Yesterday afternoon the Alberta government put out a short media release regarding a change to the beer mark-up policy. I will quote it in its entirety:

“The President of Treasury Board and Minister of Finance, Joe Ceci, has directed the Alberta Gaming and Liquor Commission board to set the beer markup to $1.25/L, regardless of the size of the company or location of production. The markup takes effect August 5. The change applies to beer only. In the coming weeks, a grant for Alberta-based small brewers will be provided to support the development of the industry, while supporting local entrepreneurship and investment. More information on this grant will be available soon”

Many of the early news reports (at least those that didn’t talk to me) are getting the wrong end of the stick so far, but I can understand why. Many reports are suggesting the government is backtracking on its two-tier mark-up implemented last fall. This is likely due to the media release itself, which emphasizes that aspect and only briefly mentions the grant for Alberta brewers.

The grant, however, is the lynch pin in this policy.

Last fall the government implemented a new policy which offered lower mark ups to small breweries in Alberta, B.C. and Saskatchewan while the full $1.25 per litre rate applied to beer originating elsewhere, regardless of brewery size. For a more detailed analysis of that policy read my post here. The inclusion of B.C. and Saskatchewan was due to Alberta’s participation in the New West Partnership trade deal.

The new policy caused howls of outrage from importers in the province and sparked a lawsuit from Toronto’s Steam Whistle Brewing (read here). One of the effects of the policy was an influx of beer at discounted prices from B.C. (read here).

Yesterday’s announcement eliminates any graduated mark-up for beer. All beer sold in the province will be subject to the $1.25/litre mark-up, no matter where the beer is made or how small the brewery is. At first blush this may seem a bad thing for Alberta breweries, most of whom go from the lowest rate of 10 cents/litre – a 1250% increase.

But you need to read the line that says “a grant for Alberta-based small brewers will be provided”. The media release is woefully short of details – which I think is an unfortunate media strategy mistake on the government’s part – but it makes all the difference. I have heard from various sources that the goal of the grant is to make Alberta breweries whole from the increase. They will get a grant equivalent to the difference between what their old mark-up was and the new rate.

The reason it was not announced yesterday is they are still working out important details like how often payments will come and how to calculate the amount. My guess for why they rushed the announcement this week is to get ahead of the scheduled hearing on Steam Whistle’s lawsuit next week. The new policy essentially makes that lawsuit moot. There is no trade infringement if the same mark-up applies to every brewery.

Plus, grants to local producers are not unique in Canada. Ontario offers millions in development grants to their craft breweries each year. Nothing unconstitutional there.

So what does this new policy mean? My take is that this is a net gain for Alberta-based breweries. While the arrangement is a bit convoluted they will end up in the same spot they are now. Their mark-up goes up meaning they have to choose between keeping their prices the same and thus lowering their margins but getting the cash flow back after, or they opt to increase their prices, lose the competitive advantage but getting some money back to make up for it. My guess is most (if not all) pick the first strategy as it makes the most business sense.

For most imported beer, the announcement changes nothing. Since last fall they have been dealing with a $1.25 mark-up and so nothing changes for them. B.C. and Saskatchewan breweries are the losers in this picture, as they now find themselves in the same boat as Ontario or Nova Scotia or California breweries. Whether this is good or bad depends on your perspective, but it is likely to bring an end to B.C. breweries’ practice of shipping low-priced beer to Alberta with the purpose of gaining market share. Saskatchewan didn’t really participate in this strategy, so it will have less impact on them.

What is the likely outcome of all this? The fall mark-up policy resulted in a boost in Alberta brewery sales. Some of the new entrants like Blindman and Troubled Monk found themselves dealing with the good problem of too much demand and established breweries saw a bump in sales (as did B.C. breweries). The new policy will likely compound that effect for Alberta breweries. The B.C. influx will ebb and bar and liquor store owners will appreciate the price competitiveness of Alberta beer – compounding the growing desire for local products from consumers that is naturally rising.

Expect to see more Alberta tap handles at local pubs

I must say this is not the most elegant way to go about supporting local beer production. The system is kind of indirect and may create unintended consequences. But the problem is not the policy, it is the context that forced the policy. Alberta’s privatized liquor retail system and open border gives the government very few levers to which to manage the system. Had the AGLC control over the number of import listings and the ability to push Alberta beer in stores (as Ontario and B.C. have) this policy wouldn’t be necessary. But they don’t, meaning this is all they have got.

Finally, what will be the effect on consumers? My guess is minimal. Most of the shock from the fall change has been absorbed. Despite the dire predictions from some quarters, there is still an impressive range of beer available to Alberta consumers – with more coming every month. Sure, some of it costs a little more now (which likely reduces sales volumes), but very few breweries have actually abandoned the market (and some of them did it for political reasons). The original policy was far less catastrophic than predicted.

The only breweries affected by this new change are in B.C. and Saskatchewan. If your favourite beer is from Phillip’s or Paddock Wood, expect a price bump. Otherwise, it is life as normal.

Overall, this is not an ideal approach to solving this issue, but it is better than nothing. A graduated rate for Alberta breweries only is the most desirable option, but Alberta’s privatized system combined with Steam Whistle’s lawsuit made that impossible. It is the best of a bad situation.

I am quite interested in hearing others’ perspective – especially those opposed to the original policy. How does this affect things for you? Similarly, if you are an Alberta brewery, does this actually help you? Let’s talk.