Open Letter to the Ontario Minister of Finance

August 13, 2019

The Honourable Rod Phillips

Minister of Finance

Frost Building South

7th Floor

7 Queen’s Park Cres.

Toronto, ON M7A 1Y7

Dear Minister Phillips,

In light of your review of Ontario’s liquor policy, I am writing to provide my perspective on the benefits of competition in this sector.

The report made by Ontario’s Special Advisor, “The Case for Change: Increasing Choice and Expanding Opportunity in Ontario’s Alcohol Sector,” puts forward a number of recommendations that would increase competition in Ontario’s alcohol sector. Increased competition generally leads to more choice, greater innovation, and lower prices. As Canada’s competition expert, the Competition Bureau supports the Special Advisor’s recommendations that aim to provide retailers equal opportunity to sell their products, encourage price competition, and support proper wholesale pricing.

Improving choice, convenience, and prices offered by retailers

While acknowledging the need to balance policy concerns such as public health and safety with competition, I believe a less restrictive system that allows more retailers to compete on price can offer Ontarians greater convenience and access to a wider selection of products, particularly for those who live in rural and remote communities.

Under the Master Framework Agreement and Liquor Control Act , the number of grocery stores licensed to sell wine, beer, and cider is currently limited to 450. Grocers must meet certain eligibility criteria, such as minimum square footage requirements, to qualify for a license. Caps on the number of stores licensed to sell alcoholic beverages not only limit the ability for retailers to compete in the market – particularly smaller retailers that do not qualify for a license – they also limit choice for the local customers they could serve.

In addition, all licensed retailers across Ontario are required to charge the same price for a product, which is set by the manufacturer. This practice, called uniform pricing, eliminates price competition between retailers and the benefit it can deliver to consumers in the form of lower market prices.

Allowing bars and restaurants to offer consumers a wider variety of products at lower prices

Similar to what I recommended on improving liquor policy in B.C., a proper wholesale pricing system for Ontario bars and restaurants will encourage greater competition, which could lead to more product choice, lower prices, and new and innovative products for consumers.

Under the current pricing scheme for licensees, bars and restaurants do not benefit from proper wholesale pricing and must purchase from the Liquor Control Board of Ontario (LCBO) and the Beer Store at consumer-level retail prices. This drives up prices for consumers, as establishments must add a mark-up on the retail prices to generate a profit.

Further, Ontario’s bars and restaurants are limited to the selection available through the LCBO and the Beer Store. Distribution and warehouse capacity constraints limit the range of products available. This can restrict new and innovative producers’ ability to market their products and limit consumers’ choice.

Expanding the selection of products available to bars and restaurants through private ordering and consignment programs – which permit producers to sell products not available at LCBO locations and Beer Stores – can allow budding craft breweries and wineries to better market and scale-up their businesses. This can make a wider variety of products available to the hospitality sector and improve the dining experience for both Ontario residents and tourists.

Ontario consumers and businesses can benefit from a less restrictive system – one that provides retailers an equal opportunity to participate, encourages price competition, and supports proper wholesale pricing.

Thank you for the opportunity to provide my views with respect to your review of Ontario’s liquor policies. I commend your efforts to review liquor policy in the province and to ensure a level playing field for businesses and greater choice and lower prices for consumers.

Sincerely,

Matthew Boswell

Commissioner of Competition

Competition Bureau