The province’s new proposal for beer retailing has been promoted as the most sweeping change to alcohol distribution since the end of Prohibition. But the Beer Store and the foreign brewers that own it are the real winners.
On the surface, the consumer experience seems to have changed dramatically as 450 grocery stores will eventually be permitted to sell beer, implying more convenience, lower prices, a wide selection and innovative retailing. Unfortunately, it is likely that most of these benefits will not materialize. The proposed strategy will not result in more competition — grocery stores have been allowed only to carry beer but not compete. And this is the problem.
To understand this, we need to look at three important factors of what has been proposed: First, the province has made it clear that uniform pricing will exist across all retail outlets, irrespective of ownership. A temporary price freeze will be implemented as a new beer tax is phased in over a two-year period. Second, six-packs are the largest unit grocery stores will be able to sell. Meanwhile, 10 LCBO outlets will carry 12-packs as part of a pilot project. Third, grocery stores can only sell beer during standard LCBO and Beer Store hours. These factors amount to no real change for the consumer. Here’s why.
Uniform pricing may make sense to avoid unfair price variation between larger metropolitan centres and rural areas. But reasonable uniformity in prices could be accomplished through granting licences to outlets in underserved areas. Community retailers like grocery and convenience already fulfil this role in many areas in rural Ontario.
The market has the potential to ensure comparable prices efficiently, without the need for uniform pricing. In this context, how does the province propose to set beer prices? Will it compute some type of average based on last year’s prices or will it put more weight on promotional prices so that consumers will benefit? Unfortunately, price regulation — however well-intentioned — often results in higher prices, especially if the regulatory process is “captured” by special interest groups.
After more than 87 years of the same alcohol retailing system, one might argue that the main benefits of the government’s proposed deregulation are consumer convenience. Individuals will be able pick up beer while grocery shopping. This may be true in urban neighbourhoods that do not have a dense configuration of Beer Store or LCBO outlets. However, in many suburban areas it is not uncommon to find a Beer Store outlet next to a grocery store. For such consumers, the benefits of being able to purchase beer from grocery stores will be limited, especially since grocery store beer sales won’t be allowed outside the Beer Store’s operating hours.
What is clear from these changes is that the Beer Store and the foreign brewers that own it are the real winners of the announced changes. Although the Beer Store has lost a major source of revenue because it can no longer charge higher prices to commercial establishments (relative to retail customers), in the long run major brewers may in fact earn higher profits. Beer sales may increase and brewers will still be earning margins on products sold through grocery stores.
The Beer Store will probably remain the only source for large packs of beer and it will not have to compete on prices with grocery stores. Further, the province has said that the Beer Store will, after two years, be able to pass on the beer tax to consumers. The implications are that: beer prices are quite likely to rise, further widening the existing gap between Ontario and Quebec, and the province has shifted the burden of revenue generation from brewers to consumers.
Clearly, change in Ontario’s alcohol retailing system was needed. The public was calling for it and government realized this. The province, however, didn’t do what it ought to have done — introduced real competition, convenience and choice for consumers — albeit with the proper oversight to ensure social responsibility in the sale of alcohol. That said, some change appears to be finally happening in Ontario, and the province could use these preliminary moves as a basis for a real solution in the future. Consumers deserve it.