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A cure for strike's hangover: Privatization

Among traditions, it is one newcomers to Quebec find most intoxicating. The third week of November brings to the distinct society, along with the usual harbingers of winter, the arrival of les Beaujolais nouveaux.

On the first weekend following their arrival, Quebeckers usually stampede to their local Société des alcools outlet to stock up the new wine, the first of the yearly cuvée to reach consumers' lips.

Les Beaujolais, while not the choice of the most discriminating palates, are pure marketing manna for the SAQ, the province's government-owned liquor store monopoly.

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The wine's arrival is one more excuse to faire la fête in a society where not much is required in the way of a pretext to party. For the SAQ, it marks the beginning of the holiday season that accounts for as much as 40 per cent of its annual sales of $2.7-billion.

Not this year. Last week, les Beaujolais arrived on Thursday. By Friday afternoon, all but a handful of the SAQ's 400 outlets across the province were closed, the result of a strike by 3,800 retail and administrative employees.

As far as crises go in Quebec, this one is serious. While Quebeckers consume far less hard liquor than other Canadians, they drown their compatriots in wine consumption. The average Quebecker swishes and swallows about 17 litres of wine a year. In Ontario, the average is about 11 litres.

Grocery and convenience stores in Quebec sell wine, too, but, owing to SAQ-imposed restrictions, only the most desperate of housewives would stoop to serving the plonk from the local Loblaw's at her holiday fête. Hence the collective yearning for an end to the strike. Yet if the SAQ's employees think that only enhances their bargaining power, the strike is instead focusing public attention on a state-owned monopoly that has lost its raison d'être.

The SAQ is by far the biggest wine retailer in Canada. It is the biggest buyer of many French wines in the world. More Port wine is sold in Quebec than in all of the United States.

This Wal-mart-like market power should give the SAQ a strong hand in negotiating price discounts with producers and distributors. Such discounts should be passed along to consumers in the form of lower retail prices.

Yet, the SAQ itself recently acknowledged that it pays about 9 per cent more than other provincial liquor boards (hardly models to emulate) for some French wines. Were it forced to compete, the SAQ would no doubt instruct its buyers to bargain harder. But without rivals breathing down its neck, where's the incentive?

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If controlling alcohol intake were truly an objective, then there might be some public policy justification for the SAQ's existence. But it's not. Even at the height of prohibition in Canada, beer and wine were still legally sold in Quebec. And in recent years, the SAQ has actively sought to increase, not decrease, consumption.

Under former president Gaétan Frigon, the SAQ transformed itself into a user-friendly retailer, creating a string of different store banners -- from Express outlets for quickies and Dépôts for bulk buyers to Signature stores for connoisseurs. The selection of French wines was enhanced, becoming arguably one of the best in the world. In-store wine counsellors became the norm. The result is that sales climbed more than 50 per cent in the five years to 2003, compared to barely 15 per cent in the previous five.

It's difficult to speak of true profits when speaking of state-owned liquor monopolies in Canada since 'profit' is usually whatever the government wants it to be. It can manipulate the markup on wine and spirits to produce whatever bottom line it desires (or needs to balance the books).

Keeping that in mind, the SAQ's profit has also shot up faster than a champagne cork, reaching $570-million in the year ended March 31, 2004. Add on sales and other taxes and the SAQ poured a total of $896-million into provincial government coffers last year.

But the SAQ's operating costs are out of control. They rose 13 per cent in 2003-04 to $446-million and have been growing at twice the rate of profits in recent years. The result is that the SAQ generates about $475,000 in sales for each employee, far lower than the rate at the Liquor Control Board of Ontario.

In recent years, the SAQ has attempted to reduce costs by closing outlets in small communities and relying on private agents -- mostly grocery stores -- to sell the wine and spirits normally found at the old SAQ store. The number of agency outlets has surged to about 400 from 150 in 1997.

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The union doesn't like it one bit. It is one of the reasons the SAQ's workers are now on strike. But instead of winning allies, the unionized employees risk provoking thought. After all, if private grocery stores can just as effectively and responsibly distribute liquor, why do Quebeckers need the SAQ?

Of course, the agency arrangements have nothing to do with deregulation, since agency prices and selection are still determined by the SAQ. But, by their very nature, they do evoke at least the possibility of privatization.

Château Privé 2004? Open it and let it air.

konrad@sympatico.ca

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About the Author

Columnist Konrad Yakabuski writes on politics, policy and business for The Globe and Mail’s Comment section and Report on Business. More

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