Wednesday, February 29, 2012

Meet the New Boss, Just the Same as the Old Boss - Will Privatization of LDB Distribution Centres Actually Result in Any Changes?

Last Tuesday's announcement by Liberal Finance Minister Kevin Falcon that the government were looking to sell off the BC Liquor Distribution Board's (LDB) two distribution warehouses and hand over operations by 2015, had many craft beer enthusiasts grinning from ear to ear as this seemed to hint that the cumbersome and much maligned BC liquor distribution system was about to be updated and streamlined.

But the more light that gets shed the government's plans to privatize and on on who may be angling to buy the warehouses, the darker the future looks for those of us that were hoping the privatization of the warehouses may trigger an overhaul to the current BC liquor distribution system which controls either directly, or indirectly all liquor distribution in the province.

It did not take long for many of us to turn those giddy grins to cynical frowns as we examined the situation and put the pieces together. As written in blogs Brewed Awakening, the Small Beer Blog, the sale and privatization may be signalling the possibility that something wicked this way comes instead the possibility of a fresh new start.

The price for buying the two distribution centres will be beyond the scope of possibility for all but a handful of potential buyers who have a money bags full enough to be taken seriously and that short list does not look too craft beer friendly at this time. And it appears this "sudden announcement" may not have been so sudden and that lobbying and vying for position to buy the distribution centres may have been taking place for some time.

Progressive Strategies, whose chairman is long time Liberal supporter and big business lobbyist Pat Kinsella, no stranger to controversary, or being involved in major privatization deals in BC, registered as an official lobby group for Excel Logistics in 2010 and they have targeted key Liberal personnel since that time. This is the same Kinsella who was the co-chair of the BC Liberal campaign in 2001, the election that shot Gordon Campbell into power and who more recently back Christy Clark in her successful bid to win the BC Liberal leadership.

According to a Globe and Mail article by Sunny Dhillon and Justin Hunter, Kinsella is also a registered lobbyist for Pacific Western Brewing, BC's largest independent brewery who are decidedly not craft beer focused and the Mark Anthony Group, who describe themselves as " the leading privately-owned importer and distributor of fine wine, premium beer, and specialty beverages in Canada" and whose beer products are Hell's Gate and Stanley Park Amber Ale, not exactly craft beer friendly either. 

But those two groups are not the worst options to groups being linked to possibly take over the distribution warehouses and, at least in the case of Pacific Western, not likely candidates. The more disturbing information being uncovered is the link between Kinsella's Progressive Strategies, Excel Logistics and Canada's two biggest Breweries, namely Molson Canadian and Labatt's. That connection, according to a story posted in a story by Business in Vancouver (BIV), is that that Scott Lyons, who is named on the lobby registration by Kinsella's group as the contact for Excel,  is the former director of distribution operations for The Beer Store, the Ontario-only based chain of retail beer sales outlets that has contributed close to $150,000 to the BC Liberal Party since 2005 and who are owned by Molson (49%) and Labatt's (49%), with the other two percent of ownership lying with Sleeman Breweries.

No one knows exactly what has transpired or if backroom meetings/negotiations have taken place but if Kinsella and the Liberals have been meeting to broker a deal I hope they have been forced to swill Bud Lime and Molson Ex and not single malt scotch and quality BC craft beer. All indicators at this time point to the government just replacing themselves with a big business group, possibly a group sympathetic with our big national breweries, bent on getting in on the projected 900 million-plus dollars in profit the LDB is projecting for the upcoming years in their most current strategy plan and not on reforming the LDB distribution system.

If those administering the system change but the system remains the same, this is bad news for the craft beer industry and we will see the status quo being maintained. In the words of Pete Townsend and The Who, it may be a case of  "meet the new boss, just the same as the old boss," once the ink has dried on the contracts selling off BC's liquor distribution warehouses.

It is the system that needs replacing, not the people writing the cheques for the employees of the distribution centres. It is my opinion that we need a more open market system of distribution, with the government overseeing and enforcing laws from a distance, not while they are acting as distributor and retailer at the same time. It would great great to see the government actually trash this whole broken system and create a new, functional and fair system even if it means they get rid of the LDB as it exists now.

The craft beer industry would benefit greatly from having a system that helps promote and feature their products which have increased sales, since 2007, in litres sold by 47% while the bigger domestic breweries, who produce more than 150,000 HL/year, have seen their sales drop by 13.5% during the same time period. The craft beer market now enjoys  a 15.7% market share, up from 7.8% in 2007 yet they fight for shelf space and are barely promoted by the LDB or in the government run BC Liquor Stores while their products are fully being represented in many private liquor stores and are flying off the shelves.

Why do craft breweries, many of whom deliver their own products to ensure good customer service and proper treatment of their beer by licensees, have to collect the money for their products, then send that money and accompanying paperwork in to the LDB, wait several weeks for the LDB to process the paperwork before receiving their cut of monies collected by them upon delivery in the first place? For small businesses, this wait for cash to flow back to them could be critical to their operations. It makes more sense that if a craft brewery wants to look after its own distribution, that it collects the money and then sends the LDB their cut, meaning no delay in cash flow for the breweries looking after their own distribution and delivery.

There are many other things that need to be addressed with the current distribution system, such as why do private Retail Liquor Stores (LRS) have to compete on an uneven playing field with the government-run BC Liquor Stores? LRS's have to buy their products through the LDB at a price marked up higher than the LDB-run stores buy the product. That is why, despite having lower overhead, the private stores have higher prices than the government stores. Why can restaurants and bars not buy directly from producers, cutting out the LDB as middleman? Why are there restrictions on cross-provincial border transport of alcohol? Why does the LDB mark up products well over 100% before selling it to retailers who again mark up the price before moving it to the consumer? Why can't importers import the products their clients want without having to wade through a mountain of paperwork with the LDB and and then have these products, if approved and listed, moved through warehouses where they may sit for weeks.

These are the things that need to be addressed by the LDB, not who runs their warehouses. It will be interesting to see how the deal takes shape and what it looks like. You have to know that the government is not going to give up their piece of the 900 million dollar profit pie, so how will the new owners of the distribution centre make their cut?

I have already seen emails sent out by LDB General Manager Jay Chambers stating that the price structure for products will stay the same and that the privatization will not effect the government liquor stores so what really will change other than the Liberals can claim the money from the sales of the distribution centres on the plus side of their budget ledger. So many questions with no real answers.

It will be interesting to see what transpires and I, for one, will be keeping a close eye on things.


  1. Great post! I agree, the LDB needs to separate it's distibution/store aspect from it's tax collecting/regulation oversight aspect. They should be two entities. Privatizing the distribution end would be blatantly corrupt. Why give the profits to a private corporation when we can keep it a crown coporation with decent jobs and the profits funneled back into the province?

    On a side note, both Alberta and Mantiboa have their campaign contributions registry online, adn The Beer Store has contributed in both those Provinces as well. I'm too lazy to cite numbers, but I found it pretty quickly by Googling "Alberta Election Contributions". I don't think this is conspiracy, but it does show how the big brewers try to maintain control of the market through political influence.

  2. Thanks for the info on the political contribution info...I will be looking at it and playing around.