The LCBO is in some cases asking suppliers to charge it more for the products it distributes, according to records obtained by Global News.
Quoted a wholesale price of $27,481 for a shipment of French brandy in early 2011, LCBO purchasing officials asked in August to pay $31,351 instead, records show.
The order was for 180 12-bottle cases of calvados, an apple-based spirit, produced near Caen in Normandy.
The new price reflected a policy under which the provincial alcohol retailer applies a fixed markup from the wholesale price to the planned retail price, in this case $50.75. Since the wholesale quote plus the fixed markup fell below that price, the LCBO asked to be charged a higher price by the wholesaler.
The supplier in Normandy agreed to the requote the following day. The purchase took place in Euros; Global applied the exchange rate at the time to translate it into Canadian dollars.
Records of the transaction were released to Global under access-to-information laws, as well as documents showing more than two dozen similar wholesale price hikes in the fall of 2011.
Staying with the original quote would have generated $3,870 in extra revenue for the province, or alternatively would have lowered the price of a bottle by $1.79 if passed on to the consumer.
Asked about the practice yesterday at Queen’s Park by Global’s Alan Carter, Finance Minister Dwight Duncan wouldn’t be drawn. “We’ll have more to say about it down the road,” he said. “I’ll have more to say about it once we’ve found the right way to do it.”
The LCBO responded in a written statement today:
“There are times when we have asked our suppliers to either raise or lower their prices. In these rare instances, a supplier has miscalculated a quote or the freight rate or currency exchange rate has changed. We are in discussions with the Ministry of Finance about ways we can further leverage our buying power to increase revenues.”
Last December, provincial auditor-general Jim McCarter criticized the practice of basing wholesale prices on fixed markups:
“The LCBO should assess the feasibility of negotiating as low a price as possible with its suppliers,” he said. “With retail prices still kept at desired levels, this could result in higher profits for the province while still encouraging responsible consumption.”
“If, instead of using its fixed pricing structure, the LCBO found out the lowest wholesale price the supplier was willing to accept, it could then assess whether that cost could generate increased profits while continuing to meet its retail price objectives. … It might enable the LCBO to take advantage of its buying clout.”
We filed an access-to-information request aimed at looking at one wholesale price hike in detail. The covering letter and documents together explain how the transaction worked.