CBC Radio One in Edmonton this morning ran a story (you can listen to the whole story here) claiming that Alberta’s largest liquor store chain, Liquor Depot (who has 15% of all liquor stores in the province), is restricting supplies of Big Rock product in its stores across the city. The reporter, who contacted me for comment yesterday, contacted more than 50 Liquor Depot stores in the city and discovered most carried little or no Big Rock. This is a big change from a few months ago. Liquor Depot refused to comment on why they were restricting supply, but individual store clerks told the reporter that it was due to a feud between the large retailer and Big Rock.

Today it looks like the Edmonton Journal and possibly other outlets are following the story.

This story is more significant than it may appear at first, in my opinion. For me this story isn’t about one brewer – if it was I would ignore it. I think it is a good example of what may be going wrong in the beer industry in Alberta. While no one is talking on the record, there are rumours flying like crazy that Liquor Depot is intentionally punishing Big Rock for some reason.

Let me state VERY CLEARLY I do not know what is happening in this dispute, so I cannot comment on its specifics. What I can discuss is the dynamics in the Alberta liquor industry and their relevance to this story.

In Alberta’s privatized system, nobody gets guaranteed distribution. Every brewery, winery, and agent must persuade each individual liquor store owner to carry their product. Obviously some of the players – the big corporate brewers, the large wineries, etc. – have an easier time of that than others. Who is going to refuse to carry Bud Light? However, for small breweries, it can be a tough slog.

And what it means is this. There is a power imbalance out there. With limited shelf space and a surplus of potential product listings, liquor stores (and bars for that matter) are in a position to ask the producer to give them a reason to stock their product. This could be quality, popularity or niche marketing opportunities, but more often than not it is more likely to be price discounts, brandware (glasses, shirts, etc.), exclusives and the like.

And the bigger the retailer, the more power they hold. We know this is true in other sectors with similar supply chain structures. Wal-Mart, for example, uses its monster-sized market share to place extraordinary pressure on its suppliers for price cuts. It is a well-documented practice, and is embedded into the logic of modern capitalism. Not all industries operate this way, but I believe it applies nicely to alcohol retail.

In Alberta’s liquor retail industry, Liquor Depot is the big kahuna. It operates 184 stores in the province, and made a profit of $4.8 million in the period April-June 2010 (and this is down from previous quarters). That is pretty darned big. You can see why breweries don’t want to piss them off. Getting shut out of almost 200 stores is bad news for anyone’s bottom line.

Of course, retailers have their own pressures – tough price competition, balancing range of selection with focus on biggest sellers, etc. However, the rule of size remains. The larger retailers are able to set competition conditions that the little guys have to scramble to meet.

Everyone in the beer industry has stories of the kind of pressure placed on breweries to provide “inducements”. Of course, no one goes on the record with this kind of thing, making it hard to prove. I believe, having heard similar stories from dozens of industry folks, that it occurs on a regular basis. Taking a look at the legislation, there is an argument to be had that such inducements are illegal, but, like so much else in Alberta, enforcement is a complaint-driven process. And no one complains, so therefore nothing is wrong.

The core of the problem is Alberta’s decision to privatize liquor without offering any other controls. This has resulted in a concentration of liquor retail ownership, which has permitted power imbalances – which always exist – to be exacerbated. Combine that with a private monopoly in distribution and you have a system ripe for abuse and difficulty.

The irony is this kind of system leads to REDUCED selection for the consumer. Again, I don’t know if Big Rock did anything to anger Liquor Depot – I will leave it to others to ferret that out – but looking at the big picture offers some hints to what might be going on.

Yes, I know that similar issues (and equally problematic different issues) exist in other provinces, and so it is not like reversing privatization would produce a perfect system. Far from it. But we need to assess the effects of privatization honestly if we are to figure out how to fix the current system. The Alberta government unleashed market forces without considering the consequences for beer consumers and for local companies creating jobs in the province (or maybe they did and didn’t care – who knows).

At any rate I will be curiously watching how this story unfolds. More updates as events warrant. Film at 11. Yadda Yadda.