Will the newly elected government of Ontario sell off the provincial liquor monopoly in order to balance its budget and keep its spending promises?

The Premier wouldn't rule out that possibility in an interview with the Globe & Mail editorial board yesterday.

Details are here but, personally, I think it's wishful thinking.
Original Post
I doubt it. There are hundreds of stores and it generates billions of dollars of profits. We all bitch about the LCBO, but it is much better than the SAQ and other gov't run liquor stores as far as wine availability and selection is concerned. Plus, who would buy it?
Presumably you have done a comparison between the LCBO and SAQ with regards to wine selection, Baird6869? I like to think I have and wouldn't necessarily come to the same conclusion as you. They are different. You guys get waaaay more wines from Australia, Germany and NZ for sure. The latter two bother me but I can survive without the in-your-face-jar-of-jam Aussie wines. You guys get raped on Tuscan wines, which are my favourites, but have more selection from Piedmont. The SAQ has a much better selection of Burgundy and Rhone wines and the prices are slightly better. They both suck for American wine choices. Bordeaux is a split decision. Just my opinion of course.

Ontario will never privatize alcohol sales. The Liberals were talking about selling beer at variety stores when I fled the province in 1985. It never happened. Besides as Oakville said, it's a cash cow. Ditto for the SAQ.
First, the fact that the LCBO is a generating a ton of cash is not a reason to hold onto it. It simply speaks to the value the province could realize from a sale.

Secondly, to baird's point about who would buy it, any wholesale divestiture would inevitably result in a "bust-up" scenario where the assets are sold off on a piecemeal basis. Remember, this would not only be a privatization, but a break-up of a monopoly at the same time.

Third, there a several alternative solutions to an outright sale of the whole thing. For example, selling a royalty in all of that cash it generates would be enormously well received by investors, in my view. The income trust market where I spend much of my days, for instance, would be a natural buyer.

Just my $0.02...
We've had the threat of privatization here in BC as well, and I wondered about the viability of giving up a cash cow, as some of you have. Initially, I thought it would be a benefit to wine lovers such as myself; during a dinner discussion with a liquor distributor, I had to re-think this position.

The privatization which was to be implemented here in BC simply meant a lot more (we have a few now, but there's a moratorium on opening any more) privately-owned retail wine or liquor stores. The paperwork and importation licensing would still be handled through the liquor board, so that their taxes and mark-ups would still be applied and paid to them. In other words, they would do all the paperwork to ensure their income from sales, but wouldn't handle the products at all.

This means importers and distributors would be responsible for their own warehousing and distribution. Who do you think is going to pay for the warehouses, trucks, and necessary personel to make sure the products get to the retail stores? The start-up costs are going to be very significant, and of course will have to be passed on to the consumer. Factor in as well the loss of the high-volume discounts now afforded to the liquor boards, and the dramatic price decreases that I thought might accompany private enterprise wine sales may not be forthcoming.

At present, our private wine stores generally sell at higher prices than the liquor board stores; only one store that I know of sells at the same price. And the selection at these stores isn't really better, just different from the larger government ones.

The two main advantages of privatization are likely to be better selection and greater ease of acquiring special orders. I'm no longer convinced that privatization would be a boon to consumers.

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Cheers.
I must agree with Seaquam,its not clear to me that privitization will result in either better selection or lower prices.If the end result is deregulation than i think we will see the market at work and i would be all for what our US friends have. I think i want deregulation not privitization, i want the market to dictate prices with no artificial supports or protection.I think this is what i want?
Seaquam,

Could you ask your distributor friend, has he/she ever represented a wine/winery that he/she truly believed and was delicious but the monopoly refused to carry it. Thus the consumers never got to try.

State-owned wine monopolies hinder loads of great wines from getting to the consumers, no matter how hard they try to not to be a trade barrier. If a distributor has 100 to 1000 shop owners to convince about a wine they believe in somebody is going to carry it. If not then it really wasn't that great.

Sure these monopolies have economies of scale so they don't need the margins a small, low volume shop needs to live. But is the hinder to selection that is the major problem with them.
The key question to me is do we get privatization or deregulation, or both? These are two very different horses.

If you just privatize the existing LCBO, either whole, or in two, three or ten pieces, what have you changed? It's like converting a state telephone monopoly into the pre-deregulation Bell Canada. In fact, it could be worse from a pricing standpoint because now the state has to make its profit off wine and spirits as well as the shareholders in the new privately owned monopoly. So the use of terminology here is critical.

Do we want privatization?
Do we want retail deregulation (anyone can retail wine and spirits, but a state monopoly continues to be the wholesaler)?
Do we want full deregulation (anyone can buy wine and spirits and importers and distributors or a new catagory of distributors would take over the wholesale and distribution functions now performed by the LCBO.)?

The question of retail-only versus full deregulation takes us into discussions about the purchasing power/critical mass of the LCBO versus an unlimited number of smaller buyer/wholesalers and the effect on price and selection. For example, if instead of a vertically integrated province-wide state liquor monopoly turning over a single dividend to the province each year, what would be the impact on us as consumers if private entities takes over acquisition, others take over warehousing and distribution (perhaps outsourcing to private truckers), still others take over retail. Look at beef prices post Mad Cow. A lot of people thought prices would have fallen a lot further and faster at the retail end because they saw farm prices implode. But the packer, the trucker and our friends at Loblaws padded their margins as long as they could get away with, so prices trended downward slowly, and less than we would have expected.

Back to wine. In a privatization-only scenario, with the breakup scenerio for LCBO you might have, say, five son-of-LCBO networks which can compete against each other, you might see a bit of price competition for Wolf Blass Yellow Label, but you might lose the buying power of the current LCBO, unless it continued to be the monopoly wholesaler. Is that worth breaking up the retail monopoly. We wine drinkers in Ontario dream of having the price and selection that New Yorkers or Los Angelenos or Chicagoans have, but we don't have that in cars, computers, DVDs, and other retail items, do we? So why would we have it in wine? We might be better off going further into full privatization/deregulation, but I don't think we're ever going to have the kind of benefits you would find in NYC. It's supply and demand. We're a smaller market than the US, our currency, even with the current runup, doesn't have the clout of the US dollar.

The one privatization scheme I would reject outright is to auction off the entire system to a single buyer. You have to break up the LCBO or a privately owned LCBO will be as powerful, bureaucratic and market dominant as it is today. Labor relations might well deteriorate if the new private owner sought to cut costs to increase its margins.

Okay, we break up the LCBO into five son-of-LCBOs (SOBOs!). What would be the consequences. In that scenario, one SOBO chain might stock a foreign wine that another doesn't, but with less critical mass, prices for some of these wines might go up. And are people living outside Toronto, Ottawa and their burbs better or worse off? They might not end up with as good a selection as they have now. So to me, privatization without deregulation might not give the kind of benefits we want to see... As a matter of fact, if the government continues to get its existing revenue stream equal to the current LCBO profit, and the SOBOs charge a separate profit margin, it is very likely that we will end up less well off.

So that begs the question, if we privatize, should we not deregulate? If so, should we deregulate the entire sector - including acquisition, warhousing and distribution, or just retail? If we deregulate we might get a wave of new entrants who, through their advertising, creativity, etc, provide us as consumers with net
benefits even though the government is out there taking the same tax revs? Might not vigorous competition stimulate sales so that there are price breaks without a reduction of the government tax take?

I believe that's probable.

Which is why if we privatize we should go all the way. But that still doesn't mean we're going to get the kind of retail scene they have in NY or Paris or Frankfurt or Chicago. As per my observation above, we will never be as well off as they are in the big markets of the US and Europe.

We have an additional anomoly in Ontario. Toronto and burbs are contiguous to a rather large wine industry - yes, Niagara is a large wine area even if Wine Spectator doesn't acknowledge it very often. And Niagara is growing every year. Because of the existence of the LCBO, or in spite of it, the province has allowed the wineries a limited retail presence which gives them urban retailing experience. Ontario wine sales account for about 40 percent of LCBO wine sales, but if you include winery-owned stores, I would guess that about half the wine sold in Ontario is Niagara/Pelee Island wine. Now that's a far cry from the dominance that Australian wines have in Australia, or California wines in California, but it's significant, and it comes with this oddity that because of the LCBO and the wineries' fight for retail visibility, that the wineries are likely to be the biggest beneficiaries of retail deregulation. They already have stores, they warehouse and distribute out of their wineries or they have their own local warehousing around TO.

I'll make a prediction. If competition is allowed, as opposed to the creation of a regulated monopoly a la the old Bell Canada pre-dregulation, the first in with both feet will be Ontario wineries. They will front their own wines, while adding popular foreign labels to broaden the appeal of their stores. You already have dozens of Ontario winery stores around Toronto. Andres, Magnotta, Vincor... They are in supermarkets, and in prime traffic areas. Some, like a few of the Vincor and the Hillebrand/Peller(Andres) are large and very attractive and have that neighborhood liquor store characteristic already. They could add 150 foreign labels and undercut the popularity of any neighborhood wine store. And they would be wine-only stores. My view is that a lot of neighborhood spirits stores would gravitate towards imported beer and spirits for competitive reasons, and that it would be difficult if not impossible for new entrants to compete with the privatized wine stores and the expanded network of Ontario winery outlets.

Magnotta has fought a legal battle just to be able to operate seven stores in Ontario. The day privatization occurs, you can bet that it would have 50 more stores ready to open around the province.

You will certainly have room in downtown Toronto for a few specialty stores that stock some upscale stuff. A store like Pusateris will certainly open a wine counter for the expensive imports. But as for pricing, how much competition is there to sell Davidoff cigars or Caspian caviar?

It would be a brave new world. I don't have all the answers, just hunches. I'm not sure if we end up better or worse off. I am not sure if people outside the Golden Horseshoe end up better or worse off, but I am pessimistic about the benefits for anyone living outside of the three or four largest metro areas in Ontario. I do think we should have some rip-roaring debates to consider all points of view. This is one area where a diversity of views would be helpful.
An excellent post Dagger!

I congratulate you on a very clear encapsulation of your options. On another thread Pauly and I questioned the lack of freedom that you Canadians have and to an extent, you all leapt to the defense of the LCBO by this attack from the outside. It illustrated that not everything was wrong, that there was some good there too.

It is important to learn from others. NZ sold the family silver as the country had been bankrupted by years of socialist style government over-spending. We effectively sold government monopolies at fire-sale prices; we effectively exchanged government monopolies for private monopolies ... and frankly, these are less preferred. The vital telecom industry attracted competition but the new "semi" monopoly has used its dominant position to erode the ability of competitors by restricting access to the copper wires and dragging everything through the courts.

If you wish to open up your system I would suggest that you deregulate the wholesale monopoly first, coupling this with allowing retail competition, as Dagger has outlined.

DON'T throw the baby out with the bathwater, if the LCBO is efficient it will survive that competition.

As a Province/Nation you have made the capital investment over many, many years. I see nothing wrong in accepting a "dividend" on that investment. However I see monopolies as a commercial evil, so do away with this aspect whilst retaining the benefits.

Things to think about first are:-

Supermarket sales of wine were allowed here 20 years ago and as in Britain they now sell in excess of 75% of the wines. Being supermarkets they wish to trade with fewer suppliers not a multitude. This need further concentrates the sales to the larger wine industry players and representation of the smaller wine companies is lessened. This is a negative side of the open market.

In the States it is expensive to set up as a distributor as this must be done on a State by State basis. Do you want this in Canada? If not, devise a system that prevents it. Make it less complicated to distribute nationwide.

As Alberta has found, to privatise in isolation from the other provinces is a very hard road to go down. Perhaps it needs the whole nationwide system to alter(?) with deregulation from the Federal Government.
Dagger great post. I want to be able to walk down yonge street and find all the bordeaux i want at prices that resemble u.s. prices. I want the downsview or woodbridge Costco to sell Bordeaux at the deep discounts we see in the posts on this forum. If that means complete deregulation then so be it.I want Zachy's or K&l to sell to me in ontario.In fact i want zachy's to open up atyonge and eglinton
The bottom line is that the LCBO is the biggest purchaser of fine wines in the world (Costco might be getting close). If anything, the sheer buying power of this organization is unbelieveable. I have sen instances where the LCBO releases over 100 cases of a very hard to get and sought after wine that has a total production of under 500 cases.

Once you understand how to work the Vintages system, it isn't that bad. The LCBO will still release wines for resonable prices that have been in inventory for many months and recently rated very highly which would not happen elsewhere (see 2001 Dead Arm (RP98) for $49.95).

I am not a huge proponent of the LCBO/Vintages, but unless we would end up with a few huge chains or organizations such as Costco or other with true buying power selling fine wines, I can't see the advantage to selling this monopoly. The LCBO is the only outlet that I have ever seen buy 4000+ cases of a $15-20 wine and they have huge availability of many wines pretty consistantly.

The billions of $$$ the sale would put in the provincial coffers would probably not lower my property taxes, sales taxes, etc. a cent. (see the 407ETR sale).
As for the discussion of the LCBO's large-scale purchasing power, I have to question who's benefiting from that - wine consumers or the government? It seems to me that, with many notable exceptions, our prices here are generally quite a bit higher than US prices.

My issue, frankly, is a philosophical one. I simply don't believe that it is an appropriate role for government to be in the distribution and retail business!
The LCBO is not the largest wine buyer in the world, the SAQ is. See this link if you need proof.

http://tinyurl.com/2q2p9

As for your prices in Ontario, despite what you see for a few Bordeaux wines, you guys have good prices. As I mentioned in another thread a couple of weeks ago, I have travelled all over North America and checked out wine stores in every place. We, Quebec & Ontario, do very well.

If the harris government wouldn't sell the LCBO, it will never happen.
I think that most people in Ontario are quite satisfied with the availability and pricing of wines & liquor at the LCBO now. [Actually, most people probably don't care!]

That wasn't the case not so long ago. However, there's been quite a sea change at the LCBO since the Harris goverment (conservative) threatened to privatise the system. Since that happened, they greatly improved their sourcing of wines and the pricing has been fairly reasonable on the whole.

If anything causes me some concern, it is that I see their prices moving up about 15-20% over the past year. Being a monopoly, they can push up their pricing quite aggressively without any kind of competition to keep this in check.

I'm also not much of a fan of Andy Brandt, his ego, and the regime he has put in place at the LCBO. However, it's not clear either that privatising\deregulating would provide us with a better overall system than what we have right now.

It's possible I'd change my mind if the prices keep going up or if the buying strategy changes. When you get down to it, you need some competitive threat to keep the organisation on its best behaviour.
It occurs to me that every State owned monopoly says that they are the largest wine buyer in the world thus they are getting their consumers a better deal. You see I have heard this line before and it didn't come from Canada.

What I want is not to run the monopoly out of town. They can stay on as one of many resellers. I just want wine specialists to have the opportunity to open their doors for the public. To give me special (any!) service just because I asked. For small communities to be able to buy from their local supermarket and not have to drive 30 km to the nearest monopoly.

If the variety of plonk decreases and becomes more expensive because of deregulation, do I care? No.
I too wonder how a government can find it intellectually honest to operate a booze monopoly in this day and age, and God knows few here have whined louder or more often than I about the LCBO, but some of these arguments have me thinking again.

Perhaps the best of both worlds would be possible - continue the LCBO but allow some private stores to bring in stuff the LCBO does not. Like, um, oh, I don't know, port? Wink Big Grin I often thought that if I ever won the lottery, and private stores were allowed, I'd take some of the cash and open one here and in Toronto.

snow sucks.......

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