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.

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