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Ontario's dated Beer Store model is stale

As Ontario Premier Dalton McGuinty mused recently, there are features of the province's beer regime that make you "shake your head."

The latest head-spinner is a December decision by the Alcohol and Gaming Commission of Ontario – later reversed – to block a tiny eastern Ontario brewery from offering home delivery of its beer in conjunction with a prominent Ottawa charity for homeless teens.

Following a complaint from an unnamed brewery, the commission ruled the home-delivery venture must buy its beer from the provincially owned outlets of the Liquor Control Board of Ontario or the Beer Store, jointly owned by three foreign multinationals.

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The decision would have killed the nascent venture by Beau's All Natural Brewing Co. of Vankleek Hill, Ont., and cost jobs and cash for Operation Come Home.

For Steve Beauchesne, Beau's co-founder, the experience highlights one of the many absurdities of a system where more than 80 per cent of beer sales are controlled by three multinationals – Labatt Brewing Co. Ltd. (owned by Anheuser-Busch InBev SA ), Molson Coors Brewing Co. and Sleeman Breweries Ltd. (owned by Japan's Sapporo Breweries Ltd.).

"The way the system is set up unfairly limits access to customers," Mr. Beauchesne complained. "Molson, Labatt and Sleeman are completely in control of how beer stores look and feel, what products are promoted. They get to control the whole shopping experience and I get none of that control."

The McGuinty government is pledging to review outdated liquor laws early in the legislative session that begins this week. MPP Grant Crack, parliamentary assistant to the Agriculture, Food and Rural Affairs Minister, said the Beer Store's monopoly will no doubt come up.

"We want to see if there are ways to help [microbreweries and small wineries]by eliminating red tape," he said.

Ontario has mused before about stripping the Beer Store of its quasi-monopoly. But the McGuinty government shows no sign of going that far.

That's too bad. After 85 years, the Beer Store is an anachronism.

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It's often hard to reconcile the ad world of beer – the snow-capped mountains, parties and hockey – with the utilitarian factory-like outlets where most Ontarians actually buy the stuff.

There are noisy conveyor belts, bottle crushers and cases of beer stacked on metal shelves in dank warehouses. In many stores, patrons still make their selection by picking from a row of dusty empties on a shelf.

Behind the counter, harried clerks juggle bottle returns and running the cash register.

Forget about tastings, attention-grabbing displays of new offerings or expert advice to help you choose from hundreds of selections. At the 437 Beer Stores, it's get in line, pay the clerk, get out.

That's because the Beer Store is designed to deliver beer to consumers in the most barebones way possible. The company's mandate, according to spokesman Jeff Newton, is to operate on a full "cost-recovery basis." In 2009, the last year for which the company provides data, the Beer Store posted a small $1.1-million loss on $2.6-billion worth of beer sold. The lower the cost of delivering beer, the frothier the margins for Labatt, Molson Coors and Sleeman.

The Beer Store vigorously disputes the notion that it limits access to its stores, pointing out that smaller brewers pay lower fees than larger ones. It sets upfront listing fees plus continuing service fees to cover such things as storage, display and bottle returns.

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Beau's opts to bypass the Beer Store altogether, selling beer in small quantities through the LCBO, to bars, and directly from its plant, 100 kilometres east of Ottawa. (The LCBO only sells beer in quantities of six bottles or fewer, and so its retail prices are generally higher than at the Beer Store.)

There's much Mr. Beauchesne would like to do, but is prohibited from doing by law. He can't open his own stores, he can't share trucks with other brewers and he can't easily sell in neighbouring Quebec (only companies that make beer in Quebec can sell through convenience stores where most Quebeckers buy beer). Ontario similarly makes life tougher for out-of-province brewers.

Ontario's beer business may be an extreme example of regulatory excess. But it's far from unique. Heavy-handed regulation persists in the media, banking, transportation and telecom industries, stifling competition and protecting entrenched interests.

Consumers lose. Worse, society loses because all this regulation crushes innovation.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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