Sousa to probe LCBO, Beer Store collusion claims

(Updated)

With seasonal celebrations well underway, you may not be toasting this next bit of news. According to a piece in today’s Toronto Star, Ontario beer drinkers and tax-payers are getting ripped off, because the government is tacitly tolerating a deal that specifically impedes competition between The Beer Store and the LCBO.

The province will say that they have already undertaken steps to determine whether the government is maximizing revenue from alcohol sales. But what’s being suggested by the report, is that The Beer Store has been maximizing its profits unfairly, for more than a decade:

The deal was top secret. Leaked by a whistle-blower. A 14-year old agreement between the privately owned Beer Store, and publicly owned Liquor store, to stifle competition.

How “hush-hush” — was this deal?

Interim Tory leader Jim Wilson: “I certainly didn’t know about it, and I was part of that government back in 2000.”

As part of the Opposition however, Wilson is now ready to question the deal: “Free them up. Now that we know there is a secret deal, it’s time to have a discussion with the people of Ontario about that.”

So how did it work?

Well, the LCBO agreed not to sell beer to restaurants and bars — big customers who pay big prices to the Beer Store Monopoly.

The LCBO also agreed to give way to new Beer Stores in remote areas, and to sell only six-packs, instead of cases of 24.

Wilson: “You know, you gotta’ shake your head, why can’t they sell 24’s?”

They can’t, because 24’s are profitable.

But according to the president of the National Brewers of Canada, The Beer Store does not make any profit. It operates on a break-even basis.

In fact, Jeff Newton says an IPSOS survey proves the deal actually saves money for Ontario taxpayers.

The government does not pay anything for the operations of The Beer Store. All Beer Store costs, including its 451 stores and 7,000 employees, are paid for by brewers.

And he claims, since 2000 both the Province, and beer drinkers prospered.

– Government Revenues are up by $1 billion a year.
– Prices are down by 13% (adjusted for inflation).
– Ontario enjoys the lowest average price in Canada.

But a report from University of Waterloo economist Anindya Sen, for the Ontario Convenience Store Association sharply disagrees. He says:

– $700 million in annual revenue earned by The Beer Store.
– These profits are captured by the foreign multinational companies that own The Beer Store.

In fact, Sen says: “The Beer Store is a classic textbook example of a cartel, which is paradoxically protected by provincial legislation.”

And what does the Liberal government say about the situation?

Ontario Finance Minister Charles Sousa: “We’re certainly not going to speculate the amounts because, we don’t know. That’s why we’re having these discussions, and we’re going to review, and try to determine how best to protect consumers.”

Which sort of begs the question, shouldn’t they have been doing that all the way along?

As for the LCBO, they seem to be trying to stay out of the fight completely. When asked for a comment on the deal today, an LCBO spokesperson told us: “The sale of beer in Ontario is set-out in a Beer Framework Agreement signed in 2000. This agreement reflects government policy about the respective roles of LCBO and The Beer Store.”