"But I got it for x in Buffalo!": AKA A Terrible Argument Deconstructed

This tweet got me thinking. https://twitter.com/Ssytsma/status/558759916475645952

I mean, obviously this guy is wrong on so many levels. For one, I have never seen 30 packs of cans for $15 (unless it's the kind of death-inducing cheap swill that makes Drew Magary say "I MUST HAVE IT!" in his Thursday Jamboroo column.)

Second, the majority of tax on beer in Ontario is volume based. They are based on both the volume of the packaged beer itself, as well as the tax rate the brewer falls under being determined by the overall volume of beer they produce and package.

The "44%" you see mentioned a lot is just a shorthand for how much tax comprises the Ontario price of an average priced beer made by a large producer. I work it out here for a 24 of Bud bottles costing $33.95.

Here are where I got my figures for the tax rates:
New York
Federal tax in Canada
Ontario combined "beer basic" and "volume" taxes

First of all, finding a price for 30 packs of Blue in New York state is nearly impossible. Consumer's Beverages (Buffalo's beer store! Who close at 5 on Sundays! Grrrrr...) at one point listed 30 bottles at $19.99 on this weird site. Maybe it's a past flyer? It's not the current one, at any rate.

The only place I found 30 cans was somewhere in Pennsylvania (where you can only go to government run or specially licensed beverage stores to buy beer, and can't buy less than a 24 pack! You have to buy from a hotel or restaurant to get less than 24! And you thought our laws were crazy!)

I'm going to make things easy, and do 24 cans. Wegmans in the Buffalo area this week has a 24 pack for $16.99. That seems to be a very good retail price, and is a pretty fair way to go about this comparison.

Starting with the US pricing is very convenient. You know why? Their prices don't include sales tax or deposit! People have a clouded perception right from the beginning of this comparison. Hell, some people who have tweeted thousands of times on this issue didn't know that Ontario prices included tax and deposit. Sales tax on all goods in New York is 4%, and deposit is 5 cents a container, in case you were wondering, making that beer actually cost $18.87 at the register. Anyway....

We start with the $16.99 price.

Now, we must strip out the only "sin tax" on beer in New York state. Grab ahold of your britches, because it's a whopping 14 cents a GALLON! Unlike New York's hidden tax on beer, a gallon is massive. It is equal to 3.78541 L.

So, the hidden tax on those 24 cans of Blue are (0.355 L per can x 24 cans/ 3.78541 L to GAL x 0.14/GAL tax) is $0.315104! 31 and one half cents!

Let's round it up to 32 cents strip it out of the $16.99. That leaves us with $16.67 real US dollars as the real price of the goods.

Now, here's the fun part! Let's figure out how much this product would cost if the taxes we had to pay in our fine province were applied to it.

First, let's figure out the volume of the package (0.355x24)

8.52L

Now let's apply the federal excise tax to it. Since Labatt easily produces over the max threshold for tax discounts of 75,000 hL of beer a year (equivalent to 21,126,760 regular size cans of beer) their rate is the maximum $0.3122/L.

$2.66 in excise tax

Here's where things really get fun!

Ontario commodity (shorthand for the combined beer basic and volume) taxes on beer produced by large brewers is 93.02 cents a litre! That is insane! By comparison, converting that New York rate to litres means their tax is $0.04 a litre! Anyway...

$7.93 in Ontario commodity taxes!!

Also, since it's cans (and adding more fees is always fun!) Ontario also charges an environmental levy of 8.93 cents per non-refilliable container.

That's another $2.14 in tax.

That gives us a grand (grand as in HUGE) total of $12.73 in Ontario taxes!!!

Adding that to our $16.67 US price gives us $29.40.

How much does it really cost at the Beer Store if you take out the HST and deposit? Well, it's $36.95 all in. Minus the $2.40 for deposit, and the 13% HST gives us a grand total of...

$30.57! Not quite the massive difference you were expecting, right? Of course, there is one other HUGE factor people often ignore.

I will leave the conversion from US to Canadian dollars as an exercise for the reader. Our dollar is going in the tank (and with it, the NHL's salary cap) thanks to Obama being awesome (I guess), and the one huge moneymaking thing our country was doing (Alberta oil sands) collapsing in value. Who knows, maybe we'll catch back up when a crazy Tea Partier like Joni Ernst or (LOL) Ted Cruz are President! I leave that for you to calculate in your current context, dear reader. Our dollar is currently worth $0.80 US, and banks aren't in the habit of NOT making money for themselves, so you will pay several points more than that.

OK, I give. I really want to do this. That US beer price with Ontario hidden taxes applied, in Canadian dollars on this January 23, 2015 is $36.75. That's 20 CENTS lower than the Beer Store's all-in price that includes HST and deposit.

Adding HST and Ontario deposit to that US price with Ontario hidden taxes, converted for today's exchange rate is...


 $43.92!!!!!!!

Yeah, I think the only problem with the raw retail costs in Ontario is perception.

Fear mongering and Beer Store loathing in Ontario

So, anything in the news lately?

Oh, right, Martin Regg Cohn did one thing a good journalist does. He was able to procure a "secret" document. Getting a whistleblower to leak a document, and then exposing it in an article is the dream of journalism, right? Too bad he forgot about the whole "writing a factual article" part. 

So, about this "secret" document. It was so secret that the restaurant association Restaurants Canada  had access to it in August and used it to present to Ed Clark's asset advisory council. So secret that Twitter trolls knew about it in October.

You can access it here. Prepare to be underwhelmed.

I take back when I gave partial credit for good journalism. It seems that Mr. Cohn (or Mr. Regg Cohn, who the hell knows or cares) was among the last to know. Or he knew and sat on it for a long time. Why? So he could construct the perfect rabble rousing narrative, of course! I wonder if he had help in doing so.

I'll link to a reposting of this article, because The Toronto Star has received enough pageviews for this garbage. We don't need to be encouraging them to post more.

I suppose I'll tackle this FJM style. This should be pure torture. Cohn's article is in italics.

Thanks to a whistleblower, we now have the secret details of how Ontarians are being hosed by The Beer Store with the wilful involvement of elected officials. 

Before stocking up for the holidays, you can read why the province remains captive of a private quasi-monopoly in beer retailing that bankrolls the richest, toughest political lobby in the province. 

I have to stop right away. Here's a handy graphic depicting donations for the 2011 provincial election. Where are those high-rolling bulldogs of the Beer Store and CNB lobbies? All the way down in 9th place. Almost 1/10th of the contributions made by the construction industry. Also, that tiny bubble represents all breweries, wineries, and distillers in the province. TBS and CNB are nowhere to be found among to list of top companies contributing. Neither are Molson, Labatts, or Sleeman. The UCFW (which represents TBS employees, among tens of thousands of other food-related industry workers) are one of the largest unions, yet only the 4th highest contributors.

Oh, I know what you're saying. That was 2011, what about the 2014 election? This article attempts to make it seem nefarious that Labatts gave $17,500 to Premier Wynne and $15,000 to Finance Minister Sousa. That seems small potatoes for "the richest, toughest, political lobby in the province" to give to the two most influential people on the issue. Also, as it turns out, doesn't seem to have done a whole lot of good. But I digress.

A still-confidential operating agreement lays bare the foundations of an inglorious cash grab that the big foreign-owned brewers who run The Beer Store don’t want you to know about. And what the government-owned LCBO is too embarrassed to show you. 

That's a lot of flowery and misleading language for someone who seems to be against such things.

(Apologies for making you watch this very very smug man talk, although it is really funny to me that he pronounces "Ontario" the same way Charles Barkley pronounces "terrible." Cracks me up in the same way that OCSA head Dave Bryan's inability to say "LCBO" correctly does.)

It's always amusing to me when people lack such self-awareness. He accuses the agreement of using "Orwellian language" while he uses scare tactics, misrepresentation, exaggeration, and throws around words that actually mean something serious like "collusion" so cavalierly. He's fudding -- both definitions of the word.

The Beer Store and the LCBO have repeatedly refused my requests to disclose their mutual non-aggression pact, and it’s easy to see why. Dated June 1, 2000, the document confirms the folly of our Crown-owned LCBO acting on the orders of the Progressive Conservative government of the day (and the Liberal government of today, which is no less guilty). 

The 10-page document, authenticated by an LCBO source, details an arrangement that constrains growth in the LCBO’s beer sales to protect the effective retail monopoly of the ever unpopular — but forever profitable — Beer Store. 

Speaking of "Orwellian", Cohn derives the exact OPPOSITE intent of the agreement and presents that as fact. TBS sought out this agreement because the LCBO decided that they wanted a bigger piece of the beer pie, and as the governing body, they were able to do anything they wanted to get it.

The LCBO was placing unreasonable restrictions on TBS. They were not allowing them to sell certain desirable products, and selling those products themselves to erode TBS' market share. Despite certain areas of Ontario exploding in population, they were not allowing them to open new TBS outlets.

Also, I'm sure that a document that detailed and enabled as much chicanery as Cohn's making this one out to would be longer than TEN PAGES. How long do you think a detailed master plan to control the Ontario beer market, fix prices, and restrain competition would be if it actually existed? A hell of a lot longer than TEN PAGES. Seriously. There is almost no content in this document. It takes Cirque de Soleil levels of acrobatics and contortions to twist this into a controversy. I guess you can do anything if you pander to ignorance well enough.

No wonder the former head of the LCBO, Andy Brandt, is still furious about the cosy deal. In a revealing interview, he blames his former Tory masters for imposing it from on high because “the government of the day intended to protect The Beer Store.” (More on his candid, damning comments below.) 

Why no questions about why the Tory government would intervene in LCBO/AGCO business (distracting them from their important work of dismantling our province) and protect TBS? Another "massive" $15,000 campaign contribution? Fear over TBS seeking another remedy for the undue practices of the LCBO? Investigate THAT. Look for answers THERE.

This is my main problem with Cohn's useless and endless articles on this topic. There IS a story in there. Why in the hell would the government prop up TBS? Why aren't the large grocery chains weighing in on this issue? Is it because TBS employees share a union with a lot of their workers? Why is no one talking to small brewers who have been successful in the TBS system while brewers who have never tested the market get reams of ink?

He just writes some meaningless muckraking in a tone dismissive of anyone this issue effects (he looks down on beer drinkers a lot for someone acting like a supposed advocate for them) and seasons it with his own brand of snooty carpetbagger outrage. It's outright garbage, and I'm embarrassed Ontarians are buying it.

The document does all this while relying on Orwellian, lawyerly language. The doublespeak demands a double Scotch: 

“Working together in the spirit of this framework, the Ontario beer consumer will benefit,” it proclaims, improbably. 

The Ed Clark study concludes that TBS has a very efficient system for distributing and selling beer. Efficient systems lower costs for consumers. Maybe TBS was hoping to impart some of that knowledge to a bureaucracy that routinely overpays manufacturers for their wares intentionally?

The title seems unintentionally ironic: “Serving Ontario Beer Consumers — Framework for Improved Co-operation and Planning Between the LCBO and BRI (Brewers Retail, Inc., The Beer Store’s formal corporate name).” 

Its bureaucratic wording spells out precisely how beer drinkers shall be gouged. The core of the scheme comes in the section that sharply delineates “Beer Selling Roles” for the two rival distributors — one government-owned and the other privately run — to sharply limit any competition between them. 

"Precisely how beer drinkers shall be gouged." That's hilarious. I thought words meant things, and were meant to be deployed in accordance with those definitions. The words used in this paragraph would seem to indicate that TBS lays out a detailed plan to "fix" prices in this agreement. Note: There is nothing even resembling the sort anywhere in this document. TBS doesn't even set prices. Each brewer big or small sets a price, gets LCBO approval of the price, and then notifies TBS so they can print up the price tickets. All this is done without any input from the retailer.

 “Consistent with historical practice, LCBO will not sell beer . . . in packages containing more than 6 containers,” the document declares. 

Why would the LCBO agree to tie its hands in such a way? Why give up the right to sell more affordable 12-packs or two-fours (cases of 24) that make up the largest volume of beer buying in Ontario? 

And why would the publicly owned LCBO further agree that it “will not promote beer at price points greater than 6 containers?” The effect, of course, is to deny drinkers the cost savings of a 12-pack or two-four available at the privately-run Beer Store, forcing them to pay the higher tab for each individual six-pack. 

He DOES have a good question there. Why WOULD the LCBO acquiesce on sales of larger packages? Was it a backroom Harris government conspiracy? Did TBS have some kind of leverage over the LCBO? Can we get a reporter covering this issue who wants to actually delve into it and ask some freaking questions instead of bloviating? Why did The Star allow Robyn Doolittle to leave? She broke the Rob Ford story, I'm sure she could find some answers on this topic.

Of course, all this anger over LCBO locations not being allowed 12s and 24s is ridiculous. Do you know why? 

The LCBO carrying 12s and 24s IS RIDICULOUS.

I can safely assume that Cohn has never actually been in a TBS location. Larger packages, and higher sales volume packages take up a lot of space. They dominate TBS locations. I haven't been in an LCBO yet that can afford to allot that much floor/shelf space to new product. They already have to reject small brewers looking to add new products to their stores given current space constraints.

Let's just say that the LCBO WERE to lose their minds and start selling 24s. What do you think will be cut from shelves to make room? Hiram Walker, Seagrams, and Diageo products? Or Ontario wines from smaller producers? Unique spirits? Rare vintages? Or... and this is really funny... CRAFT BEER? Do you think they would prefer to make more room for more redundant SKUs of something safe that sells like Canadian, or a new seasonal release from Beau's or Great Lakes Brewery?

Here's the thing: The exact same alcoholic product in Ontario costs the exact same price EVERYWHERE. BY LAW. The LCBO cannot compete by having a lower price, so what's the point? To move more volume? They can't handle a substantial volume of beer without gutting their selection (and hiring a staff that can lift more than 40 ounces at a time.) What's in it for them? Most people who refuse to make two trips just buy it all in 6-packs anyway. I've seen this happen in LCBOs located in the SAME PARKING LOT as a TBS. Why do we need to cater to these people? Take their 6-pack money!

Maybe the LCBO conceded this issue because they see how ridiculous such a scenario would be. Not as ridiculous as using a substantial journalistic pulpit to frame this item as an attempt to gouge consumers, though.

Another clause spells out the architecture of noncompetition: The LCBO will not sell to restaurants and bars any of the major brands not carried in its regular stores, thus giving the big brewers unchallenged power to gouge the food and beverage industry with their market muscle (which they do by setting prices, and profit margins, unconscionably higher than in most other provinces or in regular Beer Store outlets). 

I will admit this: The prices charged to licensees is too high. However, that is set by the individual brewers, NOT TBS. If you don't like the prices, don't buy Molson and Labatts products. Beers brewed by Wellington County are sometimes CHEAPER for licensees. Steam Whistle and Mill Street are nearly the same. That's a good way to support craft brewers at the same time as you make your stand.

Forcing licensees to buy from TBS isn't a nefarious scam. It's because, for a very long time, you were not allowed to buy smaller packages on a liquor license. The POS at TBS will not allow a licensee to buy certain products. This is either because no price point exists for that product, or the LCBO does not allow sale of that product to licensees. They are also not allowed to buy promo packages like mixed cases (Get2Gether or Sleeman Selections) or promo sizes (like 15s or 28s.) Again, nothing nefarious, just a few quirks in the system. It is better than it used to be at the time the agreement was drafted. Licensees can now buy 6-packs of a lot of products where they couldn't before.

Again, the price would be the same at the LCBO, TBS, or direct from the brewer. To frame this as retail gouging by TBS specifically is disingenuous.

 Sales territories are also sharply circumscribed: If The Beer Store decides to move into growing communities, the LCBO will retreat to make way: “Existing LCBO store is to revert to a … 6-pack store and will carry package sizes no greater than 6 containers.” 

This is being painted TBS somehow muscling out the body that governs them. PRIVATE BUSINESS muscling out GOVERNMENT. Hilarious. By the way, this section exists to SERVE the people better. TBS is a private enterprise and has no obligation to provide a service to the public. The LCBO is a public entity, and also has to service that public, even if that means opening a store in a small town where it may not make sense for a private retailer to operate. This section merely means that if beer sales increase to 4000hL in a year span, that TBS is entitled to enter that community and serve it, and the LCBO will have to both allow them, and cease selling 12s and 24s (no doubt at great relief to them. New products!) How TBS getting in writing the right to enter a community to better serve its needs from their competition/regulator can be spun into something untowards is beyond me. Truly, Cohn has a gift.

Oh, and if The Beer Store disagrees with the LCBO on key points, they will operate by “consensus on all issues,” and a joint committee’s decisions “shall be consensus (sic).” 

The brewers say jump, and the government asks how high. 

Yes, because that's exactly how the first sentence informs the second. The first sentence did say "Parties will convene if there is a future issue, and a decision will be dictated by BRI" right? Wait, it didn't? Words mean things?

Why would our elected public officials give private profiteers a veto? Why hamstring the LCBO’s future growth by binding it to past “historical practice?”

To understand why the LCBO would abide by such a self-defeating agreement, I put the question to its former CEO and chair, Andy Brandt: Why go along with the document 14 years ago?

Brandt tells me he did it under direct orders of the Tory government of then-premier Mike Harris in mid-2000. A former Tory cabinet minister himself from the Bill Davis era, Brandt had been appointed to the influential LCBO post in 1991 by then-NDP premier Bob Rae.

Brandt believes the Harris Tories acquiesced to intense pressure from the privately-owned Brewers Retail, which was plainly spooked about the erosion of its longtime monopoly position. The LCBO had been stocking more beer in its newly renovated outlets, stealing market share from the shabby stores in the Brewers Retail chain.

Despite outdated facilities stuck in the 1950s, the document uses laughably ironic language to advance the fiction that Brewers Retail was investing to “modernize” its storefronts. In reality, it was falling far behind the LCBO, as Brandt points out — and as any unfortunate Beer Store customer can attest. 

 So, TBS is "spooked": HOW did they leverage the government, and WHY did the government force themselves to accept such one-sided terms? Journalism! Look into it!

And again with the "shabby stores" argument. Maybe the LCBO allowing TBS to open shiny new outlets instead of rejecting any notion of expansion prior to this agreement might have helped there. Maybe cities like Barrie growing from 35,000 people in the 80's, to 79,000 in the 1996 census, to 103,000 in 2001 would have had nicer TBS locations if they weren't bursting at the seams and not allowed the relief of new stores. Barrie did eventually get 2 new stores; and both are bright, clean, and attractive (even if I hate the Ice Cold Express format of one of them.) Almost every "shabby" TBS location is in a small town or is a low volume store. TBS would love to mark every dated store for renovation, believe me, but it's hard for a company threatened with extinction by various pitchfork-wavers on a weekly basis that DOES NOT profit from their sales to undertake such a project.

In yet more fulsome language, the agreement’s covering letter proclaims, “We are confident that by working together in the spirit of this framework, the Ontario beer consumer will benefit.”

Nothing could be further from the truth — then or today. Just ask Brandt, who still grumbles that the government imposed the deal on him. 

“That was a government decision, that was not my decision — that was not an LCBO decision,” he tells me on the phone from Sarnia. 

“I never quite understood why the government always wanted to protect the (big) beer industry,” Brandt fumes. 

But he has his suspicions: “The government had some kind of a deal with Brewers Retail.” 

"Nothing could be further from the truth"? The stench of invective in Cohn's writing makes my eyes twitch.

Maybe do some actual journalism and find out that TBS went to the table to, yes, actually provide better services for the Ontario beer drinker. As crazy as it sounds, as the major retailer of beer in Ontario, TBS wants to do a good job serving Ontario. To give them fresh new stores in booming areas to browse more shelves filled with a greater selection of beer. To allow them to buy single 473mL cans of beer at TBS instead of being told "Sorry, that's LCBO-exclusive" when they unringed 6-packs of tall boys and brought them up to the cash where a TBS CSR no doubt was just as confused as to why this wasn't possible as the customer was. Because the LCBO is an inefficient, bureaucratic Crown corporation and TBS is a well-oiled beer-moving machine; that's why. TBS had enough and brought them to the table to improve things for everyone's benefit.

A former interim leader of the Progressive Conservatives before Harris, Brandt believes — as many others do — that election campaign contributions by the big brewers motivated the government’s decision: “That obviously has some influence.” 

Bob Runciman, who at the time was minister of consumer and commercial relations responsible for the LCBO, confirms that he wanted the deal done. But he dismisses the allegations about coming under undue influence by the beer lobby. 

“I don’t remember that, if it happened,” Runciman said about the Beer Store perhaps getting its way by buying its way. “I doubt it happened, but they do donate to both parties . . . I don’t really believe it was a significant factor.” 

Now a senator, Runciman says he always acted in the best interests of consumers to ensure orderly sales. 

Unsurprisingly, that’s what The Beer Store says, too. 

Apparently, the secret deal was drafted “to facilitate the orderly modernization of Ontario’s beverage alcohol retailing system,” according to a statement sent to me by Jeff Newton, head of Canada’s National Brewers, the industry lobby group that represents The Beer Store in media dealings. 

He argues that the LCBO was constraining the growth of Brewers Retail, not the other way around. But doesn't it look like collusion, I ask Newton, to sign a deal that benefits The Beer Store by preventing the LCBO from selling beer in higher volumes at lower prices? 

The absurdity of a government entity being strong-armed by a private enterprise into making a "sweetheart deal" for themselves makes more sense to this guy than the very basic truth. His slant makes me want to cut my wrists with Occam's Razor. Bob Runciman says that nothing shady happened, Jeff Newton tells him that the government (obviously!) had the advantage in a retail head-to-head competition, and he's still seeing the worst in entities he's predetermined that he doesn't like.

Newton's emailed statement doesn't respond to the collusion question, countering instead: “Clearly Ontario's alcohol retailing system and the Framework Agreement are working.” 

However, a law firm representing The Beer Store contacted the Star the next day to comment on the collusion question that Newton had left unaddressed: “This is an inaccurate and inappropriate characterization, to which my client objects.” 

Because "collusion" is a very serious legal term and not to be bandied about lightly. You know, something good and ethical journalists think through before spewing their opinions.

Brandt doesn’t buy what Newton is selling. He chafed at the price and volume restrictions imposed on the LCBO, which conferred an unfair advantage on Brewers Retail. 

Nothing in the agreement refers to prices whatsoever, which TBS has ZERO say in. The only reference to volume (aside from the 12/24-pack thing) is as a trigger clause for TBS to be allowed to enter a community. Brandt's chafing seems to be regret over being out-negotiated. The wounded pride of a former LCBO exec is not something that should concern most Ontarians.

If not for those constraints, “We would have knocked the sales of The Beer Store significantly,” Brandt says, but what rankled him most was a misallocation of revenues: 

Rising LCBO profits went straight to the government treasury to fund hospitals, schools and infrastructure. By contrast, The Beer Store’s profits go straight into the coffers of its private (no, not government) owners, whose corporate parents are now based abroad (Labatts, which is owned by AB Inbev of Belgium, plus U.S.-owned Molson-Coors and Japanese-owned Sleeman). 

For years, The Beer Store has maintained close to 80 per cent market share because of its control over volume sales of major brands in its chain. The LCBO has been held back to just over 20 per cent, but insiders believe it would make major inroads without the protectionist pact that benefits the big brewers. 

If only a recent government commissioned study (referenced in the next paragraph, hilariously) didn't already say that Ontario makes more money off the sale of beer at TBS than the same sale at the LCBO. Those fancy LCBO stores aren't free, but to the government, TBS locations and the gigantic taxes their sales generate are.

Also, drink if you see Molson-Coors referred to as an American company. That's news to the Molson family. I knew it was a matter of time before the US tried to annex Montreal, I just didn't know it was official yet.

Here's a fun way to weed out the noise from "journalists": If they refer to the 50% Canadian-owned Molson-Coors company as "American" or "100% foreign owned" or "Based in Colorado" then disregard anything else they say on the topic. It's the same as the Van Halen brown M&Ms rider: If they got that very basic thing wrong, then who knows what other things they screwed up or misrepresented.

At long last, the sweetheart deal is facing more publicity and scrutiny. Earlier this year, the Liberal government asked former TD Bank CEO Ed Clark to maximize the value of major government assets, including the LCBO. He responded by examining its interlocking relationship with The Beer Store, and recommended allowing the LCBO to sell 12-packs for the first time — but not the high-volume cases of 24 that generate handsome profits for The Beer Store. 

“We don’t want to undermine its economics by allowing the LCBO to sell cases of 24 — the bulk of Beer Store sales,” Clark noted inexplicably in a speech last fall. He also proposed a franchise fee to retain its monopoly clout (sources tell me the annual take would be less than $100 million).

Package sizes are a big deal, because they are big money. 

Ripping up the deal to let the LCBO sell both 12-packs and cases of 24 would “provide the government with a new revenue stream” estimated at $515 million a year, according to Restaurants Canada, which represents the food and beverage industry. 

It's nice and all that Restaurants Canada decided to make up a number, but you didn't have to put it in your column. I have to argue on Twitter with people who think that number is real and/or credible because an actual newspaper printed it! Even if it's the Toronto Star! TBS makes $3 a case to cover their overhead, by the way. That's a hell of a lot of cases to move to make up that amount. Every Ontario beer drinker would have to consume like Andre the Giant every day and TBS' operating costs would have to drop to zero, basically.

The proposed shakedown of TBS/"franchise fee" warrants its own post.

In a submission to Clark’s task force last summer, it questioned why the government still lets the private brewers siphon off massive profits by charging its members much higher prices than retail consumers pay. Its brief argued that another $500 million could accrue to government if the LCBO were allowed to sell all brands of beer in cases of 24 directly to bars and restaurants.

That adds up to total of $1 billion in foregone revenue that could flow to the LCBO but is now captured by the private brewers thanks to their protected position. 

Thank you sir, may I have another half billion? I misread this the first time and didn't realize the restaurant lobby group invented TWO streams of a half billion dollars in imaginary money! Seriously, how would they even begin to know? They have no access to any hard numbers whatsoever except the price they pay on product, but those figures get printed in the Star like they came from a TD Waterhouse audit. Furthering an agenda seems like a really freeing experience. Forget logic and facts, and just let it all out!

Why would the government agree to act as an enabler and enricher of the private profiteers who run The Beer Store — perpetuating its oppressively Stalinist architecture, Soviet-style service, and ossified corporate design? What’s keeping today’s Liberal government from undoing the bad deal cooked up by the Tories in 2000? 

Sadly, it’s simple. Both political parties profit shamelessly from generous campaign donations, and both are easily seduced by powerful lobbyists. The brewers have snapped up virtually every big name influencer in town, many of them former Liberal party operatives. 

Don't spread the idea that lobbyists paying $17,000 can buy that much influence. Do you REALLY want to invite the Koch brothers up here? They could buy Canadian approval of Keystone XL for like 30 grand! The could build another pipeline to send all their waste from the US into Hudson's Bay for another 50! Don't you bring that evil on us, Cohn!

Either they are ridiculously corrupted by moderate sums of money, or you are too lazy to find out the actual reasons why no one is changing the alcohol system in Ontario. Maybe it's because people with access to the facts know it works really well!

 While the Liberal government ponders a few half measures, the prominent Tories who first constrained the LCBO 14 years ago now believe their protectionist pact is outdated: “I think it should be looked at,” Runciman says today. “Loosening it up would be welcome by most people.”

Remarkably, The Beer Store’s sweet deal has been kept secret all this time. Now, with the holiday party season upon us, we can read it and weep.

Anyone who had to be subjected to a media circus for the last two weeks thanks to an innocuous document are the ones who should be weeping.

I weep too. I weep for everyone who has to share a province with the people who bought this story.

EDIT: Added a link to the actual agreement, which I somehow forgot initially. Sorry. It's a light read! It is only ten pages, after all!

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.