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The Public Debate Over Private Sector Retailing

Increased private sector involvement in liquor retailing, including full privatization of liquor sales, has been debated across Canada since Alberta privatized its stores in 1993.

Several recurring themes arise in public debates regarding privatizing alcohol sales. These themes include:

  • Revenue to government;
  • Price, product selection and access/convenience; and
  • Social impact of privatization.

Impact on Government Revenue

Alberta made the decision in 1993 to replace its ad valorem (percentage based) mark-up rate with a flat rate mark-up. Conversely, Saskatchewan along with other provinces maintains an ad valorem mark-up structure on most products, excluding beer to which a flat rate mark-up applies. 

As a result, the mark-up on alcohol products follows manufacturer price increases in Saskatchewan and other provinces. In Alberta, the mark-up is set according to category of product and alcohol levels. In other words, when the price of alcohol purchased by the Government of Saskatchewan rises, so does the mark-up. In Alberta, the mark-up only rises when government makes a decision to increase the mark-up levels on a category of alcohol products.

Alberta also adopted a policy aimed at ensuring government would not see a reduction in revenue as a result of privatization. This continues to be true on an absolute dollar amount. Alberta is generating more mark-up revenue than it did in 1993. Moreover, Alberta achieved this while lowering its mark-up on alcohol on subsequent occasions over the years. 

Price

While not the sole factor affecting price, the mark-up rate government wishes to apply to an alcohol product will have a significant effect on its final retail price. Like any other product, the level of revenue raised by government contributes to the final retail price of a product.

Reports on alcohol prices in Alberta vary depending on the source of the study. In reality, product prices vary from store to store in Alberta, with some products selling for less than in Saskatchewan (typically house/discount brands) and some products selling for more (typically mainstream brands, excluding temporary “loss-leader” discounts). Large chain retailers such as the Real Canadian Liquor Store, Liquor Mart and Liquor Barn also drive price variability through economies of scale.

Competition is another contributing factor affecting the final retail price. Greater competition between retail outlets leads to price variability, such as sales on specific products. However, the degree to which retailers can compete against one another on the basis of price alone in Alberta is limited because all retailers purchase alcohol products from the Alberta government warehouse at the same cost.

Finally, Alberta does not apply a minimum or social reference price, which results in lower prices on economy products.

Social reference pricing considers the type of alcohol, container size and alcohol by volume of a particular product to determine the minimum price for which it may be sold in Saskatchewan as a means of minimizing the harm associated with high alcohol/low cost products

Consumer Access to Liquor Retail Outlets

Alberta’s decision to allow for an open market approach to the establishment of private liquor stores through privatization led to a significant increase in the number of stores. In January 1993 there were 803 liquor retail outlets in Alberta. This included 208 government stores. Following privatization, the number of liquor outlets grew to 1,187 in 14 months.

Product Selection

The Alberta Gaming and Liquor Commission (AGLC) reports that as of June 2014, there are almost 20,000 products available through the Connect Logistics warehouse. No store carries all products and most stores focus on popular/high volume products, leaving niche stores to fill customer demand for specialty products.

By comparison, there are approximately 2,544 product stock keeping units (SKUs) available through the Saskatchewan Liquor and Gaming Authority’s (SLGA) warehouse and the beer distributors. In Saskatchewan, franchises carry a range of 100 SKUs to approximately 2,000 SKUs. Government stores range from approximately 500 SKUs to 2,300 SKUs.

Social Impact of Privatization

Opponents of private alcohol retailing cite social responsibility as a reason to maintain publicly owned liquor stores. While it is widely accepted that alcohol consumption has potential to cause individual and social harm, there is no conclusive evidence that government owned and operated liquor stores reduce social harm.

Opponents of privatized alcohol sales argue that consumption goes up and social harms are increased when the sale of alcohol is privatized. Arguably, it is not the nature of the retailer but broader government policies respecting price, as well as outlet density, that impact consumption.

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