WineLaw.ca
BC LDB Privatization: Opportunity for Reform?
- Wednesday, 16 May 2012 07:52
- Written by Mark Hicken
The BC government’s decision to privatize the wholesale operations of the BC LDB (BC’s government liquor monopoly) represents an opportunity for reform of the current liquor distribution system. The project has been named the “Distribution of Liquor Project” (DLP). Information sessions on the DLP were held last week. Many aspects of the DLP remain undefined as it is using a "negotiated request for proposal" process under which the government is essentially asking companies to bid on the management of the wholesale distribution system and also to provide ideas on how to re-structure it. There is little doubt that the current system needs fixing. Here’s a summary of some of the most obvious problem areas where the DLP might provide changes.
Supply Chain Efficiencies and Delivery Times. Under the existing system, a case of wine entering BC is handled too many times as it goes through the supply chain from producer to consumer. The DLP proposes to consolidate the liquor storage warehouses with the LDB distribution warehouses, thus removing unnecessary elements of transport and warehousing from the system. This change would reduce costs within the system and be more environmentally friendly. It should also mean that product can be delivered directly from the single warehouse to the licensee, reducing delivery times and making management of stock easier for all licensees.
Control Over Imported Product. The current system requires that importers work with the LDB every time that they wish to order product into the province. This requirement means delays of days, weeks or even months while purchase orders are approved. The DLP would see the LDB entirely removed from the purchasing process. Importers could order what they want, whenever they want, without delays. In addition, the importers would own and control their product entirely at the wholesale level, restoring a more normal degree of business operations to the wholesale supply chain.
Product Selection. The current system limits the distribution of many products, in particular those wines which are exclusive or which are imported in smaller amounts ("Spec" products). Such products are currently held in warehouses to which no one has access (not even the importer), and cannot be “released” until they are ordered by a retailer or other licensee customer. Since there is no freely available listing of these products, no access to them, and since they can’t be ordered in anything but full cases, many languish in the warehouse for far too long, which drives up costs and reduces selection. This system will likely change as a result of the DLP … hopefully with a new process that will improve access to product and make ordering easier.
Conflict of Interest. The LDB has an obvious conflict of interest in the current system since it acts as the wholesaler for all licensees in the province and also runs a chain of retail stores with which the private stores compete. This conflict has been the source of many complaints over the years. The DLP changes things such that a new private operator will run the wholesale distribution business. While the new private operator will not be completely independent of the LDB … it has been stated that all wholesale customers will be treated equally and that the LDB stores will just be one of many wholesale customers of the new operator.
Wholesale Pricing. At present, BC has an unusual wholesale pricing structure for wine (and all liquor) which is based on a “backwards” method of determining wholesale pricing by using an inconsistent array of “discounts” which are based on the full retail price charged in LDB stores and which vary wildly by license type (e.g. restaurants get 0% discount, thus paying full retail price for all wine, while private retailers get between 10% and 30% off the prices of their main competitor depending upon what type of license they have). This system prevents competition and results in hospitality industry wine pricing which is way out of line with neighbouring jurisdictions. The DLP is presently silent on reform of the wholesale pricing structure, but it would make sense for government to also fix this system at the same time. The minister has previously indicated that government will do this and create a “level playing field” for all licensees. However, it remains to be seen if and how this will be accomplished. The implementation of a normal wholesale pricing system as part of the transition would likely be the most beneficial long term change that the government could make.
Retail Pricing. BC currently has very high retail prices for wine by global standards due primarily to high taxation (markups) and secondarily due to a lack of competition plus inefficiencies in the system. There is currently insufficient information to make any predictions upon the DLP's effect (if any) on retail pricing.
Competition. As in any area of business, competition generally results in lower prices. While BC has a mixed liquor retail model of government and private stores, there is very little real competition because of the wholesale pricing model described above (under which the LDB essentially controls pricing throughout the system) and because of various government policies which limit the issuance of new retail licenses. If the DLP results in changes to the wholesale pricing structure, then there might be some increased competition at the retail level. However, it seems unlikely that the government would alter the retail licensing model to issue additional licenses. On the negative side, the DLP removes competition at the level of liquor warehousing since it will replace the current system of multiple liquor storage warehouses with a single operator.
The DLP has a short time line for completion with April 2013 being the transition date to a new system. It will be interesting to see how the process develops and whether the potential for reform and improvements is realized. Let’s keep our fingers crossed.
BC Caterers Get Liquor Licensing
- Tuesday, 01 May 2012 16:10
- Written by Mark Hicken
The BC Government has announced that caterers will be granted their longstanding wish for liquor licenses: Caterers To Be Licensed to Serve Alcohol. If you are interested in the exact legislative changes that accomplish this, they are contained in the Miscellaneous Statutes Amendment Act No. 2 (2012) starting at section 30.
BC Issues RFP for Privatization of Wholesale Liquor Distribution
- Monday, 30 April 2012 16:12
- Written by Mark Hicken
The BC government has issued its RFP ("request for proposal") which relates to the the privatization of the wholesale distribution of liquor within British Columbia: NFRP: Distribution of Liquor Project. Here are a few observations following my review of the RFP (I have not reviewed the appendixes which require a signed indication of intent to bid):
- The RFP is structured such that BC would basically adopt the same wholesale distribution model that is used in Alberta (currently operated by Connect Logistics). Unlike Alberta, our retail model would still include government liquor stores.
- The BCLDB's existing "liquor warehouse program" (which has a few operators, the largest of which by far is Containerworld) coupled to the LDB distribution warehouse would be replaced with a single consolidated distribution business operated by the winning bidder. See supply chain flow chart on p.21 of the RFP.
- Agents (importers) will not have to get approval from the BCLDB to issue purchase orders. See p. 22 of the RFP.
- The BCLDB will no longer own product that is routed through the supply chain (currently it owns product routed through the LDB distribution warehouse). In the new model, the agents will own all product until it is sold to any customer (either a private licensee or a government liquor store). See p. 22 of the RFP.
- The "direct delivery" system for BC wineries will remain. See p. 22 of the RFP.
- The RFP does not deal directly with any potential changes to the wholesale pricing structure and markup system. Reform of the wholesale pricing system (and particularly the creation of a "level playing field" of wholesale prices) would probably be the most beneficial change that government could make. The responsible Minister has previously stated that this would occur: see Changes Coming to Liquor Wholesale in BC. Nevertheless, while it would make sense to tackle this issue at the same time, such changes would constitute a marked departure from past practice and it is not clear how this would be accomplished (or if it is even part of the contemplated changes).
- The "service commencement" date for the new regime is April 1, 2013 (shortly before the next fixed election date).
- The consolidated warehouse system would likely mean improvements in service for importers and licensees with faster delivery times and a more streamlined ordering process. Consumers may also see a better selection of products in the marketplace. However, it remains to be seen what, if any, effect there will be on retail pricing. In addition, it appears that there will be no competition at the wholesale warehouse level ... which means that everything is on the line for those companies that are bidding. Alberta's rationale for adopting this type of system (whether you agree or not) is contained here, particularly in the 2009 report: AGLC Industry Reviews & Studies. Washington state rejected this type of system when initiative 1183 passed in the November 2011 elections.
Update (May 8, 2012): Business in Vancouver has a story on this issue today: Logistics giant targets lucrative LDB contract.
Stop the Hypocrisy: Liquor Boards Should Support Bill C-311
- Thursday, 19 April 2012 10:03
- Written by Mark Hicken
Bill C-311, which is the Bill that would amend the Importation of Intoxicating Liquors Act, to permit the inter-provincial shipment of wine direct to consumers in limited circumstances (see earlier stories: Wine Shipping Law Reform Progress in Ottawa and Reform Process for Wine Shipping Law Begins) is progressing well at the federal level in Ottawa. The Bill received unanimous all-party support at a vote in the House of Commons Finance Committee and has also received widespread support from the public and the media. However, the Bill only has the support of a single provincial liquor board: the BC LDB. The lack of support at the provincial level is frustrating because the Bill is a very reasonable compromise aimed at modifying, in a limited way, an arcane 1928 law which prevents the free trade of wine within Canada. In most countries in the world, this problem would be inconceivable (can you imagine the French putting up with a law that prevented the shipment of wine from Bordeaux to Paris?). Even within Canada, the restrictions imposed by the law are viewed, at best, as outdated and are likely unconstitutional (see Shipping Law is Unconstitutional?).
One would hope that the other Canadian liquor boards would come around and accept the fact that the Canadian public wants this change. Indeed, the liquor boards should support this reform, if only to temper the hypocrisy of their own actions. For example, during a strike at the SAQ (Quebec's liquor board), the LCBO proudly trumpeted the growth of its own inter-provincial sales, which were illegal as soon as the customer drove across the border (see Tear Down Interprovincial Barriers to Wine and You Get My Vote). The SAQ too should not throw stones from the comfort of its glass house. About a year ago, and using the security and wealth of its monopoly government status, it purchased control of a leading U.S. online retailer J.J. Buckley in San Francisco ... which specializes in, wait for it ... the inter-state sale and shipment of wine to the American market (see La SAQ prend pied aux Etats-Unis and part 26 of the SAQ annual report). Is the SAQ happy to promote and profit from the direct to consumer market in the U.S. but would deny similar advantages to its Quebec customers from which it obtains its life blood?
And most recently, at the House of Commons Finance Committee hearings, the liquor boards collectively told Members of Parliament that the changes in the Bill were not needed because most liquor boards had changed their own policies so as to permit wine (and some other liquor) to be personally transported (but not shipped) between provinces in limited amounts. This last assertion catapults the debate into the realm of fantasy since some of these very same liquor boards were denying the legality of such actions until Terry David Mulligan made his now infamous cross-border run. In addition, and significantly, their assertion stretches the bounds of legal reality to unheard of levels: it is simply beyond the constitutional jurisdiction of a provincial liquor board to over-ride a federal criminal law using a "policy announcement" (see Rule of Law Missed by Liquor Boards on Shipping Issue).
Finally, perhaps the Premiers should consider reigning in the liquor boards on this issue ... it was recently reported that Dalton McGuinty (and other Premiers) may have violated the federal law by accepting gifts of BC wine while at a conference in Victoria and then taking them home (see Bootlegging Premiers Should Support Shipping Law Fix). Do our provincial leaders really want to be sending a message to their electorate that it is okay for them to break an arcane federal law on dubious grounds but then permit their own liquor boards to try and stop Canadians from doing something as innocuous as ordering wine from a neighbouring province?
In my view, this is a no-brainer. Provincial liquor boards should be supporting this inherently reasonable compromise and, if they drag their feet, then the various Premiers should pull rank and demand that they do so. If you agree, please contact your provincial MLAs or MPPs and tell them that you feel the same way: this Free My Grapes Take Action Page makes it easy to do so.
BC Reforms Liquor Laws for Movie Theatres
- Wednesday, 11 April 2012 12:12
- Written by Mark Hicken
The BC Government has announced that is is amending the Liquor Control & Licensing Regulation to permit liquor to be served in movie theatres. The press release is here: Movie Theatres Now Eligible for Liquor Licenses. The last attempt at addressing this issue ran into problems when it made matters worse in some respects: see Liquor Regulation Amendments.
The actual amendments are contained in Order-in-Council 217. They simply state: "...s.8 of the Liquor Control and Licensing Regulation, BC Reg. 244/2002 is amended by repealing subsections (2)(b), (2.1) and (5).". As a result, the changes remove subsection (2)(b) of section 8 of the Liquor Control and Licensing Regulation, which was the subsection that prevented the issuance of a liquor primary license to a movie theatre. They also remove subsections (2.1) and (5) of the Regulation which are the provisions related to "live event theatres" which were recently included as part of the earlier problematic effort to address the issue referred to above. The effect of these changes will be that the LCLB can now change their "policy" such that movie theatres can serve liquor. A new policy directive 12-02 (PDF) has also been issued which repeals policy directive 12-01 and largely fixes the problems that were generated earlier.