Yesterday’s Toronto Star article, The Beer Store’s secret sweetheart deal with the LCBO revealed, triggered a lot of Tweets and a lot of non-plussed reactions from bloggers and journalists who follow the issue. Here’s why the document revealed in the article is significant.
Yes, I have seen with my own eyes that the LCBO does not carry 24 packs of beer, so that wasn’t really news. Sure, LCBO locations aren’t really built to have pallets of beer sitting around. Probably at room temperature. But ceding the market to the Beer Store on these stock keeping units (SKUs) doesn’t simply forgo revenue from the popular package sizes. It makes another part of the Framework document more significant:
“BRI will continue to sell to licensees all beer SKU’s sold in Beer Stores; the LCBO will continue to sell licensees beer SKU’s sold exclusively by the LCBO.“
While this is mentioned briefly in the Star article, it bears expanding. By agreeing not to sell 24 packs, the LCBO gives away the massive licensee channel (bars and restaurants) to the Beer Store. Licensees buy popular beer brands in 24 packs, and because of this deal, they can only buy them at the Beer Store. And unlike most other inputs to a restaurant’s business, like food and napkins, they don’t get a wholesale price. In fact, licensees pay more than the retail price. According to a March 2014 document we obtained while researching Straight Up, bars and restaurants pay $45.75 for a two-four of Coors Light. On the Beer Store website today, that two-four goes for $33.95.
We have found no public document about how high licensee markups can go, and whether there is any Government oversight of the Beer Store’s interactions with licensees or any other part of their operation.
According to James Rilett of Restaurants Canada, an industry association representing the food service industry, there are more than 33,000 restaurants, bars, and caterers in Ontario, representing about $26 billion in annual sales. For a full-service restaurant, alcohol accounts for about 20% of their sales. For your standard sports bar where Bud and Coors Light are guzzled in front of flat screens, the proportion is even higher.
So, the licensee channel seems to be worth hundreds of millions, if not billions, for the Beer Store. And, according to comments from former LCBO Chair Andy Brandt in the Star article, the Conservative government of the day forced the LCBO hand it over to them. Then the Liberals maintained the agreement.
Why would they do that? Is it really campaign contributions and persistent lobbying? Is it so easy to buy the government of 16M people?
Footnote: We submitted a freedom of information request to the LCBO to obtain the Framework document mentioned in the Star article more than eight months ago. The LCBO approved the release of the document, but a “third party” appealed its release.
Check it out here.
Straight Up will be released for free streaming on November 13, 2014 in partnership with the Ontario craft beer blog Mom ‘n Hops!