What’s Wrong with the Beer Store? – Understanding the debate

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http://commons.wikimedia.org/wiki/File:Beer_Store_Toronto_July_2011.jpg

“Rino’s Kitchen (& Ale House) … will be boycotting The Beer Store and only purchasing products through local, small craft breweries or stocking alternative products shelved at the LCBO.”
– Posted by Rino’s Kitchen via their Facebook page.

The boycott of the Beer Store by Rino’s Kitchen has lent a local aspect to the ongoing debate about the Beer Store. I touched on this in an article a few months back and made no secret about my distaste for the chain, but this time around I’ve tried to pin down exactly what is wrong with the Beer Store.

http://commons.wikimedia.org/wiki/File:Beer_Store_Toronto_July_2011.jpg
http://commons.wikimedia.org/wiki/File:Beer_Store_Toronto_July_2011.jpg

First of all, let’s dispel a common myth. To my surprise, it turns out (according to a 2013 Angus Reid survey) that 87% of Ontario residents believe that the beer store is government-owned. In fact, it’s not even Canadian-owned.

49% of the corporation is owned by Anheuser-Busch InBev, co-headquartered in Belgium and Brazil, the world’s largest brewer. Another 49% is owned by Molson-Coors, co-headquartered in Montreal and Denver, Colorado. The remaining 2% is owned by Sapporo of Japan.

In short, the Beer Store is owned by three of the world’s largest brewers. The central question is whether it is fair for these brewers to have the exclusive right to privately sell beer in Ontario. The answer from where I am standing is a resounding “no” – and here’s why:

Following the Money

One of the common points made in defence of the Beer Store is that the chain is a retail-and-distribution system operating on a cost-recovery basis, meaning that any money they bring in is meant only to cover the cost of operations. I have seen many people fall for this, believing that the Beer Store doesn’t make a profit. However, economist Anindya Sen published a study in August 2013 which found that the Beer Store brings in an estimated $700 million per year that is unaccounted for by expenses.

So where is this money going? The cost-recovery system means that any money that comes in which exceeds the operating costs is issued as a rebate – to the owner breweries. The Beer Store can claim to be a non-profit so long as it passes on that $700 million per year in “rebates” to AB-InBev, Molson-Coors and Sapporo.

According to Sen, this $700 million comes primarily from markups. A case of beer costs an average of approximately $10 more in Ontario than in Quebec.

But Rino Bortolin is upset at the Beer Store due to another curious business practice. Ontario licencees like Bortolin have to pay a significantly higher markup than the general public. You or I could buy a case of Labatt Blue for $29.95 but if the owner of your local bar goes to the same store to buy the exact same product, it’s going to cost them $44.75, almost 50% higher.

These mark-ups, with few exceptions, only apply to the beers made by the owner breweries. For some examples of the beers owned by the same companies who own (and collect all of the profits from) the Beer Store, just have a look at their “Top Ten” list:

Coors Light, Molson Canadian, Budweiser, Blue, Bud Light, Carling, Busch, Keiths, Heineken, Lakeport Pilsener

Heineken is the only non-owner beer on this list, but it is distributed in Canada by Molson-Coors, one of the owner-breweries.

A Conflict of Interest

It’s not surprising that the Beer Store includes almost exclusively their owners’ products in marketing materials and in the “quick grab” sections of their stores, but this isn’t the only way they discourage the sale of non-owner beers. Despite the clear conflict of interest, Ontario’s only private beer retailer is allowed to charge all non-owner breweries a listing fee.

The fact is that the owners of the Beer Store are the direct competitors of any non-owner brewers, big or small, local or international. These brewers are required to pay for the right to get their products on the shelves, and that money goes directly to AB-InBev, Molson-Coors, and Sapporo, their competitors.

This is especially hurtful to small local breweries, for whom the listing fee is prohibitively high and who have few alternatives to choose from. Amazingly, the Ontario Craft Brewers Association, which represents 30-odd breweries and counting, has been denied the right to open their own retail store.

What we have is a market where 80% of all beer sales are controlled by three multi-national breweries, and our government refuses to allow anyone even the chance to compete. Does that make sense to you?

By: Derek Harrison
http://itsnotjustthealcoholtalking.wordpress.com/