I’ll preface this post by saying that effective & responsive Crown Corporations (and government entities) can play an important role in the marketplace. ATB, SaskTel, Manitoba Hydro, and public Liquor Boards/Commissions (such as the SLGA in Sask, LCBO in Ontario, or SAQ in Quebec) play multiple roles in the market. Key among these roles is achieving a public policy objective.

The key descriptors for me are effective, responsive & relevant.

Background

I was looking at the history of Regina’s Bushwakker Brew Pub and noticed that the provincial government took a similar approach to easing the public into the brewpub concept as seems to be playing out with the privatization of liquor sales. In 1989, the Conservative government issued licenses for 4 brewpubs (2 in Regina, 2 in Saskatoon). This served to test public opinion, and to give incumbent hotel Off-Sales time to adjust to the new market reality. Obviously, over time the government expanded brewpub licensing extensively.

(I won’t go into the negative impact the brewpub licenses had on the Sask’s craft brewing scene in this post: summary – “brewpubs” were opened, and garbage product was produced simply to meet the technical requirements necessary to operate an Off-Sale)

Current Status

I see a similar future playing out for liquor privatization:

2 stores initially (1 each in Regina & Saskatoon) licensed;

(1 each in Regina & Saskatoon) licensed; expanding this to 4 stores (2 in each city) in 2014; and

(2 in each city) in 2014; and government announcement that all new liquor stores in the province will be private-sector

Options for the Future

So, the government has exited the liquor retailing scene for all new liquor stores. They will continue to operate the existing network of public stores (LBs) – competing directly with the private sector. At some point, it would seem to make sense to consider flipping the switch & privatizing liquor warehousing/retailing completely (though, this logic could be extended to SaskTel, which has competed directly with the private sector (and a co-op) for years in the provision of television, Internet, local phone, and cellular services… and there’s little indication of a looming SaskTel privatization).

Privatization of liquor retailing and warehousing is certainly a way for government to have their cake & eat it too: they get out of the expensive bricks/mortar retail operation (and potentially warehousing), but maintain public policy control, and a revenue stream (they still charge markup on products).

Really, I don’t care who sells the alcohol to me (or my pub) – so my gripe isn’t with the public system itself… it’s with SLGA’s attitude: customer service, continuous improvement, responsiveness to changing needs seem almost non-existent. While it’s true that a customer can theoretically order almost any product in the world, there are minimum order requirements & layers of bureaucratic red tape that leaves even seasoned veterans – such as Willow Park Wines (currently SK’s only private liquor store) & Beer Brothers – shaking their heads. Beer Brothers had a near constant supply issue for the first few years of operation – and they quite publicly placed much of the blame at SLGA’s feet (along with some positive suggestions, of course).

As a point of reference, AGLC indicates they had 2,200 products available at the time of privatization. They currently maintain an inventory of over 19,000 products (with 33,000 registered in their system). In terms of retail, in 1993, Edmonton had 23 liquor stores – they currently have 262 liquor retailers.

Treatment of Regional Producers

The other issue I have with the current system is SLGA’s apparent disinterest in regional brewers & distillers. Saskatchewan producers indicate that getting their Sask-made product into SLGA stores is exceptionally difficult. Molson/Labatt/Sleemans had a strangle-hold on SKUs & SLGA seems exceptionally happy to bend over backwards to stock the macro-brewers’ products.

This is an abdication of the public policy role of government-run liquor system. In theory, the public system exists to introduce elements of public policy into liquor sales – for example, location, hours of sale, and “social reference pricing.”

It is not much of a stretch for the government to implement a public policy preference for local/regional products. This doesn’t mean not responding consumers, it simply means giving a bit of a leg-up to local/regional brewers. We see public policy policies giving preference, or a leg-up, to wine & craft beer producers in BC, AB & ON – why not Saskatchewan producers? I have seen much better selection (& product rotation/refrigeration) of Paddock Wood’s products in several Alberta liquor stores than I’ve ever seen in a Saskatchewan LB. This is an award-winning brewery…being treated like gold in another province, but like a second-class citizen at home. Sad.

Shared Warehousing?

While it’s nice to see SLGA trying to improve (e.g. marginally improved craft beer selection), it strikes me as too little, too late. Rather than committing to build a brand new warehouse in Regina, it would have been interesting to explore a warehousing partnership with Alberta under the frame of the New West Partnership (especially given that Alberta will break ground on an $80-million warehouse & logistics facility within days). The benefits to Saskatchewan under such a partnership include access to products not otherwise available (due to minimum purchase requirements); reduced overhead costs; volume discounts; and access to a state of the art facility & dedicated logistics partner.

Presumably, Sask could offset Alberta’s incremental costs, and contribute to operational costs. Many of the warehouse expenses are sunk costs – so Sask’s contribution could result in (marginally) reduced costs to Alberta taxpayers/consumers (not to mention, offload the cost to Sask taxpayers of building, maintaining & operating a warehouse and distribution network).

To Be Fair

Of course, privatization is not all puppies & rainbows. Over the 20 years since Alberta privatized their liquor system, several reports have examined the impact on selection and pricing.

While it’s true that there is incentive for specialty stores to pop up – for example, Sherbrooke Liquor in Edmonton; and Willow Park Wines & Spirits in Calgary – there are also many examples of stores in smaller centres carrying a narrow selection of high-volume products. These stores are making a market-driven decision to sell the highest volume products. If consumers demanded a particular product, all liquor retailers in Alberta have access to the 19,000 products stocked in the LiquorConnect warehouse… all at the same price – no volume discounts for the “big guys.”

Pricing is also a constant debate – on the one hand, we certainly hear of the incredible deals that are to be had at Superstore Liquor & Costco via loss-leaders. The overall price of a product in Alberta can vary widely … it is the free market, after all. Some reports indicate that Alberta held the dubious honour of the highest liquor prices in Canada (until last year, when Sask edged them out)… despite privatization. Of course, other reports – such as the Mark Milke’s report for the Fraser Institute – debate this point.

The Edmonton Journal & Huffington Post looked at Alberta’s changed landscape, the benefits, and the pitfalls. David Campanella’s paper specifically recommended Sask not follow Alberta’s lead.

On-Balance? Privatize

Saskatchewan consumers are starting to wake up to the great craft beers that are out there. They are beginning to see Molson-Coors, InBev & other macros for what they are: purveyors of low-quality liquid. They are asking for better product selection. SLGA is responding – albeit slowly – by introducing craft beer section with A-list products from brewers such as Rogue, Brooklyn, Half Pints, etc… but the selection is still quite limited, and most LBs still feature very few local products (in fact, the private sector Off-Sales seem more responsive to local producers).

The next couple of years will be very interesting for Saskatchewan craft beer enthusiasts – let’s just hope the provincial government takes a close look at the Alberta experience, and cherry-picks the best features for Saskatchewan consumers.

On balance, I will take my chance on the private sector – if only for the demonstrable improvement to craft beer selection 😉