Monopolization of the spirits trade and avoidance of strikes

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By David Clement

It wouldn’t be summer in Ontario if workers at the Liquor Control Board of Ontario (LCBO) didn’t threaten to go on strike. If the union’s demands aren’t met and an agreement isn’t reached, Ontario’s 669 LCBOs could temporarily close their doors starting Friday. That would, of course, be bad news for Ontario drinkers: The LCBO still has a monopoly on liquor sales and is also responsible for the majority of wine sales.

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This latest round in a recurring labour dispute is just one of many reasons Ontario should move away from its Prohibition-era LCBO model for selling alcohol. Modernising the alcohol trade was a priority for the Ford government, so why not finally do away with this relic from the 1920s?

There is a widespread perception that the LCBO monopoly model is the only way for the government to generate all the revenue it “needs” from alcohol sales. In fiscal year 2023, the LCBO actually generated $3.72 billion for all levels of government, 69 percent of which went to the provincial government. Even in the inflationary 2020s, that’s a lot of money. But the argument that only a government monopoly can generate such sums is false.

Ontario already has a framework in place for how to generate revenue from controlled substances without actually selling those products at retail. Taxes on cannabis sales brought in over $500 million in 2022, and that was without the province owning or operating a single retail store. The same model of restraint applies to the sale and taxation of tobacco and vaping products. Ontario generates hundreds of millions of dollars despite not selling cigars, cigarettes or vaping products. If raising revenue is the goal, the LCBO’s bloated retail operations are clearly not necessary.

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And that’s exactly how bloated the LCBO’s retail model is, especially when compared to private retailers of the same size elsewhere. Based on the LCBO’s pre-COVID numbers, average selling and administrative (SG&A) expenses per store are $1,515,000 per year. With 669 corporate stores, that’s a significant expense for taxpayers. Private alternatives, such as private retailers with high inventory levels in Alberta, are significantly less expensive to operate. Based on pre-COVID data from Alcanna, a private retailer in Alberta comparable to the LCBO, average SG&A costs are just $511,000 per year. Now, if we could snap our fingers and move the LCBO completely out of the government’s operating model, taxpayers would save $669 million per year. If the Ford government is looking for easy-to-achieve fiscal benefits, this is it.

If it is too politically difficult for the province to go down the full privatization route, Doug Ford could simply stop the LCBO from building any more stores and allow private alternatives to enter the market. For each private operator that opens in place of a new LCBO, taxpayers will save over a million dollars annually in operating costs. Over time, these savings would be significant and could be achieved without sacrificing a single current LCBO job.

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More importantly, allowing private competitors to enter the market would greatly improve consumer choice. Specialty stores could focus on niche markets. If grocery and convenience stores are allowed to sell alcohol, as Ontario will soon be, why would the province want to prohibit any entrepreneur from entering the market and trying to meet consumer demand?

The Ford government has done the right thing by consumers by finally moving beyond the Master Framework Agreement with The Beer Store oligopoly and expanding retail access. With that almost behind us, now would be the perfect time to reevaluate the role of the LCBO and finally modernize Ontario’s alcohol market. That would be worth raising a glass to.

Financial Post

David Clement is North American affairs manager at the Consumer Choice Center.

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