BC Liquor Store Sunday Openings: A Big Glass of Kool- Aid

July 31, 2012 § 2 Comments

On the heels of a ton of expensive advertising the BCGEU released the results of a poll done by Angus Reid that concluded that 75% of British Columbians support the opening on all BC Liquor Stores on Sunday’s. I have to say their timing was excellent as it gives a veil of legitimacy when a credible company like Angus Reid does the poll. I doubt the conclusions were ever in question.

It seems that the BCGEU, and by abstention the BCLDB, want you to believe that BC Liquor Stores are profitable, that the revenues that they are looking to generate are incremental and are not already being collected by the Government, and lastly the only way to collect these revenues is through public stores.

I guess the saddest part about all this is that there is no effective group that is prepared to take on the Goliath that is the BCGEU, and that large news companies such as the Times-Colonist, The Province and the Vancouver Sun didn’t ask a question as to the real legitimacy of the poll before publishing it.

First, BC Liquor Stores are not profitable. They don’t generate revenue. The vast majority of them are the most inefficient tax collection operations on the globe. The minority, conceivably would be profitable under traditional measures but BC Liquor Stores are not measured traditionally or individually. BC Liquor Stores don’t pay for the product they sell. There is no public reporting for each individual store’s overhead costs including labour. If you can’t include these costs you can’t determine profitability.

It has been proven on numerous occasions that the government retains more revenue by selling product through private stores and not public ones. The best guess is that 30% of the shelf price is eaten up by operational costs of BC Liquor Stores, whereas the cost of selling to private stores is 14% less than selling through public stores.

Secondly, the revenues generated are already being generated by the private sector. Opening BC Liquor Stores on Sundays is a shell game and simply moves the revenue from one store to another.

Lastly, the fact is that neither government stores nor government distribution is needed to collect tax revenues. Every market in Europe, Asia, Australia, South America, Africa, Alberta and most of the US proves this (Pennsylvania and Utah have similar markets to BC and the rest of Canada, minus Alberta). Any cost that is not pure tax collection takes money out of health care, education and the like.

Are you ready for a twist? If BC Liquor Stores had to compete like any other retail industry, then I don’t care when they are open because I know they must be a real profit centre and that means that they deliver real dollars to government. It would mean BCGEU members in the BC Liquor system create real economic value like other retail organizations and the foundations of a real and truly awesome liquor industry will exist.

The opinions expressed above are exclusively my own and should not be attributed otherwise.

Privatizing Liquor Distribution in BC A Fallacy

July 28, 2012 § Leave a comment

Last week the minister responsible for the BCLDB, Rich Coleman, announced that a short list of 4 competitors for rights to Liquor Distribution in BC. Shortly thereafter the political rhetoric reached new levels from both the left and the right. All of it, in my opinion, was crap and did not see what makes the whole issue a fallacy.

The fact is that most beer, wine, spirit and cider products in the province are privately distributed. Labatt’s, Molson’s, Sleeman, Okanagan Spring and Pacific Western Brewing account for about 80% of all the beer sold in BC yet they are all distributed by privately held companies. The only thing they are responsible to the government for is submitting the correct paperwork that accompanies their submission of tax (mark-up) dollars collected through sale of the products they distribute.

Wines such as Mission Hill, Naked Grape, Copper Moon, Peller Estate, Joie, Burrowing Owl, Sandhill, Hillside Estate, Tinhorn Creek, Road 13 and Quail’s Gate just to name a few, are all privately distributed. Again the only thing the distributors must do is submitt the paperwork and tax revenues collected.

Ciders such as Growers, Okanagan, Extra, Strongbow, Merridale, Sea Coder, etc. are privately distributed.

Every domestic brewery, winery and cidery have the choice of distributing privately or through the BC LDB.

I know what you are asking “So what does the BCLDB distribute”?

The only items that at present must be distributed by the BCLDB are spirits, spirit based beverages, import wines, and import beers (not including Heineken, Stella Artois, Miller Genuine Draft just to name a few).

Most of the revenues generated by the sales of liquor in BC are from privately distributed products. Nothing more needs to be said.

The opinions expressed here are my own and must not be attributed otherwise.

Private Liquor Retailing vs Public Liquor Retailing: Operational Differences Part II

July 27, 2012 § Leave a comment

In Part I I focussed on a number of the largest differences between public and private liquor retailing in BC. Part II showcases four behind the scenes differences that are a big deal.

The first of which is the ability to transfer product between stores owned by the same people or group. At present BC Liquor Stores can and commonly do transfer between their own stores. That means if a product is moving in one store but not another, BC Liquor Stores can legally move product from one store to another no matter where the two stores are located. It is illegal for private retailers to transfer product between private stores even if those stores are owned by the same person, or group.

Second, on average 30% of revenues generated by BC Liquor Stores are through the back door. In other words by sales to licensees such as restaurants and private liquor stores. It is illegal for private retailers to sell to licensees or other private liquor stores.

Third, any new product or a product that has arrived back into inventory gets uploaded into the computer systems at the BC LDB before anyone, including BC Liquor Stores, can order it. However BC Liquor Stores have access to order these products 2 days before private liquor stores.

Private liquor stores pay business taxes to the province that are calculated per store, thus the operations of each individual store are subject to traditional accounting practices. BC Liquor Stores are not subject to business taxes.

Part III will wrap this all up and make some conclusions as to the best plan of attack moving forward.

Liquor Inspectors To Trap Private Retailers in BC

July 26, 2012 § Leave a comment

This week the LCLB announced that they will be conducting ‘sting’ operations around the province in both private and public liquor retail stores.

What they do is hire a minor and send them into liquor stores to see if the stores check for 2 pieces of valid ID. The inspector follows them in and stands behind them in line to watch the transaction unfold.

If the store clerk doesn’t check for 2 pieces or accepts a piece of ID that is not official, then the store will receive a contravention notice. If they have received a contravention notice of any sort before, they will be fined $7500 or be closed for a specific period of time and forced to place a big red sign in a prominent position saying that they sold liquor to an underage person.

If the attempt is to curtail underage drinking then this process is flawed and here is why:

1) It doesn’t charge the offender. Only the store gets charged and not the underage person attempting to purchase alcohol. It takes at least two parties to sell to underage buyers and both should be held accountable. Let’s face it if you were caught speeding on the highway, you would be charged and most of us would think it ridiculous if the dealer who sold you the car was the only one charged.

2) Different strokes for different folks. A fine assessed to a private retailer is money out of the retailers pocket. A fine assessed to a public store is money out of the government pocket and therefore there is really no impact on the store or its employees.

3) Doesn’t get to the root of the issue. Why is underage drinking such a problem? Or why do kids want to drink? Let’s be clear the problem isn’t that kids want a drink, it’s that they want too much to drink. The problem is that, for kids, drinking is taboo or cool. This is a direct function of not making our kids aware of what wine, beer and spirits are and how they fit into a healthy lifestyle.

Let me know your thoughts.

BYOB in BC: Huge Step for Culture, Small Step For Business

July 20, 2012 § 1 Comment

Today Rich Coleman, the Minister Responsible for the Liquor Distribution Branch and the Liquor Control & Licensing Branch, announced that Bring Your Own Bottle, or more precisely , Bring Your Own Wine, into licensed restaurants.

Today marks the end of a prohibition era law forbidding restaurants from allowing patrons to bring their own bottle of wine into a restaurant and paying a fee for the privilege (called corkage), and I think it is great. Not because it will mean any significant increase in retail sales, but because it is a glimmer, a flicker of hope that my home province sees that a vibrant wine culture has more than just tax and tourism benefits, but social benefits.

Social problems and their costs, have long been associated in BC with access, whereas every jurisdiction in the world that embraces a strong wine culture, and for that matter beer culture, has far fewer problems. The correlation here is that tight, forbidding control inspires people to over consume when given the chance, whereas areas that consumption is almost exclusively associated with the consumption of food and in social/family gatherings, short and long term over consumption is minimized.

Our world has changed significantly since prohibition ended and today’s announcement, coupled with the passing of bill C-311 allowing interprovincial trade for personal consumption, seem to say that our liquor laws are catching up with society and not criminalizing it.

Key Elements of Today’s Announcement to keep in mind.
1) takes effect immediately
2) only pertains to wine and does not include U-Vin wine.
3) only includes currently licensed restaurants
4) does not compel restaurants to offer the service.
5) does not determine a fee that restaurants must charge. Restaurants can charge, or not charge whatever they want.

Before taking your favourite bottle to your favourite restaurant, call the restaurant to ask about their policy.

I have asked restaurants in the area to let me know if they will offer corkage. From the responses I will build a list an post it.

Private Liquor Stores vs Public Liquor Stores in BC: Operational Differences

July 19, 2012 § 12 Comments

It seems that the underlying assumption about liquor retailing and distribution in BC is that it is a level playing field. I have to make this assumption for two reasons. 1) the level of debate by our political leaders never discusses the structural differences between operating a public and private liquor store, and 2) whenever I point out the differences people are incredulous and respond with ‘no way… That’s not possible!”

Disclaimer: the following is not controversial, full of sound bytes or going to impact your day one way or the other tomorrow. It will simply outline the operational (read: dull) differences between operating a private liquor store and a public liquor store in BC.

The first issue for a private liquor store operator is always cost and primarily cost of goods. For public liquor operators the first question is always about public safety and here is why.

In BC, public liquor stores, also known as BC Liquor Stores or BCLDB, are never charged for the goods they sell. On the other hand private retailer is charged the BC Liquor Store retail price less 16%. In addition private stores must pay in full 2 days in advance of the order being compiled. No terms are available. The base gross margins BC Liquor Stores start at is estimated at 80% whereas as private liquor stores start at 16%.

When the BCGEU and the BCNDP suggest it isn’t fair that private stores get a discount when BC Liquor Stores don’t get the same discount, keep in mind that there isn’t a private liquor store operator in the province that wouldn’t rather have the same deal BC Liquor Stores have when it comes to cost of goods.

In BC all spirits and imported product must be distributed by the BCLDB. That’s right the same organization that supplies and operates BC Liquor Stores, the direct competitor for private liquor store operators. As a result the LDB can block orders from private stores and redirect that stock to their own BC Liquor Stores without notice to the private retailer or importing agent. The only way for a private liquor store operator to block LDB stores from access to an imported product is to buy all the stock available in BC. If a product is yet to arrive in BC, the BCLDB can block the sale to private stores even if the private store has paid the supplier and the freight forwarder for the product.

In BC, BCLDB buyers must approve all purchase orders requested by agents. Thus they have the power to refuse the order for a private store or have advance knowledge of the orders existence and arbitrarily decide to take the order for themselves.

In BC, BCLDB buyers have access to purchasing data of every private liquor store in the province. Private Liquor Stores only have access to their own data and not the data of their private or BCLDB competitors.

In BC the BCLDB can decide to open a store wherever it wants and is not subject to municipal zoning by-laws or community consultation. A private liquor store is subject to municipal zoning by-laws and must go through a re-zoning application process and community consultation if the property has not been zoned for a private liquor in the past. Furthermore, the LCLB, through the BC LDB forbids an LRS license (full service private liquor store) for being situated within 1000m of another LRS. Strangely an LRS can open directly beside a BC Liquor Store, Private Wine Shop (ie. Everything Wine) or a Duty Free store if the municipality approves of it.

The one thing that BC Liquor Stores are not supposed to do is to have available products that are called specs. These are products that have been deemed by BCLDB buyers as not for retail sales in BC Liquor Stores. However when a BC Liquor Store does make it available for sale in their stores, even when notified of the infraction stores, are not held accountable to remove the product from their shelves.

If your are a supplier to the BCLDB and you want a display of your products in BC Liquor Stores it is strongly suggested by BCLDB buyers that you buy advertising in Taste magazine which is published by the BC LDB. Thus the BCLDB is demanding a financial inducement to promote specific products. It is illegal (BC Liquor Act) for private liquor stores to have any financial relationship for any reason with suppliers. A private store having a financial relationship could face a stiff fine at best and at worst complete closure of their business.

Hours of Operation. Private Stores can be open from 9 am through 11pm 7 days per week 52 weeks a year. BC Liquor Stores can not open before 9:30 and most are not open past 9pm or on Sundays. That means, notwithstanding BCLDB Signature stores, private stores can be open 32 hours per week more than public stores. In the case of BC Signature Stores, private stores can be open 21 hours more than BC Signature Stores.

As a matter of policy BC Liquor Stores have not offered cold product or chilling facilities, whereas all private stores offer refrigerated product.

As a matter of policy BC Liquor Stores have restricted their advertising to Taste Magazine, BCLiquorStores.com and their mobile app, yet they are allowed to charge suppliers for advertising their products. Private stores can advertise on any medium but can not ask for, or receive payment, whole or in part, from suppliers for advertising their product.

As a matter of policy all promotions developed and executed by private liquor stores are supposed to be approved by BC LDB promotions first. Promotions planned by BC Liquor Stores do not need approval of private liquor stores before being executed.

Okay here is the one you have all been waiting for… Public Safety. We could also call this social accountability.

Underage drinking and bootlegging is a problem in private and public liquor stores, however public liquor stores are not held to the same level of accountability for these infractions. Private liquor stores could suffer fines or closure for any number of infractions as determined by the LCLB, whereas public stores will not be closed for such infractions. Furthermore fining a public store means money going from the government to the government and thus is not a real punishment. Only recently have LCLB inspectors been allowed to enter BC Liquor Stores as per BCGEU guidelines.

At the end of the day there are two indisputable facts about liquor distribution and retailing in BC.

1) the BC Government, whether NDP, Liberal, Social Credit, Green or Conservative Party, would collect taxes from the sale of liquor in BC whether or or not distribution and retailing are operated by the government through the BCLDB.

2) It is not a level playing field between public and private liquor retail in BC.

I don’t believe in ideological or broadcast solutions. I believe that retailing is about meeting the needs of your customers and community. If BC Liquor Stores can cover their costs by doing so then they should stay open. If they can not I fail to see why they should remain open. Nevertheless the playing field should be equal and let the best and most responsible operator win.

The thoughts and conclusions expressed above are my own and should be attributed otherwise.

Show Leadership In Liquor Distribution Debate

July 19, 2012 § Leave a comment

In recent months the BC Liberal Government suggested that they would privatize liquor distribution in BC. At the time they said it would generate $700M in asset sales to General Revenues.

Shortly after that the opposition uncovered the fact that the same guy who ‘masterminded’ the BC Rail deal, was working on behalf of an Alberta group to purchase Liquor Distribution. What followed this revelation has more to do with sensationalism and intrigue than reality.

This post is not about choosing sides but about presenting some of the realities in BC Liquor today.
The BCGEU and the BCNDP suggest that the BC LDB is profitable which begs the question if it ain’t broke why fix it?

The reality is that to claim the BCLDB is profitable or not is not valid. In this case profits should be considered taxes. Taxes that go into general revenue which pays for things that we have all agreed are social goods that we need. These would include health care and the like.

At present the bottom line for the LDB says that it earned $800m in general revenue for the government over the last fiscal year. What it doesn’t do is say where this revenue is earned. In fact it is assumed that it is earned at retail and not wholesale. Nothing could be further from the truth.

If we assume that the LDB is a wholesaler then every cost that is not a part of the wholesale function takes away money from general revenue. In this light we must consider that the cost of operating BC Liquor Stores is a cost to general revenue and that it they did not exist, then net taxes collected by the LDB could have been $1.1B last year as the cost of operating BC Liquor Stores was $300M.

If on the other hand the BC LDB is a vertically integrated retail system the it would be measured on gross margin generated, and the goal would be to work to control or reduce relative operational and distribution costs. If true then general revenues would be improved by $246m to $1.046B by selling off the assets and cost associated with distribution.

In either vision the BC LDB could generate substantially more for general revenues if it cut either retail or wholesale costs, but here is the kicker; 55% of all sales to consumers last year were not generated by BC Liquor Stores, rather they were generated by the private sector through retailing or restaurants, bars, pubs and hotels. If we take away the economic activity generated by the private sector then the BC LDB as an organization operated at a net loss even though the BC LDB applies the highest at wholesale mark-ups in North America.

The accounting fact is that government generates 100% of its revenue on liquor by applying taxes at the wholesale level. This is done in every jurisdiction in the world. Privatizing Liquor Distribution will not change the fact that the government collects taxes on every bottle, case, or box of liquor sold in BC. The question is how to collect the most while providing adequate public safeguards on the sale of liquor in BC.

What needs to happen in this debate is that the rhetoric should stop and the facts should be analyzed… Actually what needs to happen is that the opposition and government should act as the leaders we have elected them to be and showcase the facts in order to have a substantial debate.

Granted the government has bumbled this policy direction in a similar way to HST, but the fact is that even overturning this direction on the basis that Patrick Kinsella is involved is also not good public policy. I want good public policy based on facts not inflammable innuendo.

BC NDP prove why privatizing Liquor Distribution is not in the public’s financial and social interest.
BC Liberals prove why privatizing Liquor Distribution is in the public’s financial and social interest.

Next post: Differences in operating a Private Liquor Store vs Public Liquor Store in BC

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