CHEERS OR JEERS?
AS ALBERTA’S PRIVATIZED LIQUOR SYSTEM TURNS 20, ARE BUYERS BETTER OFF?
EDMONTON — Twenty years ago next month, the province uncorked a plan to end the 69-year government monopoly of liquor retailing in Alberta.
The privatization scheme announced on Sept. 2, 1993 promised to create more selection, lower prices and convenience for the consumer, greater opportunities for small business, and help get government out of the business of being in business.
Flash forward to 2013 … and the world of liquor retailing has changed drastically since the last publicly owned liquor store in Alberta shut its doors in March 1994.
In Edmonton alone, 23 provincially run liquor stores have been replaced by an astounding 262 privately run establishments.
But have the promises of 1993 been kept? Are consumers, government and private business better off after privatization?
As the architect of privatization and Premier Ralph Klein’s righthand man in 1993, Steve West said that for the consumer the answer is an absolute yes.
“In spades,” the retired former solicitor general/cabinet minister said at his home in Vermilion, noting consumers can now choose products from all over the world, “from 70 countries, and have any wine you want, from Yugoslavia to China.”
In 1993, the average Alberta Liquor Control Board store had a selection of 2,200 different products available, with a “postage stamp” price set by the government. A bottle of Smirnoff vodka that cost $18 in Edmonton cost the same in Calgary.
With an open market of available liquor products for retailers in 2013, there are now more than 19,000 products available in Alberta.
In terms of convenience, the growth from 208 liquor stores scattered across the province to almost 2,000 with many open until 2 a.m. every day — the ability to purchase liquor has never been more convenient.
Shirley Molenaar, a customer at the Sobeys Liquor Store on 51st Avenue, said she prefers the convenience and selection of privately run stores.
“There’s a liquor store on every corner now, whereas before the ALCB had their certain little outlets and that was it,” Molenaar said.
“These ones are a lot more convenient because they’re a lot closer and have lots of variety now. It’s 100-per-cent better.”
When it comes to prices, however, things are a lot less clear.
During the first few months of privatization, the Journal reported on customers’ dismay as they walked into the refurbished private liquor stores. For some, in the same location and almost identical to the ALCB stores, the only real difference was the price. A bottle of liquor was now being marked up twice: once by the government that purchased the liquor from the agent, and then again by the retailer.
At the time, West used the comparison of a shoe retailer to explain: “Everybody’s paying the same wholesale for a price of shoes and you say, ‘I’m going to open a shoe store, what will the price of shoes be?’ I have no idea. Somebody may mark it up five per cent, some 20, some 10, depending on where the saturation point is with the stores.”
Today, a 750 mL bottle of Smirnoff vodka hovers in the $24 to $26 range throughout the country at the provincially run liquor stores from British Columbia to Ontario. By comparison, in Alberta that same bottle can run anywhere from $18.49 at the Sobeys Liquor Store to $28.99 at a stand-alone mom-and-pop liquor store.
Wholesale agents such as Diageo liquor, which sell products such as Captain Morgan and Smirnoff, will put their products on sale through limited-time offers. Larger stores can take advantage of this and buy a surplus of the product and store it, allowing them to run sales throughout the year. Independents cannot afford to do that.
“The small independent stores cannot compete because we may not have multimillion dol- lars in credit to buy three pallets of Bailey’s or may not have the warehousing space,” said independent wine retailer Ed Fong. On any given day, the price can differ across the country. For example, a bottle of Canadian Club rye on sale in Alberta could cost less than a sale bottle in Ontario, yet on the same shelf could be a bottle of Crown Royal, priced $5 higher than the same product in Ontario.
“They (the chain stores) are selling based on volume; they’ll have loss leaders — ‘Come in, we will sell you wine for $8.99 a bottle’ — but then you’ll buy the wine sitting next to it at full price,” said Satesh Narine, owner of Crestwood Fine Wines, an independent fine wine store in Edmonton.
David Campanella is public policy research manager for the Parkland Institute and co-author of a 2012 report on liquor privatization in Western Canada that suggested it would be unwise for Saskatchewan to follow Alberta’s lead.
When he compared the average prices of a selection of alcohol products in Alberta with those in B.C. and Saskatchewan, he concluded that Albertans are paying more than at publicly owned stores in Western Canada.
“It was less of ‘Here’s what Albertans are paying relative to everyone else.’ It was more about trying to get a sense of whether the industry and government promise of cheaper prices has actually come to bear,” Campanella said. “It’s just to point out that it’s not necessarily the fact that Albertans have wildly inexpensive liquor.”
In the days leading up to privatization in 1993, West stated that “the free market will prevail,” as private business could now stick its hands in the liquor retail market.
Of the city’s 262 liquor stores, more than 70 of them are owned by Liquor Stores N.A. Ltd. The company owns Liquor Depot, Liquor Barn and Wines and Beyond.
“Between all of their locations, they own the market,” said Fong, one of the co-owners of de Vine Wines and Spirits on Jasper Avenue. “They dominate the entire market, by sheer size.”
A former clerk at the ALCB store in Old Strathcona 20 years ago, Fong worked for various wine and spirits stores before opening up deVine 81/2 years ago.
Ask him if he would open a general liquor store and his answer is a flat, “No.”
“Most people who open liquor stores in this ultracompetitive, cutthroat market are essentially buying themselves a minimumwage job after they factor in the hours,” he said. “The margins for liquor and beer are the thinnest compared to fine wine.”
Technically speaking, the structure of liquor purchasing creates an even playing field between the big-box retailers and the independents. They all buy their liquor at the same price from the provincially run Connect Logistics Services distribution centre in St. Albert.
One of the biggest beneficiaries of Alberta liquor privatization is Irving Kipnes, who grew a single liquor store in Edmonton into North America’s largest publicly traded liquor retail chain. He says the change has been good for everyone.
“One of the things that we pushed for was no volume discounts, so that everybody pays the same price for liquor,” Kipnes said. “That gives the small merchant the advantage of being able to buy at the same price as we do so it becomes a business, not a cutthroat business.”
Now director of Liquor Stores N.A. Ltd., Kipnes said the government wrote the regulations after they privatized, but it did a good job in creating a level playing field. “I’m pleased with the way it has turned out,” West said about how the private liquor industry grew. “We didn’t set it up to limit them. … Wines and Beyond exemplifies what we did, that is true marketplace.”
The mantra for both Klein and West back then was “getting the government out of the business of being in business.” In 1993, West stated the government would save at least $67 million annually from the unloading of operational costs of the ALCB stores and clear $410 million in revenue from the wholesale markup tax.
Campanella says Albertans are worse off after two decades of privatization because they are paying higher prices at private liquor stores than publicly owned ones at the same time that the government is receiving less tax revenue. “Privatization seriously hampered the ability of the government to collect revenue from liquor sales,” Campanella said. “Once privatization occurred, there was a precipitous fall in the effectiveness of the liquor tax in the province.”
The Parkland Institute report estimates Alberta has forgone roughly $1.5 billion in liquor revenue since 1993 by switching to a flat markup system from percentage markups.
That’s the same as arguing that the government lost out in revenue by eliminating the sales tax, says Minister of Finance Doug Horner.
“I believe strongly that if I allow you (the Albertan) the ability to create strong economic activity, you create entrepreneurial pieces which create more jobs which create more people to pay the tax; the more volume I have, I don’t have to raise the tax,” Horner said.
“That’s the entrepreneurial spirit, that’s more along the lines of Albertans.”