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August 03, 2005
Absolut Ripoff
David Olive gave the anti-LCBO privatization can one last desperate kick in Sunday's Star. His arguments are as follows:
1. The LCBO is successful:
The current LCBO has emerged in the past decade as one of the savviest marketers in the country, inviting comparisons to Starbucks and Gap with its snazzy store designs, and to Loblaw Cos. Ltd. for its mix of suburban and downtown superstores, inner-city boutique outlets and so-called "agency" stores in remote locations, run by private operators — all tailored to the needs of varying clienteles.
Despite a 50-year decline in per capita alcohol consumption across North America, the LCBO has boosted its sales 106 per cent in the past decade, to $3.5 billion in fiscal 2004, and almost doubled its dividend to the Ontario treasury, to a record $1.1 billion last year.
Acting anything like a monopoly in its paranoia about rivals [What rivals? –ed.] — including the smugglers who account for about 15 per cent of the $8 billion booze business in Ontario [Oh, good grief. –ed.] — the LCBO has made inroads against the Beer Store by stocking a wide range of exotic imported brews. It monitors prices in New York, Michigan and Ohio to cut down on losses to cross-border shopping. And it has crammed its emporiums with CDs, crystal decanters, wine glasses, candles and books to exploit every square inch of selling space, and used in-store cooking and product-demo seminars to build customer loyalty.
In other words: incumbency. This misses the point entirely. I think the dominant pro-competition argument could be phrased as follows: Because there needn't be any social or economic costs associated with doing so, because it's ideologically sound, and because it will increase consumer choice, alcoholic beverages should be treated like any other controlled substance — tobacco, for instance — and distributed by the private sector. That the LCBO is successful isn't a counterargument — it's just tangential.
Monopolized industries are not the norm in Canada, after all, and the movement is noticeably away from them. Indeed, I might ask: If Starbucks, the Gap and Loblaws are so all-fired great, why doesn't the Ontario government grant them coffee, casual wear and grocery monopolies, respectively? Because that would be stupid? Well, precisely. Incumbency, even successful incumbency, does not excuse the stupid situation in which Ontario consumers continue to find themselves.
2. Privatization doesn't do what it purports to.
Was Dalton McGuinty, as reluctant to give up this cash cow as Mike Harris, who reneged on a campaign vow to privatize the LCBO, simply "drunk with power," asked a Toronto tabloid newspaper columnist. But the same scribe conceded that a 750-millilitre bottle of Absolut was priced at $24 in Ontario, and $24.01 in Alberta, the only province to completely privatize booze sales.
Okay, first of all: a bottle of Absolut does not cost the same thing everywhere in Alberta. Wild, innit? That's on account of this whole competition thing we've been talking about. And secondly, if you're paying $24 for your bottle in Alberta, you needn't be. OK Liquor will send you on your way with a smile, and only $21.95 worse for wear.
And later:
The price gaps between Alberta retailers and their state-owned peers elsewhere in Canada is [sic] not as wide as privatization advocates in Wild Rose Country forecast back in 1993.
This sleight of hand lacks sleight, I'm afraid. Who cares what "privatization advocates" said a bottle would cost? The price gap is plenty wide — sometimes gaping — and no one in Alberta wants to go back.
3. The LCBO should not be privatized because of its "almost ridiculous array of often contradictory responsibilities," which include, most notably, "bolster[ing] the Ontario treasury with ever-increasing sales while, like the Ontario Lottery and Gaming Corp., discouraging excessive consumption of its products." There's no "almost about it." In an ostensibly capitalist society like Ontario's, that is flaming, gold-standard ridiculous. And the ridiculousness of a government organization's mandate should not be an argument for its continued existence, surely, but rather for the divvying up of said mandate into non-ridiculous sub-mandates: i.e., private enterprise handles every single goddamn thing except regulation and enforcement, which is handled by the government.
4. The old "urban vs. rural" chestnut:
Selection in Alberta warehouse-type outlets is indeed greater than even some of the largest LCBO stores, but this is a distinctly urban phenomenon. Even the LCBO's critics concede that it provides a wider selection in small-town outlets in Stratford and Pickle Lake than Alberta's private operators do in Medicine Hat and Canmore.
I concede no such thing. The situation vis-à-vis urban vs. rural selection in Ontario is precisely analogous to that in Alberta. Why? Because, as Olive just finished telling us, the LCBO runs a successful business, and you can't run a successful business trying to hawk the same $40 vintages in Pickle Lake as you do at Yonge and Summerhill. Indeed, when your monopoly starts acting like a successful private business, I'd say it's all grown up and ready to move out.
(As an aside, I'm wondering if David Olive has ever even been to Alberta. Canmore is an upscale resort town whose liquor selection would blow Pickle Lake's clear across Hudson Bay. Medicine Hat, meanwhile, is a city of more than 50,000 people, nearly double Stratford's and Pickle Lake's put together.)
5. Alberta takes in more alcohol revenue than Ontario.
True, Alberta's $214 per capita in alcohol revenues in fiscal 2001-02 outpaced Ontario's $131 — a function of the LCBO's higher-cost union labour but also its heavy reinvestment in store expansion and upgrading.
Wait, what the hell? I appreciate the help and all, but I thought this article was fundamentally skeptical of privatization. Olive concludes:
About 12 seconds after the first Mac's Milk tucked a discrete display of Beaujolais in the soft-drink aisle, Ontarians would marvel that there ever had been a fuss about such an inconsequential bit of progress. Getting to that point, however, will require two things conspicuously absent in the debate over the LCBO's current mandate: A much more impressive, quantifiable case for change; and a groundswell of public demand for easier access to their libations of choice.
Funnily enough, I was in a Mac's Milk this past weekend that sells beer, wine and spirits. (This is one of these "agency stores" that Olive speciously portrays as some sort of bold innovation rather than the attempt to nip this groundswell in the bud that it is.) And he's right — it's all perfectly sane, except for one thing: everything costs exactly the same there as it does a half-hour down the road at the Beer Store. That's utterly nonsensical, a needless subsidy for rural drinkers that rural gasoline-guzzlers and food-eaters don't expect, deserve, or receive.
There is no need to experiment with half-measures. Ontarians are not so different from Albertans that we can't look at the unbridled success that privatization has been out west and reasonably conclude that the same would happen here. The case for change could not be more impressive or quantifiable, especially since the only case being made for the status quo is that it's, well, the status quo. Similarly, I'm pretty sick of being told in the midst of ranting and raving against the LCBO/Beer Store duopoly that there's no public demand for privatization. There is. Talk to the 30-odd people in line every night 10 minutes before closing time at the Dupont & Palmerston Beer Store, David Olive. They'll tell you, and you'll have to clean it up before it makes its way into the Star.
(And with that, this one-trick pony promises to try to lay off the booze-themed postings for a while.)
Posted by Chris Selley at August 3, 2005 12:11 AM
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Comments
Good deconstruction of Olive's argument.
I have to admit that the Beer Store has always bothered me more than the LCBO. However much I might disagree with the LCBO I guess I can see a point, historically and otherwise, with having gov't alcohol sales, though I disagree and it's likely tax revenues would go up if the sales were privatized.
While the Beer Store is a private monopoly owned primarily by two foreign companies, one American and the other Belgium. Why do we in Ontario put up with that?
Posted by: wsam at August 3, 2005 09:21 AM
I suppose the argument that the LCBO is some tiger of liquor retailing sort of falls down in light of the fact that people are anxious to -you know- compete against them. Most good capitalists will try to avoid going head-to-head with a superior competitor.
A good post, Chris - unfortunately, there seems to be a never-ending supply of apologists for Provincial liquor monopolies.
Cheers,
Dean
Posted by: DCardno at August 3, 2005 11:33 AM
WHat about the liquor suppliers? On which side are all the wine agents and multi-national liquor companies? My hunch is they are against privatization as it means more work on their part.
Posted by: Anonymous at August 3, 2005 11:53 AM
Suppliers don't have more work (at least in Alberta) since the province still regulates the whole enchillada.
Specifically, the Province still buys all the booze from manufacturers. They then store it in approved privately-owned warehouses and set the wholesale price by factoring in the manufacturer's cost, federal taxes, recycling and deposit costs, and the AGLC "flat markup". Private retailers then buy it at this wholesale price and then sell it for whatever they want.
The Province, then, gets the revenue from the "flat markup".
The "flat markup" is set according to a fixed schedule.
Their website is actually pretty comprehensive.
Posted by: sacamano at August 3, 2005 12:57 PM
Nice stuff. It seems criminal to have to go to a special designated place simply to buy beer. I'm from Montreal and am really hoping you can toppled that monopoly so the pressure against our own spirit government monopoly also takes some heat.
Posted by: megaforce at August 3, 2005 09:11 PM
[Second attempt to post: first attempt saw a server error.]
I'm getting tired of reminding folks that privatisation has nothing to do with competition.
They are 100% separate concepts.
How much does it take before folks start understanding that? Clearly, it hasn't been understood yet.
And that's completely separate again from the question of who is going to employ the 17-year-old who just got fired from Mac's Milk.
Posted by: Anonymous at August 4, 2005 03:21 AM
Maybe you'd better try to explain it one more time, Anonymous. I support privatization and competition — ideally together, but either without the other would do as a first step. As for "the question of who is going to employ the 17-year-old who just got fired from Mac's Milk," I have no idea what you're talking about.
Posted by: Chris Selley at August 4, 2005 11:13 AM
Maybe the guy who posted that is a 17 year old working at Mac's.
Posted by: megaforce at August 4, 2005 11:45 AM
Oh I see. Because Mac's Milk would sell booze, 17-year-olds wouldn't be able to work there, is that it?
Question: how is it that 17-year-olds can work there now, seeing as you have to be 19 to smoke in Ontario?
Posted by: Chris Selley at August 4, 2005 12:01 PM
I wonder how much of this is at root an aesthetic matter. I suspect that many Ontarians fear that the end of the LCBO monopoly would mean the replacement of nice, safe suburban stores by cheap, gaudy warehouses selling acres of stacks of American canned beer. You know, the kind of place in the decaying mid-west that sells fireworks and employs fat guys carrying a shotgun behind the till.
Beyond that, there will always be people who accept the argument that because the LCBO is the largest buyer of liquor in the world, Ontario achieves the benefits of economies of scale without the need for competition.
Posted by: Spadinasaur at August 4, 2005 01:40 PM
Albertans also get the economy of scale because, as sacamano points out, there's still a gov't monopoly on alcohol importation.
The LCBO stores have a harmful effect on Ontario breweries, most of which are only available at the Beer Store. The LCBO, to "compete" against the BS, stocks a large selection of very cheap, very poor Eastern European lagers. These sub-par brewers don't have to pay for the overhead of managing a bottle-return service, because the LCBO has lobbied heavily against it for years, while local brewers do. On a recent visit to my local LCBO here in E. Ontario, I counted no less than 11 Polish, Croat and Russian lagers, and one (1) beer from a world-renowned brewer not 2 hours down the road (Unibroue). We get virtually none of the fantastic micros from PQ, BC and AB, let alone all the great Ontario beers that the BS, by virtue of its punative stocking fees for smaller brewers, fails to stock.
So lets sell that bastard child of prohibition off to the highest bidders, set a yearly target for provincial alcohol revenues to be collected quietly at the warehouse, and let the competition begin.
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