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Four steps for B.C. to take to improve liquor sales

In my last column, I discussed a recent announcement by the B.C. government that it was reviewing all aspects of liquor policy in the province. It's attempting to modernize licensing while maintaining substantial revenues.

The province has since launched a website for public input on its liquor policy review. Parliamentary Secretary for Liquor Policy Reform, John Yap, is inviting British Columbians to get involved and to provide input through online discussions, on Twitter, and using blog posts and other commentary platforms. The idea is for government to "find changes to B.C.'s laws on the use and sale of beer, wine and spirits that improve customer convenience and grow B.C.'s economy, while ensuring public health and safety."

"Our government," Mr. Yap says, "has created this website to stir discussion, and to collect ideas for common-sense changes that balance consumer convenience and economic activity with public health and safety. We want to hear all of those over the next six weeks and I'm looking forward to actively engaging with people around the province through social media during that time to hear their ideas and their stories."

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There's a Twitter Townhall scheduled for Sept. 29, from 6 p.m. to 7 p.m., so that more British Columbians can provide input on the future of liquor laws in the province. Participants should use the handle @John_yap and the hashtag #bcliquor.

There's a lot of low hanging fruit when it comes to potential changes. Would anyone really have a problem with wineries having more than one tasting room? Does the province really need to restrict alcohol at outdoor festivals? Happy hours are frequent in the United States and the zombie apocalypse hasn't happened there yet, so why can't restaurants and bars have happy hours in B.C.?

These are easy issues to resolve. But there are some very complicated ones as well.

The first is the pricing formula used by the B.C. Liquor Distribution Branch (LDB), which creates some of the highest prices for alcohol in the world. The process is, to say the least, byzantine. It uses an insanely complicated formula to "mark-up" products by staggeringly high margins (117 per cent for wine, 163 per cent for spirits) and then sets backwards wholesale prices for all private licensees (in other words, all of its competitors) by allowing for small "discounts" off its own retail level prices.

It's like requiring Rona to buy all of its stock from Home Depot – and then having Rona's wholesale prices set at a small discount from Home Depot's retail prices.

Restaurants, hotels and bars are particularly hard hit by this as they don't get any wholesale discount despite being some of the LDB's best customers. This is hardly a fair system – and one that almost eliminates competition, particularly given that the private licensees generate 60 per cent of the liquor revenues for the province.

B.C. should implement a rational system of wholesale pricing of alcohol for all retail-level licensees and scrap the current model. Mark Hicken, a Vancouver-based wine industry lawyer, says "reform of B.C.'s wholesale pricing structure for liquor is probably the single most significant thing that the government could do to bring the liquor distribution system into the 21st century and to support both hospitality and liquor businesses."

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Second, B.C. is the third-largest buying group of alcohol in the world next to Ontario and Quebec's liquor boards, but it does not negotiate price with alcohol producers and distributors the way Costco, Wal-Mart or any other business negotiates with its suppliers on price. In some cases, it will require the liquor manufacturer to sell it to the LDB for a higher price!

The LDB should use its market clout to negotiate better pricing for the alcohol it purchases from manufacturers and distributors around the world. And if a wine supplier or whiskey manufacturer refuses to provide volume discounts or other rebates, then the LDB shouldn't buy anything from them until they come back to the table with a better offer. That's how you do business when you're the third largest buying group in the world.

Whether volume discounts find their way into retail liquor pricing, or are directed to social services, is a question for the politicians to determine. But the LDB needs to realize what a dominant player it is on the world stage and put its "big boy pants" on.

Third, if the province continues with a system of "government stores" and "private stores," then it should stop subsidizing the poor performing government stores. If a particular store doesn't make a profit, maybe it's time to get out of that local market and give the private sector a chance to run a retail outlet on a lower cost basis, where cashiers aren't getting $23 an hour plus benefits like they do in the government stores.

Fourth, if you listen to the open line shows that have been discussing liquor policy review and follow some of the comments in the print media, a lot of people want to buy their liquor in grocery stores, like they do in Washington and California.

I'm not sure this is as easy as people think. Would Safeway, Superstore or Save on Foods have to "redline" the alcohol aisle of their stores and prohibit all of their underage employees from entering that area or helping customers with their liquor questions? Or would they have to terminate all of their underage employees because liquor is sold on the premises? Would all Safeway or Save on Foods employees (over the age of 19, of course) have to take the "serving it right" program required for all businesses where alcohol is served?

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What do they do about teenagers and children walking down the liquor aisle? What sort of added security would be required? Would alcohol be behind a counter, like cigarettes currently are, requiring customers to buy their groceries at one till but buy their alcohol at another, making it far less convenient? The mechanics of liquor at grocery stores is very complicated.

Liquor sales in grocery stores may have an adverse effect on small business, too. Small producers, such as B.C. wineries, would likely find it hard to get shelf space in a completely deregulated environment dominated by supermarkets and big-box stores. Grocery store sales could also do potential damage to the 690 private liquor store operators who have relied on government policy to lease premises, take out bank loans and hire employees to run their small retail liquor businesses over the past decade, only to find that the Safeway next door is selling the same product at a cheaper price.

Perhaps it comes down to this: When it comes to liquor sales, would we rather have a market dominated by big players like the grocery store chains, or smaller businesses like those who currently own and run B.C.'s private liquor stores?

Tony Wilson is a franchising, licensing and intellectual property lawyer at Boughton Law Corp. in Vancouver, he is an adjunct professor at Simon Fraser University (SFU), and he is the author of two books: Manage Your Online Reputation, and Buying a Franchise in Canada. His opinions do not reflect those of the Law Society of British Columbia, SFU or any other organization.

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About the Author
Business Law Columnist

Vancouver franchise lawyer Tony Wilson practices franchising, licensing and intellectual property law. He is ranked as a leading Canadian franchise lawyer by LEXPERT and Who'sWho Legal, and he is an adjunct professor at Simon Fraser University.Mr. Wilson is head of the Franchise Law Group at Boughton Law Corp. More


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