Policy & Positions Manual
Provincial Issues - Public Safety and Solicitor General
Liquor Reform Policy (2010)
The Chamber believes that competitive markets, where various vendors can ensure efficiency by competing on an open-basis, best serve the needs of British Columbia’s businesses and consumers. If private businesses are obligated to compete with government-run entities, those government-run entities should not be able to abuse their privileges to distort competition.
However, the province’s Liquor Distribution Branch (LDB) is not only a government-run vendor of alcohol, but it is also the entity that can unilaterally set the terms of the industry. The LDB, as the monopolist in terms of sourcing for retailers, sets the wholesale prices for retailers, often at a rate far above what the LDB itself pays. Unlike other provincial-government influenced sectors, such as ferries or hydro, there is no regulator or overseer that can limit the risk of monopoly pricing.
Independent of market trends, the LDB can also impose higher prices, through “social reference pricing” (SRP), in order to discourage drinking. However, SRP it has not necessarily been successful, as binge drinking has not exactly decreased. Consequently, while the goal of SRP has not been met, BC consumers still end up paying higher prices than in most jurisdictions.
Sometimes, the LDB also acts in a manner that abuses its dominant position. For instance, the LDB can use “cross-docking” to confiscate a retailer’s supply. The LDB can also prevent retailers from transferring stock between locations. If a retailer has a complaint about LDB practices, there is no industry regulator that can adequately respond to such complaints.
The BC Chamber believes that the current LDB model is broken, antiquated and in need of reform. While the LDB’s annual consumer visits have fallen 14% since 2004, the LDB’s operating expenses have risen 19% over the same time period. The fear is the LDB will use its price-making authority to recover its potentially inefficient operating model, making British Columbian consumers and private retailers the most impacted; paying higher than normal liquor prices.
In these tough economic times, where many private retailers and local business are trying hard to remain profitable, the Chamber believes that some of the LDB’s anti-competitive practices and potential should be curtailed.
THE CHAMBER RECOMMENDS
That the Provincial Government:
- consider introducing a new model, or reforming the current model, for liquor distribution and retail in the province that recognizes the efficiencies of a competitive free-market. Analyze and clearly communicate if it costs government more to sell liquor itself than having liquor sold through private liquor outlets;
- address the conflicting motives between distribution (revenue) and control (regulation) which currently exist by separating them under different Ministries;
- work towards reducing the distortion in price advantage that the Liquor Distribution Branch (LDB) can avail itself of. For instance, the BC Government must make a major commitment to regulating the LDB’s price-making power, in order to achieve more competitive pricing;
- consider the elimination of unnecessary limitations and practices such as “cross-docking” and the limit against retailers transferring between locations. Private retailers should also have a more robust review and appeal mechanism for complaints against the LDB;
- ensure full governance and operational transparency so that the public in British Columbia can be assured that the entity is well governed, well managed and that issues such as pricing models accurately reflect true costs; and
- review the social reference pricing (SRP) initiative and consider whether it is actually meeting government objectives. Based on the review, the BC Government should determine the future of SRP.
