B.C.'s liquor rules still sting

B.C.'s Liquor Distribution Branch reaps the profits of a monopoly that dates back to Prohibition—and many want that changed

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      Seated in one of the crammed backrooms of Davie Street's Marquis Wine Cellars, with wooden boxes of Bordeaux wines piled to the ceiling above me, I tell myself that if there's an earthquake, I'll die in style.

      No bonk from some plonk for me. Stacked above me: several embossed cases of Chí¢teau Mouton Rothschild (2006), a bit pricey at $1,210 a bottle.

      It's not really a seismic event that concerns me, though, but the shop owner's gesticulations and impassioned ranting. John Clerides, 51, is Greek and, therefore, genetically primed to explode. The target of his fulminations, paper flailing, table-thumping, and occasional retraction—for libel's sake—is the British Columbia Liquor Distribution Branch. Its policies and pricings have, he claims, led to this province having the most expensive liquor in North America and to B.C. wine buyers dying the death of a thousand cuts. His diatribe would be of little consequence except that—during a month of investigation—I hear precisely the same (if less voluble) observations from a half-dozen other high-profile experts on wine. Some request anonymity. Others, like Clerides, fear retribution from the powers that be for speaking out.

      In a business where, I'm discovering, some see the bottle as half full and others see it as half empty, Clerides is the pessimist. He has little patience, he tells me, with the regulations that govern the LDB monopoly, and he hears all the time about well-known restaurateurs, specialty-wine-store owners, connoisseurs, and Alberta liquor smugglers who grimly face—or elude—the LDB's sky-high 123-percent markup on every bottle of wine and a 170-percent markup on every bottle of spirits sold in the province.

      But it's not just the pricing that drives Clerides and his wine-drinking friends to apoplexy: it's the maze of restrictions, arbitrary rulings, and brutal wholesale margins, Clerides says, that has led Rich Coleman, B.C.'s former minister responsible for the LDB, to call the province's liquor-distribution system “a dog's breakfast.”

      “The LDB's like a dictatorship. They're the bully on the playground,” Clerides says, waving a sheaf of proposals he has sent to B.C.'s Liberal government, suggesting ways the system might be modernized. “Hong Kong got rid of taxes on wine recently. They've become a wine-marketing centre. Alberta privatized its liquor-distribution system years ago. Prices are cheaper there. Liquor's cheaper in the States too. Europe doesn't have government-run monopolies. You buy wine anywhere. The LDB's mired in laws that go back to the '20s; it's a hangover from Prohibition. Try being creative! You think outside the box, you get squeezed.”

      Clerides pauses in his screed, puts his thumb on a stack of wine-marketing ideas he'd like to see implemented in B.C., and crushes an imaginary bug.

      When I ask Clerides who's responsible for this, he says a name. It's the same name I hear from every authority I speak with. And so I begin pursuing Jay Chambers, for 17 years the general manager of the LDB and the person responsible, critics say, for guiding a system that hurts B.C. restaurants, private liquor stores, and specialty wine shops because all must buy from the LDB alcohol monopoly.

      The LDB sets minimum shelf prices on its 3,700 listed products—both those sold within and those sold beyond its own stores. It arbitrarily rules over what's imported and what's not. It quietly provides rebates—possibly violating NAFTA—to local vintners, thereby putting B.C. wine importers at a disadvantage. And it satisfies the government's huge addiction to profits from liquor sales.

      I phone Chambers's assistant, requesting an interview. But as the days become weeks, and the LDB prevarications assume the solidity of a stone wall, I find myself wondering if Chambers is a Kafkaesque invention.

      So I entertain myself, circling the magistrate, and explore the architecture of early 20th-century Prohibition and its current manifestation, the LDB (formerly the Liquor Control Board), trying to understand how British Columbia developed the most antiquated and expensive edifice to liquor politics of any jurisdiction in North America.

      It's a tragicomic story. Under the influence of early 20th-century temperance crusaders who saw alcohol as the “devil's drink”, B.C. began, in 1918, a brief infatuation with Prohibition. Within months, illicit moonshine manufacturing, policing efforts, and crime were flourishing. The B.C. commissioner of Prohibition himself went to jail for bootlegging. In 1919, B.C. legislators enacted a curious exemption in the law, legalizing the sale of alcohol to individuals “for medicinal purposes”. An inexpensive permit was required. More than 180,000 B.C. residents signed up that year, and the government reaped a then-enormous $1.5-million windfall.

      The next year, B.C. ended its affair with Prohibition and turned instead to selling what it had previously deemed corrupting. It was an acceptance that in any dance with the devil, profit—in the end—usually trumps virtue. (B.C. marijuana advocates: take note.)

      By 1930, almost a quarter of the province's total revenue was flowing in from the government's taxation of liquor (and millions more flowed into the pockets of wealthy B.C. smugglers who ran legal Canadian booze into the Prohibition-era U.S.) The die was cast: with monopolistic government pricing, booze was liquid gold.

      But fragments of the puritanism that produced Prohibition remained—and, say LDB critics, remain to this day. As the decades passed, the more egregious rules in B.C. were abandoned. One didn't have to apply for a permit to drink, or sign at the counter of a grim, Soviet-style government liquor store, where bottles were displayed behind wire-mesh screens and purchases made under a clerk's jaundiced gaze.

      But a paternalistic attitude survived. Drinking was a path to licentiousness. It needed to be strictly controlled. Liquor could not be consumed in the presence of food or music. Drinkers had to be seated. Only men could serve liquor. Women could only enter or drink in a pub when accompanied by a male partner. (Until the 1970s, signs over the two separate doors into B.C. pubs read: “Men” and “Ladies and Escorts”.)

      B.C. MLA Rich Coleman oversaw the LDB for five years before his March 2011 shift in ministerial assignments to Energy and Mines. He's comfortable saying its regulations were sometimes silly. “Look,” he said of his early perusal of LDB restrictions. “They had rules about the size of televisions in pubs and the colour of carpets. They said ski hills could have 10 seats at their pubs for the first 200 feet of their lifts and one seat more for each additional 100 feet of lift. They said you couldn't have a liquor licence at a golf course unless you had at least three PGA-approved par-four holes.” And Coleman laughed aloud at the absurdities he encountered, and removed.

      He told me his goal was to modernize a system that had become sclerotic with age and lack of imagination. He said, however, that he felt happy with recent new tax breaks to B.C. microbrewers and the tax-cutting, direct-delivery system set up for bulk customers of B.C. vintners. And he felt proud, too, of the spread of the LDB's “Signature” outlets, like the big Vancouver store at 39th Avenue and Cambie Street—with its demonstration kitchen, public wine pairings, and a selection of 3,000 products ranging from bottom-end Fusion ($8.99) to Rémy Martin Louis XIII Black Pearl cognac ($35,000 per bottle). “We're moving away from overregulation,” he admitted of his effort to modernize LDB policy. “We're moving toward a more mature, more European system.” But that doesn't mean, Coleman made clear, that the government is about to tip over, like some beer-besotted teenager, the LDB cash cow. No, not when its annual revenue is almost $900 million.

      The B.C. Liberals are not, Coleman insisted, in favour of privatizing provincial liquor sales as happened in 1994 in Alberta. There, more than 200 Liquor Control Board stores were sold off by Ralph Klein's Conservative government, a simple markup was added to the wholesale value of every bottle of liquor, hundreds of private mom-and-pop bottle shops opened, prices dropped, and thousands of union employees lost their jobs.

      Unlike Alberta, Coleman said, B.C.'s LDB monopoly is safe. It assures that liquor is available everywhere—from Atlin to Zeballos—at the same prices and that the LDB's 3,500 B.C. Government and Service Employees' Union members keep their average $23 an hour wages. People understand, he added, that profits from B.C. liquor sales help pay for education and health and that steep prices reduce overconsumption by underage drinkers. When I pressed him that critics say LDB's markups are outrageous and its prices the highest in North America, he assured me they're not. But when I said I have a study that shows B.C.'s liquor prices are, in fact, higher than elsewhere, he suggested—to get the inside picture on LDB pricing policy—that I talk with Jay Chambers.

      I resisted the temptation to laugh. More phone calls, more emails, more silence.

      Seated in the lounge of Il Giardino, gregarious, 63-year-old Umberto Menghi reflects on a lifetime spent in the restaurant business and on the troubling impediments tossed in his—and other restaurateurs'—path by B.C.'s humourless LDB. His father was a vintner in Pontedera, Italy. And his mother's “Mange! Mange!” echoes in his memory. “Wine,” he says of his Tuscan childhood, “was part of life. It was inexpensive. It was like”¦ carrots. Everywhere.”

      But he is regularly confronted today by customers who are surprised at the cost of his restaurant's wines. “They say,” Menghi reports, “ ”˜We can get this in San Francisco for $14 and you're charging $50!' ” He is Italian enough to shrug and not try to explain the complexities of B.C. liquor pricing. But he explains to me how restaurants in this province—especially places like Il Giardino, which must offer a sophisticated wine list—suffer the multiple lashes of LDB policy.

      First, the monopoly prevents him from buying directly from international wineries. He must buy his imported wine through the LDB—with markups, surcharges, and taxes more than doubling the original wholesale price. He gets no wholesale discount. So when he then offers the wine—with the standard 100-percent restaurant markup on top of the LDB's multiple charges—customers balk.

      What's more, government policy requires that restaurants buy caseloads of wine, paying up-front. This means that high-end places like Il Giardino must carry an extraordinarily expensive inventory that may sit in racks unsold for a year or two. Moreover, unlike in Europe, B.C. restaurants cannot sell unopened bottles of wine, so a customer who likes what he has tried with the veal cannelloni cannot purchase a second bottle to take home—unless it has been uncorked. “I don't want to fight the LDB,” he says, “but the government should deal with social policy and not be running a liquor monopoly. If you handcuff restaurants with regulations—restaurants make 35 to 40 percent of their profits from liquor sales—they can't survive.”

      Menghi knows this well: he once had 14 restaurants; he now has three.

      I hear identical accounts from other B.C. restaurateurs who bemoan the prices that customers face on wine lists. Says Ian Tostenson, CEO of the 3,000-member B.C. Restaurant and Foodservices Association: “The LDB's prices are too high. But it's not going to change. The government's not going to give up all that money. The LDB's not quite a monopoly. I'd call it an oligarchy.“ And he mentions, once again, a now familiar name.

      A similar pattern of government markups—and corresponding grievance—comes from those who run the province's 650-plus private licensed retail stores (LRS). These operate in uneasy competition with the government, required by regulations to accept a mere 16-percent LDB discount on all alcohol products they purchase. This is why B.C.'s LRS stores have—almost certainly—the highest retail liquor prices in North America. To make a profit on the LDB's slim discount, private stores must mark up the beer, wine, and spirits to a retail price that is, on average, 10 to 20 percent higher than LDB stores. One person described this monopolistic system as similar to forcing Shoppers Drug Mart to buy its products from Walmart. For example, a six-pack of Labatt Blue or a bottle of Canadian Club costs $2 more at an LRS store, on average, than at the LDB. This despite the fact that LRS clerks earn $10 an hour—less than half the amount paid unionized clerks in the province's 197 LDB stores.

      As I circle the precincts of the LDB, listen to the outliers, and await a response from the elusive magistrate, Jay Chambers, an image forms in my mind of a medieval castle, much like the one Kafka's famous antihero named K. tried unsuccessfully to penetrate. In its 20th-century guise, the structure's foundation is Prohibition-era moralism. But its battlements have been altered repeatedly in the past 90 years by the secular accretion of pricing formulas, regulations, old-boys' insider deals, and modern privatizing efforts—not to mention the rebates pleasing to local vintners and brewers—until it's baroque with modifications.

      Within the province's liquor system there are, one B.C. wine expert said: “Taxes on taxes on taxes on taxes.” And he ran through the arithmetical increases that quickly turn a $10 bottle of imported wine into a $55 bottle (HST not included) at a B.C. restaurant. What's more, if rumours are to be believed, groups of smugglers, working for high-end B.C. purchasing syndicates, bypass the LDB fief completely (costing the government millions in lost revenue) by running loads of less expensive Alberta booze into the province to avoid B.C.'s high prices.

      No one is more vocal in his attack on the B.C. system than the Vintage Law Group's Mark Hicken, 48, a Vancouver lawyer specializing in liquor issues. He believes that the LDB is an expensive marketing and regulatory dinosaur that has outlived its early 20th-century origins, but he acknowledges that, particularly since Expo 86, many of the more archaic LDB regulations have been modified.

      The stores' interiors are no longer painted the utilitarian bilge-green of psychiatric institutions. The selection is no longer limited to a few hundred LDB-favoured labels. Customers no longer are required to carry their booze out in brown bags, as if they've purchased a load of condoms. And there are now hundreds of private LRS stores, and a dozen upscale independent wine stores, like John Clerides's Marquis Wines, and numerous winery-attached shops that boost tourism.

      But, Hicken says: “The government's addicted to liquor revenue. They're not going to stop that!” One way or another, Hicken knows, authorities are content to dance with the devil. Hicken is, however, opposed to the $276-million annual provincial cost of running the Byzantine LDB system and its high wages, the administrative and warehousing expenses, the store rents, and the complex pricing formulas. These, Hicken says, should go. In the face of budgetary problems, several North American jurisdictions have established or are investigating full or partial privatization. Alberta did it. Washington state sold its beer and wine operations. Virginia, Ontario, Vermont, Mississippi, Pennsylvania, and North Carolina are currently looking at possibilities. “Privatization and a flat tax at the wholesale level, like they've set in Alberta,” he says, “is much simpler, fairer, and—if it's done right—there's no loss of total government revenue.”

      Defenders of the LDB argue, however, that with the current provincewide pricing and distribution system, the people of Atlin and Zeballos—and scores of remote settlements in between—are guaranteed uniformly priced liquor without the attendant closures or cost increases that would come from a profit-centred private system.

      As Darryl Walker, president of the B.C. Government and Service Employees' Union, explains, small-town B.C. liquor outlets would, under privatization, cut inventories so there'd be a lot of Yellowtail but not any Chí¢teau Lafon-Rochet. And prices would rise. That is, in fact, what has happened in rural Alberta in the past decade. In cities, critics of privatization say, corporations like Costco would—through their ability to buy in bulk and sell at cut-rate—utilize low retail prices to drive urban mom-and-pop bottle shops out of business. And that, too, is what has happened in Alberta.

      A month after I begin my pursuit of the LDB's general manager, the phone rings and the speaker identifies himself as Jay Chambers. I'm pleased. He's almost 60, he tells me, and he can recall as a young man going into a B.C. Liquor Control Board store and watching his father write on a form his name and the various amounts of beer and spirits he wanted. The bottles were then retrieved by a clerk from shelves, inaccessible to customers, behind the counter. He laughs at the funny rules that once existed and the funny rules he has been required to maintain by the vicissitudes of government policy and decades of LDB inertia.

      I begin to believe Chambers is—just as much as the people of B.C.—a victim of a sort of anachronistic Rube Goldberg contraption—with gears and fan belts and price structures and political machinations all spinning to produce that annual $900-million LDB profit. For a moment I feel sorry for him: he has been given a Model T and asked to make it fly.

      In the view of his critics, however, Chambers is an authoritarian administrator and a defender of the status quo. Suggestions go unheeded. Product proposals and new marketing tactics are often ignored. Interview requests—as I found out—drift into limbo. He admits this to me: “Things are changing. The world is changing. People are getting more sophisticated.” When I said Rich Coleman told me he wanted a liquor system in B.C. that is more European, Chambers replies: “I manage within the rules.” The good bureaucrat, his words imply, does not see responsiveness or innovation as part of his job.

      It has been decades since customers had to apply for their liquor in writing or since lookouts were posted on the roof of Vancouver's Penthouse Cabaret, ready to alert patrons to the appearance of the vice squad, intent on busting those drinking in the illegal bottle club there. But it's clear from the widespread grumbling and outright denunciations I've heard that B.C. still has a long way to go. The exorbitant liquor prices, the lack of LDB discounts to restaurants, the miserly discounts to private stores, and the intimidating management all help promote a suspicion that privatization is the best alternative to the current system.

      Change hasn't come easily within the LDB. It is, in many ways, behind the times. It's as if the ghost of Prohibition still wanders the battlements of the old castle, warning the unwary about the dangers of Demon Rum.

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      Ali

      May 19, 2011 at 10:14am

      Here here. In New York, I have seen Canadian wine priced lower than what we pay here at home! Does that make any sense at all? The LDB could at least have the decency to buy us dinner first.

      Jackie Cooke

      May 19, 2011 at 11:58am

      After moving from BC to Alberta five years ago, I find it ridiculous that LDB supporters are still claiming that free enterprise hurts consumers, particularly in remote locations and further, that multi-national retailers already control these markets in this province. Costco, Walmart et al. have put a lot of mom and pop businesses (of all kinds)out of business. The reason independent wine retailers do so well in this market vs. the big box giants is..... get ready for it, "innovation, service and selection." If you want Yellowtail, go to Costco, if you don't, you shop for unique brands from boutique stores. Calgary for example, is constantly opening new independent stores, despite the power that Costco and Liquor Depot have in this province. I don't shop at any big box liquor retailers for alcohol and there are many thousands of others who don't either. So, the premise of the argument the LDB supporters are putting forward about lack of access to unique products and high prices in small towns is quite ridiculous. Innovation and entrepreneurship, especially in markets dominated by the multi-nationals can and have proven to be quite successful. The speculation that a privatized market wouldn't work in BC and the arguments against it sounds like...."well we don't think it will work, so there is no point in trying" kind of attitude that has always existed at the LDB.

      mike w

      May 19, 2011 at 12:24pm

      The LDB needs to be dismantled and liquor sales turned over to the free market.

      Dan in Van

      May 19, 2011 at 2:24pm

      Great article!

      I cannot believe that the supposedly "free enterprise" BC Liberals don't have the guts to bring the liquor laws into the 21st century. This government needs to focus on healthcare and education rather than distributing liquor and running retail outlets.

      The $300 million this government spends on running this antiquated system could be better used on social programs. I also suspect that the high cost of liquor in BC is partly responsible for driving consumers to non-taxed illegal substances.

      Chongo

      May 19, 2011 at 4:08pm

      This province is full of antiquated government run monopolies - ICBC anyone?

      Name Withheld

      May 19, 2011 at 5:24pm

      Wow, so many outdated ideals about the wonderful private system in Alberta. As someone who very recently moved back to BC, and regularly brought booze to Alberta from BC when on vacation, because it was either cheaper here or there was a greater selection (yes, goes against conventional thinking, doesn't it?) I can speak from experience. I'm not disputing that there are SOME items that are cheaper there, but those items are, in many cases, not the items that the masses are looking for. If there is a smuggling syndicate, then it may be for only the highest end of the high end goods. I found most liquor was on par (within a couple %), beer is generally cheaper in BC, and Wine was hit and miss. The majority of liquor stores in Alberta are owned by three companies, those that aren't have higher prices than those that are...kinda losing the idea of "privatization creates competition" aren't we? Here's another thing to think of, if you are a small producer (craft brewer, or winery say) and you are in BC, once you are listed with the LDB, you are basically in every liquor store in the province (maybe not physically on the shelf, but the capability to be is there). In Alberta, you get listed with their LDB (YES< they have an LDB too!), but now you have to visit every store to get the manager to stock your product....which is better?

      Name Withheld

      May 19, 2011 at 5:29pm

      @Jackie Cooke. Those new stores are simply new Co-ops or Liquor Depot stores (you'd be amazed how many 'independent' stores are actually owned by the Liquor Depot/Liquor Barn conglomerate). As for going to the specialty stores...yeah, great idea, drive from SE Calgary to the NW to buy a bottle of wine...I'll take BC's system any day, although the LDB needs to work on it's mark-ups, and could look at expanding it's listings....

      BK

      May 19, 2011 at 5:30pm

      Many thanks for an excellent article.
      The horrible taxes reaped by the provincial government must be eliminated. It is beyond embarrassing and the sooner the government sobers up the better. We are living in a dysfunctional paradise.

      May 19, 2011 at 11:18pm

      I'm curious where in North America wines are more expensive than BC and where in the world too? So far BC is number one in the world from my experiences.

      Dr Zen

      May 19, 2011 at 11:21pm

      Part of the rationale is for high liquor prices is to discourage excessive drinking which results in increased social costs. Why then is the markup based on price and not simply total volume of alcohol?

      If you're unfortunate enough to have a cultural background where good wine is a normal part of life, have some sense of smell and taste, and enjoy a half bottle of a halfway decent Rhone ($20+) with dinner you're going to pay a hell of a lot more in taxes than the gangsta wannabes guzzling Molson "cold shots" in the parking lot before hitting the club.

      But hey, at least the government has protected us from roving gangs of lawyers and wine connoisseurs wreaking havoc on the cowering masses of Vancouver.

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