Study shows Ontario government could earn higher profits by allowing competition to government-run LCBO and foreign-owned Beer Store

Keeping LCBO and Beer Store, but increasing competition for consumers grows LCBO profits and creates opportunities for more government revenue

TORONTO, June 24, 2013 /CNW/ - A new economic study suggests that expanding the current retailing system beyond the LCBO, Beer Store would not only preserve the $1.6 billion profit that the LCBO returns to the government, but would quite possibly increase it.  The study was conducted by Professor Anindya Sen, Associate Professor of Economics at the University of Waterloo.

"This study is based on economic models and independent analysis of 18 years of statistical data on revenues provincial governments receive from alcohol sales," said Professor Sen.  "Two key findings emerge from the study:

  1. 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; and,
  2. the vast majority of revenue Ontario receives from alcohol sales comes from LCBO's wholesale mark-up of alcohol."

Many of the study's conclusions are informed by Statistics Canada data on government revenues from multiple Canadian provinces and analyzing liquor control board revenues from 1993-2011.  During this period provinces such as British Columbia expanded the role private retailers play alongside government retail outlets.  By examining the data from the alcohol retailing systems across provinces, Professor Sen was able to construct a model to identify what would occur if Ontario expanded its system of retail alcohol sales to provide competition for the government-run LCBO and foreign-owned Beer Store.

"In releasing this study, our goal was to ensure that when the time comes for a real discussion about modernizing Ontario's alcohol retailing system, people and politicians have all the facts," said Dave Bryans, CEO of the Ontario Convenience Stores Association.  "Professor Sen's study shows that Ontario can expand alcohol retailing and still earn the revenue it now gets from the LCBO - and more. And at the same time, protect the value of the LCBO as an asset for the province."

The study also illustrates the LCBO's value as an asset, with the most profitable part identified as the wholesaling arm, which in turn possesses the most asset value, as compared to LCBO's high-cost retailing arm.  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.

"I approached the Ontario Convenience Stores Association because, while there has been considerable debate on the likely impacts of expansion of private retailing on government revenues, there is a dearth of comprehensive and academic research in this area," added Sen. "The objective of this report is to offer some clarity to this question through rigorous methods employed by economists."

The cost of conducting the 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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