Keeping LCBO and Beer Store, but increasing competition for consumers
grows LCBO profits and creates opportunities for more government
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
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,
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
For further information:
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