Local owner calls liquor reform laws a farce at taxpayers expense

Derek Kilbourn

Sounder News

Tuesday, May 12 2015

When it comes to the new liquor laws put in place earlier this spring by the BC government, and the pricing structure created, local store owner Michael Brown says he and many other owners are still trying to figure out what the government’s end game is.

The changes, he says, are not just bad for private businesses like his. The changes are “also bad for the government store, bad for the taxpayer, and that is bad for everyone. That is why it needs to change again.”

Brown says he has met with the owners of the private stores on Gabriola, as well as fifteen private liquor stores in Nanaimo and contacts in Victoria and Penticton.

He is also in contact with David Ebbey, MLA for Point Grey and the NDP critic for provincial liquor policies.

“Our goal is to let the public know what is really going on, what they’ve really done.

“I own a private liquor store. This is not a poor me - this is what the government is doing to both private liquor stores, the wine industry in BC as a whole, distillers and the local breweries. It makes no sense how they’ve taken a bad system and made it worse for everyone, including the consumer - except the giant grocery store chains.”

Under the old rules, the government retail stores and wholesale division were together.

The wholesale division (the warehouses) would sell to retail (LDB) stores at 49.6 per cent cost of sale.

Private stores were purchasing at 16 per cent.

“That’s the system they’ve had in place for years, where we would work on a 16 per cent margin. LDB was working at basically a 50 per cent margin.”

The government claims that it has leveled the playing field with the new system by bringing the LDB discount down from 50 per cent to the same 16 to 18 per cent the private stores buy at.

Brown said those same stores are now being expected to still show profit.

“If you look at their last year’s operating expense it is 17.2 per cent.”

From another perspective, government stores have seen the government eliminate roughly 35 per cent of their operating revenue while requiring those same government stores to still maintain the same union staffing levels and hit profit margins barely below the wholesale discount.

BC has a massive craft beer industry, one that continues to grow in popularity.

Yet, as Brown points out, craft beer has one of the lowest margins (six per cent) in the stores because of the way the government regulates pricing.

“Government stores are losing 11.2 per cent on every bottle of BC beer that is sold. So the taxpayer is subsidizing those purchases. If you buy it at my private store, that loss comes out of my pocket.

“From that perspective, it also looks like the breweries are getting screwed.”

On top of the craft brew losses, looking at the price list provided to the LDB stores, over 60 per cent of the products are being priced below where stores could sell the product at a profit.

Brown said, “The government has put all the profit into the wholesale division. They believe that’ll keep the tax revenue to the province the same.

“Why, when you are making money on the wholesale, would you throw retail under the bus? Why would you give them a business model that is impossible to maintain?”

To answer that question, Brown says that looking into the crystal ball he sees the government retail liquor store union (BCGEU) contract coming up for renewal in three years.

“Under the current contract, they can only close a small number of stores before the contract is up. By mandating that the retail stores have to show a profit, they will be closed down, and they’ve been given a business model that is almost impossible to show a budget with.

“They’re operational revenue just went down 34 per cent - which is completely unfair to them. 

“That’s the only thing we [industry owners] can see. They want to close the government liquor stores - so the licences can move to the new grocery store model.”

In the new grocery store model, the government is auctioning off “dormant” liquor store licences, and grocery stores are eligible to purchase those licences. As Brown pointed out, it isn’t the small independent grocery stores or people wanting to open a new private liquor store who are going to win those auctions. It will be the deep pockets of the grocery store chains.

Brown said, “I prefer the old model - given the choice between the two - the old model was better for us, better for the taxpayer and definitely better for the BCGEU union workers.”

As for any advantages the government stores have gained, Brown says those are false flags set up by the government.

Changes like the government store being able to be open on Sundays and holidays.

“They’ve been mandated to show a profit. Now they have to pay more for union staff to be in on Sundays and stat holidays.”

Government stores are also being “allowed” to sell cold beer - which means tax dollars are being spent to add fridges to government stores.

As Brown pointed out, many of those same stores, if the current system keeps up, will be closed within three years.

“So they’re spending thousands of taxpayer dollars to install equipment they’ll be shutting down in three years.

“Capital cost is coming out of revenue streams that should go to health care and education.”

The government has kept the exclusive right to sell to pubs and restaurants - which is just shy of 20 per cent of liquor sales in the province. They’ve also kept the rights to sell special event liquor licences and product.

From the private owner’s perspective, “We lost our exclusivity on Sundays, holidays and cold sales. 

“Our purchase price is the exact same as we were paying with our discount - so we didn’t gain any percentage points there. We still are not allowed to sell to pubs/restaurants, still can’t sell special event licences.”

Adding insult to injury, Brown is now limited to only getting one delivery per week from the warehouse for the wholesale price. He used to shop at the warehouse four times a week.

If he needs to top up, or fill a part of his order which wasn’t provided by the warehouse (a frequent issue), he can go to a government store and pay full price. He cannot, as a private store, go to another private store and pay full price to top up his stock.

“I don’t know what is in the warehouse. I don’t know until the day before it arrives what I’m going to get to put on my shelves.

“Since I’ve been in business for ten years, I built my store for the system that is set up. 

“I did not build my store to hold an excessive amount of stock. So now [with only one delivery per week] I have to hold double the amount of stock, just in case of being shorted deliveries. So now I need to hold three weeks of liquor on my shelf, which is a massive outlay of cash for me.”

Brown says there is a report, done by the government, which shows what the impact of the liquor reform laws would be.

Brown said the government refuses to release it, despite a Freedom of Information Act request from the NDP, because they know the report states the change will close out hundreds of jobs.

“The NDP have been fighting it; it is falling on deaf ears. 

“I want them to tell us, what is the end game? If they want to close the stores and put booze in all the supermarkets, then tell us.

“Because of the system they’ve set up, it is lose-lose for everyone.”

Adding further insult to injury, the new grocery store licences get a 26 per cent discount (compared to the 16 to 18 per cent discount private and LDB stores get); those stores only have to pay for stock when a customer purchases it (compared to how Brown and his peers are pre-paying for stock that sits on shelves); and grocery stores are not covered by the “one kilometre” rule which disallows a new liquor store from being set up within 1km of an existing liquor store.

Brown pointed out, “Think of all the private or government stores which are located next door to, or in, the same parking lot as existing grocery stores, who if they choose, would then be able to stock product at no up-front cost and with a deeper wholesale discount.”

As for a solution, Brown says either put things back to the pre-liquor reform setup, or go to a flat tax system like Alberta, and let everyone buy from the supplier.

“I understand the province needs the revenue, it’s just the way they are going about trying to get it.

“To get rid of those government contracts, they are spending millions to renovate stores. It is a complete and utter farce.”