standard A closer look at the details behind Wynne’s plan for beer in grocery stores

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I did a just-the-facts story on Premier Wynne’s beer in grocery stores announcement for the day job at Post City. It’s a complicated situation (intentionally, I think), so I have decided to also put together a blog post to cover some depth, subjective impressions from the press conference and my commentary.

First, I’ll say that Kathleen Wynne is a politician who seems to be both charismatic and solid on policy. Ed Clark, as a former bank CEO (not to mention designer of the NEP in his previous career as a civil servant), was more than qualified for his role leading an advisory council on maximising the revenue from provincial assets.

The plan they introduced for allowing the sale of beer in grocery stores is a tiny step forward but generally bizarre and inexplicably fawning to the megabrewers who own the Beer Store. Here is my commentary twisted together with :

The ABV cap: This might be the strangest point in the list of regulations. Grocery stores will not be allowed to sell beer that is more than 7.1% alcohol. I guess there was probably a (misguided) social responsibility motive that involved a calculation of standard serving sizes. Someone may have asked something like “well, what if they go and put together a six-pack of those there barleywines?” But instead of writing the rule to address that issue directly (say: singles up to whatever abv wine is capped at and six-packs to 7.1%), some of the province’s best craft beer — Twice as Mad Tom, Tempest, and Witchshark to name three — were preeptively excluded from grocery stores.

Nothing more than a six: This is where Wynne, in particular, was shakiest. I could tell that she knew she was stealing any hope of believability from the “More Convenience More Choice” slogan emblazoned on her podium, when it came to answering the question of why grocery stores won’t be allowed to sell twelve packs or two-fours. Out came the burger-flipping hand motion that politicians use to remind themselves to stay on staffer-crafted message. “We can’t blow the whole system up,” she intoned.

Sure you can. That’s the nature of legislated monopolies.

And, as far as I know, maybe no one in the province can operate a refrigerated supply chain like the boys at Brewer’s Retail can (the LCBO certainly can’t). Keep that part of the system. And, also, let them continue to do a bang-up job of operating a recycling depot for empties, disguised as a retailer. But what does it have to do with package size? It has plenty to do with market share and clearly the megabrewers agreed to wave the white flag on the quality-conscious segment of the market in exchange for keeping their stranglehold on the price-sensitive four-fifths of it.

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Store size: For all the announcement’s murkiness, one thing is clear: convenience stores are shit out of luck. An individual store will have to have 10,000 square feet of space devoted to groceries in order to sell beer. That’s a lot of real estate. For context, Longo’s just opened a new Market by Longo’s in midtown Toronto that at 8,500 square feet doesn’t qualify.

This rule probably counts out all of those operations like Rabba and Hasty Market.

Maybe, you don’t drink beer or never really saw yourself buying beer at Mac’s and are fine with that as an end result. Here’s why I think you should be concerned the process that got us there. On one hand the Ontario Convenience Store Association did what industry groups are supposed to do in a democracy — they circulated petitions, ran TV commercials, lobbied politicians and generally banged the drum in public view. By contrast, Galen Weston and other major grocery store CEOs met privately with Ed Clark’s panel.

The 1% fee: The entire grocery store system has a beer quota and if it is exceeded the operators that sell over their share will pay 1% of the overage to the megabrewers, via the LCBO. This will not mean empty shelves three days before every long weekend. It’s more accurate to think of it along the lines of the fees Teksavvy pays to Rogers. The government has allowed a company (Brewer’s Retail) to run roughshod over the market for decades and now that they are cracking the golden monopoly egg open they have decided that if they truly become competitive, the smaller players will have to pay the ex-monopolists for using their infrastructure.

Painfully slow implementation: By the end of December 2015, up to sixty grocery store managers will have golden tickets in their figurative hands and need to come up with a plan to implement beer sales as quickly as possible. That’s roughly eight months after the government’s original April announcement. Fair enough, to some extent at least, given that they negotiated a new accord with the megabrewers, set up the rules for grocery stores and will hold the bidding and selection process.

After December, things slow way down. Only 90 more grocery stores can come online over the next two- one-and-a-half years. We can have another 300 after May 2017, but why is phase 2 so drawn out? And so limited? I can only imagine that was how long the megabrewers said they’d need to shake off the cobwebs and chip off the mold that accumulates over many decades of operating a retail monopoly. Expect to see a slew of new and renovated Beer Stores and LCBOs during this period of government-throttled competition.

Good stuff: The Star really led the media with leaks leading up to the announcement — and let’s not forget to raise the first glass of grocery store beer to their Martin Regg Cohn for getting this ball rolling — and in classic government-leaking-to-media bait-and-switch fashion, some of the most troubling points turned out to not be in the regulations. Here are the points I’m happy to see in the plan:

  • Grocery stores can decide whether to have separate cash registers for beer or not. (But cashiers must be 18 to operate them.)
  • They can sell singles (or four-packs), so long as each bottle or can is 750 ml or smaller.
  • A good-sized chunk of this programme has been set aside for the medium-large grocers like Longo’s and Farm Boy.
  • As previously announced, Bellwoods (and others) can have a bottle shop at their second brewery location.
  • The fee to participate is based on gross margin (retailer keeps 3 – 9.9% of final price; brewer + LCBO + tax man take the rest) so it’s not like they will pay a flat fee and then face the market distortions caused by things like dairy quotas or taxi licenses.
  • The “Small Brewer” category that gets preferential treatment at the Beer Store and 20% of shelf space both there and at grocery stores, specifically excludes breweries who are affiliated with megabrewers — so the Creemore backdoor has been explicitly shut.
  • Small brewers can pool deliveries.

This is still an excellent opportunity for grocers to beat expectations and shape Ontario’s beer market in interesting ways — apparently, Farm Boy is aiming to be 100% craft with their selection. How much of the pie are they fighting for in the end, though? Ed Clark shrugged his shoulders at the press conference and estimated that once we’re at 450 stores (who knows when) it might make up 10 – 15% of Ontario’s beer market.

1 Comment

  1. Personally I boycott The Beer Store monopoly on principle and save money in the process. Living in the Niagara Region, we have quick access to Niagara Falls NY and picking up an 18 pack along with $100 of groceries does not result in a trip inside to pay the duty and HST. Pre summer, we tend to stock pile American bought beer. I also refill growlers at Silversmith brew pub and support our local industry. We should where possible vote with our wallets and boycott The Beer Store.

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