Considering Corkage in British Columbia

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Recently there has been some discussion of the possibility that laws currently banning corkage in restaurants be repealed. In addition to a recent Business in Vancouver article on the matter, Jake Skakun wrote a piece on this at Cherries and Clay that I think it is worth responding to and augmenting. I will do so by supporting corkage based on four underlying positive benefits that will result if it is allowed. I also note that the government of B.C. would lose no tax revenue from allowing this practice. The only opponents are the restaurant industry.

1. Consumer Choice

The main benefit from allowing corkage is to increase consumer choice. Currently, consumers, and particularly wine aficionados, are limited to restricted wine lists when they dine unless they go to one of the very few establishments in the city with an extensive list. Even then, these lists are often priced out of the budget of most diners and so choice again becomes limited.

Because restaurants are restricted to purchasing wine from government liquor stores, unless they order a case or more of a particular wine, their selection is also limited by what government liquor stores sell. Consumers with a particular interest in wine, however (i.e. those most likely to use corkage), often have bottles of wine that are not available in government liquor stores, in B.C. at all, or even in external markets (if they have been cellaring wine for some time). These consumers now cannot enjoy their passion and their collections at restaurants without the private ‘ok’ of the manager or owner of that restaurant (a ‘benefit’ generally reserved for those in the industry and a few special friends of the industry). An owner takes a risk every time he or she allows this practice as it is technically illegal and could lead to a fine.

It is an obvious reality that consumer choice while dining would be improved with the legalization of corkage.

2. Enabling the market

The tricky aspect of corkage is that restaurants are afraid it will take away from their much needed alcohol revenues. Jake has made some reasonable conjectures as to why this might not be so in his article; however, I will make a slightly more first principles argument here.

One of the big questions in our society is the extent to which government should regulate a market. It is naive to think that markets can or should exist without regulation – this sort of free enterprisism has long proven untenable. Rather, the question today is how can regulation best enable and govern a market so as to make it maximally efficient and fair. Thus anti-competition laws exist to prevent the monopolization of essential services, and banking and investment laws exist to prevent fraud, etc.

It is common belief that the regulatory system for liquor in British Columbia is broken. It does not foster an efficient market nor is it fair. Corkage is but one small example of this system, but it is one that needs reform. So let’s tackle the question from the two underlying bases for regulating markets.

a. Efficient Markets

Right now, restaurants base their business models off of a particular mark up they set for their wine and liquor sales. They project the amount of liquor they will sell and multiply it by their mark up to make projections of revenue. Illegal corkage eliminates one factor in this equation and thus makes it simpler. It could be argued, then, that corkage makes the restaurant industry more efficient in projecting revenue by eliminating an uncontrollable unknown.

On the other hand, markets do not operate only on the supply side. On the demand side, consumers face reduced efficiency when dining out because they are forced to pay full restaurant mark ups. Their access to the market is restricted by the restaurant’s choice of beverage. The government further restricts this access by forcing restaurants to buy at full retail from government liquor stores and forcing restaurants to commit to at least a case of any spec wine not listed in a government store. Consumers have increased their efficiency and market access for their own personal consumption by going to private stores and bringing wine across the border. However, the combination of government rules governing restaurants limits this increase in efficiency to private events and private consumption. Thus, no corkage actually makes dining out less efficient, particularly for wine lovers.

I know for a fact that wine aficionados will often choose to stay home and drink wine rather than go out or when they do go out will choose not to buy wine at the restaurant because a) it is not what they want and b) the price is too high compared to a private retail store.

If corkage were allowed, this would open the market to greater efficiencies that would allow new business models to succeed. Some old business models that relied on the demand side inefficiencies in the market might have to reconsider their approach, but that does not mean that the industry will die and all restaurants will go out of business. It will simply militate in favour of different business models. It will also prompt restaurants to build better lists or innovative programs that cannot be duplicated by bringing your own bottle.

However, there is certainly risk for restaurants in Vancouver if corkage were allowed. In his article Jake suggests that in San Francisco, where corkage is a regular phenomenon, diners don’t overwhelm restaurants with their own bottles. However, in San Francisco, restaurants receive a wholesale discount, which makes their wine list prices more reasonable compared to retail prices vs. Vancouver. Unless thought through carefully, some Vancouver restaurants would likely suffer, particularly if knowledge of corkage became common place.

Despite this, I still believe that the demand side inefficiencies need correction and that the supply side gains by banning corkage do not outweigh the demand side gains of allowing corkage. This combined with an incentive for innovation on the supply side is a strong argument in favour of corkage.

b. Fairness

Regulation is also about fairness. Markets aren’t just about money, they are also about distribution and a fair society. Restaurants and wine lists are pretty low on the list of concerns for regulating society, but fairness still plays a role here. Is it fair for the government to restrict consumer choice and enjoyment because (they claim) the restaurant industry wants them to?

First, while I know many in the industry are against corkage, there are those who are not. The industry is not entirely unified on this issue. Should those who are willing to innovate be punished for deviating from the status quo?

Second, the government of B.C. represents all British Columbians and all industries. No one wants to see restaurants fail. That said, there is no reasonable rationale to restrict restaurants from allowing consumers to bring their own wine. Legalizing corkage would not force restaurants to allow it. In fact, in Toronto when corkage was legalized very few restaurants initially offered it, and it became somewhat of a niche thing. This would likely also happen in Vancouver. This likely slow transition would allow restaurants to adapt to the change over time and eventually open up. I do not think that restaurants will face a rush of people demanding that they bring their wine in for $10-$20 or they won’t dine. Vancouverites simply care too much about good food to do that.

It is not fair for the government to restrict restaurants from offering a service that consumers want simply on the basis of a perceived fear that consumer demand might change the industry. Equivalents in other industries (e.g. telecoms) have prevented consumer choice and fair pricing for years.

3. Industry Contradictions

By fighting corkage the restaurant industry is undermining its attempts to achieve other reform. Consumers in British Columbia will find it a lot harder to support reforms that would allow restaurants to receive wholesale pricing, to buy from private stores, or to buy spec wines by the bottle if that same industry fights corkage. This is precisely the image that the restaurant industry wants to avoid because it will alienate the very people they need to support them in their efforts for reforms that will matter far more to them.

Wholesale pricing would increase revenues to an extent far beyond any perceived loss that would occur as the result of corkage. By acting in a contradictory fashion, the restaurant industry risks undermining these efforts and eroding consumer’s faith in their honesty and commitment to good service and value for the consumer.

4. Fine Wine Culture

Corkage exists in every city with a strong fine wine culture. I think the French would revolt if this were taken away – Montreal would lose its vivacity as a city for fine wine and food. Corkage prompts wine lovers to share their great bottles with friends in one of the city’s great restaurants. There is no greater pleasure than getting together with some friends and each contributing to a dinner prepared by one of the city’s great chefs. It fosters culture and appreciation.

The local wine industry would benefit from this practice. Yes currently many restaurants carry B.C. wines, including many of the harder to find ones. But it is inconceivable that a province with a vibrant wine industry has illegalized corkage. This would be sacrilege in Napa Valley, which seems to have been pretty good at understanding marketing and fostering appreciation. If consumers could bring back wine they purchased on their holidays to their favourite restaurants in Vancouver and relive some of those moments – well, that would mimic precisely what has made San Francisco such a hub for wine in the United States. Surely B.C. and Vancouver wants to create these sorts of touristic moments for locals and visitors alike?

Conclusion

Restaurants don’t look that good by standing in the way of legalizing corkage. In fact, I’d argue they look just about as draconian and old school as the bureaucracy they decry so often. I understand their concerns, but surely the answer isn’t to cower in fear behind an outmoded law? How can our province and the wine industry ever progress when these sorts of attitudes predominate? I challenge restaurants to consider the larger ramifications of their position against corkage and to see business opportunities rather than lost profits. In fact, why not argue that if corkage is allowed, restaurants should also receive a wholesale discount? The government will certainly balk at any reduced revenues, but consistency is absolutely fundamental to any reform of the liquor system in B.C. Beginning this process on a negative note by arguing against corkage is certainly not the way to change this province’s regulations for the better.

Comments

  1. Craig
    March 18, 2011

    First of all, corkage is not the armageddon of liquor sales in BC. Those that think so need to get out and explore the world of dynamic wine cultures as nearby as Alberta. One only needs to look at how it works in Alberta.

    – if corkage is legalized, that doesn’t mean every restaurant must participate. Furthermore, they set their own corkage fees. Free Sundays, sometimes, or $30, or none at all – it’s all done.
    – people will dine out more often. Plain and simple. Once corkage is adopted (and it takes a comfort level, people walking in with wine), people will be less reticent to stay home because wine eats up such a big part of a bill.
    – less than 20% of customers will ever actually bring their own wine. Go to Alberta. Go to the best restaurants and even those that offer free corkage. Less than 1 in 10 tables have people with their own wine. More often than not, it’s a way for large groups to go out for dinner more economically -and that business is surely welcomed.

    My feeling is this: corkage fees should offset what is otherwise a reasonable mark-up on an average bottle of wine. If a $25 dollar bottle is being marked up double, and corkage is $25, then the restaurant makes the same margin and pays zero storage costs.

    It’s a brain-dead way to grow the wine culture in BC, grow restaurant business and earn loyalty amongst customers (for those that participate). Again, go to Alberta – Calgary’s River Cafe has free corkage Sundays: what is otherwise an expensive restaurant becomes a lot busier on Sundays, and a great deal more attainable when I can bring my own wine in. I’m sure they love the business.

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