Fraser Forum

To reform its retail liquor market, Ontario can learn from Alberta

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During the recent long weekend, many Ontarians celebrated Canada’s 150th birthday with celebrations at their homes and cottages across our wonderful province. While having fun, relaxing and catching up with friends and relatives, it was easy to forget that a labour disruption almost put a big damper on the celebration. Specifically, in the weeks leading up to Canada Day, the prospect of a disruptive strike that would have shut down Liquor Control Board of Ontario (LCBO) outlets across the province loomed large.

Fortunately, LCBO workers and management recently reached a tentative deal. Averting an LCBO strike, especially one that would have begun right before a summer long weekend, was good news for consumers. Yet it’s also an important opportunity for reflection, especially if Ontario wants to avoid a similar ordeal in the future, because the narrowly-avoided LCBO strike is just the latest example of the shortcomings of Ontario’s approach to liquor sales.

After all, the reason that an LCBO strike would have been so disruptive is that the government-owned chain holds a near-monopoly on the sale of many types of alcohol in the province. It’s the only retailer to sell spirits, and also dominates the wine market—in 2012 it accounted for 85 per cent of all wine sold in the province. And together with The Beer Store, it sold 93 per cent of the province’s beer that year.

The potential for a debilitating strike is only one of the many downsides of allowing the LCBO to dominate the alcohol market, and removing this potential is one way consumers would benefit from moving away from a government monopoly in this area. But there are many others downsides.

With no competitors, the LCBO doesn’t need to worry as much as firms in competitive markets about dissatisfied customers taking their business elsewhere, so it has little incentive to keep them happy.  This can lead to issues such as high prices, poor selection or inconvenient service relative to what would exist in a more competitive environment.

But would liberalizing alcohol sales in Ontario by permitting private stores to set up shop and/or selling LCBO outlets themselves really improve customer experience? Relatively recent evidence from elsewhere in Canada suggests it could. Specifically, examining Alberta’s liberalization of its retail liquor market about 25 years ago provides some promising evidence Ontario should study and consider. In the early 1990s, Alberta dramatically liberalized its approach to liquor sales, dismantling its government liquor stores and opening the market to private competition.

The results were, in many important respects, impressive. In the 20 years following privatization, the number of liquor retailers more than doubled—meaning better accessibility and convenience. Competition also improved the selection of products—the varieties of beer, wine and spirits available in the province rose from 2,200 to more than 22,000.

Meanwhile, the negative effects that critics of privatization warned about—such as increased consumption or alcohol-related crime—didn’t materialize. A Fraser Institute study conducted a decade after privatization concluded that there was “little evidence” the policy led to an increase in consumption of liquor products or crime.

And finally, by maintaining a tax on liquor sales, Alberta’s provincial government continued to rake in revenue. Between privatization and 2012, the province had collected $10.5 billion in revenue from liquor sales.

Generally speaking, monopolies aren’t good for consumers. The recent threat of massive disruption to the Ontario market as a result of an LCBO strike underlined one important reason why. To permanently address the shortcomings of a monopoly-based system, the Ontario government should consider fundamental reform. Fortunately, Alberta has shown us this can be done, bringing important benefits to consumers.

 

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