Wednesday, January 03, 2007

Private liquor industry gets big gift from taxpayers

VICTORIA - Forget anything under your tree. The best present this year was given to private liquor stores by the B.C. government.
And you’re generously picking up the tab. The gift will cost taxpayers more than $20 million this year and keep on growing year after year.
The government quietly offered private liquor-store owners yet another price break before Christmas, cutting the prices they will have to pay for wine, beer and other alcohol by five per cent across the board. The lower prices start Jan. 28.
Great news for the private store owners and their shareholders. The change means an extra $20 million to $25 million for them.
The Liquor Barn Income Fund, one of two big new players pushing into the B.C. industry, said the government’s largesse will mean a 10-per-cent jump in its before-tax profits. Investors and executives should be thrilled.
Not so good for the rest of us. The price cut means $20 million less revenue for the government. That’s about 4,500 knee or hip replacements that could have been done, if the government hadn’t made improving the liquor industry’s profitability a priority.
Bear with me for a primer and some history. Private stores in B.C., for reasons not entirely clear, have to buy their stock from the government’s Liquor Distribution Branch. They get the goods at a wholesale price based on a discount from government liquor store prices.
When the Liberals decided to allow private stores in 2002, they set the discount at 10 per cent below the government store retail rate.
That was supposed to be enough to let the private operators thrive. A mark-up of $1 per six-pack seemed fair.
But the government messed up the introduction of private stores. It said government stores would be closing, a big factor for private-sector investors who saw a huge opportunity.
Then ideology crashed into reality. The Liberals realized how much revenue would be lost if they got out of the business and reversed their plan. The government stores would be staying open.
Good for them, bad for the private investors.
Rich Coleman, then solicitor general, was handed the job of cleaning up the mess. He decided in 2003 that the playing field could be levelled if the government increased the private store’s discount to 12 per cent. For a store doing about $2 million in sales, that meant an extra $40,000 in profits.
Not enough, the companies said. They got another increase in the discount in 2004, to 13 per cent.
This time they really scored. The industry convinced Solicitor General John Les, responsible for liquor sales, that it needed another break from government. He agreed to increase the disocunt from 13 to 16 per cent.
The profit for a typical store will jump by $60,000, thanks to the increased discount.
Les said the owners of private liquor stores argued government stores had an unfair advantage.
And the industry convinced him that it wasn’t making enough money, creating a risk of instability, he said. “This is really an effort to make sure that we had a balanced system,” he said.
Maybe the industry will pay higher wages with some of the money, he says, or reduce prices. You can wait and see after Jan. 28.
It’s tough to see why the government felt compelled to offer a cash bonus to the industry.
The people investing in private liquor stores knew the rules, including the discount level. If their businesses aren’t as successful as they hoped, that ‘s their problem. Other people can’t run to governmen for help.
And in any case, there is no evidence that the private stores aren’t doing just fine at the current levels.
Stores aren’t closing or laying of staff. In fact, the number of private stores jumped by more than 10 per cent in the last fiscal year.
The Liquor Barn managers said last spring they expected great growth in B.C. under the old discount rate.
Why are taxpayers giving the industry a $20-million gift?
Footnote: Les said he believes government liquor stores have an unfair advantage in that they are paying less for the product. That’s tough to establish and irrelevant. The people who invested knew the rules and went ahead. Taxpayers don’t owe them any special compensation now. Liquor profits will be worth about $800 million to government this year, up barely 2.4 per cent from the previous year.

9 comments:

Anonymous said...

Support Gordon and Gordon will support you, but that doesn't necessarily apply to the ordinary citizen. we have no less than three private booze places within a mile of us, and one old provincial liquor store which is across the street from a private one. The government store suits our family just fine and the others can go broke as far as we are concerned.

Michael Brydon said...

Thanks for providing the history of our strange situation with private and government-owned liquor stores. However, your conclusions in this article seem strangely illiberal. Consider first the economics: Private stores are numerous and they compete on, among other things, price. As such, we should expect that lower costs for private retailers will be passed on to consumers as lower prices. Indeed, lower prices through competition in the private stores are not just a possibility, as you imply; they are a near certainty. And how are lower prices for consumers a problem? Is this not an indirect tax break?

The bigger question is why is the government of BC in the liquor distribution and retailing business in the first place? There are certainly other ways to recoup the social costs of alcohol consumption (the government can and does tax alcohol differently than other products). And the private sector has been much more innovative in delivering value to customers. Drive-through service, home delivery, extended and weekend hours, specialty wine stores, cold beer, credit cards payments—these are all private sector innovations. The current system poses an uneven tax on those who shop at private stores while using the legislative powers of the provincial government to put entrepreneurs at a disadvantage. You seem to malign these entrepreneurs and investors but—er—they are the primary source of our economic well-being.

The sooner our anachronistic and inefficient liquor distribution catches up with the rest of the world, the better. In the mean time, I will continue to get my wine trucked in by friends from Calgary. It is, after all, that much cheaper...

Anonymous said...

I think liquor taxes should more than this. Less alcohol is better for everyone.

Al OMUR
I-Cozum internet reklamc?l???

Guy Barry said...

I think that government involvement with off licenses is strange for me how about you?

Anonymous said...

Hi Paul
Well you got Les off his bum . Here,s is a letter in the T/C today
Les sure tries to twist thing. These guys set up shop spent a lot of money knowing the Liberals would bail them out. Poorly paid staff, poor selection, opne lots of hours. The list goes on. Just another failed program.
Monday » January 8 » 2007

It's not a gift, it's making things fair


Times Colonist


Monday, January 08, 2007


I am writing in response to the column by Paul Willcocks about the recent discount to private liquor stores.

As a key player in the tourism and hospitality sector, the liquor industry is an integral part of B.C.'s economy. Over the past few years, my government has taken a number of steps to ensure private liquor stores remain competitive. We've removed size limits and restrictions on product, allowed advertising of brands and prices, and enabled stores to relocate to better locations within communities.

Ultimately, rather than being a "gift" to the liquor industry, the increased discount to private liquor stores instead serves to further level the playing field and that's good news for consumers.

It means more selection and better prices.

John Les,

Solicitor General.

Anonymous said...

Okay, fine - get rid of the discount, and also get rid of the government-owned liquor stores! Alberta has has privately-owned liquor stores supplied by a government-owned distribution network for over a decade, and it's worked well. Consumers get better selection and better service, and the government still gets its cut of the action.

Anonymous said...

alberta does have private liquor stores just like BC. and the gopvernment sells them the booze to sell to us. But does alberta keep changing the deal as BC has been doing? But the story is all about a number of changes to the origional deal, all of which benefit the private companies. I'd like to know

Anonymous said...

What is all this talk about better prices at private liquor stores. As far as I can determine they are vastly more expensive than the government run stores (in the neighbourhood of 15-20% higher)....and quite frankly since the private stores that I have been to seem to have relatively similar prices I have never seen any real competitive price breaks for consumers in this industry.
But knowing this government they will probably raise the prices at the government stores dramatically while continuing to close more of them with the hopes of driving us to the private system thereby fulfilling their ideological mission at the common man's expense.

Anonymous said...

In Alberta, the prices were lower at first. Now, as private store owners realize they can, prices are now rising continually, except on pedestrian loss-leaders: Bud, Yellowtail, Crown Royal. Leave the liquor distribution to the government and keep the prices down and the revenue to the people. To hell with the ass-kissers who ride the lunacy of Reaganomic idiots like Gordo.