Friday, March 13, 2009

Un-markets in everything? Government beer edition

For those of you not resident to Canada, each province in Canada regulates the sale of alcohol differently. In New Brunswick, for example, there is a minimum price of $18.67 per 12 cans. However, many parts of New Brunswick are not a long drive from parts of Quebec, where beer can be found for as little as $12.50 per 12 cans.

This has led many thirsty New Brunswickers to drive a little bit more to secure suds at cheaper prices. Now, the government of New Brunswick doesn't like this one bit, because the only place you can buy beer in the province is at NB liquor stores - stores which managed to lose $12 million last year.

Yes, they have a monopoly on alcohol sales, and they still managed to lose money. That takes serious talent.

So, the solution to stop New Brunswickians from giving their money to Quebec convenience stores and government? The government starts to make its own line of beers to sell at the price floor. Duh. Note that competing beers have to apply to government to sell at the minimum price, and can only do so for a limited period of time.

So not only is the government spending the taxpayer dime to make beer (which the government contracts out to Moosehead), but it is forcing other beer makers out of business in the process. How does one possibly defend this policy?

UPDATE: From the government website promoting the new beers:

Why did ANBL choose to create and market its own beer instead of dropping the price of currently available beers?

ANBL has launched Selection Lager and Selection Light to provide New Brunswick consumers with an everyday low-price alternative in the domestic beer category. Our plans include the introduction of cooking and drinking recipes, because suggested use is the best way to grow volume. This way, we can effectively counteract the decline in the domestic beer market in New Brunswick. Simply lowering the price of existing brands would only result in a share battle.

POSTSCRIPT: Note that the government of Newfoundland manufactures Iceberg and Screech products through the Newfoundland and Labrador Liquor Corporation as well! I believe it is unique among Canadian provinces in this regard?

1 comment:

Anonymous said...

The beer business in New Brunswick is heavilly regulated and controlled. No big deal since this is really not much different than any other province.

Past history has clearly indicated that although the day to day beer business is run by NB Liquor, the overall strategy of the beer business is controlled by Moosehead breweries. It has been an unstated goal of NB Liquor to protect Moosehead from Bud, Labatt, Molson and anything elsse that might erode their market share.

So without knowing what we know now, at the time of the launch of Selection Beer, it was a very safe bet to say it was Moosehead's idea. It turned out to be true. There was no public tender for the Selection Beer contract, it was given directly to Moosehead.

NB Liquor has tried to "smokesreen" the raison d'etre of Selection beer...i.e low cost beer for New Brunswickers by New Brunswickers, everyday low cost for consumers...etc...

But essentially this is a very anti-competitive move by NB Liquor. The everyday low price of 18.67 per 12 pack can does not compete with Quebec prices at all so this will have no impact on "beer bleed" as NB Liquor CEO Dana Clendenning christined the purchase of beer in Quebec by New Brunswickers. What it does do is allow Moosehead to have a beer prominently displayed at the lowest price allowed in every corner of this province at no cost to them. In fact we, the taxpayers, pay them to make the beer so it can be sold back to us.

In case you don't know, prominent display locations in NB Liquor stores are very expensive to reserve, in the order of a few thousand per month according to the marketing policie available at www.anbl.com. So if Selection beer is prominently displayed for 12 months (it has been for 5 months straight since the launch in March) it would should cost around $40,000. Not much you say for big breweries...I agree. The real savings for Moosehead come in the fact that they do not have to pay for the discounting of Selection beer. Normally, breweries have to pay 100% of the cost of discounting below mainstream price. The mainstream price for beer in New Brunswick is $20.99 for 12 pack cans. In other words the cost to sell beer at $18.67 is $2.32 per case sold. Lets say, on average NB Liquor sells 200 cases per store per week for 12 months of Selection beer. There are 48 stores. This adds up to well over 1 million dollars. I have not included the 70+ agency stores in NB that would sell Selection beer as well. This sure would account for a few hundred thousand in discount costs.

If you take into account, display space cost, discounting cost and other marketing costs (NB Liquor has a Selection beer website), print adds etc..) New Brunswickers have lost out on a couple million dollars that would have otherwise been paid to NB Liquor.

The 2 million dollar opportunity cost of Selection beer will have an impact. It will result in price increases for wine and spirits.

If you are beginning to think that the consumer is really getting screwed here, you are on the right track. Don't forget to think about Pumphouse and Piccaroons. Their tax dollars are being used by a Crown Corporation to directly compete with them. Incredible but true.

CAVEAT: The numbers used above are estimates but I think very reasonable estimates. NB Liquor has so far refused to release any sales figures for Selection beer or how much they are paying Moosehead to make it.