Premier Doug Ford claims his government’s plan to terminate Ontario’s contract with the privately-owned Beer Store chain will “increase choice, convenience and fairness for alcohol consumers” down the road.
The Progressive Conservative government on Monday tabled legislation proposing to rip up the 10-year, “unfair” agreement, signed by the previous Liberal government. If the bill passes, the province could then proceed with its pledge to expand beer and wine sales to corner and big-box stores, as well as more grocery shops.
As Ontarians digest Monday’s news, many are raising a commonly-heard argument that increased competition will lead to lower prices. But does that ring true in the beer market?
It turns out experts are split on this question; some studies have argued that an expansion of alcohol sales in Ontario will lead to lower prices on average, while others claim the opposite.
Here’s everything you need to know.
Disagreement about how Ontario’s beer prices stack up
Before diving into how prices might change in a deregulated environment, it’s worth establishing that there are conflicting claims about how Ontario’s beer prices stack up right now and how they compare to those in other provinces.
In justifying the push to expand alcohol sales, the provincial government is leaning primarily on arguments about relatively high beer prices contained in a report dated May 24 by Ontario’s special adviser on alcohol, Ken Hughes, and a recent report by the Retail Council of Canada (RCC), an industry-funded association.
WATCH (May 27, 2019): Ontario announces termination of Beer Store contract
Hughes’ report argued that allowing The Beer Store — primarily owned by multinationals Labatt, Molson-Coors and Sleeman — to have a “near-monopoly” on the beer market “keeps prices artificially high.”
Meanwhile, the RCC’s report argued that, after netting out tax, prices of “popular beers” in Ontario are (on average) 8.3 per cent more expensive than they are in Quebec, where beer and wine can be sold in convenience stores. (This claim was based on an analysis of the price of 24-packs of Molson Canadian, Coors, Bud Light and Corona over the month of February.)
An assessment of those two reports that The Beer Store commissioned and released on Tuesday called the retail council’s report “flawed.”
WATCH (May 12, 2019): Beer Store launching ad campaign against Ford Government
The assessment by Ankura Consulting Group argued the RCC only reviewed “very limited pricing data for a single one-month period for only four brands in specific package formats” and claimed that data wasn’t “volume-weighted.”
The letter accused the council of “cherry-picking data” to “engineer” the results it wanted. The assessment’s author, Debra Aron, doubled down during an interview on Tuesday with The John Oakley Show on Global News Radio 640 Toronto, saying the RCC’s sample was both “too small” and “not unbiased.”
“I’ve looked at data on all beer sold to The Beer Store in Ontario and compared it to comprehensive data and I know that when you take out the taxes … there are high provincial taxes in Ontario compared to Quebec or Alberta … prices in Ontario are actually cheaper than in Quebec or Alberta,” said Aron, a senior managing director based in Ankura’s Chicago office.
“They’re 13 per cent cheaper overall in Ontario than Quebec and over twenty three per cent cheaper in Ontario than Alberta.”
A report released five years ago by the C.D. Howe Institute also compared beer prices in Ontario and Quebec.
It found “modest price differences for domestic beer brands, but much higher prices in Ontario for international brands relative to Quebec.”
Team Deregulation
The voices who claim Ontario’s beer prices are relatively high are arguing that expanding alcohol sales would result in lower beer prices for consumers.
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Hughes’ report noted that the Ontario—Beer Store deal requires all retailers to sell the same product for the same price and argued this approach “robs consumers of opportunities to save and retailers of opportunities to compete.”
The Beer Store has little incentive to lower prices to consumers because of its “quasi-monopoly over Ontario beer sales,” the C.D. Howe report from 2014 argued.
In an interview with Global News on Tuesday, University of Waterloo economics professor Anindya Sen, who co-authored the C.D. Howe report, said more retailers would help the market evolve to “fit different types of consumer needs” and buyers could end up seeing a variety of price points, depending on the outlet.
Beer might be more expensive at a corner store, he said, but consumers may be willing to fork over the extra cash for the added convenience. But it’s a different story with large grocery store chains, some of whom have “huge economies of scale,” Sen argued.
“I think what happened in Quebec is that the major grocery chains and also the discounters like Costco have significant negotiation power with the brewers because they stock the products,” he said.
WATCH: Brewery applauds Ford government for potential Beer Store contract termination
Sen called the Ontario government’s move to terminate its contract with The Beer Store “a step in the right direction,” but added that “the devil’s always in the details,” noting it’s not yet clear what alcohol products would be sold in which outlets.
For its part, The Beer Store maintains Ontario already has a competitive beer market.
“Brewers do have to set their prices in competition with the other beers that will be on the shelf next to them,” Aron told Global News Radio 640 Toronto.
Team Regulation
In February 2014, The Beer Store released a position paper on the implications of deregulating alcohol in Ontario that argued the price of beer will rise significantly if convenience stores are allowed to sell it.
“The evidence is overwhelmingly clear that deregulation of liquor sales in Alberta, and B.C. resulted in higher cost and less efficient retailing systems that drove price increases to consumers — not price decreases,” the paper said.
“Current average Beer Store beer prices are over $10 less per case than those of private retailers in Alberta or B.C.”
Economist Greg Flanagan reviewed the Beer Store’s position paper and said its findings are in line with his previous studies on the privatization of retail alcohol sales.
“All my research has shown that when you privatize and put these into a competitive environment out there, the costs of retailing go so high,” he said in an interview with Global News on Tuesday.
“Marketing costs go up … distribution, transportation … all the costs go up in the private sector and the retailer might not be making a huge profit … but they still end up, with all these costs, having to charge more than the previous prices. And then everybody goes, ‘Oh, what happened?'”
Asked by Global News on Tuesday how the provincial government’s plan to expand alcohol sales will lead to lower beer prices, a spokesperson for Finance Minister Vic Fedeli pointed to the arguments in Hughes’ report and the RCC’s report but did not offer additional details.
What also remains to be seen is whether cancelling The Beer Store contract will come at a cost to taxpayers.
Scrapping the deal could trigger steep financial penalties — media reports have cited unnamed industry sources suggesting a total bill of up to $1 billion — but the legislation contains provisions to nullify any such costs.
— With files from Global News Radio 640 Toronto, David Shum and The Canadian Press
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