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The government first announced the LCBO Express concept on Dec. 31, 2012.Fred Lum/The Globe and Mail

Ontario's decision to move ahead with liquor stores in large grocery outlets has sparked concerns among smaller rivals that they'll lose out to major chains.

Ontario Finance Minister Charles Sousa confirmed on Tuesday that the government was issuing a request for proposals, asking grocers to sign up to have an LCBO Express store operate in their outlet. The government will test 10 stores, selling wine, beer and liquor starting by the end of 2014.

But smaller grocers worry that big chains owned by Loblaw Cos. Ltd., Sobeys Inc. and Metro Inc. will disproportionately benefit from the plan, drawing more customers to their stores to the detriment of smaller food retailers. They said the requirement that the LCBO Express take up at least 2,000 square feet of space within a store that is at least 15,000 square feet could disqualify them or rob them of precious space for groceries.

And convenience store operators are upset that they will not get a chance to sell wine and beer after having asked to do so for years.

"We don't want the LCBO to stand for Loblaw Control Board of Ontario," said Gary Sands, vice-president of the Canadian Federation of Independent Grocers. The LCBO is the Liquor Control Board of Ontario.

Major retailers reacted positively to the LCBO Express plan, pointing out the consumer benefit. "We are interested and will pursue the opportunity," Loblaw spokesman Kevin Groh said. "It's a great supplement to the idea of grocery store convenience."

In asking large grocers to apply by May 9 to set up an LCBO Express in their outlets, Ontario is taking a tentative step toward liberalizing liquor sales and keeping at bay the proponents of privatization ahead of a possible spring election.

Other provinces are well ahead. Quebec has long permitted beer and wine to be sold in grocery and convenience stores. Alberta has privatized its entire liquor retail network, while British Columbia, which has a hybrid model, is set to allow liquor in grocery stores in the near future.

"Ontarians have been asking for greater access and convenience to buy their favourite beer, bottle of wine or spirit," Mr. Sousa said.

The Express pilot will be targeted to areas that don't currently have an LCBO outlet and grocery stores that don't already have a wine kiosk. The express outlets will have separate checkouts from the rest of the grocery store and keep the same hours as a regular LCBO store.

Asked whether the initiative hurts smaller stores, Mr. Sousa seemed to leave the door open to expanding the program to smaller retailers in the future. "We'll then be able to determine how much more access will develop thereafter," he said. "This is just a phase, this is just a first step."

Mr. Sands said he hoped that the government will be flexible about the size of eligible grocery stores and the shelf space they must devote to the outlets.

Dave Bryans, chief executive officer of the Ontario Convenience Stores Association, said research has found that there is "widespread and strong" public support for allowing private retailers to compete with the LCBO and the Beer Store. The latter is owned owned by Labatt Brewing Co. Ltd., Molson Coors Canada and Sleeman Breweries Ltd., which all have foreign parent companies.

"The elephant that's still in the room is the 87-year-old, foreign-owned Beer Store and the near monopoly it still has on beer retailing," Mr. Bryans said.

He also said he didn't have much confidence that Ontario will move to a permanent alternative model for selling liquor in grocery stores. The government first announced the LCBO Express concept on Dec. 31, 2012. "This is a miniature step when the government had a great opportunity to take a major leap," Mr. Bryans said.

Jeff Newton, president of Canada's National Brewers, which represents Labatt, Molson and Sleeman, said selling beer in smaller stores is not the most efficient business model and would drive up prices. He said the Beer Store isn't a monopoly because it doesn't block entry to any brewer, nor does it control prices.

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