The major public policy issues relating to wine consumed in Ontario are whether the current Ontario ban on inter-provincial wine sales directly to the consumer should be lifted and should partial or full LCBO privatization be considered? Subsets of the second issue are whether wine should be sold outside LCBO outlets, whether wholesale pricing should be introduced for restaurants and bars, whether the current LCBO driven pricing model should be deregulated, and whether the LCBO’s “Social Responsibility” mandate should be moved to another government body.
Interprovincial Wine Sales
There was considerable hope that this would be automatically mandated for all provinces as a result of an April 2016 court case. The case had arisen because retiree Gerald Comeau decided to fight a $292 ticket he had received as a result of purchasing beer in Quebec and then bringing it into New Brunswick. Initially, a lower court threw out Comeau’s fine, citing Section 121 of the 1867 Constitution which states that articles grown or manufactured in one province must be “admitted free” into another.
However, needless to say, the New Brunswick government appealed the ruling as it would result in a severe dent to their revenues. As a result of the far-reaching implications of the decision relative to inter-provincial trade, the Supreme Court heard the case in December 2017 and reached their decision in April 2018. Unfortunately, for wine lovers, they voted to uphold the inter-provincial trade restrictions.
Until June 2019, inter-provincial shipment of alcohol directly to the consumer was forbidden under federal legislation but then the legislation was repealed. It was now possible for provinces to pass enabling legislation to permit this practice. Unfortunately, the majority of provinces chose not to and currently, only BC, Manitoba, Nova Scotia and Saskatchewan allow direct-to-consumer alcohol shipments into their jurisdictions. Ontario has recently amended its laws to prohibit the possession of wine that has been imported from other provinces unless the transaction was handled via the LCBO.
The result is that it is currently impossible for the Ontario wine consumer to support small local wineries in another province even though direct-to-consumer sales have become their lifeblood. Even if you can purchase wines from other provinces, the LCBO will charge you the same import duties as if the wine came from a foreign country.
In 2021, BC MP Dan Albas proposed a clever workaround by amending the Canada Post Corporation Act to allow interprovincial shipping of Canadian-made alcoholic products. The amendment reads “the Corporation shall not refuse to provide a postal service for the collection, transmission and delivery, direct to consumers, from one province to another, of beer, wine or spirits”. Bill C-260, which Albas has dubbed “buy, ship and sip”, received a first reading in the House of Commons on December 8, 2020. If passed, “the bill would effectively bypass provincial liquor monopolies and their outdated rules”, he said.
Albas received a letter of support from the Canadian Federation of Independent Business. “Like many sectors of the economy since the beginning of the pandemic, many small brewers, vintners, and distillers have had to make considerable efforts to sell more of their products online in order to generate revenues. As a result, being able to access a wider range of customers across the country is now vital to their survival,” the letter stated. “Allowing small producers to ship across the country would enable Canadians to safely access their products while directly supporting local businesses and jobs.”
Unfortunately the bill died on the vine as a result of the 2021 Federal Election.
LCBO Privatization
The LCBO was created in 1927 on the basis of three fundamental beliefs: first, that the best way to prevent social harm and health risks related to alcohol consumption was to make the purchasing of alcohol awkward or inconvenient; secondly, that adults can’t be trusted to make their own decisions around responsible alcohol consumption; and thirdly, that private sector retailers did not have the capacity to balance market competition and social responsibility.
Attitudes are very different today and it is safe to say that the LCBO would never have been created if current circumstances had applied back in 1927. Today, we expect the private sector to manage business enterprises for profit, and we expect the government to regulate their behaviour through the establishment of standards and the use of enforcement to ensure those standards are met. For example, the safety of food is of concern to all but we don’t have a government monopoly running grocery stores. In Ontario, we allow the private sector to manage cannabis stores and I think very few would argue that the roof has fallen in.
Accordingly, a number of comprehensive studies have been published over the years on what reforms if any should be made to the LCBO. It has been argued that the government could actually earn more money by privatizing the LCBO’s retail stores while keeping their wholesale business in place just as Alberta did in 1993/94.
Alberta’s privatization scheme was intended to create more selection, lower prices and convenience for the consumer, greater opportunities for small business, and help get government out of the business of being in business. There is no question that the consumer has benefited from increased product selection and greater convenience due to the large increase in the number of retail outlets. It is less clear whether prices are now lower.
Regardless of the Alberta experience, Ontario governments of all political stripes have not shown any enthusiasm for full scale LCBO privatization, and the last report on the LCBO, published in May 2019, specifically rules out privatization on the grounds that most Ontarians give high marks to the LCBO, and that their surpluses play an important role in funding schools, hospitals, and infrastructure. Reform is more likely in the distribution environment via an expansion in the type and number of retail outlets allowed to sell wine and also in the pricing of wine.
Expansion of Retail Outlets
In October 2016, some supermarkets were allowed to sell wines and it is intended to gradually expand the number allowed. Additional reforms could come by allowing convenience stores, specialty stores and VQA stores to also sell liquor. In Alberta, which privatized liquor retailing in 1993, the number of outlets increased more than six-fold making shopping much easier for the consumer, and employment in the sector tripled. Quebec and BC are already using a hybrid model under which provincially owned liquor stores operate alongside privately owned specialty wine stores.
Many immigrants’ first foray into the business world is running convenience stores and allowing them to sell beer and wine would increase their business, and in some cases, might help them to stay in business. If people could pick up a bottle of wine or two at their local store, they would be more likely to buy other things while they were there or vice versa so the stores would enjoy higher traffic and bigger sales leading to more people being hired.
The Ontario Convenience Stores Association noted some time ago that stores in the Quickie chain in Quebec, where they can sell beer and wine, employ over twice as many people as in Ottawa where they can’t. Some folks argue that only the LCBO can save us all from underage drinking but convenience stores already do age checks for cigarette and lottery sales and selling wine in convenience stores has worked just fine in other jurisdictions.
Cities benefit from a diversity of retail formats. If specialty stores were allowed, you might see one store specializing in Belgian beers, one in Argentinian wines, and one in whisky. Each store would have a resident expert who would provide much better service to the consumer than an LCBO staffer who has to know everything. It would be a great opportunity for niche marketing, and the customization of the sales environment would be a vast improvement over the blandness of LCBO stores. If Ontario allows specialty stores for cannabis, why not for wine and beer also.
Small Ontario producers, who may have as few as 40 to 80 cases of a particular wine to sell find it difficult to compete for shelf space at the LCBO next to large volume Australian and European megabrands which seduce the LCBO with promises of mass advertising support. One solution, already in use in BC, is to allow specialty VQA stores that exclusively sell Ontario wines. Another would be to allow specialty wine stores that would sell five or six cases from small producers from anywhere, and give consumers better access to exciting new products.
Wholesale Pricing
Until 2022, Ontario was one of the very few jurisdictions in the world that did not have wholesale pricing for its licensed sellers of alcohol even though they were buying multiple cases at a time. Restaurants and bars were forced to pay the same prices as what you see on LCBO shelves. Given that they have to mark up that price to make any money, it made the task of making a profit and keeping their business going that more challenging.
Happily that changed January 1, 2022, largely as a result of the COVID-19 pandemic. The LCBO announced that applicable business would receive a 10%?discount?on beer, spirits, and wine and no longer be subject to the 6%?mark-up on wine and spirits.
Deregulation of Pricing
Once retail outlets are expanded and wholesale pricing is introduced, the next logical step is to deregulate retail pricing and let all retail stores charge what they want and in fact, this was recommended in recommendation four of section eight of the Ken Hughes Report of 2019. “The government should end the anti-competitive practice of uniform pricing across Ontario alcohol retailers and enable price competition at the retail level”.
Social Responsibility
Currently, the LCBO has a dual mandate. On the one hand, it is responsible for generating revenue for the benefit of the Ontario government. On the other hand, it has a social responsibility” mandate under which it uses a system of minimum selling prices to discourage excessive alcohol consumption. This has been criticized as being a legally sanctioned price fixing mechanism to guarantee profits and discourage price competition, thus protecting established major producers If this dual mandate isn’t a clear conflict of interest, I don’t know what is.
One bizarre by-product is that the LCBO is not interested in driving a tougher bargain with suppliers and demanding cheaper wholesale prices. This is a practice which a previous Auditor General found quite astonishing but it’s the sort of problem that can occur when the government has a presence in the business world at the same time that it is trying to regulate it. Another strange practice arising out of this conflicted mandate is that the LCBO sells less intoxicating beverages such as light wines and beer at reduced prices in order to influence consumption patterns as part of their social responsibility mandate.
Health Canada is responsible for regulating the manufacture, sale, labelling and promotion of tobacco products. So how about making the provincial Ministry of Health responsible for the LCBO’s social responsibility” mandate. That would eliminate the LCBO’s conflict of interest and enable it to operate more like a private sector organization in securing the best deals possible and thereby maximizing revenues for the government.
At the same time, it would be much easier to regulate the profit driven activities of the LCBO if the regulation were done by a separate body whose employees were dedicated full time to carrying out its social responsibility mission. After all, how many government agencies are allowed to regulate themselves? Not too many, I think. You wouldn’t entrust gun control advocacy to the NRA so it’s high time that the social responsibility mandate was shifted to an independent body.
Additional Information
See Wine Regulation for the wine regulatory framework in Ontario. It has profiles of the Alcohol and Gaming Commission of Ontario (AGCO), the Vintners Quality Alliance (VQA) Ontario, and the LCBO.