| |
Posted Jul 7, 2008, 12:13 AM
|
 |
I'm just joking.
|
|
Join Date: Sep 2007
Location: Ottawa
Posts: 1,176
|
|
|
Ontario's Beer Monopoly
Quote:
BAD BREW: Part Ia
TheStar.com | GTA | The real reason your beer costs more than it should
The real reason your beer costs more than it should
http://www.thestar.com/Business/article/454836
Dana Flavelle
Business Reporter
Imagine a store where most of the products are kept in the back.
You order from the cashier. The products can't be sold below a legislated minimum price. And the overwhelming majority are made by one of three large companies, which also own the store.
In Ontario, that is how $2.5 billion worth of beer is sold each year.
Surprisingly, few consumers know this is the set-up.
On a sunny Friday afternoon, shoppers outside The Beer Store at Bayview and Eglinton were surprised to learn the government doesn't own the store. Some said they'd like to see beer sold in corner stores, for convenience, and said they hope competition would lead to lower prices.
"I'd like to see the price of beer go down," said Grant Skiffington, 57.
Six out of 10 people think The Beer Store is a government entity similar to the Liquor Control Board of Ontario, according an independent survey for a review of the distribution and sale of alcohol in Ontario.
In reality, the retail chain responsible for just over 80 per cent of beer sales in Ontario "is essentially a private monopoly" owned by the province's three largest brewers, Labatt, Molson and Sleeman, the provincial study noted.
The brewers, in turn, belong to some of the highest-grossing beer makers in the world – Belgium's InBev SA, the United States' Molson Coors Brewing Co. and Japan's Sapporo.
Analysts estimate that these foreign entities earn a combined $1 billion a year in profits in Canada, mostly in Ontario, making the province one of the most lucrative beer markets in the world.
And Ontario's beer consumers pay the freight, with higher prices, less choice and lack of convenience, the Beverage Alcohol System Review concluded three years ago.
The review recommended opening beer sales to competition. But Ontario's government decided against sweeping changes.
So little has changed.
A 24-pack of popular brands, such as Coors Light, is regularly priced at $36.95 in Ontario, at least 25 per cent more than in such markets as Quebec and New York State, where beer is almost always on sale.
The brewers who own The Beer Store argue that taxes account for much of the difference in prices, and say the chain is one of the most efficient, environmentally friendly, socially responsible beer-marketing systems in the world.
Moreover, the brewers say they uphold the founding principles of what was originally a co-operative, ensuring access to all brewers and brands.
But many smaller brewers, restaurant operators and convenience store owners say that it's time the province took a closer look at how beer is sold in Ontario.
In 1927, at the close of Prohibition, Brewers Warehousing Co. Ltd. was founded as a brewers' co-operative.
The provincial government retained control of the sale of wine and spirits through the LCBO, but beer, with its lower alcohol content, could be distributed by the hundreds of mom-and-pop breweries.
Initially, the brewers were involved only in wholesale operations, jointly warehousing and distributing their product to stores operated by private contractors.
But in 1940, the brewers bought out the contractors and took over the stores, changing their name to Brewers Retail Inc. The stores were later renamed The Beer Store.
Along the way, Canada's beer industry changed dramatically. Governments signed trade agreements in the 1990s that removed barriers to beer sales between provinces and countries. The Beer Store began selling imported beer, which the LCBO had carried for years. For a while, competition increased.
Successive waves of consolidation – in the 1950s and 1960s, then again in the 1990s – saw ownership of the beer industry shrink to the current handful of multinationals.
The Beer Store ended up in the hands of some of the world's largest brewers. Government oversight dwindled to a handful of regulations related to public safety.
Beer prices soared.
"I can't believe we let that go on," says Chris Wilcox, general manager of Quickie Convenience Stores, based in Ottawa. "How does this province legislate two (or three) foreign-owned multinationals to run the manufacturing, distribution and the retail network for beer in this province? ... That's like telling Ford and General Motors, `You're the only two companies that can sell cars in this province.'"
Convenience store operators have long wanted to take over beer and wine sales, partly to help offset declining sales of tobacco.
Restaurant, bar and hotel owners, would love to be able to sell booze for "off-premise" consumption.
"What we question is the total lack of transparency at The Beer Store. They are not beholden to anyone. There's no real overseer," says Syd Girling, strategic issues and research manager at the Ontario Restaurant Hotel & Motel Association.
But successive governments have been loath to privatize sales of booze, fearing it could lead to more crime, drunkenness, underage drinking and other public ills.
BAD BREW: Part Ib
TheStar.com | Business | Cornering the beer market
http://www.thestar.com/Business/article/454722
Dana Flavelle
BUSINESS REPORTER
Every week, says Chris Wilcox, his neighbour in Ottawa drives over the bridge to Gatineau, Que., to buy a case of beer at the Costco warehouse.
Why? Because he can get 24 bottles of Coors Light, or any other popular premium brand, for just $28.20, including taxes and deposit. That's a savings of nearly $9 a case over the regular price of the same brand in Ontario, or the equivalent of 25 per cent off.
Wilcox pays close attention to his neighbour's beer-buying habits. As general manager of Quickie Convenience, which owns stores on both sides of the border, he's intimately familiar with the differences in rules and regulations governing beer prices and sales.
In Quebec, his stores can sell beer and wine in competition with other retailers, such as Costco. In Ontario, that's not allowed.
Instead, most beer in Ontario is sold through The Beer Store, a private company owned by the province's three largest brewers, Labatt, Molson and Sleeman. They, in turn, belong to some of the biggest multinational beer makers in the world – Belgium's InBev SA, America's Molson Coors Brewing Co. and Japan's Sapporo Brewing.
Together, they control a chain of stores that accounts for $2.5 billion in sales – or roughly 80 per cent of Ontario's beer market.
In Wilcox's view, that amounts to a privately owned, government-sanctioned near-monopoly over beer distribution in Ontario. And that, he says, is the main reason prices are higher in Ontario than Quebec, where the free market rules.
"We literally have blocks of cars driving over from Ontario to buy Quebec beer because it's cheaper," Wilcox says.
The Ontario Convenience Stores Association has for years been lobbying the provincial government for the right to sell beer and wine in corner stores, saying it would be cheaper and more convenient for consumers. It would also help corner-store owners cope with sagging demand for tobacco and chocolate bars.
Ontario's bar and restaurant owners also want a piece of that action, saying the current set-up leaves them at the mercy of their biggest suppliers.
"I get complaints constantly from our members that the price of Labatt Blue or Coors Light just went up. You never hear about them going down," says Syd Girling, spokesperson for the Ontario Restaurant, Hotel & Motel Association. "The Beer Store is supposed to be non-profit. It's supposed to be a co-operative. But when you have two major shareholders they can set the policies to their particular advantage."
The Beer Store won't, for example, ever offer bars and restaurants the same kind of long-weekend deals they sometimes offer ordinary consumers, such as cases of 28 beer for the price of 24. Nor will The Beer Store accept credit-card payments from licensees: "They say it's too expensive for them. And why would they? We're a captive market."
Ontario's small, innovative craft brewers say they, too, have issues with some of The Beer Store's policies and practices.
The owners of The Beer Store, in Ontario, defend the chain, saying it's one of the most efficient, socially responsible, environmentally friendly retailers in the world.
Prices are higher in Ontario because the province levies higher taxes on beer, according to the association that speaks for The Beer Store's owners, and the market is highly competitive.
In Quebec, provincial commodity taxes are $3.47 per case, while in Ontario they add up to $5.99, notes Jeff Newton, president of the central and eastern division of Canada's National Brewers, which represents the three companies that own The Beer Store. As well, in Quebec, the provincial sales tax on beer is just 7.5 per cent, whereas in Ontario it's 12 per cent.
Despite this, prices in Ontario are competitive, says Newton. Many brands in Ontario sell for as little as $26.40, including taxes and deposit, he notes. These "value" brands (mainly Lakeport, which is now owned by Labatt) are not the same brands as the ones on sale in Quebec, Newton concedes, but they are proof the system works.
"I think it's inappropriate and misleading to look at one pricing example on one brand. A brewer may sell certain brands in The Beer Store at $34.55 (plus deposit) but they also sell many other brands at or around $24 a case (plus deposit)," Newton explains.
"Given that Ontario's tax rate is so much higher than Quebec's, I continue to believe that it's a reasonable position to say that The Beer Store's low costs are an important factor in Ontario beer consumers having access to competitively priced beer."
But Wilcox says the owners of The Beer Store just don't want to give up control of a highly profitable market.
"It has nothing to do with taxes. It has to do with competition," he says. "I can't think of another government anywhere in the developed world that would lie down and give foreign-owned multinationals a retail monopoly."
Despite, or perhaps because of, Ontario's unusual approach to beer sales, the market for discount brands has exploded, now accounting for 40 per cent of all beer sales in the province.
At the same time, sales of beer through the Liquor Control Board of Ontario, which carries mainly small packs of imports and higher priced craft brands, has soared to 20 per cent of all beer sold in the province.
In some ways, the argument over who should get to sell beer in Ontario illustrates many of the anomalies in the present set-up.
The Beer Store is not really a retailer in the conventional sense of the word.
In fact, most consumers – six out of 10 – think it's a government agency. And why wouldn't they? As a retail experience it has very little in common with most stores.
The government regulates its hours of operation and locations. Beer can be sold only to people over a certain age, and they must be charged at least $24 a case, a legal minimum set to discourage excessive drinking.
And as a shopping experience goes, it's efficient but relatively bland. At most locations, you go in the front door, walk up to the cashier, place your order, pay and leave. Hence its nickname, the In and Out store.
Most retailers would cringe to see customers spend so little time in their store. Indeed, most stores are designed to keep consumers shopping as long as possible, trying new products, doubling up on specials or succumbing to those high-margin items strategically placed at the cash register.
Ideally, once you leave you have nothing left to spend at a competitor's shop down the road.
Behind the scenes, the retailer calls the shots, deciding which products to carry, whether to cut prices to boost sales, negotiating volume discounts from suppliers, all in hopes of making a profit based on the difference between its costs and the prices it charges.
That's not how The Beer Store works. Due to its unique history and position in the marketplace, it runs on entirely different principles.
Every brewer in the province, whether an owner of The Beer Store or not, is guaranteed fair and equal access to its stores, Newton explains, a policy that has resulted in the chain representing 300 brands made by 75 suppliers.
Each brewer decides which stores in the chain should carry its brands. Each brewer decides what those stores will charge for its products. The price must be consistent across every store in the chain.
Each brewer pays the same "handling fee" to get on The Beer Store's shelves. The handling fee is regulated. It was set at a certain level during free trade talks between Canada and the U.S. in the early 1990s, and is allowed to rise only as much as the rate of inflation.
The fee is currently $3.48 a case.
As for profits, The Beer Store doesn't use that phrase. Newton says the stores operate on a "cost-recovery" basis, meaning the fees are supposed to cover its costs. When the fees exceed the costs, the store issues a rebate – but only to The Beer Store's owners. If costs exceed the fees, the owners make up the difference.
No one knows when or if the owners get a rebate because the privately owned chain isn't required to make that information public.
The system reflects The Beer Store's roots as a brewers' co-operative. Established after the end of Prohibition in 1927 to distribute beer in Ontario, it was originally owned by every small mom-and-pop brewer then in business.
Successive waves of industry consolidation reduced that ownership to a handful of very large players.
At the same time, free trade talks opened up Canada's market to imports, and rising prices for beer created new markets for discount and specialty products.
Ownership of the store remained in very few hands.
Critics say the present set-up is a distortion of the original concept. While paying lip service to the store's founding principles, The Beer Store's owners have become increasingly secretive about its operations.
Meanwhile, critics say the company's new multinational masters seem intent on making The Beer Store even more cost effective to operate – often at everyone else's expense.
BAD BREW: Part II
TheStar.com | Business | Express stores hurt small brewers
http://www.thestar.com/Business/article/455141
Dana Flavelle
Business Reporter
More than two decades ago, Jim Brickman had the opportunity to buy an ownership stake in The Beer Store.
Brickman says he's now kicking himself for saying "no."
The owner of Brick Brewing Co. Ltd., Ontario's biggest little brewery, says he didn't realize how important – or lucrative – membership in that exclusive club would become as time went on.
"Walk into any Beer Store. All you see is Molson, Labatt and Coors," he says, referring to the fact the most prominent brands belong to the store's two biggest owners.
Coincidence?
Brickman and other beer store critics think not.
The owners of The Beer Store say they operate one of the most efficient, cost-effective, socially responsible systems for distributing beer in the world.
They say the system remains true to its founding principles as a brewers' co-operative, ensuring fair and open access to all brewers in the province, including non-owners like Brick.
And they point to the fact many small brewers' sales through The Beer Store are growing faster than the overall market.
Sales of small Ontario non-owner brewers rose 30 per cent last year and 47 per cent the year before, according to data supplied by Canada's National Brewers. During the same period, overall beer sales through the chain rose just 1.7 per cent and 4.2 per cent, the group noted.
Canada's National Brewers represents The Beer Store owners. Labatt, a unit of Belgium-based InBev SA, and Molson Coors Brewing Co., incorporated in the U.S., own the lion's share of The Beer Store. Japan's Sapporo holds a small stake.
But some small brewers say the current structure lacks government oversight and is rife with potential conflicts of interest.
"This is a provincially sanctioned monopoly, don't forget," says John Hay, president of the 29-member Ontario Craft Brewers.
The association, formed about three years ago, represents some of the smallest brewers in the province, including Lakes of Muskoka Cottage Brewery, Black Oak, Neustadt Springs and Robert Simpson.
They operate on a shoestring, using hand-me-down equipment in low-rent facilities, yet still manage to win awards for their small-batch, handcrafted brews.
Together, they account for just 5 per cent of Ontario's $2.9-billion-a-year beer market.
"There's some unwritten understanding that they'll treat all users fairly," Hay says of the small brewers' sometimes uneasy relationship with the multinational owners of The Beer Store.
But, in practice, that's not always the case, he says.
Hay cites the rise and fall of the self-serve beer store as an example.
In conventional beer stores, most of the beer is warehoused out of sight and customers tend to order based on the ads they've seen on TV or on billboards, a structure that favours the larger brewers with massive marketing budgets.
"In a typical beer store, you have to know what you want before you go in," Hay says.
Small brewers fare better in self-serve stores where all products are on display, he says. The format levels the playing field for small brewers, who don't have big advertising budgets and rely more on packaging and catchy slogans to boost sales.
"If you're a small brewery like Great Lakes, you don't have $50 million a year to tell people about your brand," Hays says, while consumers in self-serve stores "see the package, give it a try."
But, after converting more than a quarter of its stores to a self-serve format, The Beer Store began moving back to a design that puts most beer out of sight.
Called Ice Cold Express, these new stores limit the number of brands on display, based on market share, or a brewer's willingness to pay fees for greater prominence.
"The Ice Cold Express stores are great for the owners," says Hay. "They have bigger lobbies. The cooler in the front of the store contains the top sellers. You pretty much only see the owners' brands in there."
The owners of The Beer Store say the new store format addresses the problem of how to cost-effectively handle the exploding number of new brands on the market. The chain, which can't refuse any qualified brewer access to its stores, now carries mores than 300 brands made by 75 different brewers.
In its Ice Cold Express stores, the display in the cooler is based on each brewers' market share, a system that is fair to all, the owners say.
"If we operated every store as self-serve, you'd have to have these massive big stores. The cost of selling beer would increase dramatically," says Jeff Newton, who speaks for Canada's National Brewers.
But small brewers say the new stores marginalize their brands.
They also say it's a classic example of the store's owners putting their needs ahead of the wider beer industry.
"The owners are on a mission to make their distribution system as efficient and low cost as possible for their shareholders," Hay says. "They believe the Ice Cold Express format is cheaper. I don't know because their books are all closed to us."
The new store design is just one example of the bigger problem, Hay says. The Beer Store is privately owned by a small number of very big brewers with powerful shareholders that control more than 80 per cent of the sales in Ontario.
Even the most well-intentioned operators are going to find themselves in a potential conflict of interest, Hay says.
Meanwhile, the provincial government's involvement in beer distribution is limited to ensuring the chain conforms to certain laws safeguarding the health and safety of the province's citizens, critics say.
Beer can't be sold to minors, or sold below a certain minimum price. The stores can't be located near schools or churches. They can't open before 9 a.m. or close after 11 p.m. The alcohol content of the products must be clearly labelled.
Beyond that, the owners of The Beer Store decide everything from stores' layout, to the prices they charge for special displays, or the cost of recycling non-industry standard bottles, an issue of particular relevance to Brick when it launched the Red Cap "stubby."
None of this was readily apparent to him, Brickman says, back in 1984 when Brick Brewing burst on the Canadian beer scene, the first new brewery in the province in 22 years.
In fact, Brick's arrival created a huge dilemma for the store's owners, he recalled.
Founded in 1927 at the end of Prohibition, The Beer Store was originally a brewers' co-operative in which every mom-and-pop brewer then in business had an ownership stake.
Over time, industry consolidation had reduced their numbers to half a dozen large Canadian-owned companies, and later just three very large multinational companies.
No one was even sure what to charge Brick for a stake in The Beer Store.
So, when the owners of the store offered to charge Brick the same fees they charge themselves to get on the store's shelves, he said okay. But the thing he overlooked at the time, he says, is the fact that the owners of the store get to share in any profits the store makes. As a non-owner, he doesn't get that benefit.
"We were the first on the scene. So they were grappling with what to do; what value they would put on this thing? And what to do if more brewers came into it," Brickman says. "It was easier for them to say, 'Okay, Jim, we'll charge you the same fees we're paying and you don't have to buy in.' And I thought to myself, 'If I don't have to pay $3 (million) to $4 million – I'm just picking a figure out of the air – and I get the same service fees, that might work out.'
"But the thing is, there are dividends. I mean, it's a profitable company," he added, citing figures The Beer Store used to share with anyone who sold beer through its stores. The Beer Store no longer discloses its financial results.
The owners of The Beer Store say the chain is operated on a "cost recovery basis." When the fees exceed the projected costs, the excess is returned to the store's owners in the form of a dividend. When the fees fall short, the owners pay the difference.
They also say that while there may be potential for conflicts, they don't see evidence that it's taking place. In fact, The Beer Store gave small brewers a break on the fees and other special considerations, notes the national brewers' Newton.
"There's a long list of different policies we've put in place with the craft brewers and the Ontario government to accommodate the unique needs of small brewers."
For many small brewers, the cost of buying an ownership stake in The Beer Store at this stage would be prohibitive, Newton adds. "I'd question what's the purpose of doing that? Right now, they get complete access. The same listing policies. You get all the benefits without any of the obligations."
|
I already knew most of this stuff but when I lived in Quebec for 5 weeks I started to realize how hard heavily taxed Ontarians are when they buy their beer.
|
|
|
Prev
Why do all our beer companies sell out to foreigners!!??
Lots of people in that area go there. Even after the tariff, it's a good deal. Closes than the beer stores in town.
Linear Mode
