Why We Need to Reform the BCLDB and Privatize Liquor in British Columbia
The recent open letter written by Jake Skakun for Scout, and the subsequent debate in the comments, has convinced me it is time to write this post in outright support of reform of the British Columbia Liquor Distribution Branch (the “BCLDB”) and privatization of the liquor distribution system in the province.
In this article I will argue that privatization will produce higher tax revenues, a superior liquor distribution system, better selection, better prices, better service and a better wine culture in British Columbia.
I have no affiliations with anyone in the liquor industry and am a completely independent voice in this debate.
The BCLDB is an Affront to Basic Legal Principles
As a lawyer who has a degree of experience dealing with government agencies, I must say that the BC Liquor Distribution Branch may be the most obfuscated body in the entire BC government. It routinely violates principles of administrative law that include open access to information, transparency and fair hearings and decisions. Its markup system underhandedly violates principles of tax law by effectively taxing liquor 123% without requiring a vote in the legislature (i.e. taxation without representation).
Consensus in the legal community across Canada is that the BCLDB (and all provincial liquor monopolies) violate the Canadian Constitution by restricting interprovincial shipments of alcohol. Nearly identical restrictions in U.S. states have been deemed unconstitutional in the US by the United States Supreme Court. The clause in the U.S. constitution that restricts these practices is similar to the clause at issue in the Canadian constitution.
Reforming the BCLDB will Increase Tax Revenues
Internal audits of the retail operations of the BCLDB have revealed (1) that retail operations cost the government $300 million and (2) that sales of liquor at the BCLDB are declining whereas sales at private liquor stores are increasing.
Eliminating the retail operations of the BCLDB would produce the following results:
1. Save the government $300 million a year in operations costs. This would cost unionized workers their jobs, but it is not the government’s duty to pay shelf stockers $20+/hour. Do you think your tax dollars should pay union staff without any knowledge or respect for the products they sell? What value add is that?
2. Increase tax revenues. Not only would the government save $300 million a year in operating costs, it would still receive tax revenue from all the products sold in the province. Given that private retail sales are increasing, this will result in increased revenues. I will examine why private retail sales are increasing and BCLDB sales decreasing in a future section. In hard economic times it is better to increase revenue rather than lose revenue in order to prop up an antiquated union.
3. Level the playing field. Right now the BCLDB is the wholesaler, regulator and main retailer in the province. In other words, it governs its competitors and controls the flow of products to its competitors. This has resulted in anti-competetive practices. For example, the BCLDB regularly takes shipments of wine intended for private stores and puts them in their own stores. The BCLDB regularly short ships product and takes no responsibility for it. The BCLDB has exempted itself from liquor safety inspectors while the private sector is not exempt. By getting out of the retail game, the BCLDB will not have the incentive to distort the market to its advantage.
It is not just the BCLDB’s retail operations that are problematic. The wholesale operations produce huge problems. The system is setup to make it difficult to obtain products that are not “listed” items – i.e. items the BCLDB has chosen to carry at its stores. Most of the interesting wines in the province are “spec” or “special order” items, which require a case purchase.
Further, wholesalers are afraid to bring product into the province that is not “listed” but is only “spec” or “special order” because it is harder to sell this product due to the regulatory restrictions governing it. This means less selection, a topic I address below. It also means a distorted distribution system controlled by the BCLDB buyers.
One retail operation’s buyers are therefore impacting and restricting the entire wholesale system for all retail operations in the province.
Additionally, all product must go through a government bonded warehouse. This process can take months. If an agent wants product for Christmas season, they have to order it months ahead of time and have inventory sitting around in the government warehouse in hopes it will be purchased. They cannot take as many risks with this business model because of the sheer amount of inventory they are required to carry.
Agents (importers) are also not allowed to access their own product. Only the retailers can access the agent’s product once they decide to purchase it. So wholesalers are effectively cut off from their own inventory.
Further, storage conditions are not guaranteed at this warehouse, which for any specialist merchant is a nightmare of breaking the chain of provenance. Top retailers in the U.S. and Europe would never accept this practice.
Lastly, restaurants cannot order directly from importers/agents, but must order at retail prices through the BCLDB retail stores. They can then apply for a minimal tax benefit after the fact.
Privatization of the wholesale side of liquor would:
1. Create a more efficient distribution system. Agent/Importers would be able to create more nimble business operations and operate on greater margins, increasing revenue, increasing jobs and increasing taxes paid.
2. Allow retailers and restaurants to obtain the product they want when they want. This means both retailers and restaurants could decrease their on hand inventory, creating better business models and increasing the likelihood of a successful business. Small business, employees and tax collectors all win in this situation.
3. Protect the Provenance of Artisanal Products. Provenance is key to ensuring that artisanal products do not spoil. If importers could ensure the quality of the warehouse in which they store their products, this will decrease the amount of damage to the wine and other liquor – such as dried out corks and heat damage. Again, this is a fundamental aspect to any fine liquor operation anywhere in the world.
I would add the caveat that any private wholesale system would have to be set up to avoid the problems encountered in the U.S. where a small number of wholesalers dominate the market. Of course, it is telling that even with this problem the U.S. has better selection, better prices, and better service.
The province is plagued with poor selection compared to our neighbours to the south who have a privatized retail and wholesale system. By way of comparison I looked at the selection of Rhone and Alsace wines at the entire BCLDB chain compared to a top retail store in San Francisco (K&L) and a top retail store in Manhattan (Astor). K&L has 223 wines from the Rhone in stock and 40 from Alsace. Astor has 87 wines from the Rhone currently in stock and 34 from Alsace. The BCLDB is 119 wines from the Rhone and 28 from Alsace in stock across 200 stores. Astor has 1 store and K&L has 3. If you compare the number of Rhone or Alsace wines available in just one major city in the US like SF or NYC, it will far surpass the BCLDB. Even single stores best the entire provincial liquor system for selection.
Go onto the K&L website, or for a broader perspective try wine searcher, and look at the 2000+ wines available from California at various price points. Most of those don’t make it into BC. Let’s consider top CA producers that are not at any BCLDB outlets: Alban, Sine Qua Non, Pax, Saxum, Turley, Harlan, Colgin, Kapscandy, Corrison, Beckmen, Ojai, Line Collado, Philip Togni, Spottswoode, Sean Thackrey etc. etc. If you can find these wines in BC they are at private stores. In California you can either get on a mailing list, go to a auction service like Vinfolio, or simply go to a store like K&L on the release date. There are 0 California wines at the BCLDB that you can’t get in California. The top California wines the BCLDB carries – Ridge, Shafer, Dominus, etc. – are all available easily in San Francisco at grocery stores or an average retail shop. That’s not good selection.
Manhattan and San Francisco have dozens of wine stores selling great wines across the city and have developed wine stores suited to appeal to different niches of consumers (e.g. Terroir SF, Chambers Street Wine NYC). Right now, because of BCLDB retail operations and restrictions on private licenses, there are very few niche private stores in BC. It is impossible for new niche stores to develop because the distribution system severely restricts the kinds of products they can stock.
Only one store in BC (Marquis Wine Cellars) has the ability to source its own wines on its own wine buying trips to Europe. In San Francisco or New York, this is the norm. Some of the world’s best importers operate out of retail operations in the US. For example, Kermit Lynch, North Berkeley Wine in Berkeley, and Chambers Street Wine in Manhattan.
Given that the BCLDB retail operation costs $300 million, and given that private stores are selling more wine per capita over time, if we privatized we could reduce the level of taxation and increase tax revenue at the same time. This would result in better prices, which would increase sales and offer better quality wines for the average individual who doesn’t want to spend over $20 a bottle.
By way of example, at the recent premium spirits release at the BCLDB, Ridgemont Reserve Bourbon was sold for $75. It is $33 at Astor and K&L. When I lived down in Berkeley I regularly bought California wines for 50% of what they cost in BC. To continue my example from the selection argument, Pax is $45 a bottle in CA, it is $150 here (recently discounted to $90 because it cannot sell). I could get Ridge zins for $25 at a grocery store in Berkeley. They are $50 a bottle here and only available at one of the 3 signature stores.
I could also go to my favourite beer store and choose from 600 different beers, sample them in store, and pay about $6 for a 22oz bottle of amazing beer that is (1) unavailable in BC and (2) if it were available would cost $12. Another example is the Deschuttes Jubel ale that just came into the province at $30 retail. I can buy it for $10-$12 in the US at multiple retail outlets.
I can best illustrate the problems in service at the BCLDB with an example.
I am not in the industry, but I have personally seen small restaurant and store buyers turned away in the BCLDB stores to keep stock in for the ‘real customers’. This appears to be some sort of pretend solidarity with the proletariat everyday worker. There are many arguments against this practice. However, I have a simple contrast to highlight the hypocracy. When a large steak house in downtown Vancouver went out of business, it returned all its wine stock to the BCLDB. The staff at the then Thurlow and Alberni store were supposed to price discount this wine at 30% and put it on the floor for ‘everyday customers’ to buy – since all of us ultimately own the system it makes sense to let a wide array of customers buy this sort of stock. These were all high end American wines.
However, the staff was ‘too busy’ to put the stock on the floor for a couple days and when the large Italian Kitchen conglomerate came in with an offer to buy all the wine at discount in one swoop, the BCLDB workers thought ‘hey that’s easier than tagging all these wines and putting them on the floor’. The result? Lost revenue for the BCLDB for selling all the wines at a huge discount to a restaurant that would sell the wines to customers for the regular price. Do I blame Italian Kitchen? No – they had a rare opportunity to actually buy wines at a discount and make margins. But the BCLDB employees’ lazyness won out over their supposed principles this time out. And the BCLDB failed in its role to manage the product of a bankrupt licensee and find the best bidder for the liquidated assets. Pretty much no one wins in that situation.
Let us not forget that the average BCLDB employee has close to no knowledge about the products they are selling and the supermarket style shopping experience at most BCLDB outlets. To see how privatization would create better service overall in the city, all one has to do is go into a great wine store in any city in the US to see how it should be done or one of the better private stores here in Vancouver like Marquis or Kits wine.
Service isn’t just about good floor staff, it is also about a good events and promotions program.
The BCLDB has no way of informing customers of new product arriving in the store other than brief website updates with give random new wines listed, even though they get in 100’s of new products regularly. They run tastings with plastic glasses. At the premium spirits release the BCLDB was pouring $200 bourbons and scotches into 1-inch diameter plastic cups. This is mandated by regulation. That neither respects the spirit or the customer.
It is impossible to buy tickets to BCLDB events online and there are very few events run at all. Compare this to the LCBO (Ontario’s liquor monopoly) events and seminars where people are actually taught something about wine or Marquis Wine’s wine maker dinners and you realize that the BCLDB is not interested in educating consumers or building wine culture. They don’t even have a regular tasting tower in their biggest stores (compare this to the LCBO Summerhill store in downtown Toronto where I got my first tastes of great wine for $1 a glass at their regular tasting tower and $4 a glass at their special weekend premium wine tastings.)
All of this (added to the inane regulatory system – which you can read about on Mark Hicken’s winelaw.ca website) amount to an industry where ideas come to die. Imagine any other industry where ideas and creativity are stifled to support a broken system that doesn’t make anyone happy except for the overpaid shelf stockers. Other examples of Canadian lack of competition like this include the telecommunications industry (how long did it take to get a cell phone competitor in Canada? – prices are still 2x the US) and the dairy industry (go to seattle and revel in their vast selection of French, Spanish and Italian cheese that our milk board prevents from entering canada for fear of competing with the big canadian dairies), etc.
How do we make this happen? The liquor industry needs to step up and give us all a platform on which to sign on. But what we can do as consumers is to talk about the issue with our friends, spread knowledge and information and whenever possible complain to the BCLDB and to our MLA. Big movements usually begin with small steps.
Are we, as Canadians, content with a few large corporations benefiting and small businesses suffering? Are we content with compromised tax revenues, poor prices and selection and mind numbingly bad service?
We will forever remain the nanny state if we prop up this sort of mentality. I, for one, prefer innovation and entrepreneurialism over sameness and bureaucracy. Let us make our province a destination for innovators and investors in wine and liquor. Let us privatize.
NB: I’ve moved this section to the end to highlight that I am not listing my credentials as an argument in thesmelves, but as noted, merely by way of background and for context.
By way of background, I am a lawyer here in Vancouver, British Columbia, with a Juris Doctor from the University of British Columbia. I have also previously worked as a law clerk for the British Columbia Court of Appeal, spent half a year as a visiting scholar at UC Berkeley’s Boalt law school, hold a Master’s degree, and have published several articles on social theory, property law and environmental law. I have written this blog for three years and have developed a robust knowledge of the liquor distribution system in British Columbia and the United States during that time. I have also got to meet a large number of members in the liquor industry in BC, Washington and California and heard their stories. As per my legal training, I have also verified all the facts upon which this argument is based and I have done my own legal research to understand how the system works.
I have no affiliations with anyone in the liquor industry and am a completely independent voice in this debate.
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