In most towns and cities, the Liquor Control Board of Ontario (LCBO) operates in shopping centres, strip malls and retail outlet locations. The LCBO also has 216 locations where grocery and variety stores are co-opted in rural outlets, but has yet to do so in bigger communities. Wine has been given more freedom with chains like The Wine Shop and The Wine Rack having kiosks and small boutique outlets.
In the week of Feb. 17, the Ontario government announced it was setting aside plans for the expansion of LCBO kiosks in future grocery store test markets. It has caused a row with critics because in April 2014, the expansion plans were previously announced by that same Wynne government. For years, the LCBO privatization debate has ebbed and flowed in the public discourse. There are those who would love to see the Quebec or American style models, so let’s take stock of Ontario’s liquor situation.
There are both ideological and economic reasons for why people would like to keep the government from running businesses. The common argument is that governments cannot run businesses as efficiently or as responsive to market forces as the private sector. Where significant efficiency gains exist, it is a powerful argument. Just look at what Elon Musk’s SpaceX has done for trips to the International Space Station versus the costs NASA was experiencing.
Right now the LCBO generates both tax revenue and operational profit to be returned to provincial coffers. Under a private system there still would be sales tax generated, but profits would be dispersed to corporations and business owners (whose income is also taxed). Given how crown corporations’ profits bolster government budgets, privatization would not make sense on financial reasons alone if it wasn’t a net neutral or positive deal for the government. If net negative for the government, you could see an adjustment in liquor tax rates to make up for it.
Privatization makes sense from a selection perspective as local retailers can respond to local demand for certain brands and products. Small or craft producers would be able to find greater ability to retail their product other than through bars or restaurants where previously they couldn’t strike deals to get LCBO shelf space. What is important not to lose sight of however, is deciding whether that actually is an intractable part of the LCBO model or not. Can the smaller craft market be incorporated as a response to demand or not? Additionally, would the already popular national brands dominate a privatized location anyway?
Longer hours and increasing the one-stop shopping model is certainly attractive. Having more options within walking distance in the city is advantageous as well. For beer, there’s also only the ability to buy by the six-pack rather than the 12 to 24 case formats. From a consumer perspective, this dimension of value has increased the most under a private model. I’d caution, however, that this element doesn’t occur in a vacuum, but as a part of several factors shifting around including price. Similar to the selection criteria though, is it something that can be addressed within the LCBO model or not? I wouldn’t foresee the LCBO’ suddenly staying open really late, but aside from Sundays, is closing at 9:00 to 10:00 p.m. that inconvenient?
Labour and Social:
Privatization increases downward pressure on wages, at least versus the generally well-paying LCBO retail wages. It would also increase the qualifications the average grocery/convenience store clerk will need in order to sell it. Part of why the LCBO pays higher wages than retail counterparts is to curb the incentive to sell to minors. You would be able to cut many public sector jobs that administrate the LCBO, but that is tempered with some form of increased public service attention on the policing of private sales. So you have government administration financed by LCBO retail revenue, or taxes and fines to finance its policing/compliance once it is out of government hands. The longer hours offered by private retailers has its own issues. Midnight to 1:00 a.m. liquor or beer runs may not produce the safest roads or late night retail customers.
Believe it or not, the Ontario Government is one of the world’s largest purchasers of alcohol. We’re talking about commanding a volume price that could only likely be matched by big retail chains. Yes, the increased retail competition likely means a great price on the cheapest products and the advantage of shopping around for sales. But there are a few factors that may not translate into Ontarians accessing cheaper prices on the whole. If the government’s wholesale purchasing is dismantled (or they switch to being a wholesaler rather than retailer), will the loss of volume command (or the extra supply chain step) result in increased base costs for private retailers and therefore consumers?
Private retailers accepting smaller margins or having less labour costs help consumer prices. However, are private retailers interested in doing so if consumers are already used to current market prices – combined with the argument that the value is received in the convenience. Products like soft drinks and candy are higher priced in convenience stores relative to grocery stores because of the convenience factor, so would that transfer over to liquor and beer as well ? On the producer side, you would also have a shift in logistics and administration costs dealing with a substantial increase in the number of customers they ship to.
For as much as there are positives to privatization, and valid criticisms of the status quo, are we perhaps losing sight of how the LCBO can change to address consumer demands? There is greater room for the private sector’s involvement, but abandoning the LCBO model given its ability to adjust to demand may not be the only path to take.