There are areas where governments have no business being involved because they do such a poor job of managing them.
They’re often wasteful, with little impetus to get more efficient because there are rarely detrimental consequences, such as a company going bankrupt or a house being foreclosed on.
The best example is the retail sale of liquor in Canada, which should be left to small and medium-sized business owners (like you).
As with other provinces, all retail liquor sales in British Columbia must be purchased through the government’s Liquor Distribution Branch (LDB), which acts as the worldwide buyer and distributor for virtually all liquor sold.
The branch is the third largest “buying group” of alcohol in the world, behind Ontario’s LCBO and Québec’s Societe d’Alcools du Quebec.
They are monopolies.
Unlike some other provinces, where alcohol is only sold through government liquor stores, British Columbia has almost 700 “private” liquor stores, which are mostly small and medium-sized businesses licensed to sell liquor at retail. This system was introduced in B.C. about 10 years ago, and it allows private liquor to compete with the province’s 200 or so government outlets.
Close to 40 per cent of all retail liquor sales in B.C. are now generated at private liquor stores. (In Ontario, although there are private winery, brewery and distillery retail stores, they are deemed to be “government stores” and they are labelled as such under provincial legislation.)
How do these small private stores compete with the B.C. government liquor stores? Despite the fact they have restrictions that the government stores don’t (private stores are prohibited from moving inventory from store to store, and they have to finance the cost of their inventory), the private stores survive, in large part, because they do what all businesses do to stay alive: they become more efficient with their overhead, especially their labour costs.
While the government liquor stores pay their unionized shelf stockers and cashiers as much as $21 an hour – plus pensions and benefits – the private stores are more market driven and pay $11.50 to $12.50 an hour for, in essence, a job that involves stocking shelves and operating cash tills.
I’m all for paying people what they’re worth, but stocking shelves with liquor and operating cash registers is not worth $21 an hour.
But here’s where the public sector really blows it. I said earlier that the provincial liquor distribution branches in Canada are the largest buying groups in the world. What’s the point of being in a buying group? Well, the chief benefit is that it can use its market clout to get better prices for products and, in turn, retain those profits for itself or offer price savings to customers.
Getting a cheaper “per unit” price for product because you're part of a large buying group is one reason people want to be part of larger chains, such as franchises. It’s partly why Wal-Mart products are so inexpensive. Wal-Mart acts like a big buying group and it purchases so much, it has phenomenal economic clout in the market. Its sells for the lowest price because it buys for the lowest price.
B.C.'s liquor licensing regime has been described as “Byzantine” and the cost to buy alcohol is outrageous compared with countries like the United States. A bottle of Yellow Tail Shiraz retails at B.C.'s government liquor stores for $12.99. You can buy the same bottle of wine for $10.40 or less in Alberta and $6.50 in California.
Why the excessive price difference in B.C.? Unlike Wal-Mart, B.C.’s LDB and other provincial liquor bodies in Canada don’t negotiate price based on the volume of alcohol they purchase. They don’t negotiate volume rebates at all. The LDB actually tells suppliers of certain alcoholic products to charge more, not less, because of something called social reference pricing.
