This is another of my Ontario-centric rants about beer distribution in my province – so my non-local readers may want to pass this post buy (unless you want to see just how crazy things here are). In Ontario beer is distributed via two government-maintained channels. A government owned/run LCBO chain of stores, and a foreign-owned beer monopoly (the beer store) whose monopoly is maintained via government fiat.
The system is flawed beyond belief; the beer has a secret agreement with the LCBO that gives it a near monopoly on beer sales; the LCBO is limited to some pretty strange rules when it comes to the selling of the beer. And the beer store takes advantage of their position – by using a series of extremely expensive “listing fees” the beer store ensures that small brewers cannot complete with the brewers who own the beers store (InBev, Saporro, Molson-Coors). It costs $77,000 to have the beer store carry a single product in a single format across all their stores. Meaning if a brewery wants to sell the same beer in a 6-pack and 12-pack format, it’ll cost them $154,000. Obviously, those fees are deadly to small breweries, and all-but-prevents the distribution of 1-off and seasonal brews that are the lifeblood of most craft brewers. And even with this power, the owners still engage in underhanded marketing to further suppress the craft brewing industry.
The big mystery for beer consumers has been why the LCBO doesn’t compete in any meaningful fashion with the beer store. There is no legal limitations that would prevent this, and yet the LCBO limits itself to selling singles and the odd six-pack of beer. In some ways the LCBO is more open to craft brewers – but in place of exhoberant listing fees, the LCBO instead has a series of asinine labelling rules and an excessively slow and convoluted listing process. That aside, the question remains why doesn’t the LCBO complete.
The answer has finally been provided by The Star, thanks to a whistleblower. The leaked document shows that the LCBO and beer store have a secret non-competition agreement meant to keep the LCBO from competing with the beer store (with no apparent gain for the LCBO). Indeed, a former head of the LCBO has complained (without revealing details) about how this agreement was forced on the LCBO, apparently by government ministers.
Sounds fishy…if not outright corrupt.
At least now we know why the LCBO doesn’t compete with the beer store and offer a meaningful second option to craft brewers. Whether this revelation will mean anything in terms of reform (or even better, outright privatization) is yet to be seen. But at least the agreement is now out there under public scrutiny.