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Privatizing LCBO's distribution business is on the table, Ford government adviser reveals

cbc.ca logo cbc.ca 2019-05-19 Mike Crawley
a close up of a busy city street: Industry sources say if the government violates a contract with The Beer Store by allowing convenience stores to sell beer, the province would be on the hook for hundreds of millions of dollars in compensation. © Kimberley Molina/CBC Industry sources say if the government violates a contract with The Beer Store by allowing convenience stores to sell beer, the province would be on the hook for hundreds of millions of dollars in compensation.

The Ford government's top adviser on reforming alcohol sales will soon hand over his recommendations, and CBC News obtained some insights into his thinking in an interview.

Ken Hughes is a former Conservative MP who also served in the Alberta PC government as a cabinet minister. His mandate from Ontario Premier Doug Ford and Finance Minister Vic Fedeli is to recommend ways to increase choice and convenience in alcohol sales.

a display in a store © (CBC)

"What we're looking at is ... how can we modernize the alcohol beverage sector in Ontario so that it is more reflective of people's preferences and choices," said Hughes in the interview.  

Will the government privatize the LCBO?  

The government has "no interest in selling the LCBO," said Hughes. 

He brushed off suggestions that he will recommend a full-scale privatization of alcohol sales, as happened under a PC government in his home province of Alberta. 

"British Columbia is perhaps closer to where Ontario could be, Quebec is an interesting comparable as well," Hughes said. In both those provinces, provincially-owned liquor stores retain their roles as retailers, alongside sales from private stores. 

"The LCBO retail footprint is not going anywhere," said Hughes.

Ken Hughes wearing a suit and tie: The Ford government appointed Ken Hughes, a former Conservative MP and Alberta cabinet minister, to a one-year post as special adviser for its review of beverage alcohol. He's paid at the rate of $1,000 per day to a maximum of $200,000. © CBC The Ford government appointed Ken Hughes, a former Conservative MP and Alberta cabinet minister, to a one-year post as special adviser for its review of beverage alcohol. He's paid at the rate of $1,000 per day to a maximum of $200,000.

What is ripe for privatization? 

Distribution is a hidden but potentially lucrative part of the alcohol sales system in Ontario. Right now, the LCBO and The Beer Store are the big players. When the Wynne government allowed some supermarkets to sell beer, wine and cider, those supermarkets were forbidden from using their own distribution system.

Hughes indicated there's the potential for the private sector to get a piece of this action.  

"I'm sure there will be players who can provide a very cost-effective distribution of products to retail outlets," said Hughes. "It doesn't have to be the LCBO and it doesn't have to be the Beer Store that's doing that distribution."

Hughes said Ontario's distribution system is "much more restrictive" than in other provinces. "It is in the interests of everybody to have a highly efficient distribution system, so there's no reason that shouldn't involve private players," he said. 

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However, sources connected to the LCBO and the beer industry say adding more players into the distribution business simply creates more parties looking for profit.    

a man standing in front of a store: The Ford government has 'no interest' in selling off the LCBO, Hughes says, but he is considering privatizing alcohol distribution. The Ford government has 'no interest' in selling off the LCBO, Hughes says, but he is considering privatizing alcohol distribution.

Will corner stores be allowed to sell alcohol?

The Ford government has repeatedly promised that it will expand the sale of beer and wine beyond the LCBO, the Beer Store, private wine shops, and the 450 supermarkets currently licensed to sell.  

Figuring out how to do this is a key part of Hughes's mandate. He said one of the main question he is looking at is: "How can we ensure that there is greater choice and convenience for consumers beyond the current footprint of the LCBO?" 

What will happen to booze prices? 

Given that you pay a premium to buy just about anything in a convenience store, it's no surprise that beer and wine sold there would be more expensive than at the Beer Store or LCBO. But there is some evidence that such an expansion would also drive up prices at the Beer Store and LCBO too, based on what happened after privatization in Alberta.  

Hughes's perspective: "We're seeking to free up the forces of the marketplace to ensure that Ontarians have the choice and convenience that other Canadians do." 

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What will happen to government revenues? 

Hughes said there is no intention that the provincial government's overall revenue from alcohol sales will drop. 

He spoke of "ensuring that the province remains financially whole through any changes that we do in the wholesale, distribution and retail parts of the sector." 

a person wearing a suit and tie: Premier Doug Ford is promising to allow convenience stories to sell alcohol. © Turget Yeter/CBC Premier Doug Ford is promising to allow convenience stories to sell alcohol.

The changes, however, would likely result in a system that sees the government bring in revenue "more at the wholesale level than at the retail level," Hughes said.  

The province currently expects to take in $2.3 billion this year from the LCBO's profits plus $620 million from alcohol taxes. 

What will it cost to compensate The Beer Store?

A contract between the province, The Beer Store and three big brewers, in place until the end of 2025, limits the number and type of retail outlets that can sell beer in Ontario. Allowing beer sales from convenience stores would breach the agreement, and the contract says the province would have to compensate The Beer Store for that. 

As previously reported by CBC News, industry sources say that compensation would run into the hundreds of millions of dollars, paid for by taxpayers.

Hughes rejects that claim.  "I think it's preposterous to suggest numbers like have been suggested."

Negotiations between the government and The Beer Store on changing the agreement continue.  

When will Hughes make his recommendations?

Hughes said he will submit a report to Fedeli "in the not-too-distant future," but declined to be any more specific than that.

"There are a lot of moving parts," Hughes added. "We're doing a lot of work to ensure you have as modern a retail presence in Ontario as in other provinces." 

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