Toronto – Freeing up alcoholic beverage retailing will increase government revenue and lower prices, says a new report on Ontario’s retailing system.
The C.D. Howe Institute report, which is called Uncorking a Strange Brew: The Need for More Competition in Ontario’s Alcoholic Beverage Retailing System, also adds that it would be more convenient for consumers.
The report finds that all other factors being equal, Western Canadian provinces with more competition had seven per cent more per capita provincial alcohol profits than provinces with government-run monopolies.
Right now in Ontario, three large brewers own The Beer Store, which dominates the retailing of beer, while two large wineries have the right to sell their wines in off-winery stores such as the Wine Shop and the Wine Rack.
In Quebec, where there is more retail competition, the authors found modest price differences for domestic beer brands, but much higher prices in Ontario for international brands relative to Quebec.
The authors also found that retailing costs are lower in Ontario because The Beer Store enjoys significant economies of scale. These factors combined allow brewers to earn what we estimate to be $450 to $630 million in additional profits compared to what would have occurred in a competitive retail market similar to that in Quebec.
Within Ontario, the report found very high prices for restaurant customers relative to retail customers.
The wine industry in Ontario also has little retail competition.
The LCBO and two chains of off-winery stores dominate sales, says the report. Other wineries have a hard time finding shelf space for their brands at the LCBO and do not have access to off-winery stores.
These factors slow down their expansion and limit their economies of scale. The authors say opening up wine retailing to free competition would reduce the advantage held by a few large producers and help create a healthier wine industry in Ontario.
The report and its authors recommend that Ontario create a more competitive system for alcoholic beverage marketing.
The report offers three recommendations:
• Allow sales of wine and beer in grocery and convenience stores, as in Quebec;
• Further open up beer retailing by licensing other retail outlets;
• Free up wine retailing by granting licences for off-winery stores to other wineries and also to new wine retailers.
These changes, say the authors, will increase choice, reduce prices, and improve competitiveness for smaller wineries and breweries. And in the end generate more revenue for the government.