Let Grocers Sell Booze

Commentary, Regulation, Steve Lafleur

Ontario’s antiquated alcohol-distribution system has come under heavy scrutiny over the last few months. While alcohol policy change in Ontario has been glacial, the recent proposal to allow grocery stores to sell alcohol could be a step in the right direction.

The Ontario government initially planned to introduce LCBO kiosks in grocery stores, but put the plan on hold as they awaited advice from a review of the province’s alcohol-distribution system. The fact the cash-strapped provincial government has instead decided to allow grocery stores themselves to sell alcohol is telling. Premier Kathleen Wynne has vowed to extract more revenue from provincial alcohol sales, so clearly she believes this will be a more lucrative option.

Manitobans should also consider this approach, rather than Manitoba Liquor & Lotteries building Liquor Marts Express outlets in select grocery stores.

There are three reasons the Ontario government’s proposal to allow grocery stores themselves to sell alcohol makes more sense than opening publicly funded kiosks.

First, governments are better at taxing and regulating than at operating retail businesses. No one would argue a provincial government could run a coffee chain more profitably than Tim Hortons. Yet proponents of government-run liquor stores seem to think the LCBO is special. If the LCBO didn’t exist, the Ontario government would still rake in plenty of money from alcohol sales. Profits would be replaced by taxes, as has happened in Alberta. Alberta’s revenue from alcohol sales has not increased as rapidly as some would have liked since privatization — though it still brings in more than Ontario or Quebec. That has nothing to do with privatization. It is the result of tax policy choices. The province has the power to increase the mark-up rate, if they wish.

Instead of spending money to build LCBO kiosks, the provincial government will simply tax alcohol sales in grocery stores. That will allow them to reap the benefit without any of the up-front capital cost or ongoing operating costs. The government could use this approach to bring in revenue from alcohol sales without investing an additional dime.

Second, allowing grocery stores to sell alcohol could help make some marginal grocery stores viable operations. Manitoba has recently seen several grocery-store closures. Some worry this will reduce the availability of fresh groceries, particularly to low-income residents. Given that grocery stores operate on thin profit margins, allowing alcohol sales would make it easier to justify the cost of operating a full-service grocery store in underserved areas. Alcohol takes up little room, and is more lucrative than fresh produce. Allowing grocery stores to sell alcohol might not save every struggling grocery store, but it is conceivable that it would render some of them viable without subsidies.

Third, the quasi-monopoly distribution model puts small producers at a disadvantage. For instance, while craft brewers can sell their own beer from their breweries, it can be difficult and expensive to get wider distribution. Grocery stores could provide another option for craft brewers, particularly if the legislation allows for direct sales from breweries to grocery stores. Many American grocery stores have very good craft beer selections. Perhaps a grocery chain would decide to emulate Whole Foods, which has many locations that specialize in craft beer sales. In a more competitive system, these things can happen. Retailers are pretty good at figuring out what consumers want, and delivering it to them when permitted.

Though Manitoba doesn’t yet have the number of craft breweries one might expect in a province of this size — small cities such as Duluth, Minn., and Bend, Ore., have more craft breweries than the entire province of Manitoba — there is no reason not to believe Manitoba consumers are every bit as thirsty for variety as consumers in Ontario or British Columbia. If breweries were allowed to sell directly to grocery stores, opening a new brewery could be a more attractive proposition. There’s no good reason why we should prevent this type of capitalist act between consenting adults.

Allowing grocery stores to sell alcohol might sound like a minor issue, but it would have concrete benefits. Allowing the private sector to absorb the cost makes a lot more sense than publicly financing elaborate separate kiosks within grocery stores. Manitoba’s liquor laws have been moving in the right direction of late. Now is time to bring our system into the 21st century. Permitting grocery stores to sell beer, wine, and spirits would be a good start.