How the Beer Store bought a second chance
Raise a glass — half empty or half full — to liberalized booze sales across Ontario.
While the government isn’t going the full distance, let’s take stock — before stocking up on beer — of how far Queen’s Park has travelled: For the first time since prohibition ended 88 years ago, it will be possible to buy six-packs in supermarkets.
Not cases of 24. Not in corner stores. Not 24/7. The Beer Store’s cozy quasi-monopoly won’t be dismantled overnight.
But what once seemed politically unfathomable is now closer to retailing reality in the high stakes, heavily protected beer industry worth $3 billion a year. Craft brewers that long complained bitterly about hardball tactics by the foreign-owned Beer Store are today celebrating a break-out that could soon quadruple their market share.
Half measures or not, it’s worth toasting the latest news with a “Bottoms up” — because the bottom line is that beer is coming to a supermarket near you. Soon. Or more precisely, slowly. Over time, 450 supermarkets will be licensed to sell beer — matching the number of Beer Store outlets now in place. Some supermarkets might have beer on their shelves by Christmas.
Still, it will be a slow drip, not a fast pour.
Only 150 supermarkets will get licences over the next two years. Another 300 grocery stores will have to wait longer to stock beer. The government is taking its time on wine sales in supermarkets to avoid any missteps in a $2-billion-ayear industry that is tied up in knots.
But after nearly nine decades of all-party paralysis, Kathleen Wynne has chosen a lane. And she is calling it the new “grocery channel.”
To her credit, the premier insulated herself from the big beer lobby by bringing in a retired big banker to be her buffer — and sounding board — against the industry’s traditional strong-arm tactics. By appointing former TD Bank CEO Ed Clark to head her privatization panel, along with ex-NDP cabinet minister Frances Lankin and former Tory finance minister Janet Ecker, the Liberals changed the dynamic — and the rules of the game.
The panel introduced transparency into the opaque world of beer bottling, where the big brewers traditionally throw hundreds of thousands of dollars at all three political parties and lubricate the process with high-powered lobbying. Their 63-page report will satisfy no one, but it is a closely reasoned analysis that contrasts with years of naked political interference.
It is all about trade-offs. The government wants the Beer Store — now riven with commercial distortions and conflicts of interest — to return to its roots as a marketing co-operative representing all brew- ers. The report seeks more competition, but not too much — because the panel is persuaded that a wideopen market would ultimately raise prices and dilute the government’s revenues as happened in Alberta and B.C.
That’s why it is auctioning off only a limited number of licences — to capture additional revenues of up to $200 million a year — instead of giving them away to all grocers in a free-for-all.
Make no mistake. Even in limited quantities, supermarket sales will be a game-changer that will give the ossi- fied Beer Store a run for its money.
Supermarkets are retailing superpowers where the customer is king. Their sprawling aisles are miracles of modern consumerism, offering a dazzling selection of foodstuffs with razor-thin margins while still paying unionized wages.
Big grocers will energize beer retailing in a province still stuck in a time warp, where most Beer Store outlets are little-changed from the post-Prohibition era. Craft brewers that now claim less than 5 per cent of the beer market will be allocated 20 per cent of shelf space in su- permarkets — and the Beer Store. Wisely, the panel wants to protect the crafts from those hidden “stocking fees” and other quasi-kickbacks that are the dirty little secret of modern supermarkets (where sellers vie for premium shelf space).
The good news for the Beer Store, and its 7,000 employees, is that they will live to fight another day. Its quasi-monopoly will be curtailed, but by no means eliminated.
The better news for the province is that fresh competition could well breathe new life into the Beer Store, which will have to raise its game to survive. It vows to invest $100 million over the next four years on open-concept, self-serve stores — a recognition that its old-style layouts unfairly favour the established national brands and discourage browsing.
The Beer Store has also dodged the “franchise fee” that Clark proposed last fall to take account of hefty profits flowing to its foreign owners. Instead, ALL brewers will pay into a new $100 million beer tax (on the grounds that its quasi-monopoly has been reduced, and the big brewers will have to absorb it anyway). As sin taxes go, it will be modest — and largely invisible because the big brewers have promised to swallow much of it for the next two years (belying earlier threats that customers would pay the price).
The secret sweetheart deal signed by the Beer Store and the LCBO in 2000, revealed by the Star last December, will be replaced by a more transparent pact that constrains its quasi-monopoly — but doesn’t eliminate it.
Among other concessions, the big brewers have provided a de facto guarantee to offer the lowest prices of any province. The Beer Store will give craft brewers a voice, and a veto, on its board of directors to ensure a level playing field. And it is cutting the annual fee it charges the government for bottle recycling — now more than $30 million a year — by $1 million annually and eating any inflationary increases.
It made those concessions in order to keep a monopoly on the crown jewel of beer retailing — the cherished case of 24, which accounts for the highest volumes and biggest profits. They will remain the exclusive domain of the Beer Store; even 12-packs will be kept out of supermarkets, and limited to 60 LCBO outlets over the next few years. Another trade-off.
After boasting for years that it provides an unbeatable service that couldn’t possibly be improved, the Beer Store has been humbled. It is taking a haircut on fees, swallowing new taxes, and having to eat its words about supposedly being a break-even operation. (Clark laughed off those claims Thursday, noting that the quasi-monopoly was never “revenue-neutral.)
Nearly nine decades after its birth as Brewers Retail, the reincarnated Beer Store refuses to die. Now it faces double jeopardy — not just its own ossification, but competition. Martin Regg Cohn’s Ontario politics column appears Tuesday, Thursday and Sunday. mcohn@thestar.ca, Twitter: @reggcohn