Privatization...

[JeffPorter]

I could really go for a Cantillon, right about now...

[Torontoblue]

I could really go for a Cantillon, right about now...

Now you've just made me realise I wanna go and buy a few bottles

[Derek]

Some TV coverage:

http://www.globaltvbc.com/video/privati ... hour+final

[Derek]

LDB boss Jay Chambers quits amid privatization furore

Two weeks before bidding closes to privatize B.C.'s liquor logistics, the head of the Liquor Distribution Branch has tendered his resignation.

In a memo to staff on Thursday, general manager Jay Chambers said he will be leaving July 6. He said he is leaving to become the president of the Motor Vehicle Sales Authority of B.C., the 2004-established body delegated by the province to enforce the Motor Dealer Act and Business Practices and Consumer Protection Act's sections on the sale of motor vehicles.

"It is with very mixed emotions that I have made this decision," the memo says. "Words cannot properly describe just how much I have enjoyed being the general manager of the LDB. However, I have been in this job for over 15 years and I feel that it is time for a change, both for me and the LDB."

Chambers announced chief financial officer Roger Bissoondatt would become the acting general manager until a permanent replacement is found.

"On a personal note, what I will miss most about working at the LDB is you, the great employees," continued the memo. "It has been a pleasure and privilege to work with you. The LDB was a very well-run business when I joined the company and I am very proud to say that, because of your efforts, it continues to be a very well-run business. This is a reflection of the quality of staff that work at the LDB – no individual or single department has been responsible for your success – it is a team effort."

Bidding closes June 29 for the Distribution of Liquor Project and a shortlist of one to three proponents is expected July 20.

NDP critic Shane Simpson, citing a Business in Vancouver investigation, called the process "tainted." The government has released no business plan and did not consult with industry.

Frontrunner Exel Logistics, which has the Alberta monopoly through its unit Connect Logistics, boasted in a 2009 internal memo obtained by BIV that it could use its close relationship with liquor minister Rich Coleman to influence the writing of the request for proposals. Exel hired BC Liberal-connected lobbyists Mark Jiles and Patrick Kinsella to propose changing the liquor distribution model.

Besides Exel, the bidders are ContainerWorld Forwarding Services, Centric Retail Logistics, Dimex Distribution, GL Distribution, Hillebrand Westlink, Kuehne + Nagel and Schenker of Canada.

At a May 9 industry information meeting in LDB's Vancouver headquarters, Chambers told attendees he was heading a four-person committee to select the private operator for recommendation to Treasury Board. Chambers reports to Coleman, who is a member of Treasury Board.

For the 2010-2011 fiscal year, Chambers was paid $199,847.

[atomeyes]

so...we may have an election on our hands.

i wonder if any of the parties will suggest selling the LCBO to pay off the deficit?

[icemachine]

Apparently the Conservatives teamed up with the NDP to stop the sell off of Ontario Northland. So if those two aren't willing to privatize an extremely subsidized operation I doubt there's much chance they will sell off an extremely profitable one.

[Torontoblue]

With regards to the private system in Alberta, local beer writer, Jason Foster does a good summation of the system on his blog today,
http://www.onbeer.org/2012/06/albertas- ... #more-2692:

"A few times recently I have made some observations about the positives and negatives of Alberta’s unique liquor system. Every time I do, a number of readers ask me to expand upon those passing thoughts and offer a fuller analysis of Alberta’s beer industry. I have wanted to, but they are the kind of posts that time to create – something in short supply in my life these days. However, I have finally forced fingers to keyboard to lay down a more complete analysis. Even then, I think the topic is so large that I need to break this into two parts (how many words do you want to read from me in one go, anyway?). In this post I will look at the consumer-end of the system – distribution, retail and supply. In a couple of days, I will look more closely at production rules and their consequences.

The analysis comes from a blend of hundreds of conversations with people involved at various levels of the beer industry and my own deciphering of the policy (using my day-job skills). The overview in the next couple posts will undoubtedly oversimplify, miss many important details (I am not writing a PhD Thesis here!) and overlook other factors. Such is reality. It will also spark much debate, and I am fully expecting people to tell me I am wrong. This is what happens when a beer blogger deigns to delve into politics.

Let’s start with a primer on Alberta’s beer system. In 1993, the Conservative government privatized liquor retail in the province, selling off the government stores and allowing hundreds of other operators. It also privatized warehousing, but to a private monopoly, what we now know as Connect Logistics. The government, through the AGLC, remains the official purchaser of all product, and uses Connect for distribution. All imported products must be distributed through Connect. The big three brewers (Molson, Labatt, Sleeman) have their own parallel distribution system, Brewers Distributed. And the government permitts Alberta-based producers to self-distribute, meaning they have the option of delivering themselves or using Connect (most do both). What few know is that at the same time as they implemented these rules, they altered the liquor mark-up system which had the effect of lowering prices on spirits and increasing prices on beer.

Since that time,the retail system has come to be dominated by one very large chain and a network of grocery-affiliated stores, with hundreds of small, independent operators feeding on the leftovers. Importing into Alberta is easy – essentially a two-page form and a few labeling requirements. There are no limits, no panel to decide what deserves to enter the market, no quotas. However, there is also no one ensuring your product hits store shelves. Sure, ship it into Alberta, but without a good representative (who must be licensed) it will just sit in the warehouse and rot.

What has been the result of this system, in terms of beer? I argue the following:

Alberta has the highest average beer prices in the country. I have written about this before, and there is a recent Calgary Herald piece on it. This is partly about tax rates and partly about the increased numbers of middle-men in Alberta’s system. From the wholesale rate, liquor reps mark up, Connect takes its cut and then the retailer needs their profit as well. Cost per bottle of distribution is higher in Alberta than in provinces with government-run retail.
Depending on how you look at it, Alberta either has the best beer selection in the country, or one of the worst. There are more beer SKUs (the identifier for individual products) in this province, even if you remove the 90-different ways Molson and Labatt package their same bland beer. However, you would be more likely to stumble into a mountain lion on Jasper Avenue than you would 95% of the listed beer in an average liquor store. The chains tightly manage their selection, using criteria that is more about profit margin than quality, while small mom-and-pop shops simply don’t have the shelf space. This may not matter for beer geeks who know where to go, but in terms of building a beer culture, it is not helpful.
Lack of guaranteed distribution gives a big advantage to the big brewers and their parallel system. It takes a lot of resources to reach the thousands of stores in the province. Plus, Connect is not particularly beer friendly (their warehouse isn’t even refrigerated).
The scourge of “inducements” that plagues every jurisdiction’s pubs and bars, where the operator receives a range of rewards for stocking a particular beer (freebies, discounts, expenses covered, etc.), has spread to liquor stores. While government stores clearly have their headaches, at least there is a level playing field on this front. Again: Advantage Big Boys.
Liquor stores have become low-wage service job ghettos, where disaffected young people toil until they can find something better. I have a problem with turning what were quality, well-paying jobs into minimum wage McJobs (someone scoops up the extra profit in this scenario – and it ain’t you and me), but many of you may not. But consider this. Long-term, trained, educated government store staff understand their product and can assist consumers and be a part of building a sense of beer. Not that they always do, but to be honest every time I have gone into a government Liquor store (which I have done in 7 provinces) , I have found them fairly knowledgeable and very helpful. Not so much in Alberta. Even my favourite places leave a bit to be desired in staff beer training.
Alberta has been the recipient of some of the most amazing beer on the planet. The system has, unquestioningly, produced a steady (and growing) supply of quality beer from around the world. This is a real gift. Of course, it also has had an influx of lots of crappy beer, but that is par for the course. I know even from 2002, when I was studying for my beer judge exam, that the number of classic beer style examples available in the province has grown exponentially.
Related to #6, Alberta has become a useful destination for small craft brewers to expand in a controlled fashion. The ease of entry, the lack of any minimum quantity (unlike Ontario), and the flowing of oil money make Alberta a very attractive market. It has been a real boon for Canadian brewers, like Half Pints, Phillip’s, Paddock Wood, and many others – who can’t really afford to export to government-controlled jurisdictions given their requirements and hurdles (and occasional stupid bureaucratic decisions). Alberta is simple, and you don’t have to commit to much to make some headway.

There are likely other consequences of the system, but that will do for now. Plus I think the point is made. The easy argument of “privatization has meant more beer” is far too simplistic. In any policy change, there are myriad consequences, some intended, some not. My goal is just to highlight the complexities of Alberta’s decision to privatize. It hasn’t been all lightness and goodness.

As I say this, I am well aware that many of the things I point out happen everywhere. No matter the system, the multinational corporations that run the big breweries get an advantage. They get just as much shelf space in Ontario as they do Alberta. That is because no public policy can counteract the power of economic leverage. The financial resources the big breweries can mobilize dwarfs even any kind of collective effort by smaller, craft brewers.

But, even given that reality, it is important to evaluate the direct effects of the system Alberta has implemented. Personally, I believe it has strengthened the hand of the big brewers at the expense of small brewers, and in particular Alberta-based brewers. In particular these issues trouble me: higher prices make it harder for craft to insert itself in the mainstream market; chaotic and decentralized retail creates hurdles for small players; and the creation of new dominant players (Connect, retail chains) embeds a culture of accountants-over-brewers. In general, I believe that even though the system has given us dozens of world-class beer to drink – something that I am forever grateful for – on the whole its effect has been to stifle the development of a real beer culture in Alberta. It is too hard for an average consumer to find a decent craft beer in this province, and even if they locate one, the price-point is likely too high.

But this is only part of the puzzle. Next time I will look at the producer end – production regulations, mark-up rates and import vs. export policy. I also won’t yet go into my suggestions for solutions – something many of you have asked for – as I think that needs to happen only once we have discussed the system as a whole."

[Derek]

Nice. I'm looking forward to reading the rest of his series!

[Torontoblue]

Part 2 from Jason Foster

http://www.onbeer.org/2012/06/albertas- ... em-part-ii:

"Last time (here), I started a rather stupidly ambitious plan to look at Alberta’s liquor system and offer something of an analysis – at the risk of losing readers either through boredom or political disagreeement. But mostly it has just turned out to be a much bigger job than I expected (I am feeling I needed to make someone pay me to publish a book on this stuff rather than toss it out for free on my website).

I started by looking at the retail end of things, and its effect on consumers and craft brewers. In this post I want to look at the production end, as that is a key part of the puzzle. I admit on this topic I am on less solid ground. Even though I have done my research, I have not lived the rules, like our small brewers have. So, I may be missing some nuance or complication that profoundly affects their life.

In contrast to Alberta’s liquor retail laws, which are all about “free enterprise” (except for the private monopoly part), the province’s rules for beer producers are actually more restrictive than most jurisdictions. Alberta sets a minimum capacity at start-up of 5,000 hectolitres (HL – a hectolitre is 100 litres), requires all tanks to be at least 10 HL in size, and requires a production capacity (even in the first year) of 2,600 HL. Brewpubs have different rules (requiring a minimum of 520 HL and a maximum of 10,000 HL). That is a lot of numbers that may not make a lot of sense. But we know a few things from them. First, any kind of attempt to create a nano-brewery or boutique brewery is out of the question. To start you need to have a substantial system. 5000 HL is quite small in the beer world, but it does move you into the HUNDREDS of thousands, rather than tens of thousands of initial investment. This, alone, is a problem as it shuts out what can be the most innovative and local of craft brewers.

Breweries that produce less than 20,000 Hl get a break on provincial taxes, paying about 1/5 what the big boys pay. Between 20,000 and 40,000 they pay about half. It is not the largest possible break, especially given the onerous start-up rules, but it is not insignificant. It helps in a noticeable way in keeping the price of craft beer lower. However, there are two issues with this system. First the rate is not graduated, meaning that when a brewer hits 20,001 or 40,001 Hl the cost of their ENTIRE production jumps to the higher tax rate. That makes for a very expensive extra litre. This creates the situation where small brewers can’t really afford to grow bigger. And as long as they stay small, they will never capture more than a small sliver of the market. It is an unintended consequence of the tax policy. Of course, an ambitious brewer could plan for that jump, but that takes a fair bit of capital and as we all know, capital is usually in short supply in craft breweries.

The second problem is that the 20,000 to 40,000 rate is also offered to any brewery that imports into Alberta. This is a very divisive issue. On the one hand, it gives an advantage to breweries who brew outside Alberta (often cheaper) who want access to our market. The reason it advantages them is that they don’t have to deal with Alberta’s other restrictive rules, yet they get the price break.

That said, I have also been told in no uncertain terms that the “transitional rate” (which is what the middle rate is called) and its application to imported beer is a life preserver to many small craft breweries trying to find enough market to make a profit. Paddock Wood, Yukon, DDC, Half Pints and many other amazing breweries breath a sigh of relief knowing that they are eligible for the cut rate. Without it, their beer would be about $1.20 more a six pack if they had to pay the full rate. While that doesn’t sound like much, it can make a large difference among the price-conscious beer consumer. I know that I couldn’t care less about another buck or so to get great beer, but I also know I am in the minority on this front.

This almost got banned in Alberta.

This is one of the most complex issues in Alberta’s beer system. What should we prioritize? Locally produced beer? Or small brewery beer from around the world? On the surface, I would say both, but it is quickly becoming clear to me that we can’t have both. One undermines the other. It is a tough spot.

One of the things that creates this dilemma is that Alberta has entirely open borders, as mentioned in the first part of this series. However, every other province is more restrictive, meaning it is easy for an Ontario brewery to enter Alberta, but good luck to an Alberta brewery getting into Ontario. This is not necessarily Alberta’s fault, but it remains a real problem for the men and women in Alberta trying to sell beer. I am not advocating, necessarily, for Alberta to close its borders, but we need to acknowledge the uneven playing field that Alberta’s privatization created. It has constructed a problem for Alberta’s brewers that didn’t exist before.

The final issue related to the producer side of things is that the AGLC doesn’t understand beer. No one working for them has ever been a part of the beer industry, and they don’t really get the struggles of running a small brewery. That is why they don’t enforce their anti-inducement rules, and why they throw out knee-jerk rules like last year’s short-lived ban on beer over 11.9% alcohol. A body that had some insight into the beer industry might find a way to construct policies that supported craft breweries, rather than make their life harder.

Alberta is not the easiest province to be a small brewer. I have done research in a number of provinces, and many actively try to support their local brewers (to greater or lesser effect). Nova Scotia aggressively promotes their brewers, giving them more shelf space than their sales might normally justify. B.C. guarantees regional distribution in government stores (although this system is imperfect). Manitoba has built a good relationship with their small brewers. Alberta, on the other hand, washes their hands of the struggles of craft brewers, claiming their mandate is not to promote local producers. And as a result, the advantage goes to the big players.

The set of issues related to producers is, on the surface, disconnected to consumer issues. However, you cannot analyze the parts of the system in isolation. It all fits together, meaning we need to evaluate it as a whole.

I know I promised some of my ideas for how to improve the system. I can do that, but this post has gone on too long, meaning I need to break my promise of doing this in two parts. The third part will need to focus on my ideas for how to make Alberta a better beer place. Thanks for your patience."

[Derek]

The more I hear about Alberta, the more I like the BC model.

I really hope BC doesn't sell off their distribution to the same corporation.

[Torontoblue]

Yup, the grass isn't always greener........

[boney]

Great articles from Jason Foster.

Beer production, distribution and sales are so unique to each province, it's hard to compare apples and oranges. Overall, however, I think the grass is indeed pretty green in Alberta for liquor sales and pretty damn brown for developing anything local.

I'm not sure I agree with Jason's beefs with Connect, lack of gauanteed distribution and the on-average "bland" beer selection in most stores. Honestly, the ratio of craft to macro both in terms of stores and shelf space is pretty much the same in most US states as it is in Alberta. I usually call BS on anyone who tells me "I was just in Ding Dong Nebraska and the gas station I randomly stopped in had more craft beer than most stores in Calgary". Garbage, Captain Exaggeration. Macro still rules the roost everywhere and you just need to know where to look in any city. As for limited selection stifling the growth of beer culture, I doubt that as well. Beer is social. Experimentation and exposure to craft happens through friends and shooting the shit in bars and pubs, not bottle shops. Bottle shops are the next rung in beer education when the consumer has been exposed to something new and shiney and tries to figure out where he can get a hold of that new shiney thing, and more new shiney things, hilmself.

I know I'm going to get slammed for this next point, but the lack of a refrigerated warehouse is not a big deal. Back in the day, when summer's really were hotter, I worked my fare share of warehouse jobs in Calgary and never was I in need of AC, even in August. I suspect the Connect warehouse holds the beer just fine and refigeration isn't a big issue considering the length of time the beer sits there. This is anecdotal speculation on my part, I've never been to that warehouse and I could be completely wrong.

[boney]

Haha. I'm a doof. I made my gas station comment without reading the previous 3 pages in this thread and without knowledge of what cmadd said on page 3. Let me clarify so it doesn't appear that I'm picking on anyone. I fully aknowledge that some gas stations in the US have decent beer selections. I bet those gas stations are even known to beer geeks and are frequented by such. They, however, are not the mean. There are awesome gas stations, supermarkets, liquor stores, but there are shitty gas stations, supermarkets and liquor stores. The latter always out number the former in all places. Even San Francisco and Portland.

[JeffPorter]

Thanks for posting these articles in full.

Great points, and hopefully add some perspective to the sometimes ideological discussions we have here in Ontario.

[GregClow]

Thanks for posting these articles in full.

Actually - as a writer/blogger myself, I was quite disappointed to see them posted here in full. I would've much preferred to see just links posted so Jason would get the traffic on his site that he deserves.

Either way - the articles were great, very well-written (as is all of Jason's writing) and very informative.