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An LCBO outlet in downtown Toronto in this photo from Dec. 14, 2012. According to Ontario’s Auditor General, the LCBO has ‘the lowest overall beverage alcohol retail prices of all Canadian liquor jurisdictions, with the third-lowest prices for spirits and beer, and the lowest wine prices.’ (Fred Lum/The Globe and Mail)
An LCBO outlet in downtown Toronto in this photo from Dec. 14, 2012. According to Ontario’s Auditor General, the LCBO has ‘the lowest overall beverage alcohol retail prices of all Canadian liquor jurisdictions, with the third-lowest prices for spirits and beer, and the lowest wine prices.’ (Fred Lum/The Globe and Mail)

Privatization

Booze in supermarkets isn’t going to end Ontario’s liquor monopoly Add to ...

Ontario’s Progressive Conservative leader Tim Hudak wants Ontario to “consider all options for increasing choice and competition” in alcohol sales. That includes the sale or partial sale of Liquor Control Board of Ontario (LCBO) stores, ending the Beer Store monopoly, and allowing sales in corner or grocery stores.

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Many Ontarians have felt the frustration of being unable to buy a bottle of wine at 5 p.m. on Sunday because the local LCBO is closed, or of losing an hour of their day trekking to the Beer Store and back. Editorial writers are advocating reform, as are lobby groups -- for example, the Ontario Convenience Stores Association with its FreeOurBeer campaign.

The Liberal government has felt the pressure for more access, and has responded by launching a new pilot project that will set up new LCBO “express outlets” in existing grocery stores.

The only reason to oppose putting liquor outlets in grocery stores is a belief that shopping for alcohol should be as inconvenient as possible. In Alberta, which has a private retail distribution system, the most successful liquor stores are the ones located next to supermarkets (paper here). There is every reason to expect that the same will be true in Ontario. But even if the new express outlets are a success, the calls for change will continue.

First, shopping hours will remain an issue. As long as the outlets are operated by dedicated LCBO employees it will not be cost effective to have them open at 11 p.m. on a Tuesday night or 7 a.m. on a Sunday morning.

Second, grocery store outlets are convenient for suburbanites with cars. Canada’s heaviest drinking demographic is 20-to-34-year-old males. An increasing number of young men don’t have cars (or even driver's licences). It’s possible to balance a six-pack on bicycle handlebars, or schlep it on the public transit, but that is no substitute for being able to buy beer at the local corner store. Mr. Hudak will continue to push for liberalized liquor sales if he sees it as vote-winner with key conservative demographics.

Finally, there is too much money at stake for the issue of expanded liquor sales to ever go away. LCBO employees are paid well above standard retail wages. Casual employees start at $14.94 per hour and can earn up to $20.27. A grade three liquor store clerk – one of the lowest paid LCBO employees – starts at $22.65 per hour (these figures are from pages 79 through 81 of the Liquor Board Employees Union collective agreement). If a private company was able to open liquor stores, pay their workers the minimum wage rate and charge LCBO-level prices, they could convert millions of dollars worth of expenses – i.e. wages -- into profits. As long as that profit opportunity exists, the pressure to privatize the LCBO, or at least allow other firms to enter the market, will continue.

But would a transformed liquor distribution system benefit consumers? Actually, according to Ontario’s Auditor General, the LCBO has “the lowest overall beverage alcohol retail prices of all Canadian liquor jurisdictions, with the third-lowest prices for spirits and beer, and the lowest wine prices.” Despite these low prices, it still generates net earnings of over $1.6-billion per year. Because the LCBO is a government enterprise, these earnings go directly to the Ontario government, and contribute significantly to the province’s finances. By way of contrast, the privately owned-and-operated Beer Store actually operates at a loss, according to the most recent financial statement available. (Given the lack of competition in the Ontario beer market, this must take some planning).

The reason why the LCBO is profitable, despite paying relative high wages and charging relatively low prices, is that it has little excess capacity. Ontario has fewer retail liquor outlets per capita than any other Canadian province. Even though LCBO workers are well paid, because each LCBO outlet has such high volume, the labour cost per bottle sold is still reasonably low. Moreover, because the LCBO purchases and sells so much alcohol, it is in a position to negotiate lower prices from distributors (though it has not always done so), and pass those cost savings onto consumers in the form of lower prices, or to Ontario citizens, in the form of a greater contribution to government revenues. It’s not a perfect system, but it has its advantages.

Mr. Hudak is advocating choice in alcohol sales. Yet choice is not just about having more options. It’s about making hard trade-offs: between cost and convenience; between protecting government revenues and increasing competition; between serving Ontario consumers and preventing alcohol abuse.

Frances Woolley is a professor of economics at Carleton University

Follow on Twitter: @franceswoolley

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