Wednesday, February 16, 2011

Tied House and Trade Practice Changes: Opening Pandora's Box?

A very important deadline recently came and went, a deadline that may soon have a major impact on the craft beer industry and I wonder how many that will be potentially impacted were aware.
Proposed changes to legislation regarding tied houses and trade practices, by the Liquor Control and Licensing Branch (LCLB), here in British Columbia, have been presented and the deadline for feedback about the proposed changes was February 15, 2011. In June of 2010, legislation was passed here in BC paving the way for amendments to the Liquor Control and Licensing Act in regards to trade practice laws and tied houses. Basically, the government is looking to deregulate the liquor industry in regards to tied houses and trade practices and this scares the Hell out of me!
Let me explain...
In January of this year, the LCLB issued a Consultation Paper, posting it on its website and apparently sending it to a "number of liquor related organizations" outlining the three different options for proposed changes in both areas, asking for feedback. The purpose of the paper was so that the LCLB could hear from those who may be impacted by the changes, consider all arguments, for each option outlined, so they could make an informed decision about how to shape and draft the new legislation before presenting it to the Ministry of Public Safety and Solicitor General.
For those who aren't familiar with the terms tied houses and trade practices, and I have to admit, I really wasn't up to speed until very recently, let me try to explain. According to the LCLB Consultation Paper a "tied house is an establishment that has an association, financial or otherwise, with a liquor manufacturer or its agent that is likely to lead to its products being favoured." In other words tied houses are pubs and restaurants that are linked directly to the producers of the alcohol, who would profit directly from the sale of their alcohol to the public and who could restrict the sale of products produced by their competitors. Examples of a "tied houses" would be Molson House and Heineken House, which were given special exemptions to exist during the 2010 Winter Olympics.
Trade practices laws are those that restrict and prohibit "commercial interactions between liquor suppliers and licensed establishments including restrictions on promoting specific manufacturers and their products in exchange for benefits provided by the supplier" (LCLB Consulation Paper, p.2).These trade practice restrictions and prohibitions help stop producers of alcohol from basically bribing licensed establishments by offering freebies to them in exchange for exclusive or preferred sales deals. You have to look no further than Rogers Arena and BC Place where the larger breweries have secured exclusive deals by offering financial inducements.

Now I have purposely oversimplified these concepts as they are complex, convoluted and quite frankly, I have trouble wrapping my wee brain around them completely, especially if I am drinking and blogging (no 0.5 % alcohol limit to content with here!). Tied houses have been outlawed in British Columbia since the 1950s when the Liquor Act was changed to prohibit tied houses and the offering of inducements by liquor producers and distributors to licensees. The changes to the law were originally brought in the protect the consumer and smaller breweries as the larger breweries were buying up pubs and featuring only their products, freezing out the smaller breweries and limiting consumer choices. These laws and regulations attempted to stop those breweries with deep pockets, such as Molson and Labatt from basically cornering the market by controlling what the pubs sold, often at low prices to induce overconsumption. In the 1950s there were far fewer pubs and clubs, approximately 600 according to the LCLB Consultation Paper, and no licensed restaurants in the province, therefore it was much easier to consolidate and dominate the market. Today, the LDLB states there are more than 9000 licensed establishments, therefore it is much more difficult to dominate.
Over the years, some of these laws have been tweaked to allow for establishments like brewpubs and wineries to sell their products at the same sight they are produced. As well, the trade practice regulations have been relaxed so that liquor producers can supply licensees, for free, with such things as umbrellas, t-shirts, coasters, glassware, etc with their logos on them. The proposed changes will further relax, or completely eliminate these restrictions and prohibitions, depending on what option they pass into law.
It has taken years in this province to loosen the grip the major breweries had on the beer market to allow smaller craft breweries to survive and thrive. Despite the laws, the practice of inducements has been alive and well, with breweries having deeper pockets offering kickbacks, i.e. a free keg for every ten kegs (or less) purchased, or offering to pay for improvements to a pub or restaurant in exchange for an "exclusive" or "preferred" sales deal. I have seen this first hand when working in the industry. Local breweries have fought tooth and nail to carve out their place in the market and it took until the past few years for them to gain a a small share of the market even with all these restrictions is place. In the BC Liquor Distribution Branch (BCLDB) December 2010 Quarterly Report, it was reported that breweries that produced less than 150,000 hectolitres of beer had an increase of 7.65% in draft sales and 40.12% in bottled sales compared to the same quarter last year while breweries with production of more than 150,000 had a drop in sales by 7.71% for draft and 8.6% for bottled beers. To me, this indicates that more and more people are being turned on to craft beer here in BC. Despite the fact that craft beer is more expensive, it is gaining in popularity and slowly gaining a larger market share. But if my math is correct - there is more than a good chance it isn't...please see drinking and blogging comment above - despite the reported gains in the BCLDB Quarterly Report, the breweries with less than 150,000 hectolitres still only had approximately 13% of the BC market.
The proposed changes, as I mentioned, have been presented in three options. For tied houses the options are: complete deregulation; permit tied houses but limit the number of tied houses that a person/company can hold; permit tied houses with "public interest restrictions" such as rules that the LCLB would enforce and if breeched by a tied house, their license to be a tied house would be revoked. In relation to trade practices the options are: complete deregulation, anything goes; reduce of eliminate "most" trade practice restrictions; allow sponsorship agreements between licensees and liquor producers, but not allowing complete exclusivity deals to be made. These are simplifications of the proposal and for a more detailed explanation, please see the Consultation Paper by clicking the link above.

So why the Hell am I rattling on about this, you may be asking yourselves? Well, I am somewhat suspicious about why the government is looking to deregulate and wondering just how such huge proposed changes to the liquor laws have gone basically unreported and unnoticed, even by those who will be impacted. I believe that consumer advocacy groups like CAMRA BC, the press and bloggers like myself have a duty to critically look at these types of changes and question whether they really are in the favour of the consumer and whether they promote the growth of the local craft beer industry. If we get the word out there, make informed decisions about the issues and make our voices heard loud and clear, we can effect positive change. 
How often do changes to liquor laws, in this province of over regulation, go unreported? Hardly ever. Who is lobbying for these changes and why? Is it that the big breweries are getting slightly nervous that their complete stranglehold on the beer market has been reduced to just a half-Nelson? The LCLB is claiming that they allocate a "significant" amount of their resources to investigating cases of tied houses and the breaching of trade practice laws and enforcing the existing laws and they claim these resources could be better allocated to protect the "public safety" by monitoring over-serving alcohol, over-crowding licensed establishments and serving alcohol to minors. In my opinion, we are already over-protected and we have too many liquor inspectors running around giving out seemingly arbitrary fines and warnings to establishments, enforcing liquor laws that are ancient and out of date such as the "audience participation" regulations and the ever contentious issue of how much alcohol are you allowed to drink when out for a meal in a restaurant. 
When I look at these proposals, especially in regards to the LCLB's rationalization for them, it again has me really wondering what they are trying to accomplish and why. The first proposal in each area could open Pandora's Box and allow, once again, the deep-pocketed, national breweries to squeeze out their smaller competition by buying up chains of pubs and restaurants and exclusively selling their products. It might sound like I am Chicken Little running around screaming, "the sky is falling" but think about what the market was like just 25 years ago! And think about all the progress the craft beer trade has made and look at what a small percentage of the actual beer market they have. In my opinion, we need to fight hard against anything that allows tied houses just to limit the possibility of  the bigger breweries throwing their financial weight around more than they already are. They are greedy coproations with a seemingly endless hunger for more money with no regard for the consumer. It happened in the UK and it can happen here. The practice did not completely eradicate the smaller, local breweries there, but it did reduce their ability to survive in some cases, limited greatly their ability to sell their product unless they sold a controlling interest to the larger breweries. And it did greatly limit the consumers choices in regards to what they could drink and where. Do we want to even allow for that possibility to happen here? I would think if you are a craft beer lover and wish existing local breweries thrive and see more local breweries come into existence, you would want more regulations put on in place to encourage the local craft beer scene not the hinder it.
The second option in both areas again would allow for the ownership of a limited number of tied houses and allow sponsorship deals to exist again and opens the door for the larger breweries to impose their financial might to buy a bigger share of the market. What is a logical number of tied houses to allow? How will this be enforced as many larger breweries own a number of smaller breweries and there could be room for manipulation and abuse of the regulations by companies setting up complicated and convoluted ownership schemes. This option, along with the third, will require that the LCLB still allocate significant amount of resources to ensure that the laws are being followed. Does this not contradict directly their rationalization for changing and deregulating?

Now, I know that in some cases the tied house rules have hurt the craft beer and wine industry here in BC. A prime example is Lighthouse Brewery when the owner of brewery was not allowed to sell his beer to a restaurant he co-owned with three others due to the tied house rules. Would it not make more sense to look at these case-by-case to see what the relationship is and the intent of the relationship. Surely a local brewery wanting to sell its own beer in a restaurant that has ties to the brewery is not some plot to squeeze out competition and limit consumers in their choices.
If any of this strikes a cord with you and you have any concerns about the proposed tied house changes, please let your voices be heard. If you are not already a member of CAMRA, you should join and help consolidate our voice. This is exactly why groups such as CAMRA BC are meant to exist. Let's actively campaign to fight off the big national breweries and promote and support our local craft breweries so that they can thrive. Let's stop politicians from passing laws that could potentially send us back towards the Dark Age of Beer here in BC when you only had to order "a pint"...didn't matter what you ordered because it all tasted the same. Let's campaign to be given the chance to drink the beers we want, where we want and how we want them to be served.


  1. While busy at work i had time to read the BCLB document, and also read BCBrews blog post on the issue and now your post. I actually think Option 2) Limited Tied House ownership allows a few things to happen.

    1) Everyones favorite brewpub in Surrey which shall remain nameless could then open up a new pub in Vancouver Central, or provide part ownership of a pub in Vancouver so people don't have to to the arse end of BC to get to the place. Love the Beer hate the Location..
    2) I personally hate going to Yaletown Brewery, but like some of their beers such as the IPA & Stout, which these could then sold in their other branded locations. Ultimately they could do away with some of their crap beers and save in brewing costs. (Yes I miss thursdays @ Dix)

    Will it hurt some bars and small brew accounts in BC ? yes it could in the short term as some smaller craft could lose tapspace. But at the same time its up to the Bus Development staff who work in these breweries to tie in these accounts as its based on relationships.

    Having read annual reports of big breweries, they aren't going to go down the path of buying restaurants or bars again like they did in the 70's/80's. They are interested in Volume such as 'Buckets of Corona on ICE'.. and ultimately investment into certain bars that nobody in CAMRA or craft BC chooses to go to (Heineken House) does not really affect us. Those bars in Gastown we walk past with lines out the front and bouncers when we're going to Alibi room!

    My new expression "Rent Taps" those beers that bars have to have to sell to patrons in order to meet rent. We avoid them, but many don't but it allows us to drink our chosen craft beer.

  2. Thanks for the feedback. My concern with option 2 is that the number of tied houses will be arbitrary and once in place, those who have a vested interest will lobby to increase the number, I agree that the law does hinder some it is supposed to protect. Just look at Mission Springs and the Biller Miner Pub. Look at Lighthouse Brewery in Victoria. It is a complicated issue but when I look the the UK and Ireland where you really have to search to local craft beers in some areas because of the tied houses...
    But I disagree that it won't cause some of the bigger breweries to get greedy. If you allow for financial inducements and agreements to exist it really can be like opening up Pandora's Box.
    It happens here now in Vancouver. You have the breweries that have deeper pockets, or the smaller, more aggressive breweries, looking to go big, who are willing to go into short-term debt to wrench taps away from the smaller breweries that are already buying taps, so to speak in smaller establishments. I have come up against it personally when working for Storm. Although it is illegal, breweries that can afford it, offer kickbacks - 1 keg free in 10 was the norm a few years ago. Then some breweries started 1-7, then 1-5. The deeper pockets can do it... restaurants and bars started demanding it.
    It is also quite common practice to go to a restaurant and offer to pay for fancy taps and run in beer lines and with the under-the-table agreement to prefer or feature that breweries beers over others...and in some cases giving an exclusive to the paying brewery. It is not necessarily the biggest breweries I am worried about...we have a few mid-sized, or small and wanting to grow breweries who are very aggressive and who want to dominate here in Vancouver.
    I don't know what the answer is, but I think if the government is going to make changes,they need to consult all. I do not know one person who received this "Consultation Paper" and who was asked to contribute their opinion and I know lots of people who could be impacted both positively and negatively by it.
    As you said, we will always head for The Alibi Room or St Augustine's for our sleeves (wish I could say pints!), but I would like to see more places where I can houses is where it is at for me!!