Private alcohol sales could lower prices, increase profits: Study
File photo: Patrons line up to get into an LCBO outlet as others leave after stocking up with their New Years eve beverages in Mississauga, Ont., Monday, December 31, 2007. (J.P. Moczulski / THE CANADIAN PRESS)
Published Monday, June 24, 2013 3:53PM EDT
A new study suggests expanding alcohol sales to private retailers in Ontario would not only be more convenient for customers, but could actually drive down prices and increase provincial revenues.
The 25-page study was done for the Ontario Convenience Store Association. Convenience store operators are looking to get into the booze business, and the report suggests a hybrid alcohol-retail system – similar to the one in British Columbia – would benefit everyone from alcohol drinkers to taxpayers.
While it might seem counterintuitive, increased competition in the alcohol-retail market should actually increase revenue collected by the provincial government, according to the author of the study.
“The common public perception is if you introduce enhanced retail competition, it will lead to a reduction in profits,” Anindya Sen, an economist at the University of Waterloo, told CTVNews.ca. “That is not true.”
The Liquor Control Board of Ontario now holds a near-monolopy on alcohol sales. In the face of more competition, the LCBO might lose money in the short run, Sen said, but the province will collect more revenue from private sales. Enhanced competition drives down prices and attracts more customers – the people who don’t buy alcohol because it’s too expensive or too inconvenient to purchase.
“It’s actually going to generate higher margins,” Sen said. “If you take all that into account, it’s quite possible the revenue transferred to (province) … is actually larger (than with the standard system).”
Last week, the LCBO announced record sales for the 18th year in a row, taking in a total of $4.892 billion in the 2012-2013 fiscal year – an increase of $182 million over the previous year.
A dividend of $1.7 billion was pumped into provincial coffers.
While the numbers look good, they could be a lot better, said Sen.
“Ontario’s really odd. It’s an anomaly in Canada,” said Sen. “Not only do we have the LCBO, we have a private monopoly, The Beer Store.
“I think (the system) is broken but people just don’t realize it,” he said, adding that the LCBO makes most of its profit by marking up prices.
Currently, the LCBO marks up alcohol prices by as much as 50 per cent.
According to a pricing example provided on their website, a 750 ml bottle of domestic whiskey costs consumers in Ontario $26.85 – $13.80 of the total price is added by the LCBO.
Consumers would be better served by enhanced competition, said Sen.
In 2002, British Columbia implemented legislation to allow licensed private retailers to sell alcohol alongside – and compete with – the province’s alcohol monopoly, the Liquor Distribution Branch.
Based on Sen’s analysis of income, “increased competition is significantly associated with roughly a five per cent and nine per cent increase in net and gross per capita income relative to liquor authorities in provinces with primarily government delivery of retail alcohol products,” he writes in his report.