Thursday, February 28, 2013

LDB Review on Growlers May Increase Consumer Costs

Arguably hottest trend in the local craft beer scene is the growler and a change in the way the BC Liquor Distribution Board classifies them may soon mean the consumer pays more at the cash register to take home their favourite, draught brews.

The way the LDB marks up the cost of beer is complicated to say the least. Currently, breweries pay the LDB a per-litre mark-up which is added onto what the brewery is charging for their beer and passed on to the consumer, and the price mark-up changes depending on the level of production of the brewery and whether the beer is sold as "draught", meaning on tap, or "packaged", usually meaning bottled or in cans.

The breakdown of basic mark-ups, according to a LDB document obtained by VEBB, goes as such (1 Hectolitre = 100 litres):


Breweries (>160,000 Hectolitres)
B.C. Packaged  - $1.75/L
Other Packaged  - $1.75/L 
Draught - $1.20/L


Breweries (>15,000 ≤ 160,000 Hectolitres)
B.C. Packaged  - $1.16 /L
Other Packaged  - $1.16/L 
Draught - $0.81/L


Breweries (≤ 15,000 Hectolitres)
B.C. Packaged  - $1.04/L 
Other Packaged  - $1.04/L 
Draught - $0.72/L

For those who don't know, growlers are refillable jugs which hold 1.8 litres, 64oz in old money, of liquid and are used by breweries and brewpubs to sell draught beer directly to consumers to take home. Currently, according to the LDB, when you make your first growler purchase, the brewery pays the LDB the packaged cost per-litre markup. Every fill thereafter is considered as draught and the brewery pays the LDB the lower draught rate. Remember that on the original fill, you also buy the actual growler as well, usually $4-$5, which you then own.

Confused yet?

For most craft breweries in BC, who fall in the 15,000HL and less category, the first growler fill, is currently marked up $1.04/L (packaged), which totals $1.87 per growler ($1.04/L x 1.8). Subsequent fills, are then marked up at $.72/L (draught) totaling $1.30 ($0.72/L x 1.8), $0.57 less than the original purchase. You can figure out the differences for the larger production category by looking at the difference between the packaged and draught rates.

There is also a $.20 deposit thrown in there on the first purchase which makes no sense because who is going to return a decorated glass bottle they just purchased for $4-5 to get a $.20 deposit?

But I digress...

Under the new rules, which come into effect April/13, all growler sales will be marked up at the higher, packaged price, no matter if it is the first sale or the 100th refill. That means smaller breweries, under 15,000HL, will be charged the extra $0.57 on refills, a 30% markup increase, and a cost that will most certainly be passed on to consumers, especially by the smaller production capacity breweries who operate on a tight budget and constantly walk the razor's edge of pricing their beer low enough to be competitive in the marketplace but high enough to make a reasonable profit. With some breweries averaging close to 1,000 growler sales some months, this increase quickly begins to add up to big dollar amounts. 

For example, on a growler that is $10.00 per refill, before tax, the actual increase of the markup on the total cost is 5.7%. That $10.00 growler now costs the consumer $11.20 after the dreaded tax man takes his pound of flesh under the current HST tax system. If breweries raise their retail price to compensate for this increased cost, the final consumer tally would be $10.57 + HST equaling $11.84, a $0.64 increase per refill. Not much in the grand scheme of things, but considering we already pay way too much for craft beer in this province, any consumer increase is too much in my opinion, especially when that increased cost is going straight into the government's coffers and not to the brewery.

And just for the record, the ridiculous $.20 deposit fee will no longer be charged at any time.

The LDB's explanation to VEBB, in an email, as to why the mark-up change is happening is that, "it was determined that Growlers, both the first fill and all refills, should be subject to the packaged beer mark-up rate because they are packaged for customer consumption off-site."

It took me over two weeks and close to 10 emails, to get this information. No one at the LDB  seemed willing to "sign off" on a simple request to get clarified how growlers are currently supposed to be marked-up and if it was true the changes were happening. Only when I emailed the LDB Beer Portfolio Manager, Kim Giesbrecht directly did I get a response from the Communications Department less than 24 hours later.

I have spoken to a few representatives from breweries that do growler sales and some did not know for certain if they would increase their growler price or absorb the financial hit in order to not alienate their customers while others immediately stated the cost would have to be passed on to the paying customer. Many had not even heard about this change in the way growlers were being marked up and were surprised by the information.

I cannot see how some of the nano-breweries, who rely on growler sales as part of their business plan, would have any choice but to raise their retail prices eventually. This increased markup, which really only impacts craft breweries (how many growlers of Molson Canadian do you see out there), shows once again that the government is not being very supportive of the craft beer industry as they continue to make it difficult for these smaller breweries to operate, be profitable and grow.  

There is also a lot of confusion about this increase and how growlers are supposed to be marked up at present. While trying to research this post, I spoke to several breweries and there were many different ways they were currently being marked up from being marked up the higher packaged rate on all fills and refills, to being marked up at the lower draught rate on all fills and refills to the system I described at the top of this blog. It is my suspicion that the LDB really had no handle on what growlers really were and how they should be marked up, so it slipped under the radar until recently when growler sales spiked significantly.

The only thing that is clear is that consumers, who already pay through the nose for craft beer in BC, will be paying a little more for their growler fills in the future so that the LDB can add even more onto their 900 million-plus profit margin they now enjoy. I find it convenient that this increase is possibly being implemented just when growler sales are spiking and when the laws have just been changed to allow for more on-site sales and consumption, meaning more small breweries with tasting rooms and the capacity to fill growlers will be opening.

A coincidence....I say no.

Hidden tax grab negatively impacting the craft beer industry and consumer...I don`t think it is hard to figure out.

6 comments:

  1. For folks that think this tax "isn't that much" a brewery selling all of their 15,000hl per year in growlers will have to pay an additional $480,000 in tax.

    Now sure, no one sells their entire production through growlers, but even a tiny nano start-up will be looking at $10,000 or more in extra taxes here (1200hl, sell 33% of that in growlers, equals 1200hl x 100l/hl x 33% x $.32/l = $12,672).

    Those are realistic numbers, and $12k less money is a bad day for a nano.

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    Replies
    1. While I think this tax is terrible, you can't throw out numbers like 33% sales are from growlers and claim they are realistic.

      Here's a slightly logical way of looking at your "statistic":
      1200hl (I assume you mean annually) is 120,000 liters.
      33% of that is 40,000 liters.
      Divided by 365 days in a year that's 110 liters of growler fills EVERYDAY, not just weekends.
      So what you're claiming is that a "tiny nano" is going through two kegs/day (EVERYDAY) just to fill growlers?

      I'm not saying you're wrong. I'm just saying it seems far fetched and some references would be nice.

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  2. I agree completely and there are breweries out there in the planning stages that will be including growler sales as a BIG part of their business plan. So the LDB is giving those selling growlers the choice of raising consumer costs to those who already feel they are paying way to much for products due to taxation, or to take the hit themselves, all so the LDB can further line their pockets with profits while giving little support back to the craft beer industry.
    I, for one, am fed up. Changes to the LDB & LCLB and how they operate should be an election issue!!

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  3. Because this city was in danger of becoming fun...

    The LDB seem to give (or make the appearance of giving) with one hand and take away with the other.

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  4. CAMRA BC, Vancouver Chapter has launched the SAVE THE GROWLER campaign to fight this tax on craft beer.

    http://camravancouver.ca/advocacy/growler/

    #savethegrowler

    ReplyDelete