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BC Issues RFP for Privatization of Wholesale Liquor Distribution

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.