Barley Mowat 

Why Cheap Beer Is Bad

with 12 comments

It’s been a while since I’ve written something potentially libellous about the government, so here goes. Recently, a lot (CBC) has been written (Sun) about the poor, downtrodden private liquor retailers (LRS) in BC and their inability to cope with the suddenly much more competitive government liquor stores (GLS), operated by the BC Liquor Distribution Branch (LDB).

The general sentiment in the public runs pretty much exactly as you’d expect from a people who’ve long-perceived private LRSs as extortionate scam artists taking $0.30 of electrical chilling and turning it into $6.50 of markup just because We Want It Now And We Want It Cold, Damn it.

Reality has this unfortunate habit of not being quite as simple as we’d want it, and this is no exception. Much of the markup at private stores was simply due to not being able to purchase product at the same deep discount as GLSs. These unfair rules were made more acceptable to LRSs by the government store employees agreeing to stay home on Sundays, and thus allowing the private stores to have a 1/7th monopoly on the market. That, plus the GLS agreeing to avoid selling cold beer because people are a bunch of rummies who’d just straight chug it in the parking lot if we could.

Hey. Those are Pens fans. They’re not people.

Until April 1st; on that day, everything changed. The BC Liquor Control and Licensing Branch (LCLB) brought in a “level playing field” for wholesale prices. Everyone got to buy at the ultra cheap government prices, but the government stores now wanted in on Sundays and cold beer. To the private stores, losing Sunday was Not Great, but getting those sweet, sweet government prices would absolutely be worth it. Private stores have lower overhead than the LDB, so by the time the government stores had paid back those fat union wages to their staff, the privates would be out in the profit lead no problem.

Except not. In classic LCLB fashion (remember “Happy Hour”?) there was a gotcha, and that gotcha was the sudden, dramatic increase in wholesale prices that the LCLB forgot to mention was part of the deal. How dramatic? Well, craft beer has gone up from 10-30%. Take Driftwood Fat Tug: before April 1st the cost was $4.20. Now it’s $4.75. Sure, that’s 55 cents to you and me, but it’s a giant freaking slice of the profit pie for liquor stores.

Okay, fine. Things are more expensive for some unexplained reason*, and it sucks to be Joe Consumer, but the private stores will still have lower operating costs and should be able to undercut the big government stores with their on-shelf pricing, right? Well, um… about that… You see, when that Fat Tug cost $4.20, the government charged $5.09 + tax on the shelf. Now that it’s $4.75 they’re charging… $5.09 + tax. In other examples, the government has actually lowered their prices on craft beer despite increasing costs.

Yup, you read that right. The LDB, whose retail stores were bordering on unprofitable before, saw their profit margin drop from 21.2% to 7% and they didn’t raise prices. They still have to pay the same rent, the same utilities and the same union wages for GLS staff. Heck, they now have to pay more money to install and run fridges, because they can sell cold product. How could they possibly turn a profit now, with massively increased costs and no increase in revenue? Shocker: they’re not. The retail arm of the LDB is now being run at a loss.

So, what’s going on here? Well, the LDB isn’t just the retail arm. They also run the wholesale side of the operation. That $4.20/$4.75 debate above is irrelevant when you consider that the wholesale side of the LDB buys it at around $2, both before and after April 1st. All the LDB has done here is to shift the lion’s share of the profit on craft beer from retail to wholesale, which is the part of the industry where they still have a complete monopoly.

It’s not just a monopoly, but one where they ALWAYS get to play with that cool battleship.

Level Playing Field, my ass. This game is fixed. The strategy here is to put the squeeze on the private stores, hopefully forcing more than a few to throw in the towel and sell their licenses. With a glut of licenses hitting the market, the cost to purchase will fall precipitously. Who will benefit, then? What other change happened April 1st?

Yup, grocery stores can now buy an existing LRS license and move it in-house. Before the new policy came into effect, everyone scratched their heads and wondered aloud where the stores would get all these theoretical licenses, especially considering how hard the grocery chains had lobbied for the change. Now it all makes far too much sense.

All I need are some reverse vampires in here somewhere.

That, combined with the LDB’s long term plan to get out of retail, adds up nicely. It was hard to justify when the GLSs were making money hand over fist, but now that all the actual profits are nicely safed away in the distribution/wholesale monopoly, it just got easier to politically sell the idea of privatization. Screw the LRSs and throw a bone to the grocery store lobbyists, all while building a case for a massive capital sell off on the retail side.

If all you care about is what your case of Bud costs, and you’ve managed to read this far, this is where I break your heart. When the government liquor store sell off starts, it will result in one of two things. One: grocery stores will pick up their licenses (April 1st ALSO provided for moving GLS licenses into grocery stores) or Two: private firms will pick them up.

When those private firms open their newly acquired books, how long do you think it’ll take before they fix that whole “no profits” angle by raising prices? With the discounted competition from the GLS no longer there, and the only realistic competition being the obscenely expensive Save-On-Foods down the street, how cheap will that case of Bud be now? Only time will tell.

* In a marvellous alignment of conspiracy models, it’s rumoured that the macro liquor brands have had unparalleled access to the LCLB and Premier’s Office during formulation of this new pricing scheme. Whether or not that’s true, what is definitely a fact is that macro beer and wine are much, much less affected by the price increases. As a result, stores are dropping craft lines and fleeing to the less loss-leading macros. Suck it, selection!

UPDATE: The “unparalleled access” is Neil Sweeney. He’s a Deputy Minister in the Premier’s Office, but was also previously the Director of Public Affairs at Labatt Breweries. Here is his LinkedIn profile. As conflicts go, this isn’t the worst it could be, but nor is it the best. Sure he isn’t (likely) being paid by Labatt anymore, but keep in mind that he very almost certainly holds a good chunk of stock from his previous job, and is still a friendly face to the remaining management team at Labatt.

Written by chuck

May 20th, 2015 at 4:05 pm

Posted in Beer and You

12 Responses to 'Why Cheap Beer Is Bad'

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  1. Not usually one to jump on a conspiracy bandwagon, but this makes some sense. An elaborate scheme to get out of retail (they floated the idea of privatization a few years ago) and annihilate the Union along the way.

    Dave V.

    20 May 15 at 17:36

  2. And all neatly packaged by Anton and Yapp as consumer-driven change. I have never lived anywhere as corrupt as BC.

    Sticklebract

    20 May 15 at 19:40

  3. As long as I can get my growlers in a similar fashion and they stay away from that side, I’m sure I can survive on this island. In the meantime, I’ll continue brewing my own!!

    Jeremy

    20 May 15 at 20:34

  4. With the balanced budget legislation it doesn’t require this elaborate conspiracy to sell off the liquor stores. “Oh oh, we ran a deficit this year. I guess we’ll have to sell off some public assets to balance the budget”. Its that easy.

    Ders

    21 May 15 at 12:48

  5. @Ders
    In B.C. with a union as strong as the BCGEU, ”we need to sell off public liquor stores “, isn’t that easy. But trust me, they’re going to try and devalue the shit out of their stores to sell them.

    Ben

    22 May 15 at 19:22

  6. LRSs in North Van don’t seem worried. Spirits of Seymour has more than doubled in size, Toby’s has opened up a large store just down the road from their restaurant, and I noticed the other day that The Gull is moving into a space across the parking lot that will be 3-4 times their current size.

    Are they all banking on increased volume to offset the loss in profit?

    PaulB

    31 May 15 at 23:57

  7. @PaulB — I’d suspect much of the expansion was planned/completed prior to April 1. The LDB didn’t release pricing info for the post April 1 era until the day it took effect.

    Also, there’s still money to be made in the macros, which didn’t see any where near the level of price jacking.

    chuck

    1 Jun 15 at 11:06

  8. True enough re: macros. Any time I’m in a LRS, there is usually more macro going out the door than craft.

    PaulB

    1 Jun 15 at 12:55

  9. I’d be interested to know more about the distribution side of the craft beer business in BC, where you say the BCLDB has “a complete monopoly.”

    I see branded delivery trucks driving around town for some of the middling craft breweries (P49 and Driftwood, for example); and I know Mark Anthony and OK Springs/Sleeman have warehouses in town; of course the macros have BDL; and many spirits and imports are handled by Container World, not the gov’t warehouse off grandview hwy.

    Having said that, I would be surprised if the government did not throw a bunch of hoops and barriers in the way of craft breweries that want to control their own sales channels, especially if the distribution operation makes the government a bunch of money.

    Alex

    7 Aug 15 at 12:21

  10. @Alex – Every single liquor transaction in BC between supply side (manufacturer/importer) and consumer side (retail/end consumer) must be processed by the LDB. The LDB will also slap on a distribution charge on this transaction, a service which is available to all manufacturers for no additional cost.

    Manufacturers frequently will do their own deliveries, though, as the LDB doesn’t always treat their products with the care you’d hope for (rarely, in fact). However, this is in addition to the LDB’s distribution charge, which you must pay even if you don’t use the service.

    The product doesn’t have to physically be touched by the LDB, but the money absolutely does.

    chuck

    7 Aug 15 at 13:45

  11. Good write-up, I’m normal visitor of one’s site, maintain up the excellent operate, and It is going to be a regular visitor for a long time.

    Tobias Thorington

    13 Dec 17 at 12:01

  12. Very interesting subject , thanks for putting up. “Nothing great was ever achieved without enthusiasm.” by George Ellis.

    Catrice Carlone

    14 Dec 17 at 02:19

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