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10.03.2012  
 

Liquor Privatization Nixed, Again

Attempt to remove B.C. government from distribution model

 
by Peter Mitham
 
 
british columbia b.c. liquor distribution
 
Wine trade lawyer Mark Hicken of Vintage Law Group said he hopes British Columbia makes improvements in light of its canceled liquor privatization deal.
Vancouver, British Columbia—A bid to privatize liquor distribution services in British Columbia has been nixed, ensuring the Canadian province remains in the liquor wholesaling business for the foreseeable future.

British Columbia premier Christy Clark, who has made much of her government’s commitment to free enterprise, announced last week that privatization of liquor distribution in the province would not go ahead. The decision is part of a tentative agreement between the government and the B.C. Government Employees Union, which represents 25,000 government employees.

The union, for its part, said in a news release: “Both sides agree the move was needed to get the deal done.”

The failed plan
Plans for privatizing distribution and selling off the province’s liquor warehouses were announced in February as part of the province’s annual budget. The scheme was intended to raise funds for government coffers through a liquidation of “surplus assets.”

A shortlist of four bidders was announced in July, with interested parties being Container World Forwarding Services Inc., Exel Canada Ltd., Metro Supply Chain Group Inc. and Kuehne + Nagel. Exel, which oversees liquor distribution in Alberta, was widely considered the front-runner. A decision was expected this month.

What wasn’t expected was the deal’s cancellation, which also throws in doubt a broader range of reforms to the province’s liquor distribution system. (Concurrent with the asset sale, the budget announcement included a pledge to review the province’s liquor regulations.)

Some of the possible changes were discussed at a wine law conference in Vancouver shortly after the budget announcement (see “British Columbia Wineries Await Answers.”)

Vancouver lawyer Mark Hicken of the Vintage Law Group, which focuses on wine trade law, told the February seminar that a revamping of liquor distribution would prompt the province to introduce genuine wholesale pricing. Current practice grants private vendors a discount (now between 10% and 30%) from the price at which the product sells in government liquor stores. B.C. wineries also receive a rebate to ensure that what they receive from sales in government stores is equivalent to what they’re paid selling through stores operating under licenses held by the B.C. Wine Institute.

“To have consistent wholesale pricing for the different classes of retail stores and for restaurants, bars and hotels...would be an amazing boost for the hospitality and tourism industry,” Hicken told Wines & Vines at the time. “It would be an amazing benefit for consumers, because we’d actually have proper competitive pricing in the system.”

Contacted today, Hicken told Wines & Vines that the province still has the opportunity to make improvements even if privatization has been taken off the table for the foreseeable future.

“I hope that—seeing as they’ve abandoned the privatization initiative—they will focus on making some improvements to the existing system,” he said.

Suggested improvements
Streamlining the mark-up system would be a first priority, Hicken said. The province has an opportunity to revise its markup process when its sales tax structure changes April 1, 2013, but Hicken isn’t optimistic this will happen.

“There’s an opportunity there to have a look at the wholesale pricing structure at the same time, but I can’t say I’m optimistic they’re going to do that,” he said. “It’s a bit of a house-of-cards situation, where you start fiddling with one thing and it has effects throughout the system.”

This would upset the status quo.

“I’m not optimistic they’ll do that,” Hicken said. “But sooner or later you have to address that problem.”

Hicken added that improving delivery times, which can take up to two weeks for specialty items, allowing mixed cases and off-site storage for licensees are other areas for action that wouldn’t affect revenues.

“There are a lot of things in the system they could fix,” he said.

The decision to nix privatization is the second time in the past decade that a liquor-privatization bid in the province has failed. Washington state has long had private liquor distribution, while Alberta, which neighbors B.C. to the east, adopted private liquor distribution in 1993.

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