Provinces looking to alcohol sales to help budget shortfalls

Cash-strapped provincial governments are banking on Canadians' thirst. Their long-term fiscal well being depends on it.

Alcohol sales by Crown corporations pour billions into provincial coffers. Now those corporations are expanding, courting expensive tastes through glossy brochures and displays in the hopes of boosting badly needed revenue.

New numbers from the Liquor Control Board of Ontario suggest Ontarian tipplers are happy to oblige: They're drinking more. But more importantly, what they're drinking is more expensive.

If all goes according to plan, the LCBO will need to sustain or boost that growth over the next few years to help balance the province's budget by 2017-18.

In British Columbia, meanwhile, sales income has fallen – a trend the province hopes to reverse as it counts on billions in revenue from the Liquor Distribution Branch over the next few years.

Both Manitoba and Saskatchewan are projecting increases in alcohol sales revenue next year. In Prince Edward Island, where liquor sales dropped slightly in 2010-11, the government is considering opening more privately run liquor stores to maximize tourist-season revenue.

Ontario's Crown corporation raked in a net $4.7-billion in alcohol sales in 2011-12, 4.9 per cent more than the year before. That translates to a $1.6-billion dividend going into government coffers.

As part of Ontario Finance Minister Dwight Duncan's budget, the LCBO needs to make an extra $100-million in sales annually starting next year. That puts a lot of pressure on the province's drinkers and those charged with sating their thirst. The LCBO opened 13 new stores last year, and renovated two. Next year, the corporation plans to open or relocate 35 outlets – its largest expansion ever.

"The government's targets … are ambitious," said LCBO spokeswoman Julie Rosenberg. "However, LCBO has a strong track record of contributing record-breaking dividends, even during difficult economic times."

Buyers are getting pickier about what they drink. The LCBO's growth in revenue is driven by the increasing popularity of premium booze, from high-end wine to craft beer; sales of the latter – beloved brew of hipsters and pub-goers – grew nearly 45 per cent.

"Consumers are not necessarily buying more," Ms. Rosenberg noted, "they are buying better."

That shift to premium products is good news for the liquor store, but not so much for restaurants, says Brandy Giannetta, government relations manager for Ontario's Restaurant, Hotel and Motel association: When patrons spend more money on fewer drinks, it lowers profit margins, she said.

Common wisdom surmises that alcohol is counter-cyclical: Sales go up when the economy tanks. But it isn't that simple. Across Canada, alcohol sales have gone up every year since 2007 – but the pace of growth has shrunk each year, according to Statistics Canada.

In B.C., the Liquor Distribution Branch fell short of its expectations in 2010-11, making 8.6 per cent below what it had hoped for in net income, after several years of steady growth. Beer was especially hard hit, pulling in 5.8 per cent less than the year before. The province hopes to bring in $2.6-billion in net income from liquor sales by 2015.

"Beverage alcohol is a discretionary consumer product and sales are affected by economic conditions," states the Liquor Distribution Branch of B.C. in its most recent fiscal report, released in March. "Although the weak global economy has depressed sales over the past two years, there have been modest gains in recent months and we expect this trend to continue."