St. John's Wort Beery Musings And Amusing Beers

In Which I Realize I Have An MPP

(Editor’s Note: I once had an aunt who wrote letters to politicians. I believe she once lambasted Prime Minister Chretien over the rise in the price of a head of cabbage. It seems that the frivolity of subject has skipped this generation even if the letter writing impulse has not.

My MPP is Eric Hoskins. I met him once at an announcement of funding for the Ontario Craft Brewers. I don’t know who your MPP is, but I’m sure that they would appreciate hearing from you on the current debate about deregulation.)

Hello, Minister!

I am emailing you because I’m one of your constituents. I am periodically greeted by your smiling face when I check the mail and receive flyers. I am also Canada’s only national beer columnist, with Sun Media. I see the beer industry from a lot of angles. I work with brewers of all sizes and I have just written a book about the history of beer in Ontario.

I’d be writing to you as my local MPP, but you’re also in charge of Economic Development, which is a nice bonus.

I recently had Forum Research conduct a poll for me because I wanted to understand the mood of the province with regards to deregulation of The Beer Store. It turns out that people under 45 seem to be largely in favour of having beer sales in convenience stores. Rather than waste your time quoting numbers at you, I’m going to try and explain the history of the thing. It’s quite a niche subject, if I’m honest, so please don’t feel I’m being patronizing if I over explain.

The Beer Store is an outdated model. There was a time in the early 1980’s when it was perfectly adequate. When The Beer Store started in 1927, they didn’t have anything to do with retail sales to the public. They were meant to be a distribution system that the brewers in the province could take part in as a sort of co-op. It was partially owned by the participants. Over the decades, breweries consolidated and took each other over. In 1941, The Beer Store got into retail. By 1980, there were about three large brewers left. They owned the entirety of The Beer Store amongst them. This was alright because they were the only ones making beer. It made sense.

The problem is that they got arrogant. In February of 1985, they locked out the workers and shut The Beer Store down for a month. They forgot that they were not entitled to the support of the public. I can tell you that beer is a luxury good. No one really needs beer. Brewers depend on the public more than the public depends on them. If you’re a brewer of any size and you don’t listen to your market, you deserve what you get.

The problem is that since 1985, the market has changed immensely, but the structure of The Beer Store has not. Molson Coors is partly American owned and Labatt is owned by a Belgian/Brazilian consortium. The Beer Store, a system designed to serve the public of Ontario and sanctioned by the provincial government, is not even partly owned by Canadians.

Now, if I’m you, I’m thinking to myself, “Sure, but the jobs are onshore and they’re not going anywhere.” You’re right. Those jobs are important and retaining them is good.

However, currently there are something like 100 breweries active in Ontario. If the projections I’m seeing are correct (and I’m using actual declaration of intent from the breweries) we’re going to have something like 200 by the end of 2015. Some of these include the Ontario Craft Brewers, but realistically, 150 of those breweries will have no lobbying interest acting on their behalf.

There are going to be more breweries in Ontario than there have ever been. The high point was 155 at the time of Confederation.

The problem that we’re going to face as a province is that there is no shelf space for these 200 breweries. The LCBO is not obligated to stock their products. If you take a walk through the Summerhill LCBO in our riding, you’ll see that the beer section is stocked completely to the gills. I grant you that it’s a flagship store, but if you cast your mind back five years, it was not that way.

The Beer Store naturally claims that they’re doing a great job. They are doing a great job for extremely large brewers. The logistical system they have in place ensures that the very large foreign owned brewers do not have to compete against each other in convenience stores for the market. Even given that advantage, their sales figures are dwindling year over year. Simply put, they own a distribution system that is massively to their advantage and as Ontarians we have allowed this because up until 30 years ago, they were the only brewers.

But if you look at distribution from a small brewer’s perspective, it’s ludicrous. Let’s say that you’re a brewer based in Owen Sound. There’s an LCBO that is not obliged to stock your product. There are two Beer Stores and to get shelf space in them, you would need to pay a listing fee for the SKU and then a shelving fee for each location. It comes out to around $3000 to be able to sell beer in your hometown. It’s not equitable for a number of reasons, including the fact that you’re paying the money to a business your competition owns. The largest breweries will have their brands prominently displayed. Craft breweries could sell beer in The Beer Store in their hometown and no one would ever know they were there.

Oddly enough, the layout of the 200 breweries in the province of Ontario is going to more or less duplicate the map at Confederation. Before rail, every small town had their own brewery. With craft beer, there’s a locavore tendency against globalization. That’s kind of nonsensical since most of the ingredients that go into making beer are shipped very long distances, but people don’t think about it that much.

This means that across the province of Ontario there are start up businesses that don’t have a reasonable avenue of sale to the public. There are going to be 200 of them. That’s a lot of jobs, and these businesses are going to grow and expand. There will naturally be a period of levelling where some of the lower quality ones are jettisoned from the market, but on balance 150 survivors might not be unreasonable.

The Beer Store could have addressed this. They could have adapted to the market at any point since 1985 when we started to have craft beer in Ontario. Currently they are attempting to dictate to government and to the people of the province of Ontario what is best for us. They have once again forgotten that they’re meant to be serving us and not the other way around.

We’re in a situation where there’s massive economic growth to be had. Failure to change the existing situation will actively hamper small town business in Ontario.

Now, I don’t mean to suggest what should happen. I don’t know that it should be convenience stores or grocery stores. I don’t see why we couldn’t allow a separate co-op for Ontario Brewers (people quote NAFTA at me on that. I have not read NAFTA. It is long.) If all else fails, we could always nationalize The Beer Store. All I know is that something has got to give.

One of the reasons I’m taking the time to write this to you is that, as MPP for St. Paul’s, you’re fairly likely to be around for a while. It’s a liberal stronghold. I appreciate that the Liberal party seems to have come out against change recently.

I don’t think that this is an electoral issue. It is demographic. Something like 50% of people under 45 are buying their beer at the LCBO. Breweries are cropping up all over the province. The writing is on the wall, especially when you consider how badly you have to perform as a monopoly to lose 50% of your potential clientele over 25 years. This isn’t going away and the citizenry are going to get vocal. No matter who is in charge, something’s got to happen.

I don’t know what you’ll be able to do with the information, but the good news is that as an electoral issue, it’d be a soft landing. 70% of citizens would be fine with the grocery store or convenience store. That number is going to increase if the PSA The Beer Store is running keeps getting airplay.

Thanks for your time. I hope I’ve provided some context for the issue.

16 Thoughts on “In Which I Realize I Have An MPP

  1. I’d argue that there were more than three left at certain points, Also, I’d buy beer at the Quickie 200 feet away from where I sleep at least once a month. Twice or so if they had Mad Tom or Headstock.

    • You are factually correct. That’s the best kind of correct. Northern Breweries continued to exist, as did Amstel and Brick by the time of the strike in 1985. The strike effected them to the extent that they all immediately sold out and then ran out of bottles to put beer in.

  2. I’d also argue that beer is a necessity to a healthy society. Bad things happen when people can’t be libated.

  3. Doug Steele on April 23, 2014 at 7:15 am said:

    You know, this is the first time I’ve heard that Brewers Retail did not sell to the public between their inception in 1927 and 1941. How did the public buy beer during that period?

    • admin on April 23, 2014 at 7:32 am said:

      A good question. Originally, Brewer’s Retail was just a distribution network. Essentially, it was shared warehousing for breweries and the local stores were owned by local business people.

  4. Barry on April 23, 2014 at 7:31 am said:

    We were visiting relatives in Perth last week and found the Perth Brewing retail outlet in their brewery building. While that retail model doesn’t allow the consumer to compare different beer products side-by-side, it does provide the brewery with a local outlet without paying the Beer Store. Now if only they’d been allowed to sell individual cans I could have tried one of each. I was told that current regulations prohibited that in their beer outlet.

    • admin on April 23, 2014 at 7:39 am said:

      Barry, I think that they’re the recipients of bad information. As far as I’m aware, there’s no prohibition on selling single cans of beer from the brewery store. Great Lakes certainly seems to do it and I imagine that they would know. The Granite Brewery in Toronto is selling single cans of Hopping Mad. Perth is quite new, so they may be easing into the whole regulatory process.

  5. Regulations in Ontario allow for a brewery to operate a retail store on the same premises where the beer itself is manufactured. There’s no restriction on how packaged beer is to be sold in this way – it can be sold in 2 litre growlers, single cans or bottles or multi-packs – whatever configuration makes sense to the brewery.

    All of this can be done without even talking to the LCBO or Brewer’s Retail, but that is not to say that the “big three” who own the Beer Store aren’t enjoying a completely unfair advantage as suggested by the author above.

    One other point of clarification regarding the locavore mentality – as the number of breweries continues to expand in Ontario so does the agriculture sector that can potentially support it. Already there are a handful of Ontario hop farms, some of which have discovered indigenous varieties! The art/science of malting barley is sure to follow although it should be stated that there are already a couple sources for locally grown and malted barley. And as a result, we have humble beginnings in the form of a couple truly local beers by the Ontario Brewing company in its 100 Mile Lager and Ale. We also have a farm estate brewery in Ontario: Rambling Road Craft Brewery near Port Dover.

    The future is bright for Ontario breweries, I think with or without the shattering of the Beer Store’s unfair monopoly and the LCBO’s anemic approach to a “value added” beer purchasing experience.

  6. …Jordan…I think your Forum reserach said something about that majority of Ontarians supporting alternate choice of retail but little to no interest in increased prices…The direct to retail model for brewers in Ontario allows them a very effective closed loop system, particularly with refillable bottles. One can only assume that an increase in points of sale would increase cost to market. That does not even consider what “mark up” or “listing fee” that convenience store operators would likely demand from brewers. You know my position on the Beer Store. When it comes to selection, there are few if any systems that match it in a jurisdiction the size of Ontario with the price the same everywhere in the province, access to retail the same and ease of access to the system, albeit with some cost involved. The other factor is the low thresholds required to maintain a listing. This remains an emotional debate but a lot of the benefits and attributes of the system, as it stands, get lost in some of this conversation. Ferg

    • admin on April 23, 2014 at 3:21 pm said:

      I certainly appreciate your position, Ferg. You’re correct in that it is an excellent system for 79.2% of the market. If you have a large monolithic brand that gets TV advertising and year round sales and can produce enough beer to stock out 440 stores, then it works just fine.

      79.2% might be 78.5% by next year. The market is changing and eventually Ontario’s regulations will have to accommodate the change. It may not be now, but it’s coming.

  7. You write: “you would need to pay a listing fee for the SKU and then a shelving fee for each location. It comes out to around $3000 to be able to sell beer in your hometown. It’s not equitable for a number of reasons, including the fact that you’re paying the money to a business your competition owns.”

    Can you clarify your argument at all here? Are you suggesting that the prices are too high? That if the retail model was run by an independent and not other brewers it would be easier to digest that cost? Elsewhere in the piece you state “LCBO is not obligated to stock their products”, and from what I understand, that is true of essentially every alcohol retailer in Canada EXCEPT TBS, where if you pay the listing fee, they are obliged to stock your products.

    Devil’s Advocate says Ontario brewers have the luxury of the most open retail system in North America (but that they want the same service they have now, only cheaper or perhaps free).

    • admin on April 23, 2014 at 3:12 pm said:

      Congratulations on your early adoption of hotmail. You must have been one of the first two hundred to sign up!

      Let me clarify: The LCBO is not obligated to stock their products. If they don’t, The Beer Store is the only game in town. In order to do business with The Beer Store, brewers have to pay a listing fee. It is completely pay to play. Yes, they will list your product, but that money will go to offset the logistical costs of your larger competitors. If you want guaranteed shelf space in Ontario, you are obligated to assist your larger competitors. I’m saying that is extortionate.

      The devil’s advocate in this case is incorrect. An open system would allow a brewer to do business with any licensed retail establishment they chose, whether that would be a convenience store, grocery store, specialty independent beer store or any other variant. A single option for retail is the antithesis of an “open retail system” by any definition. The ability to negotiate your own way on to shelves, or indeed to have any option other than a single one would improve that. In some cases, people might well buy shelf space. In other cases, their product might be chosen based on market demand and skirt a listing fee. In another, quality might win the day, with a specialty store choosing products based on their merit rather than the fact someone signed a check. In yet others, they might, yes, find themselves ousted by a more popular product. In any case, shelf stocking fees would go to paying for their space on the shelf.

      To suggest that a system which dictates that you must sell your beer in direct competition to much larger companies to your own detriment is open suggests that you might be making the argument speciously.

  8. TBS’ listing fee based access is a huge barrier to craft breweries that produce one-off releases. It is near impossible to justify paying a listing fee for a beer that is produced only once or twice, and in small quantities.

    In addition to this obstacle, gipsy or contract breweries are not in position to sell at the place where they brew.

    Therefore, the question is – how can they obtain access to this market?

    Well known international contract brewers such as Mikkeller, just to name one example, would not be able to exist in Ontario.

    We say, leave the LCBO and TBS as they currently exist, open a third model that would not compete with these two, but would satisfy the challenges of Ontario craft breweries.
    Is that too much to ask for?

  9. Peter on April 27, 2014 at 9:38 am said:

    I think a good interim measure (or legislative compromise) would be to let the Ontario Craft Brewers open their own small stores – the Wine Rack model if you will. Let them sell only beer that is brewed in Ontario, and have their remittances to the government be identical to what the Beer Store pays. These stores would flourish, and would pave the way for further deregulation by demonstrating demand and positive economic impact.

  10. I think another argument against TBS offering a level playing field is defining what does it mean to be listed in the TBS? I live near Greenwood where they’ve recently redone the store and my comments would be:
    1) No longer have the wall of brands. Instead they have a faux painted chalkboard that only lists certain brands. (no visibility for independent brands)
    2) There is a large cooler only carrying big 3 products.
    3) They may be planning on upgrading to computers (that will be awesome and fast on a hot summer Friday), but the full list of products was on photocopied sheets. Not sure what was listed in 8 pnt type on page 7.

    I recently did a search to find out which TBS where carrying St. Ambroise IPA. I can guarantee you that no one walking into those stores has any idea that product is there.

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