LCBO versus Free Market Economy

 

I travel quite frequently and each time I ponder how much local residents pay for their wine and spirits. On my recent trip across the United States, I went through 10 states – New York, New Jersey, Delaware, Maryland, Washington DC, Virginia and Pennsylvania on the East Coast and California, Nevada and Arizona on the West Coast. Wanting to save money by bringing some alcohol back within the federally stated allowance, I searched the web for an answer as to which state has the lowest price. Several forums pointed to California having the cheapest prices out of the states that I was passing through, so while in San Francisco, I browsed several boutique stores within hotel’s vicinity, only to find them more expensive than LCBO. I knew that there must be larger retailers and so asking a concierge, I was advised to visit BevMo, a large liquor store that is usually cheaper than Safeway food supermarket, but may not be cheaper than Costco for which membership is needed.
Browsing the shelves at BevMo, I noticed that spirits are considerably cheaper than we get at the LCBO, while US produced wines are roughly less than $5 cheaper and wines from the rest of the world are on average the same or more expensive – as summarized in the table below.

 

price comparison (3)
Summary of prices at the LCBO, BevMo and Duty Free Shop in Buffalo before entering Canada.

 

Now with the passions running high from seeing how much more hard liquor costs here, let us indulge in the following debate. We all know, or at least we think we know, that we pay more than our southern neighbours or the Europeans, but really, lets put all of the information on the table and discuss it. I don’t drink hard liquor, so in the discussion here I may have a bias in the points that I’m about to make in regards to hard liquor; as well as I will mainly be focused on wines in the below $30 range – my budget.

 

The upside of a large monopoly.
As market economy dictates, larger purchases result in cheaper goods and hence we get the lowest prices that we can get; or is it that since the LCBO is the world’s largest purchaser, it causes the prices of those specific products it sells to inflate globally? – pictures herein disprove the latter.
One may point out that Europeans pay as little as €2 per bottle of wine, price that is unobtainable at the LCBO. Though true, the product in debate is often of lower-than-table-wine quality (less than 80 pts), which here can be obtained for under $5 (discounts offered at wineries, make-your-own-wine at the wine Butler etc). However, when it comes to wines that are also sold at the LCBO, the prices are only slightly higher here than in the country of making, once currency conversion and shipping costs are taken into an account.

 

WP_000062 (2)
Sogrape Mateus Rose – picture taken in Spain at a HiperMarket 2011
€3.99 = $5.53 not inclusive taxes or shipping costs; LCBO#166 $9.95

 

Staying on this continent, LCBO’s prices for the non-US wines are quite comparable (even without currency adjustment) or even more expensive (see picture below), while the US produced wines average $5 less (in the below $30 category). This observation, however, isn’t true across all the states, some states sell more expensive alcohol (wine & spirits) than we do here and moreover, some cities like Manhattan or downtown Las Vegas, charge an arm and a leg regardless the type of alcohol – no government regulated stores there.
Also, looking elsewhere within Canada, Ontarians are paying less for wine (not sure about spirits) than any of the other provinces that allow free market – eg. B.C., Alberta or Quebec (including the wine-producing provinces of B.C. and Quebec).

 

BevMo
Left to right:
Wente Morning Fog – BevMo USD$13.04 tax inclusive; LCBO#175430 $16.95
Muga Reserva – BevMo USD$32.61 tax inclusive, LCBO#177345 $23.95
Smirnoff – BevMo USD$10.86/750 ml – LCBO#31757 $25.45; BevMo USD$16.30/1.14 ml – LCBO#131391 $37.85; BevMo USD$17.40/1.75 ml – LCBO#38505 $56.20

 

The downside of a large monopoly.
As local winery owners and consumers alike would argue, LCBO’s monopoly system makes it hard to access the local goods. Wineries can only retail their products at the winery itself and though Vincor’s Wine Rack, Andrew Peller’s Wine Shop, Magnotta, Chateau des Charmes, etc. have other than on-site retail locations, small wineries simply cannot afford such overhead costs. Also, small producers cannot get their products onto LCBO’s shelves due to low production volumes and the products that make it there, are subject to LCBO’s unfavourable policy – e.g. LCBO can discount the product while the winery is still selling it at its original price. And even though, according to Wine Country Ontario, each bottle of Ontario VQA wine sold in the province, generates $12.29 to the Ontario’s economy (source: http://winecountryontario.ca/media-centre/industry-statistics), the Liquor Control Board of Ontario does little to promote it and counterintuitively, does an excellent job of promoting competition from other wine regions.
Recent movement to allow retailers (supermarkets, convenience stores, etc.) to sell wine and beer (My Wine Shop), is pushing the government to consider such options, and if implemented, such action would surely allow greater exposure of local wines, but unlikely at competitive prices satisfactory to the consumer. LCBO’s response to this movement? A promise of more shelve space, recent ‘Shine ON’ promotion in the recent September 14th Vintages Release and more hype about its ‘Ontario Wines’ section in the online Vintage magazine.

 

Low cost of expensive alcohol.
Though Ontarian liquor drinkers must reach many times deeper into their valets than our southern neighbours, LCBO’s revenue of $4.9 billion dollars in 2012-13 gave back $2.5 billion to the Ontario government (after all it is government agency), money that funded social projects and positively affected each and every one of us (source http://www.lcbo.com/aboutlcbo/media_centre/faq.shtml). As anyone who has visited the US would agree, the Canadian government (Federal and Provincial) does a pretty good job at keeping less fortunate people off the streets as well as ensuring that city centres don’t become dead zones – aspects quite visible of most US metropolises; not to mention we enjoy universal healthcare, great schools, social programs, etc. – all programs have to be financed somehow.

 

Concluding thoughts.
By no means am I unconditionally loving the LCBO (OK, maybe a little), I merely want to point out that there are good as well as bad aspects of having a liquor monopoly, and it solely depends on from which angle one is looking that determines which aspect has more weight.
Also, I still intent on purchasing hard liquor at the duty-free shop as a more economical present while on my way home from out-of-the-country travels, but I no longer will have the impression that buying wine at the LCBO is much more expensive than elsewhere in the world, nor I will object to spending $5 more on local wine (from LCBO or winery) despite knowing I could get a similar product from other parts of the world for cheaper. After all, though table wine should be a part of the daily diet, high quality wine is a luxury and if we can afford it, which we can, then we should and in turn support ourselves down the road. Bottom line, and as I have been doing, visit the wine country near you and discover the diversity of high quality products and the spectrum of hidden gems and make your afternoon a memorable one. http://grapeselections.com/wineries-of-niagara-peninsula/

 

Resources herein provide supporting evidence:
BevMo – large liquor store operating within California http://www.bevmo.com/
Quebec’s government run liquor store http://www.saq.com/
WineAlign – Ontario’s largest wine site that expanded into BC and soon will into Quebec – price comparison shows lower prices in Ontario. http://www.winealign.com
Make-your-own-wine http://www.winebutler.ca/
Wine Country Ontario http://winecountryontario.ca/media-centre/industry-statistics
My Wine Shophttp://www.mywineshop.ca/
LCBO profit declarationhttp://www.lcbo.com/aboutlcbo/media_centre/faq.shtml
Online Vintages Magazine, the Ontario Wines sectionhttp://www.vintages.com/circular/ontario.shtml?topnav

 

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14 thoughts on “LCBO versus Free Market Economy

  1. Dan,

    Good article. I was looking at a bottle of Kendal-Jackson Chardonnay at my local Wegmans Grocery store in NJ on sale for 11.09 yesterday ( regular price is $12.99).

    I hear that in Ontario at the LCBO this sells for $24.99 roughly, so about double the price.

    This seems like quite a difference since the US and Canadian dollar are about on par right now. Even with some additional shipping and taxes I would think a price at the LCBO of around $17 or $18 would be more reasonable.

    What are your thoughts on the price difference here ??

    It seems a bit much to me.

    Look forward to your reply.

    Thanks,

    Geoff

    • Hi Geoff
      Thank you for the comment. I checked the LCBO and there is a Kendal-Jackson Chardonnay for $19.95, which in the ballpark is what you think it should cost here. I do agree that it is much more than it should actually cost (>$5), but if you take into consideration that USA is WAY better at promoting and selling their own products (even in different states – unlike here, where you practically can’t even sell to other provinces) and plus the fact that Wegmans is a large chain that can discount some items to get people into the store, then it is about right. There are pluses and minuses to this monopoly and after all, market (us consumers) still somewhat control the prices. Items at LCBO often go on monthly sales and LCBO has ‘Bin End Clearance’ where under $20 can still get discounted by up to $5. If I want any Chardonnay, there are several in the <$12 range, some even oaked. I hope this helps. I am actually fascinated that people outside of Ontario are interested in this article, so thanks for reading 🙂 cheers Dan

  2. Hi Dan,
    Here is a mystery for you Re the LCBO’s marketing and pricing. In fact, I have personally asked their head office why the following is so and I received…Silence.
    Why are BC wines marketed and priced by the LCBO as imports? In our own country!
    There can’t even be a protectionist logic to this policy.For example, both Inniskillen and Jackson-Triggs own wineries in both Ont. and BC;in which case, the LCBO is protecting them from…duh..themselves! In fact, they are both now owned by Constellation Brands-a multinational beverage corporation which make things even more of a mess.
    If you can get an answer out of them, you are a better man than me and I, and many others, would be very interested in their reply.
    Best Regards,
    jim.

    • Hi Jim
      Protectionism is the key between provinces, it’s not just the LCBO doing it (Google the latest: “FedEx charged in Nfnl for shipping BC wine”, there are many other stories!). My bet has something to do with taxes, perhaps Constellation Brands is willing to pay them twice? (just a speculation). Frankly, this has been brought up many times before to “them” (LCBO, others) and never any comment received. I don’t have any connections at the LCBO that would shed any light onto this.
      Sorry, but no help here.
      Thanks for reading and commenting
      Cheers
      Dan

  3. Hi Dan, very good, interesting and thought provoking post. I am certainly no expert on the matter, but here are my semi-informed observations. You very aptly point out that there are pros and cons with the LCBO monopoly system, just like there would be pros and cons with a more competitive de-controlled system. So it comes down to what are your personal objectives. If it is spend as little as possible, well maybe a de-controlled system would work better. If it’s about promoting and stimulating the Ontario wine industry, well that’s a harder call.

    From the little bit that I’ve read and heard, the Ontario wine industry has a number of structural issues (international bias, high cost inputs (labour, borrowing costs etc.) volume, just to name a few) that mean it’s tough for them to compete on price regardless of access to retail outlets.

    I personally am not a fan of the LCBO monopoly. I grew up in Quebec and the idea of getting in my car and driving a number of kilometers to buy wine and beer (rather than walking to my corner or while I’m grocery shopping) is foreign to me and just doesn’t feel right. But on the other hand, the LCBO does a decent job of what it does. It could do better. It could re-examine its markups and pricing structure. It could promote more vigorously local product. It could be a trendsetter in neighbourhood development and not follow the rest of the retail world by abandoning local stores for fewer big box stores that are spread out and that encourage urban sprawl. Ultimately, the good news is that we live in a democracy where if voices are plentiful and loud enough, change can happen (maybe the “my wine shop” movement will take on more traction and hit a critical mass).

    As for buying local, Southern Ontarians are blessed with a world class wine industry right in our backyard. There must be at least 7 million people within a 2 hour drive of first class wineries. So regardless of where we stand on the retail wine purchase front, let’s continue to support Niagara, PEC and emergent wineries by visiting them directly, contributing to the local tourism economy and experiencing that elusive sense of terroir personally. We’re likely going to have to pay more for Ontario wines regardless. But I’m ok with that because I appreciate the quality of the wine, understand that we need to pay a living wage in order to reduce poverty (and thereby spend less on other social services) and am happy that there may be a smaller carbon footprint through reduced shipping.

    Just my thoughts. And sorry for the long post (when I get wound up, it’s hard to stop).

    • Hi David
      Thank you for your comments, compliment and the couple of points that you add to the article. I particularly like the concluding point where you emphasize that about 7 million Ontarians live within 2 hour drive of first class wineries. I find that knowing where the wine comes from and who are the people behind, makes it all that more enjoyable to drink. Personally, visiting the wine region has become my pass-time or a way to compliment the busy urban life. The knowledge I have gained, I’ve shared with my friends and family by taking them with me on my ‘wine adventures’ and have found that it forms deeper bonds that are different from the usual social interactions – so I highly recommend it.

      Your other point of being able to go to a nearby store and purchase wine and beer (even if it was only Canadian made) would be something I hope to one day witness. Perhaps, though unlikely, this minority government will actually make it happen (wishful thinking).

      Again thank you
      Dan

  4. I think of it this way…Mao Zedong – The Cultural Revolution – a great failure…the Government can’t control people by determining their job, their future etc. People know themselves what profession they are rightly suited to. Ontario’s wine scene would absolutely flourish and the economy would boom if the government would let the people who are naturally talented and passionate about promoting Ontario wine, sell it. I think the LCBO knows that people might actually start buying Ontario wine, and they would lose profits because people would stop purchasing cheap Aussie wines… that are probably given to the LCBO for free. I’m sure the LCBO gets huge kickbacks from selling international brands, and this is why the focus will never truly be to sell Ontario wines…it’s really sad to watch our democratically elected government turn a blind eye to the LCBO Gestapo, that we all know are incredibly greedy and pompously ignorant.

    • Hi Brad
      Thank you for your comment. I fully agree that selling Ontario wines should be this government’s priority and LCBO should do a much better job than it is.

      Cheers
      Dan

  5. Hi Dan,

    I don’t agree with your comparative shopping. The LCBO for starters touts themselves as the largest purchaser of beverage alcohol in the world. I am not sure how much truth there is in that statement, but it is their own. Having said that they should be able to at least match the buying power of someone like walmart or costco.

    My travels through the US tell me a similar story, beverage alcohol is less expensive in California than other states. I am a Costco member here at home, largely for their dog food.. but that’s a different story. Membership is company wide, and not country wide so my membership works at every Costco in the US and where ever else they may have a store. Having said that, not only do they offer a terrific selection of everyday wine and spirits (dependent on individual state law) they have a terrific selection of mid and higher end wines from around the world.

    I have purchased Kim Crawford Sauv blanc recently for a mere 11.95 (vs 18.95), the Moet Chandon White Star is a bargain at under $30 with a Kirland brand of genuine champagne for $17 that is also quite tasty. On the lower end there is the proverbial Yellow tail, at BevMo it’s 5.99 (vs 11.95) and I have seen it for as little as $4. I picked up a bottle of Dom in a gift set with two crystal champagne glasses for $99.

    The luxury tax line doesn’t work, it just doesn’t sound like a steep mark up when you compare $10 wines. The fact of the matter is, they apply no greater of a tax to what you call a luxury than the cheap $8 swill, and in many cases that cheap $8-12 import wine only cost them $2-3 /litre. Drinking good wine is not a luxury that deserves to be taxed at a higher rate, it’s just a matter of taste preference and a price point. That’s like saying we should pay twice the hst on designer clothing, tax on lobster, and imported chocolate, after all we can afford it.

    One of the main problems with the LCBO is that the margins and taxes are not transparent, and if they were there would be an up roar. Not only are they the only game in town for imported beverage alcohol, but they also set the market price to what ever it will bear. The Ministry of Finance, whom the LCBO report to has even criticized them for setting the prices too high, thereby not selling enough to maximize profits.

    Your little quip at the US and the homeless is not only out of line, irrelevant, but it’s offensive. That is exactly what differentiates Canadians from Americans. The American system, like it or not needs a large population of poverty to support it’s needs and has nothing at all to do with the incredible rate of taxation in our province. Canada like many other G8 countries have a very different position than the US on poverty and all the other seven countries have privatized liquor sales.

    What you and most need to understand is just how badly we are getting ripped off, and the huge negative impact it makes on our own local industry and economy.

    Our provincial government operates three very large monopolies and revenue streams, LBCO, Ontario Power Authority, and OLG. It may also come as a surprise that with our vast resources and modern infrastructure we also pay amongst the highest for power in north america once you add back delivery charges that they try to sweep under the rug.

    While our leaders scratch their heads and do their dog and and pony show on how to improve our economy, the answers are easy, stop ripping us off and allow us to spend our hard earned money at home where it is needed. Take reference to how proud they are that they are working to lower our insurance costs by 15%, that’s only because they don’t have their hand in that racket.

    Comparative thinking often helps many see the real issues, so here is some food for thought;

    -DCBO (diaper control board) – diapers are an environmental hazard and filling up landfills, charge an eco fee

    -CCBO (candy control board) – candy and junk food is a luxury, and has no positive health benefit, and over consumption leads to a whole host health problems further straining our health care system, charge a higher rate of tax on these products (and actually some states do)

    -CCBO (crustation control board) Lobster and other shell fish is a luxury and a “Sin” tax should be applied

    I could go on, but I hope that I have made my point with these ridiculous examples and how insane the LCBO is. If you go back to the history of wine, you will see how the church had a very large roll in it’s development and it’s growth around the world. They believed that wine was such a special gift from God that it would be a sin to keep it to themselves or even control it. Convincing us we need to pay a “Sin” tax on these products is ridiculous on it’s own.

    Simply, at the LCBO you cannot find;
    – fair competitive prices
    – freedom of choice or selection
    – educated (sommelier level) knowledgeable staff, although many are very nice people paid $28/HR to stock shelves with my tax dollars

    As far as personal limits on what you can bring back over an above the duty free limit back with you… it’s like finding a needle in a hay stack and I have never gotten a straight answer from anyone at duty free.. here is good link,

    http://www.lcbo.com/importing/

    the border levy for wine is 39.6% of the retail price and is added up with other taxes and of course…HST

    Cheers!

    • Hi Mark
      Thank you for your lengthy comment, I always welcome discussions and I was expecting that this article may cause a few like yours to be thrown my way.

      In my article, I discuss and specifically focus on wines in the below $30 category and point out that excluding US produced wines, LCBO’s prices are quite comparable – this, based on my observations while traveling. Though I noticed some wines being quite cheaper (as you point out), I also noticed others being more expensive (picture of Muga) and in my article I am merely noting the overall trend, or average if you will. Regarding expensive Dom, see the earlier comment/reply below.

      You mention Costco, which I also visited few times, though not recently as I am not a member. Their selection includes some wines that are much cheaper, but overall, again, the prices are still comparable to LCBO (though generaly on the cheaper side). Their retail model is quite different and should be considered, first you have to purchase a membership (you are not taking that into an account in your price consideration), and second they are able to discount one item (in one category) and make up their loss on others (in another category; for example produce is way more expensive than elsewhere).

      Regarding: “Your little quip at the US and the homeless is not only out of line, irrelevant, but it’s offensive. That is exactly what differentiates Canadians from Americans. The American system, like it or not needs a large population of poverty to support it’s needs and has nothing at all to do with the incredible rate of taxation in our province.”
      I am glad to live in Canada and I like/love having social services that we get to enjoy – services that cost us in the form of taxes, in the form of liquor profits and in the form of OLG revenues – the latter two we have a choice whether we chose to contribute to or not.
      Though this is outside of scope of my article; Frankly, I don’t understand what you find offensive in my statement. I find it offensive that the world’s superpower is ‘powerless’ (really tries to do almost nothing) when it comes to keeping its population healthy.

      Regarding: “Canada like many other G8 countries have a very different position than the US on poverty and all the other seven countries have privatized liquor sales.”
      Private perhaps, but in China as well as in Japan, the prices are lot higher than we have here.

      Regarding: “Simply, at the LCBO you cannot find;
      – fair competitive prices
      – freedom of choice or selection
      – educated (sommelier level) knowledgeable staff, although many are very nice people paid $28/HR to stock shelves with my tax dollars.”

      1. I am trying to say just that in my article
      2. I have yet to see better and broader selection than LCBO has. If you are in a small town with a small LCBO, you can request products to be shipped there including wines about to be released – quite nice service if you ask me.
      3. LCBO’s employees are paid from LCBO’s profits, not our taxes – though these can be quite synonymous as higher LCBO profits would result in more money going to government’s coffers. Product consultants are on top of their game when it comes to knowing their product, not all personal needs to be knowledgable.

      I guess what I am trying to portray is that prices throughout the world range widely and so it is hard to absolutely position LCBO – every US state is different (some are cheaper, some more expensive), Canada’s other provinces sell alcohol for more, while Europe is overall cheaper some countries like Sweden, Norway, Ireland, etc. are quite a bit more expensive. In regards to wine, we can focus and dwell on the cheaper places, or cheaper pockets within certain places, or even cheaper individual products; but when it comes to an ‘absolute’ position (using this term loosely), we fair pretty well with having the LCBO – though there is a room for improvement.

      Thanks again Mark, your comments, though not agreed with, are much appreciated.

      cheers
      Dan

  6. I just got back this week from Temecula California ( wine country region). Visited the Costco. A 1.75 of premium Kirkland brand Vodka is $13.99 USD. Wine was hard to price as each winery had their own price point however most are not carried by the LCBO. Generally for a bottle of Beringer’s Knights Valley it was about $20 cheaper there for the same bottle I can get at the LCBO. You are allowed 2 x 750 ml of wine, or 1.14 L of Liqour. If gone for more than 48 hours you can still bring as much as you like back ( and prove you it is for personal consumption) and the most you pay is $3 a litre in duty and tax. I have always declared what I bring back ( brought back 5 bottles of wine and 1 bottle of tequila on Monday), declared and still never had to pay. Not impressed with the LCBO and I think they need to open the market. Not just on price point but on the choices we should be allowed to make. -Steve Aps

    • Hi Steve, thank you for your detailed comment that adds several observations and points.

      1. The one that is above all is YES!, as a free society not to mention free market economy, we should have the right to decide whether we want the monopoly or not.

      2. As you mention Beringer’s from the Knights Valley being $20 cheaper, not sure which one specifically, but if choosing the Cabernet, the winery retails it for $32USD+tax and LCBO for $37.95 – Costco (free economy wholesaler) may have had a promotion and if they were selling it for $20 cheaper i.e. $17.95USD+tax, I would believe that. California, unlike Ontario (represented by the LCBO), makes it really easy to sell their wines as they are cheaper than wines from elsewhere. Also, as I emphasize in the article, I am only talking about under $30 wines as anything above that price range can be taken to a whole another level. For example: Opus One retails here of upwards $365 while there it is below $150 – what LCBO calls “Luxury tax”.

      3. I love that you mention that we can bring back as much as we like (a believable amount for personal consumption) as long as we declare it. I’ve recently been doing that as well to an upwards of 2-3 times my allowance and not once have I been asked to pay, so it is great to know that it would only be $3, I always keep the receipts just in case.

      4. and lastly, I have highlighted that we pay more, but as a government agency, bigger chunk of the money goes back to us society, than what would come back from Costco, Wal-Mart or any other large scale retailer, while the small retailers would not be able to offer prices that would compete with LCBO and as far as return back to the taxpayer, the amount would be even smaller.

      Again, I really appreciate your observations/comments.
      Thanks
      Dan

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