.

The Beer Store Monopoly

First, a little background to beer sales in Ontario.  Many, many people believe that The Beer Store, which has a near monopoly on beer sales in the province, is government owned.  In an Ipsos Reid survey in 2013 (reportedly, as the survey results can no longer be found on line), only 13% of responders knew it was foreign owned [buzzer sound]  Yes, it is owned by three giant multinational foreign beer companies, none of which is majority Canadian owned:  Molson Coors (read Coors), Anheuser-Busch InBev (owners of Labatts), and Sapporo from Japan (owners of Sleemans).  I say “near monopoly” because there are only two other ways for the consumer to buy beer in Ontario, at the LCBO (also a near monopoly) and at the breweries themselves (not very convenient).  Now here are the facts that will make the situation clearer:

  • The Beer Store (we’ll call it TBS from now on) is privately owned.
  • It sets its own prices, unregulated (to be accurate, prices are set by the brewers, but as we have seen, that is effectively the same thing).
  • Correction, the only government regulation is to set a minimum retail price.
  • Any other beer retailers must sell at the price set by TBS.  Therefore it is effectively a monopoly if competitors cannot undercut on price.

There is no other jurisdiction in the world that licenses a private company to have a monopoly on alcohol sales and then to have no regulation or oversight on pricing.  It’s madness.  And here’s one more point that will make you sit up.  The Beer Store also supplies bars, restaurants, etc. for selling on to consumers.  Since that activity is effectively wholesaling, the price charged will be somewhat less than the price consumers pay, right?  WRONG!  TBS charges up to 30% more to drinking establishments than to retail customers.  They are out of control.  You can see the actual numbers in the recent C.D. Howe Institute report on “The Need for More Competition in Ontario’s Alcoholic Beverage Retailing System”; check out Table 1.

The Truth about Grocery Store Sales of Beer

Starting December 15, 2015, grocery stores are commencing sales of beer to the public.  What we gain is some more outlets selling beer.  That’s good.  More importantly, there’s finally some competition for TBS, right?  Wrong again.  As pointed out in the previous section, the new retailers must sell their beer at the same price as TBS in order to protect it from serious competition.  Here are a few more interesting points:

  • The new retailers can only obtain their beer inventory through the LCBO.
  • There was a bidding process to obtain the right to sell beer at a grocery store.  The regulations required that the retailer’s application stipulate a profit margin of between 3% and 9.9%.  Well, just imagine how successful you would be if you went with the high end.  Therefore the retailer will only have a margin of a few % and the LCBO retains almost all the profit for acting as a middle man.
  • The beer sales counters can only be open during the same hours as the LCBO or TBS, not grocery store hours, so you’ll often go and find beer unavailable.  That surely doesn’t contribute much to the convenience factor.
  • Beer cannot be sold in any package larger than a six-pack, a rule also designed to protect TBS.
  • Stores must have at least 10,000 square feet of food retail space, and must sell a complete range of fresh and packaged foodstuffs.  These rules are designed to shut convenience stores out of the market.

All right, that’s enough about beer – you get the idea.  The government has designed the system to protect the big boys while appearing to increase competition.  The only advantage to the consumer is a very modest increase in convenience while the huge advantage to the government is that they may be able to fend off some lawsuits that are challenging their right to monopolize the business and inflate prices.  Now let’s see what the implications for wine sales might be.

Grocery Store Sales of Wine

At the moment the enabling of grocery stores to sell wine is up in the air because of the purported additional complications in this market, related to the North American Free Trade Agreement (NAFTA).  The possible problem is that there is an exemption in NAFTA that grandfathers winery owned stores that existed before NAFTA came into effect.  At that time many different wineries had retail stores (they were only allowed one each) that were stand alone or on the premises of supermarkets, for example.  Because the number of stores was then fixed in perpetuity, larger wine companies started buying up the little guys in order to gain the retail store space, thereby limiting competition.  We have now reached the point where 260 of the 292 stores are owned by just two companies:  Constellation Brands (the “Wine Rack”) and Andrew Peller (the “Wine Shop”).  This situation has put most small producers at a disadvantage in the marketplace, perhaps contributing to the decline in Canadian wine sales over the past 40 years.

The rule (and I think there is something similar in the Canada-European Union Comprehensive Economic and Trade Agreement, or CETA) is based on the premise that additional stores selling only Canadian wine would put foreign producers at a disadvantage.  But grocery stores wouldn’t be limited just to Canadian wine, so this sounds like a bogus argument to slow down the process until the LCBO figures out how to hamstring the grocery stores so much that the LCBO makes as much money as ever for less work.  Legal opinion seems to agree with me.

So, heaven only knows what the LCBO is plotting (the government basically takes their marching orders from the LCBO in the area of alcoholic beverage sales) but you can be sure that increased competition is the least of their concerns.  We are supposed to find out more early in the New Year.

Wine Mythtakes, Part 1: Buying Wine

Posted on by
Reply

I frequently find myself providing reality checks for folks who have bought into some of the myths that are floating around about wine.  There are a lot, so I’ve just picked some of my favourites.  A few of these are frequently cited, so that there is already a good amount of explanation and debunking available on line.  However, I have included them here to provide a more complete set and to provide my personal take on these beliefs.  In the end I came up with enough myths, 18 in all, that I have had to divide them into two main sections in order to keep my postings to a reasonable length – the second half of them will be the subject of my next post.

The first eight myths that I discuss all have to do with buying wine – the first four are of interest to wine buyers in general, while the remaining four are specifically geared to Ontario residents who are stuck with the LCBO.

Buying Wine

 1. High Scores / High Prices / Varietals Indicate the Best Wines

There are many clues that the average consumer uses to help make a wine decision, such as critics’ scores, pricing, the label, varietal vs. regional, and recommendations from salespeople.  The problem is that most of these indicators contain a kernel of validity surrounded by a thick husk of irrelevancy for any particular individual purchaser.

First:  scores and critics’ recommendations.  Take a look at my post on scores and you will see that the correlations both between scores and quality, and between different critics’ scores, are weak at best.  The preferred approach should be to try recommended wines from a variety of critics until you find one (or more) whose tastes are a reasonable match for your own.  Then use that critic as a guide.  Now, coming up with that solution takes quite a bit of work, the direct opposite of the intent of easy-to-understand scores.  But then, most of the work is drinking wine after all, so buck up!

There is, of course, some correlation between price and quality, but remember price is really determined by what people will pay.  Therefore a high quality wine will generate consumer demand and the producer can charge a higher price.  Every other consideration is subordinate to that point.  For example, you often hear that low yields, organic cultivation, hand crafted wine, good oak, etc., etc. cost money and the wine will cost more.  However, that only works if the wine is better than a more industrially produced version, and only then will consumers pay more.  Otherwise the winery will not be able to continue along that path.  Famous names and critical hype, will generate demand and higher prices.  That’s why the best quality/price ratios are in the lesser known regions – southern Italy, southern France, northwestern Spain, Greece, Portugal, and Austria, for example.

Varietal labelling is favoured by many consumers because it is easy to remember and comfortably reliable.  However, most of the great wine regions of Europe do not use varietal labelling, so it is in no way an indicator of quality – there is no correlation.

2. All Wines Should (or Should Not!) be Under Screw Cap

Here I am wading into a highly controversial subject.  Producers from Down Under (Australia and New Zealand) insist that all wines should be under screw cap.  In Europe only a very small percentage are sold this way.  Who’s right?  Well, here are my thoughts.

First, any wine intended to be drunk within a year of purchase should be under screw cap – this dictum actually covers the bulk of wine.  Second, any white wine meant to be consumed within a few years should also be under screw cap.  Then we are left with red wines for medium to long aging and the few white wines able to be aged for a decade or more (i.e. most quality Rieslings, white Burgundy, vintage Champagne, and quality sweet wines).  Here the preference should depend upon the tastes of the consumer.  Wine does age differently under different closures.  Many people are familiar with and enjoy the flavour of mild oxidation and related transformations that provide complexity in older wines.  Others like the retention of fresher fruit flavours, but at the risk of chemical reduction, which engenders less familiar (often sulphur-based) flavours that may or may not be appreciated.  Therefore the decision of the producer will depend on some combination of tradition and the preferences of the consumer base for that particular wine.

Second, the risk of cork taint/corked wine/TCA has been greatly reduced over the past couple of decades.  Where I used to find a corked bottle every week or two, now it’s only once or twice per year.  And remember that TCA doesn’t just arise from cork treatment – it can arise from the winery environment and is therefore even found from time to time in screw capped bottles.

Lastly, let’s ditch the fatuous statement that using a cork is some prehistoric practice of “sticking a piece of tree bark in a bottle.”  One could as easily mock the practice of “sticking a piece of industrially modified petroleum on the end of a bottle.”  (i.e. plastic, in particular the plastic insert that makes the seal in a screw cap.)  In fact, cork is one of the most amazing materials known, a material whose properties cannot be duplicated in any laboratory.  One might as easily mock the use of a hunk of tree to make my computer desk or the frame of my house.  Let’s have a rational discussion, please.  And last but not least, cork is a green renewable resource, contrary to metal and petroleum products.  There is room for both closures in the business – neither is an indicator of quality, low or high.

3. Avoid Wine from a Region where there has been a Scandal

I know someone who won’t buy Chateau Pontet-Canet, one of the greatest ones of Bordeaux, because over forty years ago the owner of Pontet-Canet at the time (Cruse) was caught strengthening their cheaper wine with stiff southern swill.  There are other folks who won’t buy Austrian wine because of the antifreeze scandal of thirty years ago.  Then, what about the Brunello scandal from the past decade?  Should you buy Brunello di Montalcino?

There are two points to keep in mind here.  First, wine has been adulterated (to stretch the limited volume of famous quality wine available) since the beginning of time.  However, there is apparently much less of that sort of fraud now than in the past because of regulations that are at least partially successful, and because global warming means that marginal wine regions have less need of assistance.  In fact, there is more concern nowadays about fraud with respect to older and collectible bottles than there is about good everyday wine.

Second, your best bet for fraud-free wine is often the specific region or producer that originally had the problem.  In the process of cleaning up their act, implementing damage control, and attempting to regain market share, the offenders need to be squeaky clean and above reproach.  There’s the good news for the consumer.  So buy and enjoy your Pontet-Canet, Brunello di Montalcino, and Austrian Riesling with abandon!

4. A Sommelier will Always Try to Sell You an Expensive Bottle

A good sommelier is like any good retailer:  she/he does want to make a sale and generate cash flow, but real long term business viability comes from good customer service, a satisfied client, and repeat business.  Therefore a sommelier needs to provide a wine that you will enjoy with your meal and for its own sake, and that falls within your budget.  You will likely have more than one possible wine offered to you, all appropriate matches to the food, but at different price points.  If the suggested wines are too expensive for your budget, just point to a cheaper part of that section of the wine list and suggest that you are looking for “something more along these lines.”  The sommelier will understand and at the same time you will actually sound knowledgeable to your guests!  But don’t forget that the wine is a significant contributor to the enjoyment of the meal.  Divide that cost by the two or three or four people drinking it and compare to the cost of one person’s meal.  You may then feel more comfortable about a slightly more expensive, and perhaps more appropriate, bottle.

The LCBO

You readers who don’t live in or near Ontario and are unfamiliar with the government liquor monopoly, the Liquor Control Board of Ontario (LCBO), are excused at this point and can sit back and await my next post.  For the rest of us, here are four myths about the LCBO.

For a good backgrounder exploding publicly perceived myths about privatization, take a look at this article.  I won’t repeat all the information contained within it.

5. The Status Quo Returns the Most Money to the Province

This myth was exploded by a report from the past decade, authored by a blue ribbon panel that was tasked by the LCBO to determine its future business strategy.  I won’t go into detail since I devoted an entire previous post to this report, but the bottom line is that they unanimously recommended full privatization as the means to make the most money for the government and to provide the greatest customer satisfaction.  Needless to say, the report was deep-sixed by the LCBO and the government as quickly and as thoroughly as possible.

Remember, the government of Ontario receives almost all of its advice about alcohol sales from the LCBO, so everything they hear is designed to support the LCBO.  They then parrot the LCBO’s words to the press and the public.  How often do we hear that the LCBO provides billions of dollars to the government coffers? – we couldn’t give that up!  The facts are that by eliminating the enormous costs of running the LCBO (stores built like palaces, inventory costs, high priced help, etc.) and raking in the income from licensing retail sales establishments (along with all the other taxes and duties that would not go away), the government would make more money from privatization than from the status quo.

Recently a new report on the subject was published by the C.D. Howe Institute.  Once again, the strong recommendation is to enable private alcohol sales in order to boost revenues and to provide better customer service.  This report is also an interesting and convincing and unsettling insight into all aspects of alcohol sales in the province.

So why is the government so reluctant?  It’s not the money to be made; it’s not the public perception (a majority of Ontarians are in favour of privatization, according to a 2013 Angus Reid poll); it’s not the social implications (see Myth #6).  The only thing I can think of is that they are scared to death of the unions and the impact of eliminating so many highly paid union jobs.  That opinion is supported by the reality that the NDP is the only political party not to have favoured privatization at one time or another (the other parties have backed privatization, but only when in opposition, never as the government).  Then, maybe the only roadblock is that governments hate change (and the accompanying uncertainty).  Really, all that it will take to provide a big step forward for the Ontario consumer is a little political courage.  Oh well, perhaps in the 22nd century.

6. Private Liquor Stores Are Not Socially Responsible (Contrary to the LCBO)

There are several counters to this particularly insidious myth – I describe it thus because it is circulated by the LCBO itself.  First, private stores operate in jurisdictions all over the world, including other Canadian provinces (and Ontario, see below), without permitting a tsunami of teenagers to buy booze.  I could point to the study that I brought up in a previous post, where the LCBO rated last in responsibility after the Beer Store and corner stores (selling cigarettes in this case).  However, common sense alone should make it clear to any thinking person that private stores have a great deal more to lose than publicly owned stores if they abuse their privilege and sell to minors or intoxicated customers.  A private store could lose its lucrative AGCO licence to sell alcohol.  The LCBO would only get a rap on the knuckles.  And think carefully about those boasts from the LCBO about how many minors were turned away each year.  What counts is how many got through!  They never publish those numbers.

The biggest counter-argument, however, is the fact that there are already hundreds of successful, socially responsible, private alcohol retailers in the province!  And I’m not talking about the privately (and foreign) owned Beer Store.  I am referring to the over 210 operating LCBO Agency Stores.  These are small retailers (general stores and their ilk) in more remote, and not so remote, locations in the province, where it would be uneconomic for the LCBO to build a full scale palace of a store to serve a relatively small customer base.  These stores profitably and responsibly sell LCBO products themselves, using their own sales people.  No wonder the LCBO doesn’t want to bring these stores into the discussion!

7. The LCBO is Customer Oriented

I have patronized many a wine shop around the world and I’ve been to many other retailers, so I have a reasonable idea of what good customer service should be like:

  1. Provide what the customer wants – In the LCBO’s world, the definition of what the customer wants is what sells the most, sort of like Walmart.  Then you throw in some labels in Vintages that have been awarded high scores by critics (see Myth #1).  But where are the really interesting and unusual wines, the small producers, the Greek wines, the Swiss wines, the trocken wines from Germany, the orange wines, etc. that we read about and salivate over?  Sure, one or two of them will show up from time to time, and from the LCBO’s viewpoint that means that the subject is covered.  However, even then the only remaining bottle may be in a store elsewhere in the province.  Then if you want to ratchet up your frustration a little, try to get an inter-store transfer set up.  Success is up to the whim of the local store multiplied by the whim of the remote store, resulting in a depressingly low probability of success.
  2. Put good products on sale – To the LCBO, the word “sale” means “let’s get rid of the stuff that never sells.”  They don’t have to put anything else on sale because there is nowhere else to buy it (see Myth #8).  And what about the case discounts of 10-20% that almost every other wine merchant in the world provides?
  3. Work with the local community – One of the most infuriating practices of the LCBO involves staffing.  Every three years or so they feel obligated to ship your local Product Consultant off to some other cookie cutter store, just when you had established a good customer/retailer relationship – then you have to start all over again.  But at least they promote Ontario wines, right?  Well, many local wines are produced in small quantities, but the LCBO business model requires wines to be available through a large number of their stores – that cuts out many of the small producers (the problem exists equally for BC and small foreign producers).  On the other hand, they are happy to provide lots of prominent shelf space for “Cellared in Canada” (but mostly imported) swill produced by the large corporations.

8. The LCBO is Not a Monopoly

This myth is another favourite of the LCBO itself.  They repeat it endlessly with the justification that there are other places to buy alcohol in the province, after all.  But what are those other retailers?  First there is The Beer Store (TBS), a private monopoly run by three large foreign breweries for their own entertainment and profit.  There is nowhere else in the world where a government has granted beer producers a monopoly on retail sales.  And these are monopolies because the LCBO and TBS generally try to sell non-overlapping brands.  The Beer Store sells mostly the brands bottled by its owners while the LCBO handles the rest, meaning that small craft brewers are effectively shut out of The Beer Store, where consumers naturally go first to buy beer.  In addition, a recently revealed agreement between the two organizations limits the sale of larger cases of beer to the TBS only.

The only other vendors of wine in the province are Ontario wine producers and import agencies.  But you generally have to go to the winery to buy small production volume, quality Ontario wine, and most of us don’t live in those areas.  Forget about the private off-winery stores – almost all of them (Wine Rack and Wine Shop) are operated by the two giants of the Canadian wine industry – Constellation Brands and Andrew Peller.  Of course, they only sell their own brands – hardly a threat to the LCBO monopoly.  OK, what about foreign wines?  There are only two ways you can buy foreign wine outside of the LCBO:  through agencies or by belonging to a wine club.  In general, you have to buy by the case from these vendors and wait days or weeks for delivery, so they aren’t a viable alternative for the average wine buyer either.  Of course there is also no meaningful competition in sales of spirits, but that’s not my main concern here.

The LCBO is not a monopoly?  Sure, pull the other one too.

A False Dawn

Posted on by
Reply

Over the past few months the LCBO has been making a lot of noise about how it is growing and changing to provide greater service to the Ontario consumer.  However, if you look at the grandiose announcements and press releases more carefully, it is clear that this is the false dawn of a new era at the LCBO.  In fact they are playing their same old tricks of kill the competition and feed propaganda to the consumer.

So what’s been happening?  Let’s look at some new LCBO initiatives and try to understand what they really mean, beyond all the hype and government pronouncements.

First we heard, in late 2012, that the KGBO would be increasing access to their products by opening ten “Express” outlets attached to major supermarkets and the like, similar to the way winery stores are currently located; the first will open some time in 2014.  Such an attempt at so-called increased access is pitiful – ten stores?  That’s hardly 1% of the existing number of outlets, including Agency Stores.  In fact, the LCBO wants to restrict access, as then Finance Minister Dwight Duncan made quite clear during the announcement, stating that he wished to “…make sure we don’t have alcohol on every street corner in Ontario.”  (This is certainly a  differentiator from private industry, which would commit the unpardonable sin of placing stores where the market and the demand are.  If there is more demand a store opens; if demand wanes, a store closes, whether it is on a street corner or not.)  So increased access is not the objective of these “Express” outlets – then what is it?  Well, the locations give a clue.  They will clearly compete with winery stores and maybe put them out of business because of the LCBO’s broader selection.  That fulfills the twin related goals of killing the competition and reducing independent sales by wineries (independent of maximum LCBO profits, that is).  Of course, these locations beg the question:  Isn’t is silly to to have a separate retailer right next door to, say, Loblaws, who could do a much more efficient job of stocking and retailing, with more convenience and lower cost to the customer?

A related move by the LCBO took place this summer when they revealed their plans to place “Our Wine Country” VQA boutiques within selected stores.  Let’s once again give the finance minister (this time Charles Sousa) a chance to explain:  “These new stores will give smaller wineries increased access to larger markets.”  OK, the smaller wineries, who can’t ordinarily get SKU’s in the mother ship, as well as limited production labels from Ontario wineries in general, should have better access to consumers.  Of course, the first few of these corners will best fulfill the stated goal and reach the largest number of customers by locating in the major population centres (the “larger markets”) of Toronto, Ottawa, Hamilton, and London, right?  So then why are they are being located in St. Catharines, Niagara Falls, and Windsor?  Wait, aren’t those cities all in wine country where locals already have access to limited production wines?  If one were cynical, one might almost think that the aim (again) is to limit competition and reduce the amount of direct sales by wineries.  I did hear a contrary view from one small winery proprietor who pointed out that most people, even in wine country, don’t head to a winery for something to accompany their evening meal; they just stop at the LCBO.  But through VQA boutiques her products could reach that audience.  Perhaps, but the selected locations really put paid to that idea.  It is increasingly clear that the LCBO considers Ontario wineries to be a nuisance.  They cut into profits and the sooner they are put out of business the better.  After all, then they would be in a true monopoly position and could just sell millions of bottles of Fuzión and make tons of money with little effort.

Just to underscore this message, and here’s my third point, we find that the LCBO/Ontario government combine has found yet another way to stick it to Ontario wine producers and Ontario consumers.  As described in an earlier post, federal Bill C-311 now allows the private importation of wine from one province into another for personal use.  This action should finally remove that ridiculous impediment to trade that makes it illegal to order wine from one province for delivery in another, as if the provinces are separate countries.  No wait, you can freely move goods between countries in the European Union, so we have been even more regressive than sovereign nations!  But now, problem solved, right?  Wrong.  Implementation of C-311 is still subject to the whim of the importing province.  So far, according to Free My Grapes,only BC and Manitoba allow wine to be shipped directly to their residents from a winery in another province.  Nova Scotia is in the (slow) process of changing their rules.  Even the territories have made no change to the federal statutes governing wine purchases, although it was the federal government that changed the rules!  Most other provinces are dragging their feet, especially Ontario, whose Premier Wynne who has been quoted as saying that she would not allow the LCBO to open up the borders.  In fact, there is a legal grey area here as there does not appear to be a statute restricting the import of wine, only an LCBO policy.  For more on the convoluted legal status, check out Mark Hicken’s article.

Now, it has been pointed out, most recently by Rod Phillips in Vines magazine‘s October edition, that few people wish to order wine by the case, especially from out of province, so this is a bit of a non-issue.  That  may be a valid point, but if so, why not get rid of what is a needless barrier to interprovincial trade?  If it does not harm, but helps a few, then let’s go for it.

So how does the Ontario wine industry feel about this?  After all, if BC consumers can import Ontario wines while Ontario consumers cannot import BC wines, Ontario has the upper hand, right?  Well, aside from the extreme dog-in-the-manger nature of that attitude, it misses the point that if all provinces free up their rules, all wine producers are winners since there is a larger market outside of any one province (even Ontario, Premier Wynne!) than within.  And usually it takes some of the larger provinces to lead the way.  As for the producers themselves, some may take the narrow view.  More representative, however, is Hillary Dawson, president of the Wine Council of Ontario who, when talking about on-line ordering, reminds us that: “It’s actually called modern wine retailing. That’s what they do all around the world.”

To discuss the fourth and last recent development, I’m going to circle back to the question of access and availability.  A recent initiative from the Ontario Convenience Stores Association is a push to make beer and wine available at corner stores, as is already the case in Quebec.  They have so far collected 112,500 signatures for their on-line petition at freeourbeer.ca.  In 2012  a secret shopper study showed that convenience stores are significantly more diligent about checking for underage purchasers than either the LCBO or the Beer Store.  This study was based on cigarette sales in the case of convenience stores, but it highlights how store owners are more stringent than public institutions because their livelihood depends on following the law rather than being an arm of the lawmaking body, as is the case with the LCBO.  Imagine an industry where both the setting of the rules and the ultimate enforcement of the rules lies in the hands of the business owners themselves.  Ouch!

As for the contrary view, there are a few apologists out there drinking from the LCBO Kool-Aid.  An example is this article in the Toronto Star.  The key point made is the assumed loss of revenue; but that argument makes no sense since the province can place whatever taxes and licensing fees on the vendors that it wishes.  Revenue can easily increase.  The second argument is the old chestnut about not putting alcohol into the hands of minors; for the counter point, see the preceding paragraph.  Finally, that meaningless statistic is trotted out once again, that the LCBO denied 322,000 out of 7.8 million customers in a year.  But how many get through undetected?  With respect to that much more significant question, the LCBO is tellingly silent.  Finally, the Star columnist asks, how can these minimum wage convenience store clerks possibly have the training, time, and inclination to ask for ID?  Well, their jobs depend on it, of course!  They do it every day with cigarettes.

The final argument for sales by corner stores comes right from the LCBO playbook – they are doing it already!  There are some 218 Agency Stores in Ontario.  These are small stores licensed by the LCBO to sell LCBO products on their own.  It’s almost as if convenience stores were selling wine and beer!  Except that spirits are included as well.  There seems to be no problem with these clerks and cashiers taking responsibility for selling booze and asking for ID.  All of the LCBO and Ontario government arguments simply fall flat in light of the existence of Agency Stores.  And they are not just in the far north or other parts of the province remote from normal outlets.  I live in Ottawa and I counted over half a dozen Agency Stores in the greater Ottawa area.  So there is no new legislation required to enable wine and beer sales by corner stores.  All that is necessary is that the LCBO increase the number of Agency Stores and remove any rules they have about store location.

My conclusion is that the alcohol sales landscape in Ontario needs a complete overhaul.  The current system’s attempts at innovation are feeble at best and regressive at worst.  Now, the province did announce recently that it is once again assembling a blue ribbon panel to map out a future direction.  I expect the recommendation will be similar to the last time this was tried – full privatization.  Then will the provincial government follow through on the advice, or will the response be the same as before, to “deep six” any opinion contrary to their own?  Let’s be optimistic and hope that in a couple of years we will be toasting the true dawning of a new age of wine availability in Ontario.

The Select Few

Posted on by
Reply

In an earlier post, I promised that I would make the effort to say some good things about the LCBO.  So here is my list (although some items still have qualifiers…oh, well):

  1. There is a reasonably wide selection from all parts of the world with no one region or country especially favoured, in contrast, for example, to the preponderance of French wines in the SAQ (Quebec).  Of course, this even-handedness even extends to Ontario and other Canadian wine, which is a bit odd.  Imagine a wine shop in Bordeaux not having a comprehensive Bordeaux section!
  2. Continuing with the Bordeaux theme, the LCBO provides good access to Bordeaux futures, with only a 25% deposit, compared to the 100% demanded elsewhere (e.g. in the U.S.)
  3. Thorough technical testing and a generous take-back policy ensure that very little contaminated or adulterated wine appears on the shelves.  On the other hand, the take-back policy is only generous to the customer.  The little-known requirement making the supplier pay back the full retail cost on returns is unconscionable (look here to see how the LCBO instructs agents to pay for all costs associated with “defective” product).
  4. Food and Drink magazine, at least from a consumer viewpoint, is a well put-together publication, although it is bad news for the rest of the magazine publishing industry, who must put up with a subsidized competitor.

All right, with that out of the way, let’s get on with this post, in which I want to take a closer look at point number 1 – selection.  In order to get a better feel for the breadth of the selection at your neighbourhood LCBO, try these experiments the next time you cross its threshold:

  • Ask to see the Vintages German wine section.  You’ll likely only find a couple of bins.  After years of suffering through post-Liebfraumilch trauma, German wines, and Riesling in particular, are finally experiencing a renaissance in most of the wine-drinking world.  Try telling that to the LCBO.  German wines don’t fall into their wine world view of massive overextracted “blockbusters” that earn 90+ points from all the “right” critics.
  • Now try to get a decent half bottle of wine.  For a real laugh, look for a half bottle of good German wine!
  • Next, let’s say there is a claret or a Chianti Classico that you find you really enjoy.  Try to find a vintage other than the current one in the store.  In fact, in the regular listings section, wines are not catalogued by vintage.  As the vintage changes, the CSPC does not – they don’t care.  For the LCBO, wine is a commodity – after all, the SKU on a light bulb doesn’t change from year to year.
  • For an additional whimper, visit your neighbourhood delicatessen or other specialty food shop.  In Europe, in many parts of the USA, and in most of the rest of the civilized world, that shop would include an inviting wall of fine wines to accompany the excellent breads, cheeses, sauces, and charcuterie…sigh.  Unfortunately, we’re stuck with a monopoly. Yes, private specialty stores would add immeasurably to the selection of wines available to the Ontario consumer, but privatization is a whole other topic that I will address in a later post.  In the meantime, it is still relevant to this discussion.

So why is the selection at the LCBO so inadequate?  Or is it?  After all, the management will try to tell you how many thousands of separate listings they have in order to prove they have a wide selection.  But that’s equivalent to a ladies’ wear shop telling you that they have a large number of distinct items of apparel, so you’ll find everything you ever want in their shop and you should never need to enter another store.  In other words, the biggest and most obvious reason is:  it’s a monopoly.  Their selection would be laudable if they were simply one chain competing against many other shops and chains with their own selections and specializations.  But, outside of Ontario winery stores, those don’t exist.

However, the study of economics tells us that it is possible for monopolies to provide us with a very wide selection.  Competitors generally focus on the high volume, high profit lines to stay in business and may ignore small volume specialty products and their niche markets.  A monopoly, on the other hand, can afford to stock a wide range of products satisfying all markets.  Satisfying niche markets will actually increase their revenues and profits beyond the high runners.  In an attempt to be somewhat even-handed, I should say that you can, in fact, see evidence of these trends in the Canadian wine retailing business.  In Alberta there are periodic complaints about the lack of selection in many shops, although there are also high quality retailers in the major markets.  On the other hand, the LCBO monopoly does broaden its market appeal through its Vintages section.  Now they could do a lot better if their own policies and practices didn’t hold them back.

One example is the requirement that any one wine must be acquired in sufficient quantities to be made available throughout the province, at least at the level of Vintages locations.  That practice sets a lower limit on quantity and effectively shuts many of the small quality producers out of the Ontario market.  There is a solution to this problem – allow Product Consultants to list wines (and other products) in their own store up to some maximum value (e.g. 5-10% of their Vintages Corner budget).  These wines could come from agents’ stocks, or there could be a modest budget to allow PC’s to travel once or twice a year to wine regions and to make their own selections.  These wines would then go through a process similar to that undergone by any private importer to ensure that they meet LCBO standards.  This procedure would also see more limited production Ontario wines make it to the store shelves.

Let me toss out another issue that affects selection.  The LCBO seems to be fixated on highly manipulated fruit-forward wines and tends to play down the more terroir-driven food-friendly wines that are making a comeback elsewhere.  I have some evidence to support that statement as I recently put together an extensive list of producers of so-called natural or authentic wines (at least those that have some visibility internationally).  I came up with 1667 distinct wines from 361 producers.  Then I checked for availability – only 46 wines were listed with the LCBO while 117 could be found at the SAQ.  Oh well, at least we can now transport wine legally across provincial borders!  Check out Free My Grapes.

In the end, the only real solution will be private competition.  Don’t hold your breath.