Economic Study: Ontario's beer retailing system enables The Beer Store owners to capture up to $700 million in incremental profits from Ontario beer drinkers every year

"The Beer Store is a classic textbook example of a cartel" - peculiarly protected by provincial legislation in Ontario

TORONTO, Aug. 12, 2013 /CNW/ - A new economic study that looked at beer prices between Ontario and Quebec has found that differences in the prices of identical products between the two provinces enables the foreign-owned Beer Store to capture as much as $700 million in "incremental profits" each year because of the near-monopoly on beer retailing it enjoys in Ontario. The Beer Store is owned by Anheuser-Busch InBev of Belgium; Molson Coors Brewing Company of the United States; and, Sapporo of Japan.  The study was conducted by Professor Anindya Sen, Associate Professor of Economics at the University of Waterloo.

"This study found that there are significant differences in average beer prices between Quebec and Ontario.  Beer prices are an average of $9.50 per case or 27 percent higher in Ontario versus Quebec," said Professor Sen.  "These findings aren't necessarily an argument to reduce beer prices, as there are arguments that higher prices play an important social policy role.  But it raises the important question of whether through modernizing retailing the Ontario government could be benefitting more - and capturing more revenue - particularly in a period of large government deficits."

The study focussed on beer prices for 24-bottle (341 ml) cases of beer. The data on beer prices were collected from two major grocery stores in Quebec and The Beer Store (in Ontario). Beer prices were virtually identical between different grocery stores in Quebec. However, there were significant differences between average prices in Quebec and Ontario.  For example, the pre-tax average price for 24-bottle packs of brands including Molson Canadian, Molson Dry, Coors Light, Budweiser and Bud Light were $25.95 in Quebec and $35.56 at The Beer Store in Ontario.

"Professor Sen's conclusions remind us why we need to have a serious discussion about Ontario's outdated alcohol retailing system," said Dave Bryans, CEO of the Ontario Convenience Stores Association.  "We know that Ontario can expand alcohol retailing to more private retailers and still earn the revenue it now receives from the LCBO - and more. Adding private retailers, like convenience stores, who can work with the LCBO wholesale system would benefit the provincial government, and Ontarians would benefit from improved choice and convenience. Over 200 convenience stores already sell alcohol (beer, wine and spirits) in Ontario through the LCBO's Agency Store program."

A study earlier this year by Professor Sen found that, contrary to common belief, expanding alcohol retailing beyond the LCBO and Beer Store would preserve the LCBO's profit and also provide the framework for even greater profits for the government. The study also found that the vast majority of the $1.7 billion in revenue Ontario receives from alcohol sales comes from LCBO's wholesale mark-up of alcohol - not its retail stores.  LCBO's wholesaling division is the entity that purchases alcohol from manufacturers and is one of the largest single alcohol wholesalers in the world.  This is separate from the LCBO's network of retail stores where alcohol is sold.

The cost of conducting this study was financially supported by the Ontario Convenience Stores Association, however the analysis and conclusions are entirely those of Professor Sen.

SOURCE: Ontario Convenience Stores Association

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