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A Beer Store outlet in Oakville, Ontario. (Deborah Baic/The Globe and Mail)
A Beer Store outlet in Oakville, Ontario. (Deborah Baic/The Globe and Mail)

What’s a private retail monopoly worth? In the case of the Beer Store, about $400-million Add to ...

The three companies that own the Beer Store – Anheuser-Busch InBev SA, Molson Coors Brewing Co. and Sapporo Breweries Ltd. – will not say how much higher their profits or revenue are in Ontario as a result of their unusual arrangement with the province. So the Globe used the best data we could get to estimate that number ourselves.

We tried to quantify the two major benefits to owning the Beer Store.

First, the cost savings the owners get from running the entire retail, warehousing and distribution system. Simply put, pooling all those logistics results in massive economies of scale and a lot of money saved.

Second, the extra market share the owners appear to have from controlling the retail outlets. Ed Clark, the ex-banker leading the Ontario government’s asset advisory panel, argues that the Beer Store is designed to promote sales of the owners’ brands over beers made by other brewers.

Let’s look at each one in turn.

Cost savings

The Beer Store’s numbers peg retail and distribution costs in Ontario at $5.34 per 24 case of beer (or a little over $65 per hectolitre), compared to $9.06 in Quebec.

We multiplied these costs by the volume of beer sold by the owners at the Beer Store. Ontario’s costs yielded a total of $352,539,762.3232; the same calculation, but with Quebec unit costs, yielded $598,129,259.6752.

The difference between these two numbers is just under $246-million. That is the total cost savings for Beer Store owners, compared with what they would be paying if they had to pay the same unit costs as in Quebec.

For what it’s worth, we could have instead used Alberta or B.C. as comparators. Both of those provinces have higher costs than Quebec, and would have shown larger relative savings for the Beer Store.

Market share

The Beer Store’s annual sales -- minus sales taxes -- came to $2.5-billion in 2013 (the most recent figure available.) Beer Store owners’ share of sales is 80 per cent, which yields a total take of $2-billion.

By comparison, their market share at the LCBO is 74 per cent. Mr. Clark attributed that six per cent gap to the owners’ ability to “create programs and structures” at the Beer Store that favour their own products. Better display for owner brands, for instance. Craft brewers complain that even the set-up of most Beer Stores, where the beer is hidden behind a wall, hurts their sales because customers are less likely to discover and try new brands.

That six per cent additional market share represents $150-million to the owners.

The grand total and the alternative method

The cost savings ($246-million) added to the higher market share ($150-million) gives a total of $396-million in extra revenue for Beer Store owners as a result of their monopoly.

It’s worth mentioning here that there may be a different way to calculate this.

University of Waterloo economist Anindya Sen contends that the Beer Store owners benefit from higher beer prices in Ontario than in Quebec. His analysis of beer prices found that La Belle Province’s suds are, on average, six per cent cheaper than Ontario’s. In a paper for the C.D. Howe Institute last summer, he used this price difference as a starting point to estimate that the Beer Store pulls in $452-million extra because of its monopoly status. If you subtract 20 per cent, for non-owner brewers, you’re left with $362-million for the owners.

Two different methodologies, but both reveal similar hauls.

The dispute over price

The Beer Store’s owners, however, contend their average prices are actually lower than Quebec’s and that Mr. Sen’s estimates are incorrect. They also say that Ontario’s higher taxes mean the federal and provincial governments take more from beer sales than the brewers do.

In effect, they argue, the money they save is passed on to government and consumers, not pocketed by the owners.

“The efficiency benefit of the system is going to the government with high tax and consumers with low price,” said Jeff Newton, president of the lobby group that represents the owners.

The Beer Store’s data on Quebec, it’s worth noting, is not comprehensive. Those numbers, from AC Nielsen, take into account several supermarket chains, but exclude about 60 per cent of the market, including convenience stores.

The non-disclosure

The Beer Store owners could, of course, settle this question by releasing details on their profits in Ontario compared to Quebec and other jurisdictions. Citing commercial sensitivity, they declined.

“Much of the information you have requested (e.g. individual brewer profits and costs by market) is commercially confidential to individual companies and is not disclosed,” Mr. Newton wrote in an email.

We received similar responses from the three companies individually when we approached them directly.

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Follow on Twitter: @adrianmorrow

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