The Beer Store Monopoly - Canadian Industry Development
Consumer Rebellion and Media Scrutiny on The Beer Store’s Quasi–monopoly
January 10, 2015
Michael Beatty – Team Leader following special topics in Canadian Industry Development
Since last spring, The Beer Store has received media scrutiny behind its quasi–monopoly in the beer retail industry, portraying need for more competition in the Ontario Beer industry. Local Ontario breweries, beer consumers, and beer retailers have band together to illuminate the inequality of the alcohol retail system, specifically with the buying and selling of beer at economy of scale costs. For example, David Hughes, a restaurant and bar owner in Burlington, Ontario, launched a class–action lawsuit against The Beer Store and the LCBO for fixing beer retail prices and seeks reparation of $1.4 billion.[1]
There are three reasons why consumers and retailers are upset. First, The Beer Store and the LCBO created a “Sweetheart Deal” in the early 2000s under the Harris government that allows The Beer Store to stock international and domestic beer in cases of 12 or 24.[2] The quasi–monopoly is created through this “Sweetheart Deal” because the LCBO will not stock cases of 12 or 24.[3] Any beer producer must either sell their product through the LCBO or The Beer Store, and to do so they must pay an annual stock fee that varies depending on the amount produced. The second deleterious effect of The Beer Store monopoly pertains to the increased and fixed retail price of beer in Ontario.
The Beer Store sells their beer to bars and restaurants and in–store consumers at a price that they can set because it is a monopoly, and The Beer Store and the LCBO can set market value. The consumer is paying more money for beer than they should, and is the reason why Hughes launched his lawsuit. Third, The Beer Store is owned by three multinational corporations; Labatt Brewing Company Ltd., a company that is a subsidiary to the larger AB InBev of Belgium; Sleeman Brewing Company, also a subsidiary to overseas Japanese owned Soporo; and Molson Coors Brewing Company, which has its headquarters in Colorado.[4]
This means that the 80 per cent beer market share in Ontario that The Beer Store owns is funnelled out of local breweries, out of the province, and out of the country. Not all of it, of course, because The Beer Store still has maintenance and project costs. The problems are high pricing, barriers to entry into the market for local, domestic brewers, few participating firms, and money systematically leaving the province.
The reaction of consumer rebellion to the inefficiencies of the beer retail system indicates change. At the present, The Beer Store has announced to Ontario media that the company will allow local breweries to buy stocks in their company and allow them to pay entry fees and stock fees at a decreased rate. While this strategy, prima facie, seems a positive tactic to reduce media scrutiny and consumer outrage, the deal is a satisficing proposition. The deal entails that local breweries are allowed, if they buy stocks, to sit down at three of 15 seats on the board of directors.[5] This means that the administration and decisions powers will remain in the hands of the three multinational corporations, and so far, no local brewery has falling for the trap. Premier Kathleen Wynne argues that there will be change, but what will this change look like?
There are three future possibilities. The first is the continuation of the deal between The Beer Store and local breweries. This possibility is unlikely to take place because it is not simply local breweries that have their economic future at stack; there are other retailers such as restaurants, bars, and pubs and there are the consumers who pay exorbitant prices. These two other actors need to be accounted for. The second possibility is if The Beer Store does account for all actors in a reasonable and agreeable fashion. The third will be a transformation of the alcohol retail system. This type of change can come in more forms. For example, a more competitive market will be introduced through legislation and amendments to the Liquor Control Act 1927, containing the pronouncement of the liberation of allowing other retailers.[6]
These retailers could be grocery stores, gas stations, and conveniences. This third option of change is most likely to take place because there is economic value in the emancipation of competitive markets. Western Canadian provinces, like Alberta, have seen increase in revenue by 7 percent because they have a more competitive market in their provincial beer industry.[7] This idea is more enticing for a recovering Ontario economy.
Beer is a cultural icon, and if it is run by multinationals and discriminates local beers, how can Ontario culture flourish? Brown is the colour of love because beer is brown.
