Reported in the Edmonton Sun today: Alberta has the highest beer prices in the country; Manitoba has the lowest. This surprises me not in the least, but it gives me a good opportunity to muse about beer pricing. First, what the article says (the author’s methodology was not well spelled out) is that a 12-pack of Molson Canadian sells for two to four dollars more than Manitoba – that is about a 10% price difference. The article offers a myriad of reasons for why that might be – mostly blaming taxes and such.
This is not the first time someone has pointed out that Alberta has a price disadvantage on booze. The CBC did a report last year finding similar results. I have also been keeping a personal eye on prices and my experience is that Alberta is more expensive. This has been the case for a while, I believe. For most of the last decade or so Alberta has had higher than average prices, trending toward the highest.
The hard question to answer is why? Here is my take. First, it isn’t because of taxes – at least not in they way the Sun article means. Alcohol taxes are complex beasts, but I recently conducted some research on tax rates for beer. Alberta is quite competitive and lower than most provinces, including Ontario and B.C. The tax regime cannot explain the price difference. However, I do know that back in 1995 when the liquor retail system was privatized, the government also altered the tax regime to effectively increase the take on low-alcohol drinks – beer, cider, wine – and decrease the mark up on spirits (at the time some said it was because the Minister responsible, who had something of a sodden reputation, had a preference for the hard stuff – I make no comment on whether that assessment was accurate or not). The effect was to mean that beer became more expensive relative to spirits.
So what is the reason? Partly it is how we handle distribution. During privatization, distribution was handed over to a private monopoly – Connect Logistics. It appears that handling and storage charges have jumped significantly since.
I also argue that privatization of retail is a culprit. No one can deny that the private system has created a situation where more beer is listed than any other province. Just good luck finding it if you don’t live near Sherbrooke Liquor in Edmonton or Willow Park in Calgary (or a handful of other stores, like Trackside in Medicine Hat). Most of the thousands of liquor stores in the province carry the industry standards. Fair enough – that is where the demand is. But my point is this: the proliferation of small, strip-mall stores has greatly increased the industry’s overhead. More stores paying rent. More paying distribution fees. More stores scraping to keep a small profit margin on their product. That will, in my opinion, lead to a slow creep in prices. Yes, they are paying their staff half of what they used to get paid, but that cost savings doesn’t make up for the overall economic inefficiencies of the system.
Compare that to Manitoba, who maintains a wholly public system and can take advantage (as best as their small population is able) of economics of scale and coordinated ordering. These are standard economic strategies we cannot employ in Alberta.
I know the retailer’s association argues all the competition in Alberta keeps prices low, as people can comparison shop. But, really, who drives around looking for the store selling Bud Light for 50 cents cheaper? Beer is a convenience product for most consumers – something to quickly pick up on the way home Friday after work.
I am not alone in this. A few years ago, the Parkland Institute, a think tank based out of the University of Alberta, did a comprehensive report on liquor privatization in Alberta which suggested the gains promised by the government largely failed to materialize.
I realize debating privatization is not really the purpose of this website. And I know there are varying opinions on the value of liquor retail privatization. I also know that Liquor Control Boards in other provinces (Hello Ontario!!) can be horrendously bureaucratic, restrictive and punitive on small players. The situation is complex. My ideal system would employ neither the Alberta experiment nor Ontario’s moral guardian approach.
However, Albertans have to realize that our expanded beer inventory and propensity for a liquor store in every strip mall comes with a price tag. And a label: Most Expensive Beer in Canada. As for Manitoba, I will tip my hat to them for their modest pricing and leave it to others to pontificate why they are so inexpensive.
August 16, 2010 at 5:25 PM
Of course, the threat of privatization bandied about by Mike Harris in Ontario was enough to make the LCBO a more customer-friendly place. All of a sudden LCBO stores were opening later in the day, and, unprecedented, on Sunday. So Ontarians got some of the benefits of privatization while keeping the good prices that a monopoly creates. I guess Harris was good for something.
But most beer in Ontario is purchased at The Beer Store, a private semi-monopoly owned by the big macrobrewers. Craft brewers, even local Ontario ones, have a tough time getting listed there, and of course imports are sold only at the LCBO.
There’s no perfect system of course. In the U.S. you could say it is wide open, but in reality distribution tends to be controlled by the big boys and beer geeks have to search for the Sherbrooke Liquor Store of any particular American city. Except for Beervanas like Portland where hoppy pale ale flows from the taps in every home.
August 17, 2010 at 10:57 AM
Good point Peter. For the sake of brevity I ignored the huge problem that is the Beer Store. Really? Giving a monopoly to three companies so they can screw everybody else!?! Who thought that up? Oh wait! Molson and Labatt did!
I think it is telling that no other province has moved toward the Alberta model. I think that in hindsight government’s realized it created too many headaches for too little benefit. And, of course, the biggest problem in the beer industry is its dominance by a handful of global corporations – they eat up all the oxygen. Course, beer is not the only industry with that problem…
Cheers.
Jason
August 16, 2010 at 11:24 PM
It’s like some kind of local beer columnist/blogger convention in here. All that’s needed is for Mark Suits to pipe up next! 😉
One of my first jobs was working in a local liquor store in the late ’90s on a slave’s wage, and I can recall two widespread price increases in beer that occurred in the year and a half I was there. These were relatively small increases mind you, in the 10-25 cent range, but the price creep has undoubtedly continued over the intervening years.
Also, that retailer’s association argument that competition will lead to lower prices for comparison shoppers is a bunch of bollocks! Who has the time for comparison shopping for beer in this “busy workaholic” world we live in besides a handful of beer geeks??? And I’m unaware of a website for comparing posted beer prices like the one for local gas prices, although that would be a great thing…
Cheers!
August 17, 2010 at 10:59 AM
Indeed!! Too funny. Let’s hope there are “real people” reading this stuff too!!
I suspect us beer geeks care about the price point less than the bulk of consumers. I just suspect that the bulk of consumers don’t want to spend half their day figuring out where to by their 12-pack. We are willing to spend the time looking, but are searching for quality, not necessarily the best deal. I know at times I can get a six pack a little cheaper somewhere other than Sherbrooke, but really what is a few cents in return for having the best beer store in Canada?
Cheers.
Jason
August 17, 2010 at 2:21 PM
There’s a point that tends to get glossed over in discussions like these, and that’s the operating model of most Provincial Liquor Stores. The tax revenue, and the sale of alcohol ARE NOT the same revenue stream. It’s true that the governments make their fortunes from the tax base, but they tend to run their stores at a deficit, so in a way, they’re subsidizing the consumer. Here in Alberta, you don’t have that luxury, because the store operators don’t have the same deficit spending options available to them.
That’s not defending the pricing here in Alberta, but I do think that there isn’t a fair comparison at work here.
August 17, 2010 at 7:45 PM
A good point, Jim. I appreciate what you are saying, however, does that fully account for the price difference? I suspect only part of it would apply.
Jason
August 19, 2010 at 6:05 PM
I got a new beer in once, that had no sooner arrived in my store than I got a phone call saying “You can’t have that product, it’s for the Manitoba Liquor Board, and you shouldn’t have gotten it.” That was the point I looked at the price, and realized I had brought in 5 x @ $15.00 x 24 x 500ml. (Had I realized, I would have bought a lot more)
When this product finally DID become available, it was now @ $50.00 for the flat. (I don’t remember the exact numbers, but I’m very close with the numbers i am giving you.)
This product currently sells at $2.72 in Manitoba. I’m not sure what order to add the taxes in, but it’s about 33 cents and deposit, for a total of around $3.15 (gst + 7% Provincial sales tax)
I sell it for $2.99 all in. (I actually take a slightly lower margin on it, just to keep it at the $2.99 price point. I should sell it for about a nickel more)
So…I get a product for which I pay roughly 3 times what Manitoba pays, and I sell it for less. (In fairness, the store isn’t paying 1/3, as the taxes will be included in the price they actually pay.)
August 27, 2010 at 11:53 AM
I realize I’m jumping into this conversation way late; I’ve been crazy busy moving. Just to throw in my two cents, your article applies not just to beer but also to wine and spirits, to a lesser extent at least. The price creep goes across the board; it’s just most noticeable and most publicized with beer.
I can’t stop myself from going on a mini rant about Alberta’s privatized liquor system. As you said, it’s a complex issue and one that’s somewhat moot since it’s obviously here to stay. However, there are some things I just can’t get over: how anyone can list booze in the province, but unless it’s a mainstream beer/wine/liquor, only a handful of specialty stores will carry it. And thank god for these specialty stores. I just hate how for every well-stocked, educated liquor store, there’s a dozen corner booze marts with an awful selection of big brand junk.
I blame Connect Logistics for the price creep. Anyone else find it funny how our “privatized” system, which supposedly allows for great diversity, is controlled by one bloated, painfully inefficient monopoly?