Ontario’s deal to get beer in corner stores serves up debate over costs

The Ontario government’s deal to accelerate the sale of beer in convenience stores and big-box outlets and to allow it in additional supermarkets will cost more than its announced $225-million price tag. But the added bill depends on how quickly the new system changes the province’s alcohol-retailing landscape.

Neither the government nor the quasi-monopoly brewery-owned Beer Store would predict just how much more the deal could cost. But it could be in the hundreds of millions.

Ever since Premier Doug Ford unveiled the deal in front of a prop shelf of microbrews at a gas station last month, debate has raged at Queen’s Park over its real price tag.

Liberal Leader Bonnie Crombie has claimed the actual cost of what she calls a “booze boondoggle” will be more than $1-billion. Finance Minister Peter Bethlenfalvy, whose responsibilities include the province’s alcohol regime, has dismissed Ms. Crombie’s estimates as “made-up numbers” that include hundreds of millions in extra fees a Liberal government would impose on businesses. But he has not provided his own cost estimates.

The plan will allow sales of beer, wine, cider and premixed drinks in corner stores starting Sept. 5. Big-box outlets and an unlimited number of additional supermarkets, some of which can already sell beer, wine and cider, can join in as of Oct. 31.

The deal’s disclosed price tag includes up to $225-million in payments to the Beer Store chain, which is controlled by the Canadian arms of multinational brewers Molson Coors and Anheuser-Busch InBev and has long enjoyed the exclusive right to sell 12-packs and 24-packs of beer in the province.

The cash is meant to cover the costs of keeping a minimum of 300 of the Beer Stores’ 422 locations open for the next year-and-a-half, partly because of the chain’s central role in the province’s alcoholic beverage container return system.

The existing 10-year agreement with the Beer Store was set to expire Dec. 31, 2025. But this new deal allows the government to fulfill a six-year-old stalled promise to allow beer in corner stores 16 months early, potentially in time for an early election.

Ms. Crombie’s billion-dollar projection of the deal’s cost does include more than $300-million in licence fees that she argues should be charged to retail giants who want to sell more booze, something the government has chosen not to do.

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But she also points to a fee rebate, promised to brewers, in the new agreement’s fine print.

The new deal includes a pledge to rebate some “in-store cost-of-service” fees back to brewing companies. The fees at issue apply to sales in the province’s 450 grocery stores currently allowed to stock beer. And these fees will, at least temporarily, be levied in all of the soon-to-be added new outlets.

The fee, charged by the Liquor Control Board of Ontario (LCBO), is $74.11 for every hectolitre (100 litres) of beer. An “in-store” fee of this kind, charged to producers and built into the price consumers pay at the till, is normally levied for handling products and stocking retail shelves in the LCBO’s own stores. Fees charged for those sales would be unaffected.

However, the LCBO was allowed to charge this same fee for sales in the limited number of grocery stores allowed to sell beer under the existing 10-year deal with the Beer Store, which was signed in 2015 by the previous Liberal government.

The provincially owned LCBO is the wholesaler for those existing grocery stores. It will also take on that role for all the new outlets as they come online – meaning it will rake in more of these cost-of-service fees for products that never touch its retail shelves.

The government does not intend to continue charging the fee in its current form when the new system is fully rolled out. In the meantime, it has agreed to rebate it to the brewers for all sales in grocery stores, convenience stores and big-box stores until the end of 2025.

Currently, the government says, the fee brings in about $45-million a year to the LCBO for beer plucked from grocery-store shelves, so finance officials expect to rebate about $67.5-million in fees from sales in those existing stores.

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But how much larger those rebates will get as new convenience stores and other outlets start to stock beer depends on how quickly sales shift away from the Beer Store and the LCBO’s retail operations over the next year and a half.

Ms. Crombie has pegged the rebate at $375-million. However, the entire retail sales volume at the Beer Store was 3.5 million hectolitres in 2022, according to its annual report. In the unlikely event that the equivalent of all those beer sales was to instantly migrate to new outlets starting in September, brewers would be paid about $345-million in rebates by the end of 2025.

If the drain from Beer Store and LCBO’s beer sales was to equal a quarter of the Beer Store’s total volume over the next year-and-a-half, the additional rebates would total about $85-million. Add in the existing rebates for current grocery-store sales and that’s more than $150-million in additional payments for brewers.

Speaking to reporters last week, Mr. Bethlenfalvy wouldn’t discuss the details of the rebates but pledged to provide updated numbers in the fall. He also denied that waiting until the existing Beer Store deal expired would have meant avoiding any of these bills.

“There was always going to be costs,” he said. “And you know, we’re not going to deal in hypotheticals. We made a commitment to the people. People want us to open up the market. And that’s what we’re doing.”