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Behind The Beer: The Truth About The Beer Store

For Ontarians wanting to enjoy a point, either at home or at a bar, their thirst is likely quenched by The Beer Store.  The Beer Store (TBS), with its iconic orange and brown signage, production-line service stations and long lines of customers balancing empties for refund, is a well-known brand in Ontario – but how well known are the operating practices of the company?

In this section, we go behind the beer to expose The Beer Store’s foreign ownership and its effective monopoly over the beer industry in Ontario – and argue for a revitalization of the provincial beer market in a way that fairly serves the interests of beer producers and consumers alike.

Foreign Ownership

Many consumers believe that, like the LCBO, The Beer Store is a government organization. Others trust that it is a Canadian-owned business. In reality, The Beer Store is privately run, owned by three foreign multinational conglomerates – and as such, both its business practices and revenues are determined by its foreign owners.

While The Beer Store is nominally owned by three Canadian breweries – Labatt, Molson and Sleeman – each of these companies is in turn owned by a foreign multinational brewing company. Labatt is owned by Anheuser-Busch InBev, which operates out of Belgium and Brazil; Molson is part of Molson-Coors, which is half-American; and Sleeman is a subsidiary of Sapporo, Japan’s largest brewery.

The reason for this lies in The Beer Store’s past. Established as a non-profit cooperative after Prohibition ended, the company was meant to give independent brewers the opportunity to sell their products at government-sanctioned locations. Over time, however, smaller breweries were bought out by larger ones – a process that has resulted in the system we have today. Currently, these three owner-breweries own most of the smaller ones: about 90% of the beer brands sold in Ontario fall under the umbrella of Anheuser-Busch InBev, Molson-Coors and Sapporo, meaning that these companies have an effective monopoly over both the production (brands) and distribution (TBS locations) channels of beer in Ontario.

 

Limiting Competition

The Beer Store handles 79% of the market share of beer sales in Ontario, and is responsible for the retail (consumers) and wholesale (bars and restaurants) beer trade in the province. The rest of the market share is divided between the LCBO and, for domestic breweries, individual on-site brewery stores. As a consequence, breweries that aren’t part of the Anheuser-Busch-Molson-Coors-Sapporo family have only a few options if they want to succeed in Ontario: sell out, or pay off the competition.

While The Beer Store lets brewers set their own retail prices subject to provincial minimum-pricing laws, they charge non-owner breweries substantially higher rates to stock their products on TBS shelves, making it necessary for those brewers to hike their prices in order to make back money lost through the fee structure.

The Beer Store operates under a two-tiered fee structure, charging one set of rates for breweries not affiliated with the owners, and special discount rates for breweries under the conglomerate umbrella. Owner-affiliated breweries, which account for 90% of the brands sold at The Beer Store, pay “volume-based fees” – that is, at-cost operating fees to cover various costs such as shipping, delivery, and disposal services. Meanwhile, non-owner-affiliated breweries – the smaller Canadian craft breweries – are charged “uniform operating fees” – marked-up rates that essentially act as a “competition fee” for breweries that haven’t been absorbed by the conglomerate.

These rates, which include “listing” and “handling” fees, can total over $20,000 for every new product that a brewery introduces – and must be paid for each variation of a product that a brewery wants to sell. For example, if a non-owner brewery wished to sell a lager, an ale and a light beer, each in a six-pack and twelve-pack format, in the majority of TBS locations, they would pay The Beer Store – and in turn its brewery owners – upwards of $120,000 for the privilege.

Given the practical monopoly that The Beer Store has on the beer market in Ontario, this is an unfair business practice. By charging exorbitant fees for the smaller breweries that have held out against consolidation by the big players, while at the same time charging its own companies rock-bottom prices, TBS owners force their competition to jack their prices, allowing their own brews to undercut the price points of non-owner breweries.

Allowing for a wider range of retail options would help to level the playing field for non-owner breweries. By establishing retail options where the owner does not have a vested interest in privileging certain brewers over others, Ontario would allow for more competitive pricing and a more honest distribution of operating costs between breweries – which would in turn enable smaller breweries to gain a proper economic foothold in the retail beer market.

 

Prohibition-Era Legislation

The Beer Store and the LCBO were established under the Liquor Control Act of 1927, which imposed heavy controls upon the consumption of alcohol in Ontario – many of which remain part of our drinking culture today. The reasons behind the Act were twofold: first, it placed heavy taxes upon the sale of alcohol in order to gain revenue for a deficit-laden provincial government; and second, its strict controls upon alcohol consumption appeased prohibitionist voters, who had lost the temperance referendum by a slim margin. These controls were justified on the basis of “social responsibility” – to control the sale of alcohol to those with substance abuse issues and minors.

While the “social responsibility” argument for controlling the purchase of alcohol remains very much valid, the contention that The Beer Store and the LCBO are the only retailers responsible enough to sell beer and wine is in itself outdated. Convenience stores already sell age-restricted products such as cigarettes and lottery tickets – and, according to a recent study, are more adept at age verification than either the LCBO or The Beer Store.

Ontarians Pay Too Much: The Beer Store Pricing

While the Province of Ontario mandates minimum pricing legislation on alcohol in order to keep to its mandate of social responsibility, The Beer Store’s prices, when compared with other responsible jurisdictions, gouge customers.  Because The Beer Store operates as an effective monopoly, there is no competition to moderate prices.  In a comparison of beer prices between Ontario, Quebec and New York State, Ontario consumers not only paid nearly $7.00 more for a case of 24 beers than Quebecers.  Unlike New York and Quebec, where the beer market is sufficiently diversified to allow for competitive pricing, the monopoly that The Beer Store has on the Ontario market allows the owners to push prices up. A case of Molson Canadian, produced by owner-brewery Molson-Coors, costs $39.95 at The Beer Store, while a more reasonable $23.43 at a dépanneur in Quebec. Meanwhile, that same case in a grocery store across the US border costs only $17.99. Opening the retail beer market to a more diverse group of licensed sellers, as in Quebec or New York, would provide consumers with more reasonable, yet still socially responsible, beer prices.  While no one is arguing that Ontario alter it’s minimum pricing regulations, there is plenty of room for consumers to benefit from more competition in Ontario’s beer market.

Beer Price Comparisons

Brand Format

Ontario

Quebec

New York

Molson Canadian 24 pack $39.95 $29.34 $19.19
Coors Light 24 pack $39.95 $26.98 $20.19
Budweiser 24 pack $39.95 $30.44 $20.19
Bud Light 24 pack $39.95 $26.36 $20.19
Labatt Blue 24 pack/30 pack $39.95 $28.37 $22.49 (30 pack)
 Provincial Minimum Pricing Legislation  $29.35  $26.55  

              Prices taken from The Beer Store (Ontario), Marché Gravelle (Quebec), Wegmans Grocery Store (New York)

 

 

 

 

Photos attributed to solviturambulando, Alykat, Piper Caldwell, Danielle Scott and mattdente on flickr.