If you are interested in the retail side of the liquor business in BC, you may want to read this intriguing new analysis of the economics of BC\’s current government control system: British Columbia\’s Alcohol Control System: Are Government Liquor Stores Redundant? (PDF file – 325KB) This paper by two economics students at UBC argues that privatization of BC\’s current system would generate a $10.8 billion increase in net present value for BC taxpayers, equivalent to a $1 billion annual annuity. The authors argue that privatization would increase government revenue and general social welfare. Interesting food for thought!
Month: March 2011
At today\’s Canadian Wine Summit at the Vancouver Playhouse International Wine Festival, wine industry leaders called for reform of Canada\’s inter-provincial wine shipping laws. Participants agreed that the Importation of Intoxicating Liquors Act (from 1928) is \”embarrassing\” to all Canadians and should be changed. While the scope of reform was a contentious issue, all speakers at the session agreed that the law is outdated and needs to be changed. Check out the twitter hashtag #canwinesummit for additional comments. Update (2011-04-05): the discussions at the summit have now been reported in a great article by Peter Mitham in Wines & Vines: Canada\’s Wine Industry Wants a Vote.
At a briefing held last week in Vancouver, negotiators for the Canadian government and for the EU confirmed that the wine trade is one of the significant issues still to be resolved as part of the talks leading to a Canada/EU free trade agreement. The current timeline for an agreement is the end of this year. As I have written here previously, BC and Canada\’s current wine distribution and pricing system likely violates our current international trade obligations and needs to be fixed: BC Wine and Trade Agreement Trouble. This is an issue of significant interest to myself … and should also be one of concern for the industry as a whole. BC\’s current wine distribution system is long overdue for an overhaul. A concerted effort to modernize the system could also include measures which would effect a resolution of the longstanding trade problems.
This week\’s issue of Business in Vancouver has a good story on BC\’s outdated restrictions that prohibit corkage for wine in restaurants: Clark premiership could bring liquor reform (subscription required). Both of BC\’s neighbouring jurisdictions (AB & WA) permit corkage, as well as Oregon and California.
BC\’s new Premier, Christy Clark, was sworn in today along with her new cabinet. The BC liquor and wine industry has a new minister in charge of the LCLB and LDB: Shirley Bond, who has previously served in transportation, health and education. Bond is also vice-chair of the Treasury Board (Kevin Falcon, the Minister of Finance and Deputy Premier, is the chair).
I just received this official quote from BC Premier Gordon Campbell in support of the efforts to reform Canada\’s antiquated inter-provincial wine shipping restrictions:
“It’s time for Canada to remove all trade barriers between provinces. They hold us all back. We are stronger as one country. Why shouldn’t all Canadians enjoy BC wine without penalty?” – Gordon Campbell
Recently, the BC LDB announced that they had missed their revenue targets, yet again. Here are some of the past excuses: heavy snow in the winter prevented customers from getting to stores, unseasonable rainy weather in the summer affected beer sales, a general economic downturn, the new drinking driving laws, and it goes on. A recent attempt to claw back money from licensees through the forced use of LDB branded credit cards has created widespread discontent. In this context, I recently read a Wine Spectator piece which appears to provide sage pricing advice to both restaurants and the LDB.
Here\’s an edited version of the argument in the context of restaurants:
[A London restaurant recently took a look at] shelf after shelf of unsold high-end wine, the owners decided to cut the prices and make it a feature.
Why is it so hard to find the right price for wine in restaurants? Most mark up what they paid for the bottles by a standard multiplier. Three is considered normal, which results in a wine-list price double the suggested retail. In San Francisco, where I live, it\’s more like 2.5. …
[A successful restaurant] owner in Palm Desert [now] offers everything on his wine list at retail plus $5 … \”People are tired of buying a wine at Costco for 10 bucks and then seeing it for $45 at a restaurant.\”
This idea is not new, but it homes in on the biggest flaw in restaurant wine pricing—marking up expensive wines and cheap wines by the same percentage. As one frustrated wine consultant told me years ago, \”You can\’t put percentages in the bank, only dollars.\” He encouraged his clients to try an experiment: Divide their total wine revenue by the number of bottles sold in that time frame, and apply that dollar figure to every bottle in the cellar.
When you think in those terms, better wines become less expensive than they were. Inevitably, customers traded up and spent more money, because better wines were more affordable. It was a win-win.
… Make better wine more affordable, and we all might pony up for one instead of choosing something less intriguing or settling for a glass or two, just to spend fewer dollars.
Now, imagine if the same argument was modified to apply to the BC LDB:
The BC government liquor monopoly recently took a look at shelf after shelf of unsold high-end wine and decided to cut the prices.
Why was it so hard to find the right price for wine in BC liquor stores? The LDB marked up what they paid for the bottles by a standard multiplier (123%). This was considered normal, which resulted in a wine prices double or triple what they were in neighbouring Washington state.
The BCLDB now offers everything at a standard wholesale price plus a flat markup of $3 … \”People were tired of seeing a wine at Costco for 10 bucks south of the border and then seeing it for $35 at a BC store.\”
This idea is not new, but it homes in on the biggest flaw in liquor board wine pricing—marking up expensive wines and cheap wines by the same percentage. As one frustrated revenue advisor told me years ago, \”You can\’t put percentages into government revenue, only dollars.\” He encouraged the Alberta liquor board to try an experiment: Divide their total wine revenue by the number of bottles sold in that time frame, and apply that dollar figure to every bottle in the system.
When you think in those terms, better wines become less expensive than they were. Inevitably, customers traded up and spent more money, because better wines were more affordable. It was a win-win.
… Make better wine more affordable, and we all might pony up for a nice bottle instead of choosing something less intriguing or buying out of province, just to spend fewer dollars.
The minister in charge of the LDB, Rich Coleman, has recently floated the idea of switching to a flat markup for wine, similar to the Alberta system. Seems to me this is an idea that is long overdue.