Why is it so hard to shake The Beer Store’s grip on Ontario’s politicians?

How do three giant multinational brewers maintain their monopolistic stranglehold over retailing in perhaps the most profitable beer market in the western world?

To understand the astonishing staying power of big beer, and its outsized influence over small craft brewers, you have to know what they know: how to win over politicians.

The story of the privately owned Beer Store — and its sweetheart deals with successive Ontario governments — is a case study in high-powered lobbying in a province that remains the Wild West of political fundraising.

A Toronto Star tabulation shows more than $525,000 was donated to the three major political parties by The Beer Store, its foreign owners and the union representing beer industry employees in 2013 and 2014. That windfall contrasts sharply with the federal political scene, where any donations by corporations and unions are prohibited by law.

see sidebarVarious MPPs from all three parties, and influential Liberal cabinet ministers, have held fundraisers in two sumptuous beer facilities maintained in Toronto by The Beer Store’s two main owners, Labatt and Molson Coors. Several opposition MPPs confirmed that the venues and beer were donated to them by the big brewers (see see sidebar). All but one of the Liberals who booked the facilities did not comment.

Beyond the inducements, arm-twisting is also in the playbook for politicians who don’t play ball: the Speaker of the Legislature was unceremoniously summoned to the Premier’s Office several years ago by a top staffer, where a Labatt operative was waiting to lecture him about the serving of rival craft beer on the premises.

The roster of big beer influencers and lobbyists includes former chiefs of staff to past premiers and high-profile public affairs consultants who have held senior positions in Liberal and PC election campaigns (see sidebar).

While these ties may be considered routine by many political insiders, the extent of these close relationships would likely come as a surprise to the general public. The extent of donations and lobbying raises important questions about how they might distort decision-making and policy-making related to The Beer Store’s quasi-monopoly over the years.

According to former executives who worked at The Beer Store or its corporate parents, the formula for successful influencing is built on two essential elements: fundraising and “friend-raising.”

Ontario’s politicians aren’t bought outright. They are simply seduced — assiduously.

Cash flow remains a key ingredient — the proverbial brewer’s yeast that keeps Ontario’s political ferment aligned with The Beer Store’s private agenda.

A review of Elections Ontario filings shows that in 2013 and 2014, The Beer Store and its multinational owners contributed more than $385,000 to politicians from the three major parties. In addition, the United Food and Commercial Workers (UFCW), representing more than 6,000 unionized Beer Store employees plus workers at the big breweries, contributed another $140,000 to both the governing Liberals and opposition New Democrats.

No one from The Beer Store or its owners would comment on their contributions. A spokesperson for the UFCW — which frequently publicizes and retweets information and graphics distributed by The Beer Store — said it was “proud to support progressive politicians and political parties.”

Asked for comment, Premier Kathleen Wynne’s office did not respond to specific questions about the more than $275,000 received by her party from the big brewers and UFCW in that period. The Liberals refused to answer specific questions about the extent of lobbying, attendance at venues owned by the big breweries and how those donations are documented. Nor would the Liberals say whether the party or its MPPs had received any gifts such as free beer for political conventions and golf tournaments or free tickets to sporting events.

“Lobbying is an essential part of democracy,” Wynne’s office proclaimed, followed by a disclaimer: “Any suggestion that any individual contribution or interaction may unduly influence government policy is false.”

Wynne’s spokesperson argued that contributions from the beer lobby are only a small proportion of what other donors give, adding: “We know there are changes that need to be made at The Beer Store regardless of political contributions made to all three parties.”

The other two main political parties also benefit from big beer’s largesse, notably during the recent period of minority government, when all three parties could turn the tide of legislative votes and the PCs were thought to be a possible government in waiting.

Sharon Flashford, executive director of the PC Ontario Fund, said the party has “gratefully accepted product donations for our events.” The Progressive Conservatives provided figures showing they received more than $107,000 from big beer over the last two years.

The NDP received $60,470 from The Beer Store, Labatt and Molson Coors during 2013 and 2014, plus an additional $80,805 from the UFCW, according to a tally of the Elections Ontario database. A spokesperson for party leader Andrea Horwath said she has not personally been lobbied and that free tickets to sports events were given away.

Against that backdrop, none of the three major provincial parties is rushing to reform our outdated campaign finance laws. Nor are they moving quickly to overhaul the antiquated, cartel-like behaviour of The Beer Store at a time when retailing and consumer preferences are changing rapidly.

The Beer Store is 49-per-cent owned by Labatt Brewing Company Ltd., a subsidiary of Anheuser-Busch InBev of Belgium. Another 49-per-cent stake is held by Molson Coors Canada, controlled by Molson Coors Brewing Co., incorporated in Delaware and headquartered in Colorado (it also keeps corporate offices in Montreal). Japanese-owned Sleeman holds the remainder.

In recent years, The Beer Store’s private quasi-monopoly has maintained a nearly 80-per-cent share of the market, with just over 20 per cent held by the government-owned LCBO. As detailed in recent columns, the LCBO’s growth has been hamstrung by a secret 2000 deal imposed by the then-PC government restricting it to sales of beer in six-packs and limiting its sales territory.

Donations don’t tell the full story, because it’s about much more than money. Formerly Canadian-owned, The Beer Store’s foreign ownership bankrolls a well-oiled lobbying machine that is the gold standard for influencers in Ontario.

The giant brewers have snapped up the big names in PR and GR (the lingo for public relations and government relations experts), many of whom flit back and forth between their corporate headquarters and the highest reaches of the governing party of the day.

Big beer’s reach is unrivalled, thanks to the symbiosis between private and political interests.

When the PC caucus gathered this month for its annual Christmas party at Labatt House — where the brewery’s corporate offices are located — a former political opponent was there to greet them. Tory MPPs watched, bemused, as Chris Morley — now senior director of corporate affairs for Labatt but previously chief of staff to ex-premier Dalton McGuinty — helped set up the sound system at the sumptuous facility for their use.

Another Labatt executive, vice-president of corporate affairs Charlie Angelakos, had an office as communications chief in the “war room” of the Liberal campaign in 2011, where he acted as McGuinty’s personal representative in negotiations for televised leaders’ debates.

It was Angelakos who confronted the former legislative speaker, Steve Peters, in the Premier’s Office several years ago to complain about the serving of craft beer on the Legislature’s premises. Peters was astonished to be upbraided by a Labatt official sitting in the premier’s suite of offices alongside Dave Gene, the McGuinty aide who had summoned him.

“There was some concern expressed” by Angelakos, Peters recalled in an interview. “I thought it was a little over the top to be having this discussion.”

Angelakos did not respond to questions about the incident, nor about whether he was paid by Labatt while holding Liberal campaign positions. The Liberal party would not say if he was paid for his campaign duties in 2011.

Apart from currying favour, a recurring theme in private lobbying and public advertising is the assertion that The Beer Store makes no profit — almost as if it were a food bank.

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Former executives and industry analysts say that The Beer Store claims to have zero profits because it carefully rebalances its cash flow and handling fees (charged to all brewers that use its distribution network) — providing, in effect, discounts or rebates to its corporate parents. In doing so, The Beer Store continues to assert, conveniently, that it has no excess of revenues over expenses.

Never ever?

A government panel headed by former TD Bank CEO Ed Clark reached a different conclusion about The Beer Store’s ultimate profit picture. It recommended that “Ontario taxpayers receive their fair share of the profits from the Beer Store” (italics added), through a franchise fee paid to the government to take account of those “profits.”

The former banker’s report also called for “greater transparency” by the quasi-monopoly. As a privately held company, The Beer Store is not required to release all its internal financial figures and results like a publicly listed company.

Despite Clark’s analysis, The Beer Store keeps repeating its putative zero-profit mantra to politicians and the public. A recent press release asserted: “The Beer Store does not make any profit. It operates on a break-even basis. This fact . . . was confirmed by Ed Clark.”

Jan Westcott, CEO of Spirits Canada, the industry association for distillers, says lobbying and advertising by big beer is designed to mould information into a favourable narrative. He should know — he used to work for The Beer Store back when it was known as Brewers Retail.

“The beer industry in Canada, and particularly in Ontario, is one of the most successful, rewarding businesses anywhere in the world,” he said in an interview. “It’s a very highly profitable business.”

He says the big brewers earn an impressive 50-per-cent gross margin here (the difference between revenues and direct costs incurred), thanks in large part to The Beer Store’s minimal investments in retailing and low distribution costs. The continuing strong cash flow finances a powerful lobbying effort.

“If you have the dollars to do that, you deploy it,” Westcott explains. “You get the people who can deliver the message.”

David Caplan was on the receiving end of the lobbying barrage when he served in McGuinty’s cabinet as minister of public infrastructure, responsible at the time for the LCBO (which regulates The Beer Store).

“They are more sophisticated than the banks or any other entity,” Caplan says. “It’s about managing relationships.”

He still marvels at how the big brewers secured a deal in 2006-7 with the premier’s office that forced all LCBO customers to start bringing their empty wine and spirits bottles to The Beer Store for deposit refunds — without his ministry ever reviewing the matter in detail. The genesis of the clumsy arrangement, which quickly became a major irritant for consumers, remains a mystery to him.

“Where did this come from?” Caplan asked McGuinty officials at the time. He was told: “Don’t worry about it, we’ll take care of it.”

The brewers received a sole-sourced contract for the recycling, now worth more than $30 million a year, without his ministry reviewing a rigorous business case or properly consulting the key players, according to Caplan.

“It was the most strange and bizarre policy implementation I’ve ever seen,” he says today.

Another former government official says The Beer Store exploited the new bottle return system as a way of virtuously “greenwashing” it operations. But the big bonus was getting the entire customer base of its LCBO rivals coming to its doorstep.

“Recycling isn’t goodwill, it’s geared to driving traffic from the LCBO to The Beer Store,” the source notes. The Beer Store did not respond to questions about the recycling deal.

As beer drinkers continue to stock up over the holidays, should The Beer Store’s cozy relationship with the government matter to Ontarians? After all, there are bigger problems facing the province — homelessness, aboriginal poverty, a sluggish economy, a stubborn debt, health-care concerns.

Yet what makes The Beer Store’s outdated quasi-monopoly so utterly unlike any other challenge facing Ontario is that it could be fixed with uncommon ease: the government need only change its regulations to allow retail competition, or at the very least end a secret sweetheart deal that prevents even the LCBO from selling beer in 12-packs or two-fours.

Puzzled by the inertia? The Beer Store’s longevity defies logic — until you factor in the lobbying. And the donating.