WatTF? – Jim Murphy

No, I don’t mean that Tony Soprano and family have moved in next door but Tony would be impressed with these guys and love a few points off the top I’m sure but as far as I can tell these enterprising criminals have no interest in cutting anyone new in on action this sweet.So here, the *bidness* as they say: Imagine you have monopoly distribution of a well established product and have maintained this monopoly for over 80 years – uncontested. Two years ago it generated $4.1 billion throwing off $1.4 billion in net income without breaking a sweat. Now when I say this cash machine runs “without breaking a sweat” what I mean is after 80 years of monopoly your “market” doesn’t expect very much in terms of product or service – almost to the point of expecting that abuse is good.  Imagine having customers that enjoy being taken advantage of!  So, the actual operational complexity is really low and any risk or effort is foisted onto your suppliers, even the local ones that are supposed to be one of the prime beneficiaries of this operation’s largesse.Want in?  No, you probably don’t.  You probably couldn’t live with yourself.  I know I couldn’t.  I mean I like making money but there’s got to be a point to it – at least some sense of pride in what your are doing.What I’m referring to is the LCBO and its low life cousin The Beer Store.The anachronistic, prohibition era  Liquor Control Board of Ontario has evolved into an inefficient, cash pig for the Canadian Federal and Ontario Provincial governments.  The really incredible part of the story here is not central government control and excess – that story is found almost every where in Canada and should be expected – but the general acceptance by the people of Ontario to be treated like fools and their willingness to sacrifice the aspiring local wineries and breweries that have struggled over decades to overcome not only the natural climate but also the political one.I don’t get it.  Its like we enjoy having second class or third rate as the only option. We must enjoy the humiliation of risking a boarder run to the US and smuggling back more than our allowed 1  bottle allotment.  And why do our immigration officials care more about what’s in our shopping bags that who we are?  Well silly question: its because to their mind we are stealing from them.Not to pull the good folks at Wine Align into a polemic like this but I was reading yet another post that spends part of its time on topic and part of its time digressing on the utter absurdity of the LCBO or the “The Beer Store”.In this post – an overview of new featured vintages – Mr. Szabo’s disappointment is really what is on display most prominently.  Disappointment because one of the worlds largest purchasers of wine and spirits just isn’t really up to the job.  They are just not all that good at it – surprise!  Imagine the person at the Service Ontario desk where you renew you driver’s license trying to figure out what vintages to buy and feature this month – its not that different.

 Admittedly, most of the best have little interest in dealing with the LCBO. I suppose you too would think twice about selling wine to Ontario and its internationally feared state monopoly. Imagine this business scenario: First, you hold back an allocation for your Ontario agent in the hopes of getting an order. Then comes the expensive shipping of samples for evaluation if the initial tender is accepted. Then you’ll wait months for the order to be confirmed, then a few more months for the order to picked up, then a couple more months for actual shipping. Then you’ll pay $125 per wine type for the mandatory LCBO lab fees (and risk the entire shipment being rejected and returned at your expense, or simply destroyed). And then, you’ll patiently wait another few months for your payment, that’s if, of course, if the shipment sells well. If it doesn’t, the LCBO might arbitrarily put it on sale without telling you or the agent and deduct the difference from your payment. And don’t forget, all the while, you have buyers lining up at your cellar door, cash in hand, to get their allocation. What would you do?On the other hand, large producers with volumes of commercial wine to sell scramble to get an audience with the LCBO. Nothing could be easier then having one large customer take a whacking shipment of your everyday plonk in one go. And, you have a ‘state guarantee’ on your payment! It’s not like the LCBO is going bankrupt anytime soon or will disappear into the shadows like some shady Shanghai dealer.No wonder we see so much average wine. 

Its like we just don’t understand the way world works.  This is not good news for producers, but actually they find other places in the world for their products – and like water, flow where the business is better.  No one is sitting on piles of excellent wine they can’t sell, they are just going to markets that deserve them. Not to Ontario.  Not to you.  You have chosen differently.  You have chosen this model.

To get a sense for how perverse our approach to alcohol sales look no further than The Beer Store.  Again, a regulated monopoly for selling beer in Ontario – retail restaurants – with the most bizarre ownership structure imaginable. Surprising to most people in Ontario, unlike the LCBO, The Beer Store is actually private.  It is owned 49% by Anheuser-Busch (yes, Budweiser), 49% Molson Coors (Molson was bought by Coors in 2005) and 1 % by Sleeman Brewery (bought by Sapporo, Japan).

So say this with me: 

100% of the legislated monopoly in beer distribution and sales in Ontario is owned by 3 foreign corporations.

It’s not that different from legislating WalMart as the only legal distributor of durable home goods.  In fact its identical.

Why in this age of advertising and retail sophistication does The Beer Store look more like a recycling centre?  Because its not a retail store at all.  The Beer Store is not interested in selling *beer*.  That would imply at least passing interest in the product and the needs of customers.  An interest in developing the tastes and appreciation for its products.  Maybe even to opening your mind to new possibilities, featuring interesting new items, or introducing you to new beers you may not know about – even some made by the 25 Ontario Craft Brewers with truly exceptional products despite being structurally segregated from their local market.  This style of business development is anathema to The Beer Store.  what the store is designed for is primarily recycling and ordering one of the top few national beer brands – and lets face it that’s not exactly the good stuff.

As reported by the Toronto Star, in 2007 the Ontario Craft Brewery association (OCB) wanted to either acquire shares in The Beer Store or be permitted to set up their own competing chain. Premier McGuinty responded by saying that his government would not even consider any application to form a competing chain, and that his government would not consider compelling The Beer Store’s shareholders to sell any shares, although some Liberal and Conservative backbenchers have said they would expect The Beer Store to at least negotiate in good faith with craft brewers who made a serious offer. The Beer Store responded by saying that it was not considering and would not consider selling shares at any price…that in the event OCB did get to set up a competing chain, they would refuse to stock their products there.  Ouch.

So to those that travel the world, say to europe, and are impressed by the varieties of local brews remember: we chose this too.  We willfully choose for Ontario to be second class with limited generic selection of over priced products.  Through our actions this is our expressed desire.

Cheers.