A debate brewing behind the scenes in the restaurant world is spilling into the public.
Bars, restaurants and alcohol producers in Ontario are pushing for a wholesale pricing model from the LCBO.
Restaurants and bars want to buy booze at cheaper prices from the provincial liquor-sales monopoly, which would allow businesses to make more profit on drink sales and, in turn, charge less to customers.
The workings of pricing models and supply chain structures are usually inside-baseball industry interests, but the topic has now moved into the public domain of Instagram and Twitter.
Hashtags like #SkipTheLCBO have proliferated, Toronto restaurateurs like Jen Agg have spoken up online and in print and businesses including Bar Volo have written open letters to Ontario’s ministry of finance.
It’s all part of a bigger shop-local movement that has intensified during the latest COVID-19 lockdown. Like retail stores, bars and restaurants are struggling to survive during the pandemic, and they’re encouraging consumers to be more thoughtful about where they spend money and help keep independent businesses alive.
But the union representing LCBO employees counters that the mom-and-pop struggle could undercut well-paying jobs and lead to “backdoor privatization” that would instead benefit corporate players.
“When it comes to the LCBO, a lot of the rules are dated,” says Tomas Morana, co-owner of Bar Volo and Birreria Volo. “Bars and restaurants are struggling, and people are paying attention. Now is the time to talk about it.”
What is wholesale pricing?
The push for wholesale alcohol pricing has been going on behind the scenes for years, but the public campaign arose out of a different issue with Ontario’s liquor board: the LCBO’s partnership with delivery app SkipTheDishes.
After being announced in early December, the deal was quickly decried by bars and restaurants throughout Toronto and across the province. Within days, the LCBO put the deal on pause.
But with the LCBO in the spotlight, the debate rages on.
Ontario has been allowing bars and restaurants to sell alcohol for takeout and delivery since March, and that allowance will become permanent on January 1, 2021. The ability to sell beer, wine and cocktail kits has been a rare lifeline for bars and restaurants, especially as takeout and delivery are once again their only avenue for sales.
By partnering with a third-party delivery app, the LCBO would compete directly with local bars and restaurants. But, business owners argue, it’s not a level playing field.
“We shouldn’t be in a position where we’re competing with the government,” says Morana. “The government should be protecting small businesses. They say they’re doing everything they can, but they’re not. A move to wholesale pricing could be a quick, easy solution that would be a lifeline.”
Currently, bars and restaurants pay retail pricing when buying booze to sell. If a bar wants to buy a bottle of wine from the LCBO, they pay the same price that a shopper would pay. In order to make money, they have to add a significant markup to drinks. And the way the liquor law has been altered, bars and restaurants still have to sell a food item when selling alcohol for takeout or delivery. That adds another cost for consumers, even if it’s just a bag of pretzels.
“Wholesale pricing exists in most other industries,” says Morana. “If I’m buying chips to sell at the bar, I’m getting them from a wholesaler. I’m not paying what I’d pay at Loblaws or Whole Foods.”
It’s easier for a customer to justify spending more on a beer at a bar than at the LCBO because they’re also getting things like table service and atmosphere. But with dine-in service outlawed during the pandemic, those factors no longer exist.
If you’re choosing to buy alcohol from a bar or restaurant, you’re likely doing so for a different reason: out of convenience, to pair with a meal, to specifically support a local business, or because they offer a better selection than the LCBO.
To make those factors work, many bars and restaurants have had to change business models on the fly. Some have turned into bodegas, selling groceries and other prepared food items.
Some restaurants, like Peter Pan and SoSo Food Club (which is now Juice Box wine bar), pivoted to selling bottles of wine. Similar to sites like Not-Amazon, BottleShopTO maps out local bottle shops to buy from instead of the LCBO.
A specialty beer bar like Bar Volo can compete on selection. Close to 100 per cent of the beers they sell are not available at the LCBO. Many LCBOs don’t carry natural wines or orange wines, many liqueurs and cocktail-based spirits like amaro and vermouth, and some bars and bottle shops are filling that void. But it’s much harder for your neighbourhood dive bar that makes the majority of its sales on Labatt or Molson.
“I feel for those places the most,” says Morana. “They suddenly have to create a whole new business.”
A wholesale or licensee price, or even a rebate, would allow them to sell alcohol at a price comparable to the LCBO.
What about producers?
If the public is in the dark about how bars and restaurants operate financially, they’re even more in the dark about producers.
Even if a bar wants to buy directly from an independent Ontario wine, beer or cider producer – even if those products are not available through the LCBO – the sale still goes through the LCBO and the agency still takes a cut.
Tariq Ahmed, founder of Revel Ciders in Guelph, has been vocal on the topic. He created a form letter for people to email to their MPP and an open letter of his own.
“When a restaurant purchases cider or non-VQA wine directly from an Ontario producer, the LCBO also gets a cut,” he writes. “The LCBO does not warehouse this product, deliver it, or help in the sale of it in any way… The LCBO markup on these sales THAT THEY PLAY NO PART IN, is almost 62 per cent.”
He breaks down the sales of a typical bottle, including the calculator they use to determine the markup. When a bar buys a bottle of cider directly from Revel for $12.19, he says, the actual price before it hits the LCBO is $7.53. And that’s before HST. It’s not a tax. That price, in turn, gets passed onto the customer.
If the public doesn’t realize the markup, says Ahmed, neither do many bars and restaurants that buy directly.
“That’s why, on the producer end, it’s important for us to speak up,” he tells NOW.
He says many in the industry have brought this up to the government behind the scenes, and though officials are sympathetic and say they want to help, most of their effort has been on reducing red tape.
Allowing delivery and takeout alcohol sales would fall under that category, as do a number of other new rules that go into effect in 2021. Starting in January, for instance, bars will now also be allowed to sell pre-mixed cocktails and growlers of draft beer. They can also sell alcohol as part of food boxes and wine kits.
But Ahmed is asking for a removal or significant decrease of the LCBO’s mark-up on alcohol sales.
“I don’t mean taxes, because those aren’t taxes,” he says. “These sales would still be taxed, and that money would still fund health care and other services.”
Scott Blodgett, a spokesperson from Ontario’s Ministry of Finance, says the province’s top priority is public health.
“The government is also focused on supporting people and businesses impacted by the virus and the government is committed to helping Ontario’s more than 17,000 bars and restaurants recover from the impacts of COVID-19, and to helping local producers to grow their businesses and support local economies,” he writes to NOW.
“As well, a comprehensive review of the beverage alcohol sector is underway, aimed at increasing choice and convenience for consumers and creating more opportunities for businesses to compete in the sale and distribution of beverage alcohol.”
He says “key stakeholder groups” are sending proposals to government and participating in discussions around the review, “including those representing beverage alcohol producers, public health and safety organizations, retailers and the hospitality sector.”
So change could be on the way.
Skip The LCBO?
The LCBO is a crown corporation, which means it is publicly owned and operated. The LCBO’s profits generate revenue for the government and are used to pay for essential public services like health care, education and infrastructure.
There’s been an ongoing debate about privatization of liquor sales that has raged on for decades.
Some, like OPSEU Local 5110, a union that represents more than 800 liquor board employees in Toronto, have been arguing that restaurants’ ability to sell takeout liquor and their push for wholesale pricing undercuts the LCBO and its unionized employees. They argue it’s part of a slide into privatization that the Doug Ford government has been aiming towards for years.
“It’s backdoor privatization,” says OPSEU Local 5110 local president Debbie McGuinness.
She says that the LCBO shouldn’t be lumped in with big, profit-sucking corporations like Amazon or big-box stores like Walmart.
“When you shop LCBO, you are shopping local,” she says. “There are 650 communities that have LCBO stores across the province. They provide good, quality jobs; they care about and protect their communities.
“And all the profits go back to the people. That’s $2.7 billion in clear profits for the people of Toronto and the people of the province. How much more local can you get?”
According to the LCBO’s 2018-2019 annual report, the agency transferred a dividend of $2.37 billion to the province.
Morana explicitly tells me that he’s pro-LCBO, says it “can and should exist in Ontario” and calls it “a great financial generator.”
“What I want is some perspective,” he says. “What we want is a level playing field.”
Bars and restaurants are the LCBOs best customers, he says, and they feed each other. Bars create trends, do product research on what to import, buy and stock, and create brand awareness, which pushes people to buy those products at the LCBO. But the pandemic has forced them to compete.
Ahmed, too, is in favour of the LCBO and praises the amount of money they bring to the public coffer. But, he says, it isn’t a choice between supporting bars and restaurants and funding health care.
“It’s a lopsided argument,” he says. “The LCBO isn’t single-handedly funding health care.”
In the wake of the SkipTheDishes deal, an Instagram account called Skip The LCBO appeared to advocate for bars and restaurants and to encourage people to buy alcohol from local shops.
“It’s fantastic that the LCBO provides funding to our social programs and thousands of high-paying jobs,” the account owner, who is choosing to remain anonymous, writes in a detailed email to NOW. “But the hundreds of thousands of jobs and economic activity surrounding the hospitality industry also provide vital funding to government programs in income tax, let alone the basis for a healthy economy – and they’re currently diminishing if not at imminent risk.”
They cite a 2005 study commissioned by the Liberal government that concludes the LCBO is not fulfilling its mandate of delivering the maximum benefits to the people of Ontario. As a monopoly, the report says, it’s holding back innovation and leaving up to $200 million a year in untapped revenue (at the time).
McGuinness cautions that opening up liquor sales won’t make profits for mom-and-pop restaurants, but rather big corporations that are already profiting.
“The Walmarts, the Loblaws,” she says. “They’ll somehow find a loophole to sell alcohol in cafes or at kiosks in malls or box stores or supermarkets. Those profits will be going to the Westons.”
Many bars, though, aren’t looking at this as a big money endeavour so much as a way to stop the bleeding.
“Bars and restaurants just can’t afford to wait any longer,” says Ahmed.
Skip The LCBO says this isn’t a question about privatization, but rather modernization. They don’t want to abolish the LCBO, but they want it to better serve the people of Ontario.
“I think the public should know that it belongs to the people of Ontario, and it’s straight-up not doing a good enough job at serving us,” they write. “It’s ours, and we need to hold it accountable.”