The Liquor File – The Whole Pie

November 22, 2014 § Leave a comment

This weeks announced changes to the liquor industry in B.C. will go into effect on April 1, 2015, but already their impact is being felt.

Social & traditional media has been jammed with calculations, prophecies and conjecture and, full disclosure, I have been apart of it to. However, after a Facebook conversation this morning I took a step back to get a broader perspective.

We have to remember that none of these changes will change the size and value of the market. If anything all they will do is divide the ‘pie’ into more pieces and shift value around.

It is no secret that BC Liquor Stores have been losing share to private stores each year for the last 10 years. Creating a level pricing field is likely the only way that this trend could be reversed using legitimate means. I expect that BC Liquor Stores will start to act like a large grocery concern and leverage their position to either mitigate costs or corner the market on certain products. This could mean disaster for many of BC’s private liquor stores who rely on price and product agility combined with well oiled marketing machines, but it won’t mean any more money into government coffers.

The other big announcement leads to further splintering of the market. Allowing liquor in grocery stores, no matter how it is done, will not lead to any greater revenues for the province or any increased sales for suppliers. It just means that there are more places for consumers to buy booze.

I truly hope that the quality of liquor retailing in BC will improve and I hope that these changes will instill a spirit of continued improvement, however these changes will not change the fact that we pay the highest prices in the country, and it is certain, that they will only mean the pie is divided in more ways.

I would love to hear your comments and feedback so please engage.

I will also be writing a piece specific to Wholesale Pricing so look for that.

May Quality Be Ever In Your Glass

The DorkUncorked.

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.

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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