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.
Solicitor General Rich Coleman has added his voice to the calls for reforms to Canada\’s archaic federal law that prohibits the inter-provincial shipment of wine. In an article for the Vancouver Sun published Monday, February 28th, Okanagan Wine Culture Slams Into Prohibition-Era, Coleman describes the law as being \”silly\” and \”difficult to enforce\”. Coleman is right. This federal law is a national embarassment and should have been reformed long ago. Gordon Hamilton has a very smart discussion of the issues in this blog piece which appeared to accompany the article: Prohibition-era wine law called \”silly\” by BC Solicitor General
In a separate article, Coleman also mused about changing BC\’s wacky \”ad valorem\” markup system for wine to a flat tax system: Lobby effort grows for flat tax markup system for wine at restaurants which would also be a good idea if extended to all distribution channels. Is this wine law reform week? By the way, I have it on good authority that \”ad valorem\” is Latin for \”a formula which results in staggering tax burdens for the consumer but which is deliberately designed to be so insanely complicated that most people will not be able to understand its effects\”.
At the Forum for Women Entrepreneurs Dinner held in Vancouver last night, Premier Campbell called for an end to inter-provincial trade barriers that prevent the shipment of BC wine across Canada. As readers know, there is a promising federal initiative underway at the present time to create a national \”personal use exemption\” which would allow Canadians to order limited quantities of wine directly from a winery in another province (see the Free My Grapes website for details). Let\’s hope that BC\’s new Premier, to be elected by Liberals this weekend, will carry through on this.
The BC Liquor Distribution Branch (BCLDB) has circulated an advisory letter to a number of licensee groups indicating that it is considering forcing all licensees (private stores, restaurants, bars, etc …) to use an LDB-branded credit card for all credit purchases at the wholesale level. At the present time, licensees can use any credit card that they wish. This choice enables the licensees to use loyalty cards (such as Aeroplan cards) and accumulate large numbers of points which they can then use for business purposes such as travel or employee bonuses. The BCLDB plan would prevent licensees from doing this and would cause a considerable loss in benefits for the licensees. who are the BCLDB\’s best customers. Many licensees have contacted me on this issue and are extremely upset. The BCLDB\’s stated motivation for the change is to reduce its costs \”associated with wholesale credit card purchases\” … in other words, to make more money. In this respect, it is likely not a coincidence that the BCLDB just missed its revenue targets again and reduced its revenue targets for future years.
Health Canada is adopting new labelling rules that will require the identification of potential allergens in various food products including wine. The new regulations come into effect on August 4, 2012 but manufacturers are being encouraged to adopt compliance earlier. The rules will apply to wine and will require the identification of potential allergens used for fining in wine such as egg, milk or fish products. See this press release for more information: Changes to Enhanced Allergen Labelling Regulations.
However, it is a point of debate as to whether these allergen warnings are necessary. For additional perspective on this issue, you may wish to read this earlier Wine Spectator article which dealt with the same concerns in the U.S.: Wine Producers Struggle With Proposal to Require Allergen Warnings
Apparently, it may no longer be permissible in BC for a wine store owner or employee to conduct any business outside his wine store. The LCLB recently amended the terms and conditions of private wine stores\’ licenses to indicate that all business activities \”related directly or indirectly to the sale of liquor must be conducted inside your wine store\”. The only exception noted is for permitted advertising. It seems that the LCLB is taking a strict interpretation of this \”policy\” because they recently denied a request for a private store to set up an \”order table\” at a wine tasting event.
This policy is problematic because if taken literally, it would prevent a wine store owner from replying to a customer\’s email if he received it at home or away from the store. It would also prevent a store owner or employee from discussing business if he saw a customer in a restaurant or at a social event. At the present time, it is unclear what the objective of this new policy is but it will certainly make it more difficult for the general public to order or even talk about the ordering of wine. It also raises some serious legal issues because \”commercial expression\” has long been recognized as a right that is protected under the Canadian Charter of Rights. I do not see how LCLB \”policy\” can restrict the exercise of a protected Charter right in these circumstances!
Update: Business in Vancouver has now covered this story: LCLB policies outdated in a mobile world.
A BC Supreme Court decision released on Tuesday (Northland Properties vs. BC Liquor Control & Licensing Branch) has found that the LCLB cannot use \”policy\” to restrict its obligations to properly consider discretionary decisions made under the Act and Regs. This case dealt with an application for discretion to waive the distance requirements for the transfer of an LRS to a new location. The Regulations (s.14(6)) state that the General Manager has the discretion to waive the distance requirements without outlining specific criteria for doing so. The court found that the LCLB had improperly created restrictive \”policy\” which limited its review process to a consideration of a few factors and prevented a full and correct consideration of all the relevant factors which might warrant the exercise of that discretion.
This case deals with an important issue because it is a vital principle of law that \”policy\” must always be consistent with the statute and regulations. The statute and regulations are the law: \”policy\” cannot be implemented in a manner which modifies the law or restricts it. In my view, this case also reflects a couple of longstanding problems: 1) there is too much discretion in the Act and Regs which makes it difficult for the LCLB to properly regulate, and 2) the LRS distance requirements are not really workable in any event (as I have said before, why is the government involved in regulating the distance between private businesses?). The issue of law vs. policy will be covered in more detail at the upcoming Wine Law in British Columbia conference on March 29, 2011 (50% discount on tuition for the wine industry!).
This Wall Street Journal reports in this story (A Toast to Your Health) that new USDA dietary guidelines confirm that drinking in moderation is good for you. Of course, this is not news to wine lovers and readers of this site. However, it does have significant public policy ramifications and puts the lie to some of the alarmist claims made recently that government should raise liquor prices or prevent privatization. As the Wall Street Journal article points out, many Americans should actually be drinking a bit more in order to get the health benefits associated with moderate consumption. It\’s not rocket science to figure out that the smart public policy choice is to make sure that restrictions on alcohol specifically target people with problem consumption and not penalize those who drink responsibly and get recognized health benefits from doing so.
Two extremely well respected U.S. experts in statistical analysis have raised serious questions about the validity of the conclusions publicized in a recent study from Centre for Addictions Research (CARBC) at the University of Victoria. The study was published on January 18 and is entitled \”Privatising Liquor Sales Results in More Alcohol Related Deaths\”. The press release for the study boldy stated that private liquor stores are \”harming our health\” and trumpets a finding that there is a \”27.5 per cent increase in alcohol-related deaths for every extra private liquor store per 1,000 British Columbians\”. It then jumps to the conclusion that \”government monopolies can both reduce alcohol-related harm while increasing much-needed government revenue\”.
The U Vic study garnered a lot of initial publicity despite the fact that its conclusions seem contrary to common sense. It is relatively easy for anyone to compare the alcohol related death rates between privatized and non-privatized jurisdictions by looking at neutral government data that is readily available on the internet. For example, over the past few years, the alcohol related death rate in BC has generally been slightly higher than that in neighbouring Washington state, despite the fact that their system is almost entirely privatized for beer/wine sales and that prices for all alcohol are considerably lower (CARBC also favours raising alcohol prices in BC). Comparisons to California also raise questions about the validity of the study because their alcohol related death rates are very similar to BC\’s despite having an entirely privatized system for all alcohol sales as well as dramatically lower prices. If it was true that there should be a \”27.5 per cent increase in alcohol related deaths\” for each of those extra private liquor stores, then CA and WA should have dramatically higher alcohol related death rates, which they do not.
The U.S. article, Privatising kills! Or does it?, raises more serious questions. The authors are two prominent U.S. experts in statistical analysis, Rebecca Goldin, who has a Ph.D. from M.I.T. and Robert Lichter who has a Ph.D. from Harvard. They question the conclusions of the U Vic study by noting that the overall alcohol-related death rate in BC actually went down during the privatization expansion (which the U Vic study pretty much ignores) and that the study\’s conclusions are generated from a less reliable analysis of small geographical areas. The data from this latter analysis appears to be questionable since it is inconsistent and contains a \”poor description\” of the study\’s calculations along with bizarre results such as an indication that the opening of each additional government liquor store would actually reduce alcohol related deaths by more than 56%!!! As the authors point out \”a logical policy consequence of these findings would be to open new government liquor stores even faster than you close private stores\” which is, quite obviously, ridiculous.
The authors conclude by warning that parties to the privatization debate should be \”cautious about using a newly published scientific study as a political football\” until the questions surrounding the study are resolved. Particularly, they warn that the proper purpose of \”scholarly research is to advance debates, not stifle them\”. These latter warnings are particularly prescient in the case of the U Vic study because the study\’s conclusion that \”government monopolies can … reduce alcohol related harm\” has obvious political connotations. In my view, and as noted earlier, the CARBC study ends up with conclusions which are contrary to common sense. Perhaps its time to rethink the research?
Update: this story has now been covered by the National Post: Playing with numbers while under the influence