(Image: Mike Gifford)
Better grab a bottle of Wild Turkey and sit down before trying to understand this one. In an annual report released on Monday, provincial Auditor General Jim McCarter sank his teeth into a policy that makes the Liquor Control Board of Ontario pay more than it has to for wholesale booze—sometimes even demanding the privilege. You’d imagine the LCBO, as one of the largest purchasers of alcohol in the world, could, if it wanted to, use its clout to get lower wholesale prices, thereby reaping greater profits for provincial coffers or passing those savings on to consumers. Instead, it ascribes to a mystifying stratagem that brought on the Toronto Sun headline “Welcome to Suckerville, Ontario.”
Under the current system, the LCBO first decides what it wants to charge for a particular new listing. The price has to be low enough to produce solid sales numbers without unduly boozing up the province (it is a control board after all). Next, it references that number against the amount of profit it is prescribed to earn—for example, 65.5 per cent for Ontario table wine—and calculates backwards what it wants to pay the supplier. If the supplier’s quote falls outside an acceptable range, the LCBO asks it to revise the asking price, even if that means paying a little more. In its defence, the LCBO states in the report that other Canadian jurisdictions also use the fixed markup model and that it provides a balance between “generating revenue, promoting social responsibility and providing customers with selection and value at all price points.”
Finance Minister Dwight Duncan conceded in an interview with the Toronto Star that the policy is “counter-intuitive,” but argued (with a straight face) that Ontario’s higher prices had some advantages. “The infant mortality rate in Detroit—where you might go to buy a bottle of wine for $6 that you pay $18 for here—is much higher,” he said. “I choose our system. I choose social responsibility.” But that still doesn’t explain why the LCBO couldn’t charge the same higher prices and simply pass more money on to the province—especially with Ontario facing a $16-billion deficit. To be honest, we’re not entirely sure whether it’s stubbornness on the LCBO’s part or a legislative straitjacket that’s preventing the agency from adopting a more price-competitive model. Like we said, this all goes down smoother with a bottle of Wild Turkey (that’ll be $28.25).
That is why monopolies dont work. unreal
December 8, 2011 at 9:51 am | by TdotI don’t agree with the economic model explanation BUT I will take the Social responsibilty explanation. :)
December 8, 2011 at 10:30 am | by Cosmo MannellaCosmo Mannella
I can understand the desire to fix a price level for social responsibility purposes, but I agree with the author regarding not taking a higher profit-be it for the deficit, social responsibility, or other education programs. If the LCBO isn’t taking the profits, the for-profit companies are!
December 8, 2011 at 11:07 am | by WinnieWhat most people do not realize is that, not only has the LCBO increased their mark-up to 71% from 65% to make up for a small loss of revenue due to HST, the monopoly has one of the highest operating costs with remarkable inefficiency that have NOT improved.
While there are many wineries desperate to get a listing in this province, there are are many more top quality producers who prefer not to sell their wines to the LCBO, as they get better sales and reception elsewhere.
Indeed, why should a wine that sells at $6.00 in Alberta be twice more expensive in Ontario? Social responsibility is a lame excuse for such highway robbery. Alberta has not seen a rise of alcoholics since liquor sales have been privatized almost 20 years ago.
December 8, 2011 at 11:15 am | by winegeekinTOBut in Alberta and BC healthcare is not free.
December 8, 2011 at 1:51 pm | by ASFirstly, “alcohol abuse” has nothing to do with “social responsibility”. Regardless of price, a SMALL percentage of people will always NEED TO abuse alcohol AND drugs !!!!!
Wine and beer have been available at PRIVATE CORNER STORES for more than Eighty years in Quebec and Quebec has the lowest rate of Alcohol Abuse in Canada. The HIGHEST rate of such Abuse (8.92%) in Canada is in Ontario, with the maximum, provincially, in Toronto !!!!!!
When Alberta “LCBO” went private, they doubled the “net” “provincial” “return” of 92cents per litre to $1.92 per litre, as a tax add-on. If the same was done in Ontario, thru Wine & Beer in corner stores, then the Greedy Provincial coffers would go from a “net return” of
$480 million to $2.7 BILLION per Annum !!!!
AND the alcohol abuse “traffic rate” would immediately plummet, saving lives, AND general illegal access would go down by 50% or more AND ONTARIO Wineries would have “free” outlets for their wines that would cost them nothing and would expand their market, within Ontario alone, by 825% !!!
Oh yeah, such a move would create at least 5,000 NEW jOBS that are unaffected by the economy AND are
multi-generational.
This has happened in all provinces in Canada EXCEPT Ontario……. When do WE get SMART ?????
December 8, 2011 at 1:57 pm | by James P.C.Mr. Premier of the people ?????
L C B O
absolutely no accountability on what the expense , why do they produce such an expense magazine month in and month out for free??????? what a waste of money and effort!
December 8, 2011 at 2:03 pm | by DOWNTOWN MANCorrelating infant mortality with the price of wine is absolutely ridiculous.
December 8, 2011 at 4:10 pm | by Gayle YIt has nothing to do with social responsibility. The cost of alcohol is not a deterrent for those who want to drink.
December 8, 2011 at 4:12 pm | by Richard SGo to the US and walk into a Trader Joe’s. They have table wine for $3/bottle. You don’t see vagrants and beggars outside of Trader Joe’s, and I wonder what Oregon’s infant mortality rate is.
The LCBO is archaic. its day is done.
open up the market. enough with this monopoly.
Agree with Gayle – the comparison is absurd and offensive.
December 8, 2011 at 4:18 pm | by Keith TLet’s even assume that this bizarre logic applies for say wine that sells for less than $10 per bottle. What about the $25, or $50 or $100 a bottle wine? Would po folks “abuse” a $75 a bottle wine from the LCBO that would otherwise have sold for $65 per bottle without the bogus “SOCIAL RESPONSIBILTY” premium? No wonder this province is in such diffcult circumstances.
December 8, 2011 at 4:40 pm | by Otis T FireflyThanks-a-million, LCBO, for saving us from Detroit-levels of infant mortality.
December 8, 2011 at 5:24 pm | by PiccadillyLineToCockfostersI bet Canadian Book retailers used this same model, and we all know how the consumer was screwed with that pricing model.
December 8, 2011 at 5:24 pm | by GordSounds like the LCBO was caught with their pants down…once again excuses for responses…it would be nice one day when someone within a government position would stand up, take responsibility and simply fix the issue.
December 8, 2011 at 6:57 pm | by Scott KochIs anyone else shocked that the minister compared Ontario to Detroit? I mean, beating Detroit on Quality of Life measures isn’t something to write home about…
December 8, 2011 at 8:12 pm | by Peter