A recent Liquor Distribution Branch announcement told us all of the impending sale of the LDB’s Distribution Centers to the private sector. Of course this has caused much speculation about motives and about potential suitors. I’ve seen a lot of misinformation, and misunderstanding about what is happening and what it might mean. I’m not a journalist, I’m a business man, but my business is craft beer, so I feel like I know a thing or two.
First, let me be very clear that the Liberals aren’t talking about privatizing the LDB! This is simply about selling the two distribution warehouses that are in Vancouver, and Kamploops – these two facilities are huge and they are the point from which most alcohol moves around the province. Under the proposed budget, the LDB stores, and the oversight of liquor sales in BC would still remain under the control of the LDB.
I am proponent of privatization in the strictest sense, for just about everything. The main reason I feel this way is that a government’s role shouldn’t be to run businesses. It should be to govern. Secondarily, should the industry in question be in the benefit of society (and thus be allowed to exist at all) the free market is the best way to deliver fair value to the people in the most efficient way possible.
I do however have a sense of cautious optimism, perhaps even just straight up scepticism, towards this announcement. While you’d be right to think privatization would be a great thing, I feel that the benefits of a free market I’ve listed above are only realized when the industry is wholly privatized. This particular change is simply about taking components of a bureaucratic, highly-regulated, and far-from-private industry and outsourcing one of those parts to a private operator. This is not privatization of the industry, it’s just outsourcing and it could jeopardize the growth and possibly even the sustainability of the Craft Beer industry, because all other stakeholders are effected by this and they will have no choice but to work with these new partners.
Frankly, most BC wine and beer lovers don’t understand what these warehouses are. And the average consumer is completely uninformed.
These warehouses are a critical part of a distribution network that is actually relatively good for consumer choice, though far from perfect. It is good because under our current system (which I remind you, is NOT about to change), they allow agents like myself (we are the ones that actually import and market most of the cool shit you drink) to economically sell beer, wine or spirits hundreds of kilometers away from major urban centers, such as in small towns like Prince George. Because every licensed establishment, be it a bar or LRS store orders significant amounts of product through the LDB, agents can simply leverage these economies of scale and load our products onto consolidated pallets with other products through the LDB’s centralized warehouses in Kamloops and Vancouver – the warehouses in question. The existence of these facilities makes it feasible for an LRS in Vernon to order one case of Belgian Lambic, for example. I might make $5 dollars on such a transaction. I can’t speak for all agents, but if I had to drive that case out there from Vancouver myself it would not be cost effective.
If these warehouses get bought up by some larger firm, let’s call them XYZ Company, then XYZ company will expect to make a profit, as they should. But what leeway will XYZ have to determine how this profit is made? Will they be required to follow the LDB’s current rules, and operate the same way the warehouses do today?
Currently, I pay $0.10 a litre to have my beers sent anywhere in the Province. That’s a flat fee that every Agent pays. But if that changed significantly, it would seriously hurt consumer choice by negatively affecting the revenue models of importers and thus limiting what product can be sold in private stores. Further, what if XYZ company determined that they only want to deal with product that came packaged in a certain standardized formats such as 24 x 355ml cans, or 341ml bottles? Would they have the right to say “no” to agents that import beer in 6 x 750ml bottles? Would they have the right to charge agents minimum fees for delivery?
Hopefully I am clearly illustrating a point. It is this: This sale should not conclude until all stakeholders have the opportunity to provide feedback into how this company will be required to operate. They cannot be allowed to operate as a truly private firm because they are not part of a truly private system, and it is a system which has many stakeholders without other recourse. If I’m forced to work with these guys, they should be forced to recognize my concerns.
On a more optimistic note, we can use this feedback process to provide the LDB with ideas for new rules. For example, perhaps we could allow for ‘rush delivery’ options for licensee’s, or enhanced, realtime reporting for agents. Currently it takes 7-10 days for a spec product to be delivered. Sometimes that’s fine, but in other cases the products may be desired immediately, but there is no possibility to make that happen. And agents cannot see who has ordered product when it happens. So while I will know that I’ve sold something, I have to wait until month end to find out where it has gone.
I see many people commenting that privatization is great or that we should be all for this. As I said in my second paragraph, I love that idea. But the reality is that the rest of the system is so bureaucratic and inflexible that should these warehouses be allowed to squeeze the little guys, then we will have no other recourse. We need to act now, while we have a voice and before any damage is done.
If the whole industry was privatized then I could care less about who owned the biggest distribution warehouses. If it didn’t make sense for me to work with them I would deliver my own products as I saw fit, to whomever and where ever it made sense. I would sell my products to Whole Foods, and Organic grocers that want to support niche market products with a focus on sustainability, flavour and uniqueness (The LDB does not). I would leverage boutique shelf space in local delis and corner stores whose owners want to do something different than the big chains. But I cannot do those things, even with these proposed changes. That Utopia is far, far away, but it’s what we should really be striving for.