How liquor is priced in Alberta
When you buy a bottle of liquor in Alberta, you’re not just paying for the drink inside, but for everything from the manufacturer’s cost and profit margin to a cocktail of government taxes and fees and, finally, a retailer’s markup.
Here’s basically what goes into the price of a bottle before and after the province privatized liquor stores in 1993.
Pre-privatization Prior to privatization, there was no shopping around for the best price for a particular bottle.
Under the government’s old monopoly, consumers paid a consistent “postage stamp” price at every Alberta Liquor Control Board store.
The government used a system called ad valorem — Latin for “according to value” — to standardize retail prices for liquor products at all ALCB stores on a brand and package size basis.
Similar ad valorem systems are used in most government-run liquor-retailing systems across Canada.
Essentially, the ALCB ad valorem was based on a variety of percentage markups — 159 per cent for liquor and 149 per cent for liqueur.
Wines were marked up based on alcohol content. Bottles up to 15.9 per cent had 120-per-cent markups. Those 16-per-cent alcohol and over were 177 per cent. Champagne was 120 per cent. Beer had a markup rate of 73 per cent.
So, for example, an additional 159 per cent was added to the original cost of a bottle of Smirnoff vodka.
Import liquors faced additional markups.
For example, an extra $2-$3 was added to the price of each case of Heineken beer, which was absorbed by the consumer.
The ad valorem rate ensured mini- mum profits for the government per bottle.
For example, the minimum profit per unit for a 750-mL bottle of Canadian whisky was $11; for a 750-mL bottle of Canadian wine it was $2.75; and for all beer it was 95¢/litre.
The retail price tag therefore included the cost of the product, freight/shipping, foreign exchange, federal duty, federal excise tax, cost of service differentials, the added percentage markups, added GST and profit rules.
What this meant: Using Heineken as an example, the government would purchase a case at a price set by the company.
Because it was an import, an additional $2-$3 was tacked on to the price per case.
Under the government’s profit rules, roughly an extra 95¢ would be added per bottle, totalling a little under $12 per case.
These markups, along with the cost of shipping, production and applicable taxes, created the price that Albertans paid prior to privatization.
Pricing under privatization
With privatization, the government decided the best way to price alcohol would be to introduce a new flat markup to be applied to each litre of liquor product based on the type or category.
It was designed to keep government revenues at pre-privatization levels and simplify pricing.
The government’s liquor warehouses receive products directly from manufacturers or suppliers. When a shipment is received, the suppliers or their agents set a price that reflects the cost of the product.
Currently, there are more than 400 agents that sell their liquor, wine or beer to the government.
When companies such as Diego or Heineken set the price, it includes insurance, marketing, promotion, warehouse charges, transportation to the warehouse — and, of course, profit margin. The Alberta Gaming and Liquor Commission calculates a wholesale price using that supplier’s price, then adding federal customs and excise taxes and duties, a recy- cling fee, a container deposit and the provincial markup per litre.
Markups per litre depend on product type and alcohol percentage. They are assigned according to an approved rate schedule established by policy and reviewed regularly.
So, on a 750-mL bottle of Crown Royal with an alcohol content between 22 and 60 per cent, the government would collect a markup of $9.98. For wine, on a 750-mL bottle of Yellow Tail Chardonnay with an alcohol content of less than 16 per cent, the government would tack on $2.59.
Another example: A 750-mL bottle of Crown Royal starts with the cost to the distributor, which the company sets. As a liquor containing 40 per cent alcohol, at 750 mL, the $9.98 is automatically added to this cost, along with extra fees and taxes.
After this, the price set by the AGLC is placed into the ordering system. Every retailer and restaurant pays the same price for that bottle of Crown Royal.
From there, the price paid by the consumer is up to the retailer.