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Provincial Issues - Public Safety and Solicitor General

Levelling the Playing Field for Liquor Retailing in BC (2011)

In July of 2002 the Province announced a decision to privatize the liquor industry in BC.  The accompanying news release stated that “the government brings no special talents or purpose to retailing, warehousing or distributing alcohol. Increasing opportunities for private-sector involvement will result in improved services, consumer choice and access, and better use of Liquor Distribution Board (LDB) resources.”(1) 

In the nine years since this announcement was made, the business case for such a transition has only strengthened.

The intended privatization never occurred, even though the announcement attracted individual private sector involvement.  In October 2003, the Province negotiated a contract with the BC Government and Service Employees’ Union, and in 2004, announced a reversal on their Cabinet decision, and unveiled its current approach, leaving the private sector in the lurch.

Premable
The Province holds a monopoly on the distribution, warehousing and price of liquor sales in this province.  The Liquor Distribution Act (“the Act”) gives the LDB the sole right to buy alcohol, either imported or produced in BC, and the sole right to distribute that alcohol within the province.(2)  The LDB is responsible for retail sales from all Government Liquor Stores (GLS), and for sales to private liquor stores, restaurants and bars.  However, some licensees must still buy alcohol from a GLS branch at the retail price,(3) and private liquor stores receive a 16% discount when purchasing from the LDB.(4)  Only the government truly buys wholesale from producers located in BC or abroad.

The current model pits private and government liquor stores in direct competition, with the LDB being able to out-compete any private liquor store on price.  Private stores are able to compete on hours of operation and refrigerated products, but the playing field is far from level, particularly on price and selection.

The LDB 2011/12 – 2013/14 Service Plan clearly shows the costs to government associated with being involved in the liquor distribution industry.  Operating expenses and cost of sales combine for $1.8 billion, leaving a net income for 2010 of $877.3 million dollars.(5) 

Solution
The role the LDB plays is an important one, but not best served in monopolizing distribution and retail.  By amending the Act, the LDB would be able to focus on the inherent strengths of government in the areas of public safety, regulation, revenue collection and promoting a viable BC liquor industry.  The overhead associated with retail operations, and partial costs of distribution and warehousing, would be removed.

The liquor industry in this province is disadvantaged by the government having sole right to dictate pricing in this area.  The growth of the industry, and its ability to create jobs and contribute to the provincial economy, would see a significant increase if private sector outlets were allowed true price parity and competition.  If private business sectors could purchase liquor wholesale, competition, not government policy, would dictate the price and quantities sold.  Additionally, removing the single government distribution and warehousing system would create a more nimble, responsive system that could support industry growth in line with demand.  Consumers and the private sector would both win, and government revenue would be protected and costs significantly reduced.

The revenue lost by removing LDB control from liquor retail could be generated through the income tax and licensing of new distributors, warehousers and retailers.  The Chamber recognizes that HST and these revenues alone will not cover the $877 million currently generated.  As such, any potential new liquor tax or duty collected should be collected via government’s mark up policy. This would allow:

• BC’s liquor producers to be unfettered in their expansion to meet market demands,

• retail markets to set their own competitive prices,

• end consumers the option for lower prices and product selection.

This would expand the number and range of businesses in this industry, create jobs and increase the contribution to the economy, and it would also assist the struggling on premise businesses.

The move to a HST has been fully supported by the Chamber as a boon for the provincial economy, but a few sectors have not seen the direct benefits as, for example,  those in the natural resources, oil and gas or export industries.  The HST increased the end prices for consumers in the restaurant and bar sectors by 7%.  The effect was a reported decline in revenue for the food and alcohol services sectors, with little to no way for restaurant and bar owners to combat the increased pricing and customer aversion.  One of the most straightforward ways the government can assist these two sectors of the economy is to give them the ability to purchase liquor directly from the producers at competitive prices, allow them to dictate their own retail price and give customers an incentive to support these service sectors.

THE CHAMBER RECOMMENDS

That the Provincial Government;

1. amend the Liquor Distribution Act to allow private businesses to purchase and warehouse liquor at wholesale prices directly from producers, in equal retail competition with GLS locations;

2. focus the role of the Liquor Distribution Branch on security issues such as underage consumption, public safety, regulation, revenue collection and promoting a viable and stable BC liquor industry; and

3. ensure that any new liquor tax on purchases from producers places no constraints on future industry growth and allows the retail industry to use price as a competitive tool.

Footnotes