BC Liquor Law Reform: What is it All About?
I have been reading the comments in the Scout comment thread under Jake Skakun’s Privatization article and I feel that many people in the BCLDB reform/privatization debate are missing the issue or just don’t understand why so many people in the industry and who have spent time learning about these things are so frustrated with the system. In this article I would like to pull things back to reality and focus on why this debate started in the first place.
The question about privatizing or reforming liquor regulations in BC does not require us to start debating large scale political economy, of which there are dozens upon dozens of perspectives and approaches. Some arguments I’ve read say that privatizing BC Liquor will lead to less safety because all unregulated industries are unsafe. Despite attempts to do so, certainly no one can rationally claim that liquor regulation reform in B.C. is related to lax mining regulation in Chile or elsewhere that benefits private companies over the safety of employees. What matters isn’t some big question about privatization generally in all industries everywhere, but really just about whether it makes sense to privatize (or at least reform) in this particular industry in this particular province.
Whether or not privatization makes sense must be understood from a number of perspectives: tax dollars, consumers, business owners, restaurants, sommeliers, wineries, etc. It is not about business owners vs. union workers. This debate is also not about class – that’s a complete red herring that has led to irrational arguments from all ‘sides’ of this debate. Rather, the debate is about fairness.
To take a big view here, the main problem is the simple one that the regulator is a competitor and therefore is in a conflict of interest. Most of the problems with the BCLDB stem from this conflict of interest. Privatization is one way to remove this conflict of interest and allow the regulator to regulate the industry the way it is supposed to. No other regulatory system in BC works like this because such systems are generally seen to be contrary to natural justice.
This conflict of interest has created a huge number of problems that have created detriments to each of the groups I listed above: consumers, restaurants, sommeliers, BC wineries, and business owners. The BCLDB’s conflict of interest harms each of these groups differently, but it is consistent in negatively impacting each of these groups.
I will go through each group and list some ways that the BCLCB’s conflict of interest impacts them:
1. Consumers have less selection, cannot pay corkage in restaurants, cannot bring wine back with them from vacation (note Alberta only charges a flat $3/bottle in duty for casual importers coming back from vacation), and cannot buy wine direct from wineries outside BC. All of this is effectively a control by the BCLDB on some basic economic freedoms that all consumers should have.
2. Restaurants: Because restaurants do not get wholesale prices, restaurants cannot operate with alcohol margins that are at all similar to any other major city in the world. As I’ve recently learned, most restaurants in BC have to operate at a 45% cost margin. Some go to 50%, a very few push it at 35%. Internationally most restaurants are at 35%. It is harder to keep restaurants open in B.C. and to run good wine programs because of the unfair practice of not allowing restaurants to have wholesale prices.
Additionally, restaurants cannot order directly from importers and private stores, vastly reducing selection and impacting business relationships. Prices are dictated by the BCLDB so restaurants cannot effectively negotiate special deals or more dynamic business relationships. This stilts the industry because the BCLDB does not want competition in an area where it could not compete: service and specialization.
3. Sommeliers: Sommeliers cannot develop good wine programs or take risks because their margins are too low. They cannot split cases of special orders with sommeliers at other restaurants, even though the BCLDB would make the same amount of money from the sale. Why can’t they share costs and make this sort of business relationship? This is another irrational rule. Sommeliers leave Vancouver when they get to a certain level because no restaurant here can afford to pay the good ones to stay. They simply do not make enough money off of developing challenging and extensive wine programs.
4. BC Wineries: If BC wineries want to sell their wine at the BCLDB, they have to take a huge discount hit. The required discount is so high that most BC wineries would not be able to survive by selling their wines through the BCLDB. This means they have to either go through private stores, restaurants or sell direct. So far this has worked ok, but the market is getting more saturated. Wineries need as many sales outlets as possible. The BCLDB rules don’t allow this.
It is illegal for wineries to set up off-site tasting rooms, say in Vancouver. Most other wine regions in the world have off-site tasting rooms. This helps promote the wines. Why is this illegal in BC? Does the government not want to support the industries within its own province? Is it viewing BC wineries as competition to its own BCLDB sales? This makes no sense and is fundamentally unfair and shows a large lack of foresight.
5. Business Owners: Let’s forget about the big corporations. They are actually doing quite well in the current market because the BCLDB structure supports big corporations by buying wines with high sales volumes. The BCLDB is far less interested in small businesses because they cannot stock all their stores uniformly with such products. Thus, the BCLDB will stack case upon case of yellow tail and oyster bay wines (which are basically products that deplete the soils and destroy the environment where they are grown), but they will not bring in that many wines from tiny guys growing interesting biodynamic wines. Who is bringing in these wines to the province? Private wine stores with passionate owners.
Right now it is impossible for a wannabe small business owner to pursue their love and passion and start a small wine shop dedicated to, say, biodynamic Italian Wine, or something like that. The regulations make it impossible to afford or obtain a licence and operate with margins reasonable enough for small businesses (which, remember, often require higher margins than the big retailers who can afford the hit much more given economies of scale).
Private stores (mostly) cannot source their own products, like they do in so many other places. Small business owners also cannot afford to navigate the minefield of BC wine regulations, which can require legal counsel. Small guys can’t afford that. The business model for small businesses in liquor is pretty much an impossible one in B.C. Thus, the winners are the very few big companies that get their high volume products listed in the BCLDB or use large scale corporate economies of scale business models. Why do the top 10 agents in B.C. get 80% of the profits from wine sales in the province? The BCLDB makes that possible. Thus, contrary to what many may believe or what appears to be the case on the surface, the BCLDB policies and regulations actually make it harder, not easier, for small businesses to survive. Those same policies support large companies and huge scale wineries.
The conflict of interest is that the BCLDB wants tax dollars, but they are making consumer’s choices for them because of their particular vision of how to sell wine. The BCLDB is not equipped to create the nuanced choices that become available in an open and private market. They also have no interest in doing so. That is pretty darn unfair.
There are many more arguments, but I just wanted to clarify the problem as the discussion has gone way off course from my perspective. Privatization is one solution, but it is not the only possible solution. The main question is how do we fix this conflict of interest and make the sale of liquor in B.C. more fair? Everything flows from that.
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