Over the past few days (here and here), I have made all of you put up with long, policy-wonkish posts examining the state of Alberta’s unique beer system. It has ended up being a much larger project than I ever anticipated. And now I reach the post I dread the most – where I must stop carping and put my keyboard where my mouth is. What do I think we should do differently?
Let me start by saying that I do not see this as a comprehensive package of suggestions. It is just some snippets flowing out of my thinking on this issue. I reserve the right to change my mind in the future, to admit I was out to lunch on something. But I also reserve the right to stand by views that others in the industry may disagree with – such is the advantage of not having my mortgage depend on how much beer I sell.
So, where do we start?
Privatization, of course. Almost 20 years later, I am more convinced than ever that privatizing liquor retail in the province was a huge mistake (and creating a private distribution monopoly even WORSE). Mostly because it took away from government the most effective tools it has to promote and encourage local craft beer production. And it degraded thousands of jobs into the kind most people don’t want.
However, that horse has not only left the barn, the rider burned the barn down after leaving. There is no practical way to go backwards on this issue. The problem for me is that many of my thoughts about solutions can only be applied in a government-retail environment. Suggestions like creating boutique craft beer stores, guaranteed distribution and shelf space for local brewers, and education for store staff are irrelevant in Alberta.
So what can we do? Here is a partial list:
- Start enforcing anti-inducement regulations. Really, what is stopping the AGLC on this? Offering inducements is illegal. Start penalizing breweries and pub/liquor store owners who engage in it and you will see the level of this chicanery go down. I know this is really about economic power, but if we can sue Big Tobacco, I am sure we can successfully target inducements.
- Lower barriers to new start-up breweries. This may be one of our biggest problems. It is far too difficult to start a new brewery in this province. Lower the minimums, create a new category for “nano-breweries”, and offer incentives (in whatever form that may be) for new start-ups.
- Graduate the tax rate. Small brewers shouldn’t be punished for success. Apply higher rates only to production that exceeds the step-up level. This might encourage our more established craft brewers to take the next step. And increase the step-up levels. 40,000 HL is not very big. Other provinces don’t move a brewery out of the “small” category until 100,000 hectolitres or more.
- Create separate tax streams for in-province and out-of-province brewers. I am not saying eliminate the transitional rate for non-Alberta breweries. I am saying the current policy is incoherent. Create two tax structures. One for imported beer – which can still offer a lower rate for small brewers – and a separate (and I argue lower) rate for beer produced in Alberta. We need to privilege locally brewed beer over import if we want to build a world-class beer culture. That said, I don’t want to harm the great Canadian craft brewers who have entered Alberta’s market. I am hoping this compromise could work for both parties.
- In general, we need someone in the AGLC to be a craft beer champion – whose job it is to promote Alberta-produced and other craft beer. They can promote education sessions for liquor store and bar owners, work with local producers on marketing campaigns, etc., and act as a conduit into the complex world of government regulations. I know this is a million miles from where the AGLC is now, but there absolutely nothing – other than political stubbornness – preventing them from taking on this role.
- Reform Connect Logistics. I am not exactly sure what can be done here, short of returning distribution to government hands, but there has got to be a way to force Connect to lower its prices and take beer more seriously. A cooled section of the warehouse would be a nice start. Governments, wary of the power of private monopolies, often more stringently regulate industries where monopolies appear (utilities, air transportation, telephone). We have created a private monopoly – which means taking extra steps to curtail and control its behaviour. Which means more regulation and enforcement.
I will stop there for now, although I could probably come up with more if I took more time. I also think other players in the beer industry could do more as well – there is plenty of room for everybody to up their game. Why don’t we have an Alberta Craft Brewers association? Where are the hearty entrepreneurs who want to invest in a new brewpub or small brewery? Why aren’t consumers demanding more from their pubs and stores? There is a lot of work to be done to create a true craft beer culture in Alberta – we all can play a part. This series was intended to look only at the government-end of things.
I imagine my suggestions will spawn a wide diversity of responses. That is good. Discussion is good. Just remember, kids, keep it friendly, respectful and clean. We all still need to be able to drink beer together afterwards.
June 25, 2012 at 11:18 AM
To be honest, I am wondering what the motivation is behind making the liquor retail industry government run. Right now, I think the biggest issue is the monopoly that CLS has, where there can be more regional distribution centers. I see the current level of privatization in the liquor industry as not enough personally, since the government still has significant say in how things are done, like having to purchase from the AGLC through Connect.
While the three-tier system in the US isn’t ideal, it does open the realm of possibilities to having specialty distributors acting as the salesforce for independent and smaller microbreweries to the retailers, essentially increasing the sales force capacity of the brewery. It isn’t really in the interest of CLS to move product as they make plenty of money from having it sit on their shelves. They just have to sit there and wait for licensees to submit a PO. Mr. Joe Independent Craft Beer Distribution Co finds it in his best interest to ensure the licensees are aware of the products he distributes, and will most likely have built relationships with licensees in his region. To a microbrewer, having this capability as an addition to their salesforce is invaluable. I think this addresses point 5 to an extent.
This goes to point 6. Don’t reform Connect, make it easier for other distribution channels to compete with Connect. I’d much rather sell to the Northern Alberta region by dealing with a specialty distributor than having to go through Connect to do it. Unfortunately, I don’t have a choice, short of self distribution, which is a non starter for that distance.
Bottom line, privatization and more favorable and/or less regulations to me is good. Putting more control back to the government is bad. You have addressed a number of problems (outside of taxation) that I can see as being a potential business opportunity, provided you can build a business model around it. Having a craft beer specific distributor (or distributors), similar to what Brooklyn Brewery did in its early days, is a fantastic way to compete with the status-quo, since, as I mentioned above, it is in their best interest to move the product that they bring on board.
June 25, 2012 at 4:47 PM
I knew that suggestions about scaling back privatization would spark a reaction. That is fair. Two additional thoughts on that. American craft brewers DESPISE the three-tier system, and I am not sure that it would at all help build more local beer production. While it is easy to say less government-more competition, beer has become an oligopoly. And when a market has oligopolistic tendencies it stops operating the way economists say it should (I am not sure the market EVER works the way economists want it to). That means we need some public policy solutions to address the public interest.
I think one of the complicating factors for Alberta is that all the other provinces maintain a government system. By making itself an island with open borders that has unintended negative consequences. The Alberta government can’t do much about that – but we need to be aware that the rules differ and that can’t be ignored.
Thanks for the discussion!
June 25, 2012 at 11:13 PM
I could argue that many craft breweries in the US despise the system because many states force it upon brewers, and in many areas, there are issues where AB-InBev and SAB-Miller pretty much have controlling interest in many of the distributors, making it difficult for craft brewers to get distribution space and putting the onus on the brewer to convince the retailers to request to the distributor to pick up certain beers. There are a number of states now allowing breweries to skip that second tier of the system and self distribute. In these instances, the distributors aren’t happy, but now they have to compete to stay relevant, which is where things should be.
To me, CLS is not relevant as a small brewer. Throw a distributor, even in my region, that I might consider an extension of my salesforce, and I might be interested if the numbers work out.
Oligopolist tendencies are primarily an issue where cost of competing in the space is prohibitive, such as creating a telecommunications or energy company (where startup costs can be in the billions). It isn’t quite that extreme here in Alberta with breweries, since less than a quarter million in capital is required to build a brewery that can get a class E brewery license, but you can see some policies set by the AGLC that can promote market conditions that are conducive to oligopolies.
There are opportunities because we keep bitching about them, but few are actually doing anything about it. It takes work and effort, but not impossible. If you get rid of the minimums, then it can become more possible, though hardly economically viable, to have community breweries running on Sabco systems, serving their immediate vicinity. That can’t happen right now because AGLC says so, but I say why not?
Someone mentioned in another thread regarding inducements that brewers are restricted in inducements. Even though we all know AB-InBev and Molson are heavy into that and it isn’t enforced, why can’t the regulation be dropped so I can help provide a few clients with draft systems to serve our kegs?
As you can see, I am very pro market in this case and am a self proclaimed libertarian. Right now, we are all arguing that the current regulations stink, but I see requests for more of them or changes to them. I prefer less of them and feel that will create more market opportunities for boutique distributors and beer promotion. Right now, there are too many things I can’t do as a brewer, and it makes it difficult to get creative with sales and marketing tactics without pissing someone off on Redford’s payroll.
June 25, 2012 at 2:18 PM
I think the focus should be on 2, 3, 4 and 5. Grow the local industry, less dependence on imports, distributors, etc. Most prairie folk still believe that imports are inherently better because they come from somewhere else… there is also a strong preference for following the herd/whatever is popular, hence why you see so many big box stores and chain restaurants. The only way to reverse this is by promoting and encouraging local artisan businesses, which in turn will pay taxes and improve tourism.
I’d much rather see small independent craft brewers in every city, instead of ensuring that every city has shelves of (imported) craft beer sitting on retail shelves.
Government does not belong in retail systems. And I wouldn’t call Connect a monopoly, as you can self distribute. Does anyone know if out of province brewers can also self distribute?
June 25, 2012 at 4:08 PM
As far as I can tell, all imports go through Connect. You can only self distribute in Alberta if you are an Alberta based brewery.
June 25, 2012 at 4:42 PM
Chris is right. The regulations stipulate that only Alberta producers can self-distribute. All imports MUST go through Connect. So, I argue that, for all intents and purposes, is a monopoly.
June 25, 2012 at 8:30 PM
Fair enough, but don’t most, if not all of the imports have local representation/agents selling on their behalf? Or in some cases are brought in by the retail stores specifically? I would think these are the people that should be concerned about beer sitting in Connect’s warehouses, not Connect.
And if Connect is as bad as some people are making them out to be, then why do imports continue to flood in using their distribution system? Sorry, I don’t understand this one, maybe I’m missing the point… would be nice to here from some of the breweries/agents that deal with Connect.
June 25, 2012 at 4:43 PM
Hmm… Wonder if they could distribute through an in-province brewery?
June 25, 2012 at 7:05 PM
Interesting discussion, and especially since we in BC are debating all this right now. While we do have some private liquor stores in BC and some private distribution, everything is still run through the government. Here, in Vancouver and Victoria we envy places like Sherbrooke liquor store that can carry more than 1000 beers. Every special order that we try for has to be accepted and processed via the government first and that can take 8-12 weeks. Just ask Artisan Ales Consulting!
June 25, 2012 at 9:59 PM
Just felt I should mention recent relatively negative(or at least questionable) & positive ‘Connect’ experiences. I encountered 3 different Flying Monkeys six packs at the local Liquor Depot last week. Now I believe you had posted back in Feb. or March Jason, that we’d be getting ‘F/M’ in April. I should’ve been suspicious, but eventual tasting screamed ‘Not Likely Fresh!’.
On the other hand(positive experience), I had a pleasant & unexpected surprize this past weekend when-out of the corner of my eye-I spotted a caged & corked bottle from Urthel in The Netherlands. Background; the name ‘Urthel’ had been slumbering in my subconcious for just over 2 years. It was back then that I had read Andrew Strohlein’s 40 Beers@40 blog, specifically about an Urthel beer – http://40beersat40.blogspot.ca/2010/04/urthel-saisonniere.html . I had decided then that Urthel was a name to watch for. Hence my snapping up the bottle(of Urthel Hop-It)without hesitation! A Wonderful blond ale, almost as fresh-tasting as if it had come from Alley Kat, but clearly of European origin, very masterfully brewed-at Koenigshoven according to the label.
June 25, 2012 at 10:56 PM
Darrell as as agent I can tell you product is released as quick as they can from Connect, with our agencies orders we often see product released for sale to stores with sometimes hours of arrival. Even our first European order it was received on a Friday cleared customs, Avery marking and slotted with in days.
As to brewery start up Jason please talk to your local brewers they took years to reach the minimum levels the ALGC wants and the AGLC was more than patient with them. One thing I do find a little interesting is as importer I can bring a very tiny brewery that produces less than a 1000 hecs but such a brewery can’t exist in Alberta. That does seem like a double standard but if you change this say good bye to the lambics in the Alberta market.
As to number three when Drummond, Wild Rose and Brewsters get to the next tax mark up rate pretty sure they will lobby the government to have the lowest mark up hec rate increased. They got it raised once already.
As to the inducements it is an ingrained culture. As agent, I do my part to stop it. If a bar asks for stuff beyond glassware I ask for an email and forward to the AGLC but most of all I tell them that we don’t do it. Know other agents cave in but as our breweries are small and don’t really give anything we have nothing to give.
As to the monopoly it is not crushing to the agent it is just a cost that is built in. In fact Connect has twice lowered their fees in the three years we have be dealing with them. This monopoly charges the same rate to deliver beer anywhere in Alberta so in fact where a case of beer should cost more in Fort Mac of Lethbridge it is the exact same wholesale delivered price. Jason there is a cooled section to the warehouse and the rest of the warehouse is temperature controlled. With each PO you can state what you want refrigerated and surprisingly there is no extra surcharges for this. The responsibility is the agents or breweries to forecast and rotate stock. We run our stock to zero as much as we can before the next order comes in to maintain a degree of freshness. We have been lucky with the forecasting had even have managed to have only to buy back very small amounts of stock. Forecasting I think is the hardest part of being an agent besides having the capital to float a company on very small margins.
June 26, 2012 at 12:15 PM
I don’t think privatization would have the impact on our local scene that you think. Look at Saskatchewan and Manitoba, their local craft beer scenes are not exactly booming, with I believe one craft brewery of note in each province and a good brewpub in Regina.
In Ontario, the other system that I have the most experience with, there are a number of local breweries that get some decent shelf space at the LCBO. Problem is, Ontario craft brewers make a lot of bland, boring, bad beer. Only last year did they start making widely available American-style IPAs that were not an embarrassment, and they’re still far behind on many other styles. The good beers they do make are very rarely available at the LCBO, instead you need to buy them from the brewery or go to a good local bar.
I don’t know this for sure, but I suspect that the lack of competition in the government-controlled market has kept Ontario brewers behind the times. In one case, a brewery that any Ontario craft drinker will tell you is terrible, Trafalgar, is being carried along solely based on their long relationship with the LCBO.
Their are definitely regulatory improvements that could be made in Alberta, but for our local scene to improve the market needs to change, and our brewers need to improve. The market is changing, which is great, but our brewers need to step it up if they’re going to compete with all the awesome imports we keep getting. Why does Amber’s still have serious quality issues? Why do all of Alley Kat’s beers still have that gritty, slightly metallic taste? My experience in Ontario suggests that they wouldn’t improve just because they have guaranteed shelf space at a government liquor store.
June 27, 2012 at 7:28 PM
Here’s a wacky idea: stop taxing liquor differently than any other business.
July 8, 2012 at 10:09 AM
I think the solution here is quite simple, look at ideal jurisdictions where the beer scene is most lively and copy them. No need to be a trailblazer here.
The jurisdictions in North America with the liveliest beer scenes in North America are generally accepted to be Oregon, Washington, California, Illinois and perhaps even our neighbour Montana. In Canada it would be Quebec. What do they all have in common? They all allow folks who sell food to sell beer as well. Makes sense, beer is a type of food after all and destigmagtizes beer. As well, everyone shops for food so many more people are exposed to new micro brews and local brews.
They don’t ghettoize beer into an exclusive liquor store like the Alberta system. They allow retailers big and small to sell beer. This is similar to those other beer powerhouse nations such as Belgium, Germany, UK and even Communist China where you have a variety of retailers each filling their unique niche.
How the market sorts out in these open markets is that the “food” retailers handle the volume while the numerous liquor shops handle the unique, the specialist and fill the role of the local expert. Think Sherbrooke or Willow Park. That is not to say that some of the food retailers are not champions of local micro beer as well, Safeway and Costco in the US work very well with the beer community.
Where Alberta took a wrong turn with privatization is by not allowing any legitimate retailer to sell beer. By ghettoizing beer into a dedicated liquor store, all in the name of protecting small business, what has transpired is that a middling middle sized retail store has been created. These “strip mall” big brand liquor only stores that scatter across the province do not really form in the open retailing jurisdictions because folks who just want Coors Light can pick it up at Safeway or Walmart for a better price while shopping for food.
Our system was created for the convenience of folks who are not too discriminating, either in type of beer or price. It is a system with giant overhead that doesn’t serve innovation well.
Consolidation has also grown and now we have a few middling chains buy many of the best stores in the province and bring them under the mass retailer umbrella. They are protected so not we have all the disadvantages of a large retailer but without the advantages in low pricing. In fact, the largest of these retailers has a policy of charging more than anyone else, figuring cynically that folks who just want a case of Coors Light won’t quibble over paying more for convenience. This retail consolidator has been performing well on the stock market this year and pay out a very nifty dividend on the backs of folks who don’t care about pricing. They are protected and have “lobbyist up” to protect the legislation that protects its market.
Can Alberta change? Well, Albertan will never accept a re-nationalization of beer retailing, that is a non-starter. But will they accept beer retailing in food stores to open up the market, increase selection and lower prices? That is a cultural discussion more than anything. If sure if the middle-of-the-road liquor retailers were allowed to sell food and sundry goods they would be okay with the food retailers selling liquor. There would be a reckoning on the “strip mall retailer” side and many would be squeezed out. Viva capitalism! Its all down to how much this would blow minds in uptight Anglo Canada to sell beer like “the Americans” do. Nevermind this is also how 99% of the rest of the world sells beer without a hitch.
What do you think?
July 8, 2012 at 10:16 AM
Sorry, what I meant is that I’m sure mom & pop liquor retailers in Alberta would jump at the chance to sell food and other sundry good like maps, chewing gum, gasoline, etc. if all it meant was letting food retailers to sell beer and liquor. This already occurs in rural areas in Alberta so it isn’t new.
July 8, 2012 at 4:13 PM
Shane,
Some fascinating and thoughtful observations. You make an excellent point suggesting Alberta de-regulated retail only half-way, creating the mess we have. I believe the decision to allow liquor-only licenses for retail was less about protecting “small” business (because it hasn’t) and more in ensuring a handful of players got lucrative opportunities. Had they thrown the whole thing open, those “friends” would not have made the mint that they did.
Your suggestion is worth considering. I remember going to a Brussels grocery store and finding Westmalle Tripel for 70 Cents!! The concern is it might also exacerbate the worst of the system we have, rather than refining it. Hundreds of corner convenience stores carrying only Bud Light and Coors, and those of us who want good beer will still have to trek to Sherbrooke/Willow Park/Little Guy/etc. I think that is because the problem runs deeper than retail. We need to develop a local beer culture that creates space for craft beer. If that happens, we are more likely to find that an open retail system will have space for the Alley Kats and Wild Roses and Paddock Woods of the world.
Thanks for the insightful thoughts.
Jason
July 8, 2012 at 6:57 PM
Jason,
I agree with you, you will see hundreds of corner stores that only carry Bud Light and Coors Light (regular Coors I actually wouldn’t mind) but if those are the “dire consequences” of opening the market, I can live with that. You shouldn’t require a membership to “Rogue Nation” to buy beer after all 🙂 No one starts on Single Malt scotch from scratch after all, so we should expect folks to just pick up a US Style IPA from the get go.
Right now, I think the major concern with our microbrews is exposure to local micro beer along with pricing as a concern as well. People will not buy what they don’t see, can’t afford or can’t try out. With the consolidation of mediocre independent stores under one umbrella this only hurts innovation and exposure to the new brews even more while jacking up prices across the board. Thankfully we have chains such as Solo Liquor that try to hold the line on beer prices but our system hurts us in the availability area.
There are food retailers such as Sunterra and Community Natural Foods in Calgary that would jump at the chance to display goods from local micros as this is already their mission with foods and there is money to be made. They would jump at this if only they were allowed to. You see this with Trader Joe’s and Whole Foods in the US with their great beer selections. Even the Safeway in Kalispell has a localbrew selections that blows 95% of Alberta liquor stores out of the water.
The fact of the matter is, the market in Alberta currently is only large enough to host 5 or 6 dedicated liquor stores with a microbrew focus in Calgary/Edmonton and only 1 or 2 in Red Deer/Grande Prairie/Lethbridge/Med Hat. If retailers that already had a focus on local for instance could bring in local brews, it only adds to the number of curious eyeballs who would give it a try. We have to grow the market and right now, we have hit a wall.
Beer (and wine) are foods just like bread and cheese. They are part of our culture, part of who we are. This should be emphasized instead of stigmatized. I know there are some serious cultural hangovers (pun intended) in regards to the place of beer in Anglo Canadian society, more that almost anywhere, but as Alberta becomes more confident and worldly those objections can be overcome. Right now Canadians get a “thrill” when we travel and buy beer from a grocery store. Doing what is forbidden at home. Well, it used to be forbidden to buy beer from a private citizen in Alberta in the recent past too and we got over it. There isn’t a state in the Western US or country in Europe that doesn’t already allow this, even Sweden, and yes even Utah where the popular 4% Polygamy Porter is available in every grocery store in Salt Lake City.
The major objections I see are that these changes would threaten the status quo, which is where Albertans trade selection and pricing for convenience and an oligopoly is slowly being formed. I have no doubt they would love to recreate the Ontario Brewers Retail in Alberta, private monopoly and all, if they could get away with it. That is why the retail market (and wholesale too!) should be blown wide open US West Coast style.
The changes I believe that are needed are quite easy… Just remove the Class D General Merchandise Liquor Store 15km distance restriction. That’s it! What I share is already a fact in rural Alberta. Surely urban Albertans are just as responsible and mature.