Benjamin Dachis is a Senior Policy Analyst and William B.P. Robson is President and Chief Executive Officer at the C.D. Howe Institute
As the summer of 2014 cools down, a fight is heating up. For decades, Ontario consumers of those classic summer beverages, wine and beer, have had to buy their beverages from government-sanctioned quasi-monopolies. Now a C.D. Howe Institute study suggesting that Ontario let grocery, convenience and other stores sell wine and beer has provoked outrage. If Ontario's wine and beer lovers are to toast better prices, selection and convenience in the summer of 2015, they will need to get past some entrenched interests in the status quo.
Anyone who has bought wine or beer in most of Europe, the United States, or Quebec will testify that Ontario's system is weird. Aside from limited distribution on-site by wineries and breweries, the province permits sales only through the state-owned LCBO, a fixed number of off-winery wine stores mostly owned by two large wine makers, and a single private beer retailer – the Beer Store – owned by three multinational companies.
It is no surprise that these restrictions foster high margins, limit variety, and subject consumers to inconvenient hours and access. If regulated quasi-monopolies were better than competition, we would have government-owned or controlled retailing of food, clothing, consumer electronics and much else. So opponents of liberalization have resorted to several tactics.
One tactic is bogus comparisons. The Beer Store, for example, has supported a study that claims that beer costs more in Quebec – which as the thousands of thirsty Ontarians who cross the provincial border know well, has a more liberal retail system – than in Ontario. But, as Ontarians who buy beer in Quebec would do, and as the authors of the C.D. Howe study document, comparing like brands in like packages shows that many Quebec prices are lower. And the criticism is not even relevant: if many consumers choose to pay more for premium products and convenient outlets in a liberalized system – even before considering the price competition in established brands that would result – their actions would show that they were better off.
Not every small brewer wants to take The Beer Store or the LCBO on publicly: why antagonize your only outlets? But some buyers are vocal: Restaurants Canada, speaking for tens of thousands of businesses, supports opening up the market. The Beer Store's market power lets brewers charge restaurants more than retail customers for the same product – on average, says Restaurants Canada, 30 per cent more. More competition would help restaurant owners and workers, as well as their customers.
Small wine makers are also in a squeeze – being constrained to sell most of their output through the LCBO, they have reason to keep their heads down. But the Wine Council of Ontario supports more open retailing. New and less established wineries would have new opportunities to sell to more consumers – which, over time, would mean more variety and higher quality. Ice wine is not the only product Ontario could export with a more dynamic industry.
A second tactic by the critics is lower-level: attacking the integrity of one of the authors of the C.D. Howe study. Perhaps the critics are feeling the heat: the panel that made similar recommendations in Ontario's 2005 Beverage Alcohol System Review suffered no comparable attacks. Like many people who write for the C.D. Howe Institute, Professors Paul Masson and Anindya Sen have international reputations. Prof. Sen's expertise prompted the Ontario Convenience Stores Association to commission a study from him, a fact disclosed in the Institute study. In fact, Professors Masson and Sen set a standard for openness and transparency well above their critics: the sources for their Ontario-Quebec comparisons are clearly documented and available for inspection. Until the critics make their data similarly available, the burden of proof – on data and on integrity generally – is on them.
So the fight is on. Ontario's Premier and Finance Minister have said they want to keep the LCBO government-owned. But that would not preclude wine and beer sales by other retailers: Quebec's provincially owned Société des alcools operates alongside grocery, convenience and discount stores. Will Ontario consumers be able to toast a more open system next summer? Perhaps – if the government is ready to put them ahead of the vested interests of the status quo.