An internet comment where I show my work.

 My comment in a Torontoist article A Tale of Two Options: Selling Craft Beer in Ontario. Beyond here lies facts, culminating in the greatest truth of all: math.

Small Ontario brewers listing at TBS do far better than you think. It's obviously a lot harder for brewers in other provinces, because they have to go through the LCBO due to other provinces being viewed as "imported" due to highly varying commodity taxes on production across the country. "Imported" beer is domain of the LCBO and whatever markup they choose to apply. Setting up shop in Ontario, sometimes by acquiring an existing Ontario brewer (like Moosehead did to Niagara) is an easier way in.

The Beer Store listing fee isn't designed to be a barrier, it is isn't punitive, it isn't designed to squash the little guy. TBS is operated on a cost-recovery basis. The TBS take of sales, and all fees charged are supposed to cover overhead and operations. The fee is for gaining access to a system that the owner brewers pay for. All brewers pay in the system. Molson pays the most. That's because they are tied for biggest owner, and paid for the best two spots in the planogram for Canadian and Coors Light. The initial fee is seen as a commitment from the brewer, and also for adding your beer to their computer system and commitment to return your non-standard empty bottles to you. The per store listing is for shelf space, warehouse space (for full goods and empties), and taking advantage of all the things TBS worries about so you don't have to. They pay the staff, for the lights, for the security, for the refrigeration, etc. Also, they will take care of wholesale distribution for you if you choose (or you may choose to do it yourself to do store visits/have direct contact.) Just ship it to a DC/Cross Dock and TBS will take care of all the stores you paid to get into getting your product.

IN RETURN you get up to a 70% margin. That's crazy, right? As I said before, TBS operates on a cost-recovery basis. The "handling fee" for volume is TBS' ENTIRE TAKE from the sticker price. You, the brewer, sets the sticker price (subject to LCBO approval) and it breaks off into various pies. Deposit, HST, CDN excise tax, ONT commodity tax, TBS handling fee, and your take.

Take, for example, a little brewer just starting out listing their 6 pack of 341 mL bottles at a sticker price of $13.25.

-Deposit comes out right away: $0.60 (leaving $12.65)
-Take out $1.46 for the 13% HST ($11.19)
-The $0.15 per 341 mL refillable container Ontario commodity tax which works out to $0.90 - NOTE: major brewers pay $0.32 for the same container ($10.29)
-The $0.03122 per L federal excise tax works out to $0.06 - NOTE: excise tax ramps up by degrees of production. The big guys pay TEN TIMES the rate of the smallest brewer. ($10.23)
-Then there's that nasty TBS handling fee for, you know, actually, SELLING your beer and providing the means by which it is able to be sold. That's an outrageous $0.91 at the low end (which you are at since you are just starting out)

That leaves us with $9.32 from that counter sale of $13.25 going DIRECTLY back to the brewer. Actually, it was already there, as TBS was billed the full retail price upon receipt of the beer, but whatever. 70% margin goes right back to the brewer. That is INSANELY high for any retail product. That is the basic deal you have in store for you by listing at TBS. Choose your locations to list wisely, and produce a desirable product. That ONE TIME ONLY listing fee is a dot on the horizon as you expand, open newer and fancier locations, and buy yourself all gold underpants.

You're welcome, craft brewers!

SUBSTANTIAL EDIT: A fellow commenter on the article pointed out that I missed the Ontario Beer Tax. I had never heard of it before in any of the discussion on the issue, but I verified its existence online. It's $0.2543/L for micros and $0.7542/L for macros.  In this example, it works out to $0.52, leading to the small brewer now pocketing $8.80 from the sale (66% of the sticker price).

It also throws out of whack (and makes worse) the "Beer in Ontario is 44% tax" point. That's ANOTHER $6.17 of tax on a case of, say, 24 Bud Light bottles. That lowers the post tax proceeds to $11.50 on a case costing $31.55 ($33.95 after deposit). That is INSANE, if this Beer Tax thing is legit.

FINAL EDIT: It turns out that the Beer Tax was already included as part of the Commodity Tax (along with the Volume Tax and the Environmental Levy if it's applicable.) This is what I get for giving the benefit of the doubt to other people.

Straight Up? The Issue of Documentaries About Alcohol in Ontario.

I recently watched an excellent documentary. It was a great look at the history of alcohol in Ontario since prohibition. Straight Up: The Issue of Alcohol in Ontario. It was great... for 42 minutes. Then it descended into the kind of misinformed hatchet-job that makes up most of The Beer Store media takedowns in the last couple years. However, we'll be positive first!

The look at the LCBO as it was formed coming out of prohibition was VERY interesting. I had no idea that the process of buying alcohol from 1929 to 1961 looked about as fun as going to a Ministry of Transportation office. I had no idea you had to own a permit to buy alcohol. I had no idea the clerk checked your previous purchases and could refuse you on the basis of a judgement call about your history. I had no idea they had an Interdiction List or "drunkard list" that a clerk or even a tipster could have you put on, that would see you blackballed from alcohol consumption (with the added benefit of more prejudice against First Nations people!)

It did a great job exposing some of the bureaucratic red tape that small Ontario vintners and distillers have to go through. Hell, there is even a complicated 9 step, up to 6 week long process for a distillery to sell alcohol directly (well, not that directly, as it turns out) to an individual or a business on a license or permit. The LCBO is a wasteful government monolith that can't decide if it wants to market alcohol or protect people from it. Don't get me wrong, I think that for the most part they do a good job, and they are a great boon to our provincial coffers; but this documentary sheds light on some of the things they can do better.

For example, I wondered for years why they do not use their considerable buying power to score the best wholesale price in the world. It is because their markups are set in stone as a percentage of what they paid wholesale, and begins with a predetermined retail price in mind. If they want to charge a certain price for a bottle of spirits, and the quoted wholesale price from a supplier is too low, the LCBO will ASK to pay a higher price. That's completely ridiculous. Having a set retail price target is well and good, however, they should be squeezing every last drop of value out of the business for the taxpayer. Hell, they even LIE about this happening on their corporate page:

As a result of the LCBO’s fixed mark-up structure, when LCBO buyers and suppliers discuss possible purchases, they focus on the product’s final retail price. The payment to the supplier for the products follows automatically from the application of the fixed mark-ups and other elements of the pricing structure (for example, freight costs and currency exchange rates if the purchase is in a foreign currency). As part of the agreement to purchase, the supplier must provide the final quote or cost to the LCBO, usually per case.

While the quote is derived from the agreed-upon retail selling price, suppliers occasionally make mistakes in the quote price due to changes in freight or currency rates or as a result of calculation errors. The LCBO’s practice had been to ask suppliers to correct any errors. Beginning in 2012, when suppliers provide a quote that is lower than that required to meet the agreed-upon retail price, the LCBO accepts the lower price. This encourages suppliers to be diligent in providing accurate quotes. If the price quoted is higher than that required to meet the agreed-upon retail price, the supplier is asked to provide a lower quote.

LCBO buyers make every effort to get the best products in each price band, whether for sub-$10 wines, or super-premium spirits. They review more than 50,000 submissions annually and negotiate with suppliers to make the best of these products available at good prices. The LCBO is an attractive customer for manufacturers and there is fierce competition for listings. As a result, suppliers frequently submit products to the LCBO at prices lower than those charged to other jurisdictions.

Wow! That sounds like exactly what they should do! Take bids from companies the world over to peddle their wares, and don't take less than the best value for Ontarians! You know, instead of what they actually do.

Yes, the LCBO wastes taxpayer dollars on promotions and glossy magazines, makes it hard for small wineries and distilleries, and has ridiculous bureaucratic policies. That's great to know. I would feel that this was a great documentary and could be a driver for positive change if it ended here. After 42 minutes.

However, shortly after the 42 minute mark, this wonderful character makes his debut:

Yes, the section on TBS begins with, in narrator (and co-producer) Peter Lenardon's words

...Ontario's 87-year old, grumpy, smelly, grandaddy of government-sanctioned anti-competitive business practice: The Brewers' Retail Incorporated.

Well, I'm sure what's to follow is meticulously researched and a balanced look at a unique, somewhat flawed company and their practices. I mean, that's the only course after presenting a monocled foreign heel during an unbiased documentary, right?

Straight up? Nope.

Oh god, do I really have to slog through the last half hour of the film to point out all the ridiculous half-truths and lies about TBS? OK, I shall try to tackle a few.

-First off: Despite the president of TBS Ted Moroz being one of the most approachable heads of a company in Canada, and president and CEO of Canada's National Brewers (represents a collection of brewers in Canada, including the three owners of TBS) Jeff Newton being all over the media these days, they somehow didn't talk to anyone at TBS. All they say on the matter is a title card saying:

The Beer Store's media representative was "unavailable"

Yes, they actually put quotes around it. I'm sure plenty of effort was made. I mean, when you're doing a documentary about two organizations, it's best to not make any serious attempt speak to anyone from either of them. I hear that indie guy is available, though!

-This little burial starts by talking to two independent distillers about TBS. How that is better than talking to someone pulled off the street is beyond me. They talk about how sorry they feel for independent brewers in Ontario. They talk about how they may have it hard, but brewers  have it worse. Bear in mind that a segment before, these same distillers were talking about things like a 140% markup applied to their wholesale price by the LCBO (also THEIR ONLY recourse for retail beyond their own distillery walls) and how you have to produce large quantities to even be profitable. Yet, THEY feel sorry for BREWERS. Truly, these men have the gift of empathy. They're like the poor and downtrodden Americans still voting Republican.

The LCBO sets prices based on their wholesale cost, jacks them way up, and can shut you out of any store for not selling enough or even on the manager's whim. TBS will charge a small brewer a one time fee to list in as many stores as they want to pay to enter, and let them sell their beer for any price of their choosing above the LCBO mandated floor. They will then charge them approximately $0.50 a litre to continue this process. In perpetuity. FOREVER. With all monies beyond that modest handling fee, government taxes/levies, and deposit going DIRECTLY to the brewer upon TBS receipt of the product.

The initial fee to enter the game aside, a small brewer will make back their listing fee from their cut, in an individual store, upon selling 25 six packs. Yes, I did some math. A small brewer producing under 200 hectolitres a year will net $9.21 per six pack sold at TBS if the sticker price is $13.25 (which they set themselves, by the way.) I don't know what the good folks at the Toronto Distillery Company think, but I think that a 70% margin returning to the manufacturer is pretty damn good, and not to be pitied.

-Jason Fisher of Indie Ale House gets his hard fought for camera time and immediately spouts misinformation like a sprinkler. Note: Indie Ale House says on their website that their on-site bottle shop sells out nearly every day. Also, they have never had any dealings with the LCBO or TBS, so they have no idea how the system works. Jason Fisher is the most devoutly outspoken critic of the current retail model, however, so by all means give him several minutes of camera time anyway.

He says that "Molson and Labatts" control the regulation, they contribute heavily to MPPs (what would he say if up against ALEC or Koch Industries?), and they own distribution (all brewers listing with TBS can use their distribution system at no extra charge, or do it themselves and get face-to-face in-store time and be able to monitor stock.) He also starts by saying:

We have a system that wouldn't stand any scrutiny of logical thought, but we can't really have any kind of conversation about it, because one side just throws up a bunch of nonsense.

That's pretty rich. The majority of the nonsense in this conversation comes from journalists like Martin Regg Cohn and Lauren Strapagiel writing slanted columns. It comes from the OCSA making absolutely hilarious proclamations about the friend they'd be to craft brewers (70% margin friends, though?) when their current products all come from large corporations. It comes from paid off "academics" like Anidaya Sen straining to come to the same wrong conclusion over and over. TBS gets laughed at for a commercial where a disinterested convenience store clerk sells booze to kids, yet 56% of Toronto convenience stores sold tobacco to a 17 year old mystery shopper not too long ago. TBS provides the highest margins to craft brewers in the country, sells at the lowest tax adjusted price in the country, and has a record of responsibility that sees MADD, CAMH, and various police organizations providing their support. Which side is throwing up the nonsense, again?

-One more MAJOR point that I would like to throw up to be thoroughly refuted is the film's contention that non-owner brewers have to pay separate fees if they want to sell a 6, a 12, and 24 pack in TBS locations. This was in the Fraser Institute study from 2012 and seems to be gospel now, I suppose? TBS charges listing fees for access to their infrastructure, and to recoup expenses. It is not punitive, it is not to stifle competition. It is for an outsider paying for use of the TBS system and infrastructure that the 3 major brewers fund. Also, acting like 6, 12, and 24 packs are vastly different beasts speaks to an ignorance of the TBS sales model. TBS exclusively repacks smaller packages into larger package price points at the POS. This means that for ANY brewer, if they have LCBO approval for a price point, can sell 4 single cans as a 4 pack, 6 single cans as a 6 pack, 2x12 bottles as a 24 pack, and so on.

If a small brewer pays for a single 473mL can to enter the TBS system, if they get LCBO approval for price points, they can list as many iterations of repacks of their single can as they like. They are charged for JUST THE SINGLE CAN SKU. If a brewer lists a 6 pack bottle with TBS, they pay for the 6, and it can be sold as 12s, 18s, 24s, 30s, whatever they want. Why? TBS charges listing fees to access the system and for the space they take up. If they list only one physical SKU (like the 6 pack bottles or single can) THAT is what they are charged for. The physical thing occupying shelf space and warehouse space in a store paid for wholly by the "big three".

The LIE in this documentary makes it seem like microbrewers are charged THREE TIMES more than they actually are. I mean, yes, they will be charged that much if they insist on the TBS store of their choosing carrying 3 different physical SKUs, but that has only happened once ever, with Steam Whistle (who only brew one beer) and they only list 12 packs of bottles at nearly all outlets.

-There's another HUGE wave of misinformation spewed in this film in regards to per capita provincial revenue and where this purely hypothetical money despite different demographics goes. It has to do with how we "trail behind" Saksatchewan (but we get compared to Quebec when it comes time for "facts"? I'm confused how Sen and Lenardon/Wykes contorted their way into that logic) in per capita government revenue, but I'll save it for later. This deserves a takedown post all by itself.

The cost of convenience.

Hi!

Full disclosure: I am a full time employee of The Beer Store. Of course, my views are my own, and don't represent those of the company.

In fact, there are many things my company can do better. I will get into these later (if stating them won't get me in trouble!)

TBS is certainly not perfect. The system in Ontario is not perfect. There are many weird and arcane liquor laws which hinder the growth of Ontario craft brewers. The rules about bottle shops for small brewers, and distribution for contract brewers are ridiculous, in particular. These laws were codified long before "craft brewing" was even a thing, let alone the booming industry it currently is. Laws about controlled substances are among the slowest to adapt anyway. I'll just say it: Ontario craft breweries currently get a raw deal in the system.

But things can be worse.

Opening up the market seems like a great idea. It's probably how 400k signatures got on a recent petition (not age verified or anything, but let's ignore that) to put beer in convenience stores. People buy beer in neighbouring New York, Michigan, or Quebec and love the ease of access (among other things, which will NEVER happen in Ontario, but we'll get to them later.)

People want things and don't think of the consequences. Opening up the retail market for alcohol has some small benefits. You can get it later in the day, and you can get it by traveling a shorter distance. However, alcohol sales are Pandora's Box or the Holy Grail. You cannot close that box once you have opened it, and the downsides are massive.

Opening up the market means places like this peddler of drug paraphernalia (credit: @favretto) are tasked with social responsibility. 12 out of 48 convenience stores in Barrie sell drug paraphernalia. Many of these locations are located near schools. This isn't just rogue indie shop owners: the store pictured above is a Hasty Market, a chain in good standing with the OCSA (Ontario Convenience Store Association.)

The same type of establishments that in the not-too-distant past sold synthetic weed.

If you want to go back farther, you can find lottery fraud instances that were so numerous, the OLGC had to implement anti-fraud measures like self-serve ticket checkers and an audible win confirmation (WINNER! GAGNON!) to protect consumers from shady merchants.

I'm sure that the majority of convenience stores are legitimate businesses who care about social responsibility and follow the law. However, the fact remains that there are many bad apples out there. Those bad apples ruin everything.

The above isolated instances of convenience store malfeasance are pieces of the puzzle. They provide a sketch of what Ontarians can expect if convenience stores are allowed to sell alcoholic beverages. They skirt the edges of the law and sell drug paraphernalia. They skirt the law and sell synthetic drugs up to and past the point where they are illegal. They stole lottery winnings from legitimate winners until the OLGC took measures (and spent tax dollars) to prevent it from happening again.

Also, and this is VERY important, they fail at the ONE major social responsibility they have at the moment. a recent Ipsos Reid study found that 21% of convenience stores sold tobacco to a 17 year old. That's pretty outrageous, but the failure rate in Toronto was a massive 56%. 56%! That is INSANE.

Now, minors getting their hands of tobacco is terrible. It forms the building blocks of nicotine addiction that are difficult (or impossible) to break. Tobacco smoking is a strain on society from health care costs, to second hand exposure, to foul odor of the the gross guy who smokes two packs a day standing in line in front of you at the grocery store. When you're a teenager; you are naive, impressionable, and stupid. You swear to yourself that this new habit is terrible, and you will quit by the time you're 25. You think you will become cooler due to smoking, and becoming more social after starting seems to confirm that. I know this, because I was that teenager. I started smoking at 18 (in all fairness, no convenience store ever sold to me underage. I got older friends or friends with fake IDs to buy for me. I wasn't carded on my 19th birthday, however.) and until I quit it dominated my life. Being a self-loathing smoker in a world where it is less and less tolerated is terrible.

But in all my time as an underage smoker, I was NEVER one irresponsible night away from ruining my life, or the lives of others. Underage drinkers PUT LIVES IN DANGER. The reason that they are not legally permitted to drink is because they make TERRIBLE decisions. They get in fights. They injure themselves or others. They commit sexual assault. They get into a car (where they are NOT skilled drivers yet due to inexperience, even sober, by the way) and are the pilots of weapons out on the road with you and me. This is NOT acceptable.

Why should we then put alcohol in the very same stores that have a cavalier attitude towards tobacco enforcement? A subset of Ontario convenience stores already have a cavalier attitude towards putting head shop products next to candy in stores near schools, sell not-yet-illegal or freshly illegal products, and have stolen lottery winnings. WHY should they be entrusted with alcohol sales?

They already cut corners and skirt the edges of the law to make profits now. What's to stop them from doing so once they are able to sell alcohol? The stakes would also be raised for them because they will no doubt invest a great deal in readying themselves to be alcohol retailers. They will pay for new fridges, and promise valuable floor and shelf space to brewers. The reality of Ontario alcohol taxes (we will get into this later) and OSCA's seemingly complete ignorance of such a major factor in the Ontario market, will mean that any convenience store will probably be sorely disappointed in how lucrative alcohol sales are. They will seek to recoup their expenses. They will relax their standards. They have, as a group, proven that social responsibility is not a core value to them. More underagers will be sold alcohol. More intoxicants will be sold alcohol. All to make a retail profit.

Currently, we have a government run retail outlet, and a limited private outfit who operates on a cost-recovery basis at a retail level. Opening things up will put profits above social responsibility. It will allow bad apples to become very important gatekeepers of alcohol control. It will make our roads and communities less safe. This is the cost of convenience.

This is not the Ontario I want.