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Electoral Rhetoric on Beer Prices

with 14 comments

I’ve recently heard people claim that the NDP, if elected, will raise taxes on beer (something that the Liberals already did to all liquor on April 1). This is false. The NDP have said they would reduce the discount to private liquor stores from 16% to 10%.

In response to this and the NDP’s vow to raise the minimum wage to $10, the Alliance of Beverage Licensees of B.C. (ABLE), a provincial advocate group for approximately 1,000 private liquor stores and pub owners, claims this will force them to raise prices by 25% or more, translating into an additional $3.00 on a $12.00 six-pack. However, ABLE Executive Director, Kim Haakstad, said that the $3 figure came from discussions among group members, not from any economic study to determine a more precise impact.

Taking their cue, Liberal leader Gordon Campbell said on May 4, “I can tell you this. I am not drinking beer. But if they put a $3 cost on a six-pack of Diet Coke, I’d be mighty upset.”

Again, the NDP are not saying they will do this. They claim that their policy will level the playing field between government and private stores, raising $155 million in government revenue over the next three years. This will have no affect on the price of liquor in government stores, but it may certainly be aimed at protecting the BCGEU’s union jobs.

Recall that Campbell increased the discount to private stores in 2007 from 13% to 16%. Al Arbuthnot of the ABL said at the time, “We presently sell more than 50% of the beer in the province and it will allow the operators to be a little more competitive with the government stores. I think you will see prices come closer in line with the government stores.”

I don’t know about you, but I never saw that happen in the private stores I go to. So if prices were already 10-20% higher in private stores before the increase, where did the savings from the additional 3% discount go? Doubtful the staff got a raise as ABLE is against raising the minimum wage.

ABLE also does not support private rural agency stores getting more of a discount than their current 10%. According to the Kamloops Daily News, ABLE’s Haakstad argued that there’s no business case for giving rural stores the same discount as other private stores. “Rural agency stores are set up to service the community,” she said.

In an interview with The Province, Haakstad also argued that “rural-agency stores are established businesses with other income from groceries and gasoline and marina operations. Our independent stores don’t sell much else besides beer, wine and spirits — except maybe some beef jerky.”

Ultimately, what matters is that a business can achieve enough of a profit for the business owner to make a decent living by providing goods or services that are attractive to consumers. I doubt the intention of rural stores is to run as a non-profit society. Otherwise, they would be constituted as such. And selling more products does not ensure one makes a higher profit/better living. These arguments strike me as being self-serving. Rural agency store owners would probably agree.

So has privatization benefited consumers in B.C. so far? The Consumers’ Association of Canada found that the BC government’s privatization of liquor sales has forced consumers to pay millions of dollars more for beer, wine, and spirits while there is less product selection at individual private stores.

So from a consumer and taxpayer point of view, one could say people are generally worse off than before. Why don’t we hear about it? Why don’t more people buy their beer from a government store than private? Probably because they don’t care enough to be bothered to do anything about it. They are willing to pay a premium for mass-market beer that is readily available in a government store at 10-20% less cost because it is chilled and convenient for them in terms of store hours and/or location.

So be it if one can run a profitable business from this, but I’m not for taxpayers subsidizing mediocrity, whether it’s private or public. Ultimately, I’m for whatever system offers the opportunity for getting the best value and selection. According to Ted Hlokoff, who operates a rural agency store in Anahim Lake, private liquor stores have an average markup of 20-25%. With the 16% discount off the LDB price, this adds up to a margin of as much as 40%. [Note: average figures are not necessarily reflective of a particular business’s circumstances.] By contrast, for government stores, Hlokoff says the margin is 27%. Also, rural stores cannot mark up their products more than 5% above the LDB retail price, but ABLE’s stores can mark up product as much as they want.

So when it comes to beer in BC, I see problems with public, private, and rural stores. People have argued for a fully-privatized system like Alberta, but I’m not sure they have it much better than we do. I’m looking into it…

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14 Responses

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  1. Alberta prices are way better than BC across the board; in addition, “sales” are frequent there, with sometimes great deals on beer, wine and spirits.

    I picked up a case of David Bruce Pinot Noir (Sonoma Coast) from Willow Park Liquor in Calgary last year, at $42 a bottle. There is a spec listing for it in BC last year… at $54 a bottle. For a case of six, that was a savings of $72 on the case.

    And the bad news? That same wine was on sale the week before I visited… for $36 a bottle. Would have saved an addl $36.

    That wine sells for about $25USD retail in California, give or take.

    Mark

    May 9, 2009 at 9:21 pm

    • I understand prices are better for wine and spirits in Alberta. However, I’ve been told by someone who lived in Edmonton until 2007, before moving back to Vancouver, that beer prices aren’t that different — it may depend on if it’s macro, craft, or import. Also, there is a recurring problem with beer on shelves past their sell-by date. Waiting to get another opinion from Calgary.

      bcbrews

      May 9, 2009 at 9:28 pm

  2. The The Consumers’ Association of Canada report is interesting in that it only deals with mainstream products (ie industrial brands) and it’s from ’06. Again, I say the report is very inaccurate and out of date.

    Daniel

    May 9, 2009 at 10:00 pm

    • Let’s get more specific about what you feel is inaccurate about the CAC report, Daniel. Aside from rural agency stores, prices at private stores are more expensive to consumers across the board, are they not?

      And, sure, there are stores like Viti, 16th Street Liquor Store, Brewery Creek, Libations, and Firefly for better choice than government stores. They are not the norm, are they? What is typical is Fairview, Jimmy’s, Lennox, and Moonraker’s. Then there’s the Liquor Barn/Depot “macro markets.”

      My personal issue with the average private BC liquor store today is that for the price differential from government stores, they aren’t offering enough to justify the higher price. I’d be happy to privatize the whole shebang if it brought prices down, increased selection (or at least the ability for people to actually order what they want if something isn’t stocked), and improved service. Supposedly, this has happened in Alberta, but I have heard conflicting accounts when it comes to beer. Another problem, apart from what I’ve already mentioned above, is that they don’t always handle craft beer properly. This I’ve heard directly from a couple of brewers recently who sell there — not just hearsay, hard data. An excellent selection of stale beer is no selection at all.

      I don’t think one can simply say “private good, public bad.” As Josh Oakes pointed out, in southern Florida, the beer selection is bogus, even with 5.5 million people. So let’s get to the real heart of the issue in BC — the governments’ policies concerning the distribution and sale of liquor. It is at both the municipal and provincial level. To me, they can be inconsistent, arbitrary, obsolete, and downright stupid. What’s needed is a comprehensive review. And we can be assured that the neo-prohibitionists will oppose it every step of the way.

      bcbrews

      May 9, 2009 at 11:34 pm

  3. Where do I start with this posting and the errors found in it…

    Alberta — prices used to be better there but are no longer — in April the government raised the liquor tax overnight, without warning: $1.30/12 pack of beer, $2.85/750ml bottle of spirits, and $2.50/bottle of wine. In retail stores, vodka went up $6 a 1.4L bottle overnight! As a result, prices in BC are now equal or better in both private and government stores.

    Private Liquor Store margins – I run my store at 22% margin, but 16% of that is the discount (it is not on top of the 22% like you mention in your post). Out of that margin, I need to pay bills and my staff, not to mention cover the carrying costs of all the liquor in my store to keep the shelves full. So if the NDP reduce the discount to 10%, my margins will be 0%. I won’t even mention here what raising the minimum wage to $10 will do to my bottom line, even with the discount staying at 16%. So with the proposed changes to the discount and minimum wage increasing, I will be forced to raise my prices and reduce my staff so I can make any money, or I will just close my doors.

    Private stores are more expensive — in some cases yes, but not mine. They are more expensive because of the issues I mentioned above. A 16% margin is very slim to run a business on. The government stores do not pay for the product sitting on their shelf; they pay the suppliers for it after it is sold. So their carrying costs are far lower than private stores. The government also profits from the taxes on the product versus making a profit when selling it to the consumer. Again, very different than the private stores. The only costs the government stores have are rent and union wages ($22/hour to stock the shelves in a government store!). This is a very different model than the private stores. If you want a level playing field and all stores to be able to sell at the same prices, then the government needs to get out of the retail business; just be the wholesaler and make the money on the taxes. If everyone in the market pays the same for the product, then all stores can sell for the same price. That is not how it works today in BC.

    As for my store, I actually sell my beer, wine, and spirits at the same price as the government stores, which is why my margins are so low. (Actually there are a lot of private stores outside of Vancouver that sell at the same prices as the government stores.) For the spec products (like craft beer and specialty wines) that the government stores don’t carry, I am able to charge a higher margin so I promote them to increase my overall margins in the store. I love the craft beers and spec wines and actively sell them to my customers because they are great products, give me a competitive advantage over the government stores, and help my bottom line. I have not spoken to the stores you mention in your post, but I can assume that is how they are able to carve out their niche.

    But here is the issue — if the NDP reduce the discount, I will not be able to sell at government prices and thus will raise my prices on everything and only carry what sells — the big breweries and popular wines & spirits. My selection will go down because I will not be able to afford to carry product that sit on my shelf for 3-5 months. I will want the product I buy to sell ASAP. My shelves will be stocked with Bud, Canadian, Yellow Tail and Smirnoff — I know I can sell that stuff fast. Maybe that is what the NDP want because both Labatt and Molson have lots of union jobs here in BC and the craft brewers are small businesses.

    Agency stores recently received a change in policy from the government where they are no longer required to sell at the same price as the government stores. They are now able to charge 5% more. So they get a discount of 10% and now can charge 5% more than government stores. They essentially have a 15% margin built in on liquor. Then if you look at the rest of their store, they have several other revenue streams that private liquor stores do not have access to (because of regulations). What is the margin on food? 25-30%? What is the margin on movie rentals? 50%? What is the margin on clothing? 60%? I am not sure. But whatever it is, they are able to charge what they want on these items because there is no regulatory body telling them what they can and can’t charge. Not to mention, these stores are allowed to operate because there is no government store in the area, so they are the only game in town when it comes to selling liquor. I would love to be the only liquor store in my town, be able to be your one-stop shop for all your groceries, booze, and other shopping needs. That is not going to happen because it is not a level playing field in BC when it comes to selling liquor!

    I could go on how the proposed NDP changes will affect my business and the liquor business in BC, but I won’t. Bottom line is, I have looked hard at the proposal by the NDP. In my store, their changes will reduce my selection of product, reduce my staff numbers, reduce my profits (or create a loss), and thus reduce the tax I pay. But I assume this is what the NDP wants because when I close my doors, my customers will be forced to buy their liquor at a union-run government store.

    LRS Owner

    May 10, 2009 at 8:20 am

  4. Interesting analysis. From an economics perspective, though, BC Liquor is creating an inefficient market and decreasing the subsidy to private stores only makes sense if you allow full competition and eliminate monopoly power, and government controlled liquor distribution. I know plenty of wine makers and brewers down here that simply DO NOT ship to Canada because of the byzantine bureaucratic system for importing liquor. That exists entirely because of the public system. Furthermore, in economic terms liquor is not a public commodity like power so even from a left wing perspective it doesn’t make any sense to have a privatized liquor system that creates massive market inefficiencies and transaction costs. $22/hr for a store clerk who KNOWS NOTHING about the products they sell? Talk about transaction cost.

    It also makes no economic sense to raise the minimum wage during a recession. This will create massive new costs for business and provide marginal if not 0 benefit for the worker. Fewer jobs that pay $2 more/hr just benefit the few who get jobs rather than the many who need them. In a recession it’s better to live on less and have higher employment numbers. Not that the numbers work out exactly like this, but wouldn’t you rather have 2 family members making $8/hr rather than 1 at $10? If I were a small business owner I would just start working my store myself more and get rid of staff until times got better.

    I think another part of this is that BC is essentially a closed market since Canada restricts personal imports of wine from other countries (unlike the US which allows something like 8 cases of wine before duties), and even from other provinces. Part of the reason liquor prices are so low in states like California is not only because the state itself is a huge market, but because it is connected to a huge number of other states via the online market in both beer and wine. If you have to compete with online retailers froma across most of the country this will put downward competetive pressure on prices.

    The Alberta model has higher prices or not as low as expected prices because, as someone mentioned, the government is still interfering with stupid high tax levels. Furthermore, the Alberta market is TINY – it needs to be integrated with other markets, like BC. What is the point of the BC-Alberta free market agreement if commodities like liquor are not included? As for not properly handling product, that’s due to private entities not knowing what to do or not caring and a market without enough information to know or care. I can tell you that if a premium beer store in San Francisco sold stale beer that they would go down pretty quickly as the beer community here is very knowledgeable. Lack of knowledge comes with lack of exposure and government control of markets.

    I think there is also a level of complacency in consumers in BC – it’s part of the attitude of the province imo. There is a lack of culture and sense of cultural exploration in the province compared to major culture centres like Chicago, New York, San Francisco, etc. So, combined with lack of information about how the model works, about the other products that exist, etc. consumers will just pay their $2 more for some bud, go home and look at the mountains.

    Shea

    May 10, 2009 at 12:56 pm

  5. Thanks for your comments LRS Owner. As I noted in my post, “average figures are not necessarily reflective of a particular business’s circumstances.” As you’ve demonstrated, they aren’t reflective of yours, but I remain to been convinced that your situation is, on a provincial basis, the norm.

    As for the rural stores, given their isolated locations, they can be the only game in town. That said, their costs are also higher. If they raise their margins on other products too high, few will be able to afford non-essentials. And don’t forget the limited market. In the example I gave above, Anahim Lake has a population of 1,500 with another 729 living in the surrounding Ulkatcho First Nation settlements. I don’t think Ted Hlokoff is raking in the dough.

    That said, I’m all for a level playing field where everyone pays the same and can charge whatever they want. However, I don’t expect to see that any time soon in BC when you have ABLE and the unions lobbying the government hard for special consideration. Then there’s the issue of high taxes on liquor and the lobbying by the Centre of Addictions Research…

    bcbrews

    May 10, 2009 at 1:14 pm

  6. Thanks for your contribution to illuminating the current situation here in B.C., Shea. Some good points to consider.

    On the issue of minimum wage, however, I cannot agree with your reasoning. If the rationale is that we need to make do with less in tougher times, then the corollary should also be true that people’s remuneration should improve in better economic times. This hasn’t happened in BC. Since the Liberals came to power, the minimum wage has not changed a cent. The training wage legislation they introduced actually provided an employer with the means for paying less.

    While the economy has been good in B.C., fewer boats have risen as a result. Poverty and homelessness have increased with B.C. having the highest rate of child poverty in the country. Meanwhile, politicians (Liberals & NDP) and executives have been feathering their nests with fat raises and gold-plated pension plans. Can the hypocrisy be any more blatant?

    Speaking of San Francisco, they index their minimum wage to the cost of living (from an interesting discussion about this topic at http://thetyee.ca/Views/2007/04/18/MinWage/). Definitely more civilized. They likely realize that poverty actually costs taxpayers more than if people earned a living wage.

    If you read Upton Sinclair’s “The Jungle,” you’ll realize that having a job doesn’t mean things are okay. Sure, it’s better than starving to death, but surely in a society as affluent as ours, we can do better.

    bcbrews

    May 10, 2009 at 2:21 pm

  7. Thanks for the informative discussion, particularly for someone who isn’t familiar with the peculiarities of the liquor distribution system in BC. I can’t say that I’ve completely resolved my ambivalence regarding James’ proposals, but it’s not hard to agree with Rick’s comments regarding the current liquor policies in British Columbia. Drive south for two hours and one finds regular suburban supermarkets that carry a selection of beer exceeding that of our best private stores in the lower mainland: all cold, and at reasonable prices.

    The contrast certainly casts an unfavorable light on our current regulations.

    wolfsleepy

    May 10, 2009 at 10:44 pm

  8. I agree with you that minimum wage should be raised, but just not on the timing. I think it should be raised when the economy starts improving so as not to unduly increase unemployment levels.

    I would also note that despite SF’s minimum wage laws, that there are as many if not more homeless and poor individuals in the city as in Vancouver. It is a bit of a fallacy to link minimum wage entirely to poverty levels. There are many other factors that need to be considered in conjunction with ‘living wages’ – which I do agree are essential. However, I do think (based on statistical research I’ve read) that poverty is the primary cause of homelessness – not drugs or mental illness. It’s just that minimum wage laws do not necessarily alleviate poverty on their own.

    However, it is a distortion of economic theory to decry the high salaries of politicians and executives and claim they somehow are related to poverty. This is simply not true – an efficient economic model provides higher compensation for individuals who create more wealth in the economy, thus spuring growth and increasing general wealth. Disproportionate levels of wealth do not matter so long as the lowest level has sufficient money to support themselves and achieve things they have “reason to value” to use a phrase from Amartya Sen. This is not to say that I think it is personally admirable or morally justified to accept high salaries. However, it seems to be the best incentive to producing growth in the economy. Of course, problems arise when the salaries are not tied properly to creating growth and wealth in a broad way. But that’s a more complex issue than simply saying that high executive salaries are the cause of poverty. They aren’t. Poverty is systemic.

    Shea

    May 11, 2009 at 3:43 pm

  9. I wasn’t trying to suggest that poverty is caused by high executive salaries, Shea. I was simply pointing out that it is hypocritical to ask workers to do with less when the elite aren’t leading by example.

    I agree, poverty is systemic. The changes we’ve been seeing to our system are only increasing the problem. Unfortunately, given that we’re reaching the limits of our finite Earth, there is little room for more growth to change this, not that it actually would.

    As the middle class shrinks and more wealth is concentrated into the hands of a powerful oligarchy, the risk of political instability increases, which is, ultimately, self-defeating if not arrested. We’ve seen that in Europe and, to a certain extent, in countries that experienced decolonization.

    bcbrews

    May 12, 2009 at 5:24 pm

  10. Pricing issues aside, what about selection? I would pay more for a better selection. I find that most gas stations directly across the border have better craft beer selections than most government and private liquor stores. Why is that? Why can’t Brewery Creek compete with Bottleworks on selection, if not price?

    Chris

    May 25, 2009 at 4:10 pm

    • The selection issue is an even more frustrating issue than price. In the US the individual distributors deal directly with stores and they have the wide variety of products seen in gas stations, grocery stores, etc. Bottleworks, 99 Bottles, Belmont Station and other stores like that have tapped into every possible means of getting product to them that is available in Washington and Oregon. Here it is different. The BCLDB is the ONLY official importer. They control what they want to let come into BC and how much. Those who represent the various products can only present new products for approval. The flow of products is improving but it will never get to Bottleworks level, until things seriously change. A great many US breweries will not deal with BC for these reasons and people are very cautious about going out and getting breweries because of the difficulty of geting it in. I can special order almost anything, but it takes up to a year to arrive and the breweries often don’t want to deal with us, because of the hassle.
      In short, If there’s a possibility of getting something. I’ll know about it and we’ll get it if we can. But the flood gates will remain closed as long as the government is in charge of deciding what gets in.

      Gerry
      Brewery Creek

      Gerry

      May 26, 2009 at 12:51 pm

  11. The issue is that the BCLDB controls all import and distribution of liquor into BC. Some may deliver there own but they are officially agents of the LDB. The LDB bottleneck prevents people from bringing in the vast majority of products that could be available and sell in this market. This is because they won’t sell it in their stores. We in the private stores could sell a great deal more but breweries don’t see us as big enough to deal with and don’t want to deal with the LDB anyhow. Bottleworks and the like have access to a wide variety of distribution channels that bring things to them. We do not. This also makes it easier to find things in places like gas stations and grocery stores. However, things are improving and many more products are making there way into BC. But it is a slow process and until things change seriously, we will always be a little behind.

    Gerry
    Brewery Creek

    Gerry

    May 26, 2009 at 1:18 pm


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