Privatization of Liquor Sales

Several Canadian provinces have made forays into privatizing the sale of alcohol, with Alberta having completely privatized retailing of liquor. Examining the pros and cons would seem to suggest the decision to privatize is based more on ideology than evidence as governments respond to lobbying efforts by the private sector.

Canadians are being told privatization makes sense because it means cheaper liquor, a better selection, and easier access. Let’s examine these claims.

Privatizing the sale of alcohol doesn’t mean it will be cheaper.

Don’t be misled. In Alberta, where the sale of liquor is privatized, alcohol is not cheaper than it is in Saskatchewan, where the system is primarily public. In fact, liquor is often more expensive in Alberta than it is in Saskatchewan, despite the fact that Saskatchewan is less densely populated, a significant factor in determining distribution costs. That’s because the private companies in Alberta don’t have the purchasing power of a public liquor corporation. And in British Columbia, which has both public and private liquor retailers, prices are higher on average in the private stores.

SOURCES:

Campanella, D. and Flanagan, G. (2012). Impaired Judgement: The Economic and Social Consequences of Liquor Privatization in Western Canada. Canadian Centre for Policy Alternatives and Parkland Institute. https://www.policyalternatives.ca/sites/default/files/uploads/publications/Saskatchewan%20Office/2012/10/Impaired_Judgement_Oct2012.pdf

Flanagan, G. (2003). Sobering Result: The Alberta liquor retailing industry ten years after privatization. Canadian Centre for Policy Alternatives and Parkland Institute. http://www.policyalternatives.ca/sites/default/files/uploads/publications/National_Office_Pubs/sobering_result.pdf

Stockwell, T. et al. (2010). The price of getting high, stoned and drunk in BC: A comparison of minimum prices for alcohol and other psychoactive substances. CARBC Statistical Bulletin #7, Victoria, BC: University of Victoria. [p.4]

Boyd, C. (2011, January 20). Alberta liquor is not cheaper. StarPhoenix. [p.A11]

Privatizing the sale of alcohol doesn’t mean there’ll be more to choose from.

Because private alcohol stores exist to make money, the majority only carry the most popular products. Based on the experience when alcohol sales were privatized in Alberta, the selection actually gets smaller in most stores.

SOURCE:

Jazari, N. (1994). Impact of Privatizing the Liquor Control Board of Ontario. Toronto, York University. http://www.yorku.ca/nuri/lcbo.htm

Alcohol may be easier to get because it’s available at more locations and for longer hours.

That may or may not be true – it depends on the community and whether opening a location or staying open longer would increase profits. But when it is the case, it’s not necessarily a good thing. According to the World Health Organization, one of the most effective ways to prevent the bad effects of alcohol is through government policy that makes it less available.

SOURCE:

Jazari, N. (1994). Impact of Privatizing the Liquor Control Board of Ontario. Toronto, York University. http://www.yorku.ca/nuri/lcbo.htm

Now for some truths.

The social costs of drinking too much alcohol or drinking alcohol too often are high.

According to MADD Canada, alcohol consumption is linked to 65 medical conditions. It’s a contributing factor to injuries, impairments, and deaths caused by impaired driving, homicides, suicides, fires, etc.

SOURCE:

MADD. (April 2014). Provincial Liquor Boards: Meeting the Best Interests of Canadians. MADD Canada Policy Backgrounder.
http://www.madd.ca/media/docs/MADD_Canada_Provincial_Liquor_Boards.pdf

The World Health Organization, the US Centre for Disease Control, and the Canadian Centre for Addiction and Mental Health all agree public control is the best way to minimize the adverse health effects of alcohol. They all strongly oppose privatization “based on strong evidence that privatization resulted in increased per capita consumption.”

SOURCES:

Giesbrecht, A., et al. (2013). Strategies to Reduce Alcohol-Related Harms and Costs in Canada: A Comparison of Provincial Policies. Toronto: Centre for Addiction and Mental Health.
http://www.camh.ca/en/research/news_and_publications/reports_and_books/Documents/Strategies%20to%20Reduce%20Alcohol%20Related%20Harms%20and%20Costs%202013.pdf

US Center for Disease Control. (2011). Community Guide: Preventing Excessive Alcohol Consumption. http://www.thecommunityguide.org/alcohol/index.html

Centre for Addiction and Mental Health. (2004, January). Retail Alcohol Monopolies and Regulation: Preserving the Public Interest (position paper). Retrieved from http://www.ontla.on.ca/library/repository/mon/25007/311545.pdf

A study of the impact of privatization of alcohol sales in Alberta found significant increases in suicide mortality rates.

SOURCE:

Zalcman, R.F., and Mann, R.E. (2007 December). Effects of Privatization of Alcohol Sales in Alberta on Suicide Mortality Rates. Contemporary Drug Problems. 34: 589-609.

And Alberta has three times the rate of police-reported impaired driving as Ontario, where the sale of liquor is publicly run.

SOURCE:

Statistics Canada. Police-reported impaired driving incidents, by province and territory, 2011. http://www.statcan.gc.ca/pub/85-002-x/2013001/article/11739/c-g/desc/desc02-eng.htm

Eastern Health, the largest health authority in Newfoundland and Labrador, has just released a report saying that people in its coverage area enjoy 2.2 fewer healthy years of life than the average Canadian. This can be attributed in part to risk factors for chronic disease, including heavy drinking.

SOURCE:

Eastern Health. (2012). Health Status Report. http://www.easternhealth.ca/OurCommunity.aspx?d=1&id=2217&p=379

The cost to the health care system and law enforcement services, coupled with the costs associated with loss of productivity at home and work due to alcohol use, are estimated at $14.6 billion a year in Canada.

SOURCE:

Centre for Addiction and Mental Health. (2004, January). Retail Alcohol Monopolies and Regulation: Preserving the Public Interest (position paper). Retrieved from http://www.ontla.on.ca/library/repository/mon/25007/311545.pdf

Public liquor stores are better at ensuring compliance with liquor laws.

In Alberta in 2002, only 47 of 255 private liquor stores, just 18%, requested identification, despite the fact that they’d been warned an investigation would be taking place. More recent audits indicate increased compliance, but government has to pay the cost of monitoring compliance with the law by private liquor stores. In fact, the Alberta Liquor and Gaming Corporation saw a 59% increase in its operating costs after the privatization of liquor stores.

Since 2003, similar audits performed by the BC government have consistently reported a much higher compliance rate in stores that are publicly-owned (63%) rather than privately-owned (25%).

In comparison, in 2014 the publicly owned and operated Ontario Liquor Control Board refused service to 400,000 people – most of whom were underage.

SOURCE:

Enoch, S. (June 2014). Public versus Private Liquor: The Trade-Offs. Canadian Centre for Policy Alternatives. Saskatchewan Notes. https://www.policyalternatives.ca/sites/default/files/uploads/publications/Saskatchewan%20Office/2014/06/Public_vs_private_liquor.pdf

Privatization of Liquor Sales Just Doesn’t Add Up

Public liquor stores help pay for vital public services like health care.

In the period between 2010 and 2014, the Newfoundland and Labrador Liquor Corporation (NLC) provided $701,710,000 in revenue to the provincial government as follows:

2009-10	$124,000,000
2010-11	$132,682,000
2011-12*	$141,796,000
2012-13	$147,986,000
2013-14	$155,246,000

* 53 weeks

It is true that if the sale of liquor is privatized, retailers will pay provincial corporate income tax; however, in Newfoundland and Labrador, the provincial tax rate on the first $500,000 of corporate profit is just 3%.

It could also be argued that selling the NLC’s assets and applying the one-time-only proceeds to the debt would be helpful given the province’s current financial situation. It is clear, however, that any short-term gains would be offset in just a few years by the loss of annual revenue from public liquor sales.

Let’s Look at What’s Happening in Western Canada

The least effective provinces at managing wholesale liquor costs are those that have the largest number of private retail operations. The provinces with the most extensively privatized and fragmented retail systems – Alberta and British Columbia – saw an increase in wholesale costs that far outstrip the increase in sales revenue. In BC, sales between 2004 and 2013 rose 48%, while wholesale costs soared by 64%.

SOURCE:

Campanella, D. (2016). Down the Drain: The Saskatchewan Government’s Costly Proposal for Liquor Retailing. Canadian Centre for Policy Alternatives. https://www.policyalternatives.ca/sites/default/files/uploads/publications/Saskatchewan%20Office/2016/02/Down_the_drain.pdf

In Alberta in 2007, PriceWaterhouseCoopers was engaged after some suppliers and retailers were reported to have “lost confidence in the current model of liquor distribution in Alberta.” The report found the system suffered because it lacked a central agency responsible for ensuring it functioned smoothly and profitably – a role played by the public agency prior to privatization.

SOURCE:

PriceWaterhouseCoopers. (2007) Liquor Warehousing and Distribution in Alberta: Supply Chain Analysis. Alberta Gaming and Liquor Commission. http://aglc.ca/pdf/liquor/2009_Findings_and_Conclusions.pdf

In 2014, seven out of ten Canadian provinces had a gross profit margin in excess of 50%. Six of those provinces had private sector involvement limited to rural franchise stores while the seventh – Saskatchewan – also had two private stores that sold the full range of products. BC, which had nearly 700 private liquor stores, had a gross profit margin of 42%, while Alberta, where all liquor retailing has been privatized, had a gross profit margin of 32%. In 1993, prior to the beginning of privatization in Alberta, the province had a gross profit margin of 50%.

Lower gross profit margins translate into lower provincial liquor board profits, which in turn mean less revenue for provincial governments.

SOURCE:

Campanella, D. (February 2016. Down the Drain: The Saskatchewan Government’s Costly Proposal for Liquor Retailing. Canadian Centre for Policy Alternatives. https://www.policyalternatives.ca/sites/default/files/uploads/publications/Saskatchewan%20Office/2016/02/Down_the_drain.pdf

Because even average alcohol consumption rates are associated with health and social costs, the ideal liquor distribution system would generate the most government revenue from the least consumption.  Saskatchewan’s public distribution system had managed to do just that, while Alberta’s privatized retail system has only managed to increase government revenue through an increasing rate of consumption.

SOURCES:

Giesbrecht, N., et al. (1999 August). Privatizing Alcohol Sales and Alcohol Consumption: Evidence and Implications. Addiction. 94(8). 1125-39. http://www.ncbi.nlm.nih.gov/pubmed/10615728

Campanella, D. and G. Flanagan. (2012). Impaired Judgement: The Economic and Social Consequences of Liquor Privatization in Western Canada. Canadian Centre for Policy Alternatives and Parkland Institute.
https://www.policyalternatives.ca/sites/default/files/uploads/publications/Saskatchewan%20Office/2012/10/Impaired_Judgement_Oct2012.pdf

Let’s look at provincial return on investment. Saskatchewan and Manitoba, with their combination of public wholesale and public retail, have performed much better financially than Alberta with its private retail system and BC with its mixed public and private retail system. Saskatchewan’s ROI increased from 52% in 2004 to 64% in 2013 – an increase of 21%. In the same timeframe, Alberta’s ROI fell from 61% to 46%. Saskatchewan earns a far better return on the payments it makes to distribute liquor in the province than does Alberta, despite the fact that Alberta is much more densely populated than Saskatchewan, a significant factor in the cost of operating a distribution system.

SOURCES:

Campanella, D. (2014). A Profitable Brew: A Financial Analysis of the SLGA and its Potential Privatization. Canadian Centre for Policy Alternatives and Parkland Institute. https://www.policyalternatives.ca/sites/default/files/uploads/publications/Saskatchewan%20Office/2012/10/Impaired_Judgement_Oct2012.pdf

Statistics Canada. (2014 January 13). Population and dwelling counts for Canada, provinces and territories, 2011 and 2006 Censuses.

The cost of liquor has grown much less in Saskatchewan and Manitoba, with their integrated public distribution systems, than in Alberta with its fully private system, and BC with its mixed public-private system. Since 2004, the cost of goods sold has increased by 42% in Alberta, but only 17% is Saskatchewan.

The only reason the profits of the Alberta Gaming and Liquor Commission haven’t collapsed is because the volume of liquor consumed has increased dramatically, with per capita consumption rates far above the national average.

SOURCE:

Statistics Canada. “Volume of sales of alcoholic beverages in litres of absolute alcohol and per capita 15 years and over, fiscal years ended March 31.” CANSIM Table 183-0019. http://www5.statcan.gc.ca/cansim/a26?lang=eng&id=1830019

What Does Privatization Mean at the Community Level?

Privatization of liquor sales means adequately paid jobs are replaced by jobs paying at or near the minimum wage. The impact of this loss is particularly significant in smaller communities.

The NLC operates 27 corporate stores in the following communities:

Bay Roberts
Carbonear
Clarenville
Corner Brook (2)
Gander
Grand Falls-Windsor
Happy Valley-Goose Bay
Labrador City
Long Pond
Marystown
Mount Pearl (3)
Paradise
Placentia
Port aux Basques
St. John’s (9)
Stephenville

The NLC also has 122 agency stores known as Liquor Express Locations.