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The state of the suds industry in Alberta
Posted by Ron Goodhew, June 23rd, 2011 | 0 Comments
The pros and cons of beer privatization
June 16 – June 22, 2011 Fast Forward Weekly
Published June 16, 2011 by Kevin McLean in Booze
It was late Saturday afternoon and we were in a rush because government offices aren't open on Sundays. We pushed our way inside the overcrowded, stuffy, grey room and grabbed a number. Standing on my tiptoes I could just barely see over the counter as I watched my dad grab a form and fill it out. While we sat waiting, I was fidgeting with my hands and peering around the stark room, watching others solemnly wait their turn. Finally, a man behind the shrouded glass counter called our number; we approached the window and my dad slipped his form under the glass. The man looked down his nose at the form, reviewing it carefully, then without a word he disappeared into the back, returning a short time later and sliding a warm case of Labatt Blue under the glass. As we turned to walk out, he announced they were closed for the weekend and quickly shut the window. My dad had his beer for the weekend, but it was a close call.
It's hard to believe that this is how my parents once bought alcohol in Canada. Treated to appalling service, bleak surroundings, banker's hours and a pitiful, government-appointed selection, beer lovers had to go through much of the same ordeal to get their suds.
Walking into one of Calgary's specialty shops today, the situation couldn't be more different. Calgary has a dynamic industry, with vibrant stores packed with Canada's most diverse selection and educated staff.
Albertans enjoy the largest selection in the country, served to us by zealous enthusiasts who can guide us to discover new products and even offer us a sample taste before we make our choice. We have the greatest number of stores per capita, making Alberta the most convenient place to shop in the country. Yet after 17 years of privatization, the rest of Canada has failed to follow our province's path. Although several provinces have reviewed the matter and many have dipped their toes in the water by allowing some privatized stores, Alberta remains the only fully private system in Canada. Why is that?
To better understand why others have not followed our path, first we need to look at what made our situation unique; there were several important factors leading up to the privatization of the Alberta Liquor Control Board (ALCB) and it was the sum of these events that eventually led to our current system.
CHUGGING IN ALBERTA
In 1993, the year we started the privatized system, the ALCB union launched an untimely strike — during the May long weekend — leaving many Albertans beerless, angry and open to the idea of change. The new Conservative government lead by Ralph Klein saw it as an opportunity to gain favour and campaigned on a promise of a new private system if elected.
Privatization also served as a fast way to put some badly needed dollars into provincial coffers, as the Alberta Government owned all liquor stores (unlike in British Columbia) and knew they could make a tidy profit selling them off. And they did in the end, raking in almost $120 million. Alberta had realized a better system was possible, one with less overhead, increased revenue and could promote a better experience for Albertans.
Across Canada, various provincial liquor boards have been more proactive in recent years as mutterings of unsatisfied customers voice their discontent through various web-based mediums. Concerned labour unions have sanctioned reports from such outfits as the Parkland Institute, which recently reported that Albertans are basically a lawless bunch of alcoholics, foolishly paying too much for booze and failing to pay the government their rightful share. But this report came suspiciously on the heels of a Fraser Institute report that outlined the success of the Alberta model.
B.C. and Ontario have come very close to privatizing, but have held back for various reasons. Both provinces now face sustained demand from vocal groups to privatize ,but there comes equal push back from strong unions and special interest groups. These groups continually cite Alberta as overpriced and maintain that government systems offer the best prices.
B.C. has what is called a partial monopoly, meaning there are some private stores working in conjunction with the British Columbia Liquor Distribution Branch (BCLDB), but as the government still applies its crushing tax (123 per cent for wine),, they remain under government rule.
In Ontario, consumers have two options: either the Liquor Control Board of Ontario (LCBO) for all types of booze or the seemingly specialized entity known as The Beer Store.
The wine selection in Alberta dwarfs that of B.C. and Ontario. Calgary's boutique wine shops are regularity inundated with calls to ship wine around the country, something they are prohibited to do under current government regulations. But beer is the Canadian alcoholic beverage of choice, with beer sales accounting for over half of our drinking dollars last year, making it Canada's unofficial national drink.
Researching beer prices in B.C. and Ontario couldn't be easier, as you only need to check one government website. In Alberta, it's a little more complex. Being a free market means there is loads of competition and beer prices vastly vary. With more than 1,200 potential vendors to choose from, it's difficult to pin down a single price for the same case of beer.
There is no clear winner in price between provinces, and B.C. and Ontario prices seem to be random (see fact box for price comparison).
One major contributor to the price of a box of beer is tax, and Albertans typically pay less tax on beer than folks in B.C. and Ontario, especially if one buys craft beer. In Alberta, beer is charged a tax between 20 to 98 cents a litre, depending on the size of the brewery. In B.C., it's upwards of $1.75 a litre.
When we look at the advantages of privatization, it is not as clear for beer prices as it is with wine and spirits. The numbers show that it is possible to pay more in Alberta for many different brands of beer, something the government boards are quick to point out, but as consumers, Albertans have the ability to shop around. I think the most interesting fact is that Alberta has immense selection. In Alberta, a province with a much smaller population base than either B.C. or Ontario, we have two-and-a-half times the selection of beer.
Canada's various monopolies are difficult systems to crack if you are a small brewer. They require a lot of time meeting with boards and creating marketing budgets, and a lot of research. They want price breaks for large purchases and require long terms before they pay back, and if the beer manages to hit their shelves, they likely start at the bottom because the big boys own the best placements.
Ontario also has alternate outlets — The Beer Store — a chain that started in 1927 at the end of prohibition. These chains are owned in part by Molson and Labatt with Sleeman getting a small share. Although they carry smaller breweries' brands, they retain the right to discontinue and charge fees to any non-owner. Basically, Ontario has a system in which consumers can buy beer from the government or from Canada's largest brewing corporations, though neither seems particularly appealing.
The LCBO regularly reminds Ontario consumers that they are providing a top-notch service by keeping selection up and pricing down. While the pricing seems to be mostly in line with what people can expect to pay in Alberta (for beer anyway), the selection is nowhere near the same.
LEADING THE PACK
But those are just the numbers. What about the experience of buying suds?
In Calgary, shoppers can talk with local retailers and we have the ability to sample beer before buying it. Shoppers can request certain products and retailers can usually order them in. In short, Alberta buyers are treated like customers, not numbers. If a buyer believes the local shop is charging too much for beer, she can go shop elsewhere — that's the wonderful thing about free-market privatization.
In 2005, Ontario considered privatization, but rejected it despite public pressure and several independent recommendations to do so. The government continues to play the overused card that as the world's largest purchaser of alcohol, it can negotiate the best deal. There is some merit to that claim, but it only holds water with large producers. Small craft brewers get chewed up in the red tape, and pushed to the side, with many choosing not to participate while the big brewers control the market.
Ontario and B.C. unions have repeatedly employed scare tactics to keep their systems and employees in place, with constant jabs at Alberta's system. The truth is, they primarily want to keep their union-wage jobs.
Alberta now enjoys the most efficient system with the least expense to taxpayers and the profits are much higher ($716 million in 2010, compared to $404 million in 1993, the last year of privatization) without the overhead of running the shops. Albertans have also witnessed astounding growth in provincial selection. In 2003, the Alberta Gaming and Liquor Commission (AGLC) listed a mere 2,200 products, but today Albertans can choose nearly 16,000 products, the highest number in Canada.
Alberta has a history of being the first to create change. We were the first province to enact prohibition in 1916, but it was short-lived and ended in 1923. But the relationship between liquor control and politics was in place and would rule Alberta for 70 years, subjecting Albertans to tight and often absurd government regulation. Today the province's booze industry employs over 5,000 people, while only 1,300 employees worked for the AGLC in 1993.
But if you really want to know if our system has been successful, just ask the people. I don't hear many people reminiscing about the good ol' days when the government controlled alcohol sales. According to AGLC studies, nearly 80 per cent of people are satisfied with the system we have today.
Years ago, if you were lucky enough to get in the liquor stores before last call, you were treated to long lines, disengaged staff and forced to suffer the enduring ritual of going home to chill your beer before you drink it. It seems most Albertans agree that the booze business is better without government interference, but the big question is: What's taking so long for everyone else to figure it out?
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