Further Problems with BC Liquor Pricing: Ignoring the Independent Wine Stores

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Liquor pricing in BC is a big deal these days. Why? Because the BC Government is amending the ‘wholesale’ pricing formula so that all stores pay the same wholesale price. I wrote several weeks ago about the boondoggle that was the BC Government’s initial pricing formula, which would have ensured an enormous increase in prices. As a result of immense media pressure the government admitted this formula was a mistake and amended it.

Since then the government has introduced a new model, which is described well on Mark Hicken’s website. The new model means all stores will roughly pay a wholesale price equivalent to approximately 16% off of the government retail shelf price.

On March 18, 2015 the government issued an “op-ed” press release from the Attorney General that made the following claim:

The new system will see all types of liquor retailers pay the same wholesale prices for their products. We are doing away with the existing complex model which offers retailers various discounts off the government liquor store price. What we’re absolutely not doing is artificially raising prices.

In the simplest terms, under our current system, private liquor stores receive a 16% discount off the BC Liquor Store shelf price. This means that, for a $15 six-pack you’d buy at the BC Liquor Store, a private store purchases it for $12.60. That private store then marks up that price by whatever amount it sees fit to make a profit.

In the lead up to April 1, some critics are out there ‘beer mongering’, telling you that government has eliminated this 16% discount altogether and because of that, you’ll pay more at the till. This is categorically false.

The new wholesale pricing model is set almost exactly at the same level as that 16% discount that private stores currently receive and applies equally to every kind of liquor retailer – including government liquor stores.

The underlined assertions do not withstand scrutiny and, frankly, are not difficult to undermine. To understand why we have to understand the various categories of liquor stores in the province.

The three key categories of stores are government liquor stores, liquor retail stores and independent wine stores. These three types stores represent three distinct parts of the wine market.

Category 1: Government Liquor Stores: These stores are owned and operated by the BC Liquor Distribution Branch. They are not operated like private businesses because the BCLDB essentially ‘sets the rules’. For example, one benefit the government stores receive is that they can sell to restaurants and all other members of the hospitality industry. No other store types can sell to the hospitality industry. This fact remains true in the new system and is obviously unfair.

In the old system, government stores paid BCLDB’s wholesale price, which was less than half of the final shelf price. Under the new system government liquor stores will pay the same price as the other two types of stores, that is approximately 16% less than the final shelf price. If shelf prices are kept the same, these stores will be operating on margins that are very close to their operating costs. It is unclear how this will be sustainable in the long run.

Category 2: Liquor Retail Stores: These stores represent the majority of private liquor stores in the Province. They can sell spirits, beer and wine. They were first introduced only a couple decades ago when the BC Liberals opened up private liquor licenses. There is now a moratorium on these types of licenses and no more are being issued. Under the old system these stores paid 16% less than the government shelf price. As such, under the new system, they will be paying a similar wholesale price so the government’s claim is true vis-a-vis this category of store. These stores tend to be based on convenience and serve local customers, though a few are larger and designed to appeal to a larger subset of consumers.

Category 3: Independent Wine Stores: These stores are a highly distinct part of the market. There are only 12. They were originally founded over 25 years ago in 1986 as the first private stores in the Province that could only sell limited BC products. Since then, particularly in response to NAFTA, these stores have become THE hub for the wine industry in BC and sell the widest variety of rare, important and sought after international wine. They also sell a wide variety of BC wine. They include: Kitsilano Wine Cellars, Dundarave Wine Cellars, Marquis Wine Cellers, Liberty Wine, Everything Wine and Broadway Wine.

These stores are specialty wine stores that are only allowed to sell wine. The majority of interesting wine in the Province is sold through these stores. However, these stores are viable because they received a discount that was 30% less than the government shelf price (i.e. not 16%). This discount was, in part, a compromise because these stores were not permitted to sell beer and spirits.

Regardless, the Independent Wine Stores have become the place for wine lovers, collectors and industry to get interesting wines for at least somewhat reasonable prices in the BC context – at least prices similar to the government liquor stores. They also have a long history of introducing new people to the joys of great wine, particularly in relation to food. These are specialty stores dedicated to building wine culture in the Province, not just selling a six-pack for a quick buck. These stores are essential for the Province’s industry to grow. No serious wine person buys wines at the Liquor Retail Stores because the 16% discount was insufficient to allow these stores to offer wines at the same price as government stores and these stores, with some exceptions, tend to focus on providing convenience rather than wide selection.

Under the new system, the Independent Wine Stores will be losing their 30% discount and put on the 16% discount. However, they are still prohibited from selling beer and spirits. The government press release simply does not address the Independent Wine Stores. This means that, ironically, the allegedly corrective assertions that “What we’re absolutely not doing is artificially raising prices” and “In the lead up to April 1, some critics are out there ‘beer mongering’, telling you that government has eliminated this 16% discount altogether and because of that, you’ll pay more at the till. This is categorically false” are extremely misleading. I’m not sure who is suggesting that the government is eliminating the 16% discount. I have not heard any of these arguments. Rather, what is happening is that the government is eliminating the 30% discount of the Independent Wine Stores, which are a class of stores that are not at all mentioned in the government’s March 16 op-ed press release.

As such, it is false for the government to assert it is not “artificially raising prices” – a vague statement in any case. There is no doubt that prices will rise at Kitsilano Wine Cellars, Dundarave, Liberty, Marquis and Everything Wine because these stores are Independent Wine Stores that are losing their 30% discount.

I have no doubt many would suggest that having unequal discounts was unfair to begin with. This would be true if the system was established fairly and consistently. But that is not the history of the liquor industry in BC. Rather, the stores being penalized the most are actually the stores that have done the most to build the wine industry in BC for the longest time.

Further, as touched on above, these stores are absolutely essential hubs for the wine industry and wine culture in BC. Ask any serious consumer of wine or any member of the industry and they will tell you these original Independent Wine Stores are the place they shop for the most interesting wines in the Province. This is really important because wine culture only grows with exposure to interesting and important wines from around the world. Now the price of these interesting wines at the Independent Wine Stores will go up.

Whether you agree or disagree with this government-forced price increase, the facts are that prices will increase at the Independent Wine Stores. Obviously my position is that this is wrong, but I thought it important that I at least lay out the facts so that British Columbians can draw their own conclusions based on the complete picture, rather than the incomplete picture provided in the BC Government’s March 16, 2015 press release.

Comments

  1. Leeann Froese
    March 23, 2015

    a very good post; very informative and lays the situation out very well, Shea, thank you for posting. I’m going to be sure to share it around. I’m not sure how much the consumers know or care at this point and I fear they’re not going to care until they see the price of their favorite wine going up, but this situation has a ripple of fact that is impacting our entire wine, food and hospitality industries and people do need to pay attention.

  2. Brad
    March 25, 2015

    Thanks for sharing this important topic with the public Shea. I’ve already forwarded it to numerous friends. But between you and Anthony Gismondi, this subject really isn’t getting much real objective press, so I fear most people still don’t know what the real underlying issues are. And since the government was crafty enough to ensure that the $15 price point was the break-even point of the price changes (not sure what it is for beer, but I imagine it will also be at the low end), all the Yellow Tail / Barefoot / Molson consumers won’t see any change in price and will wonder what all the fuss is about. And since they (sadly) represent the majority of purchasers, this whole debacle is likely to go through without much of an uproar.

    I can only hope the restaurants (who are really getting screwed) shout loud enough to give it some negative press (and I realize I’m dreaming here), perhaps put enough pressure forth to have the government make some changes to this ridiculous policy. Otherwise all us serious appreciators of wine will be left to shop more in the US or other provinces. Sigh…

    Spread the word people…and stock up before April 1st!

  3. pk
    January 5, 2016

    Shea I’ve just read this again; read it way back in March but now that I’m running an LRS store, wow. I see everything and more. There is absolutely no level playing field — and they control all the inventory!! Thank you for posting these well stated facts, and know that I try to explain to lots of my customers.

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