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.
