I love Lagavulin 16. My father-in-law introduced me to the scotch several years ago, cementing my fascination with fine spirits. The Islay icon is my go-to dram if I’m not experimenting with other ryes, bourbons, and scotch whiskeys.
But the price tag stings. I have to pay $119 for a bottle in Quebec, far more than many other North American locales. Privately-owned Liquor Depot stores in Alberta and British Columbia sell the same product for $100. Across the border in Maine, I can get one at the grocery store for $US80 (around $CA105).
So why is a bottle of Lagavulin 20 percent more expensive in Quebec? It’s the same reason that many wines and most spirits are more expensive in La Belle Province than other jurisdictions. The price reflects a problem in how Quebec’s government-run alcohol corporation, the SAQ, is managed.
The SAQ doesn’t operate like a normal business — it functions like a bureaucracy. Despite being one of the world’s top liquor buyers, it doesn’t bargain for bulk deals. Instead, it puts out a request for proposals with a price floor. For example, it may tell producers something like “we are taking bids for a chardonnay that retails between $14.95 and 16.49.” It’s then up to wine agents to change their price accordingly. The selected wine might typically sell for $12 in a competitive market, and the producer would have sold it to the SAQ for less — but the government never asked. So Quebecers get stuck with the bill. Quebec isn’t alone: Canadian public monopolies pay anywhere from three to 77 percent more than other international importers for wine.
The SAQ does not exist to benefit consumers, as one might hope from a government agency that doesn’t need to please shareholders. If it did, it wouldn’t add an average markup of 135 percent to the price of a bottle. In a competitive setting, these outrageous markups would never happen. If they did, a company would go bankrupt. But for the SAQ, it’s a point of pride. Last year, they announced joyously that over $1.6 billion was added to the government’s coffers thanks to their operations.
Restaurants suffer, too. The SAQ offers the same prices to food services businesses in the food service industry as for the general public. In fact, restaurants are forced to pay the full price on bottles even when they’re on sale for everyone else. Restaurants naturally want (or need) to make a profit, so they add another markup and pass along the cost to consumers. A 2014 government report recommended that the SAQ give restaurateurs a ten per cent discount on alcohol — a fairly common practice elsewhere. This, they estimate, would bring an extra $50 million per year to the cutthroat industry. But the SAQ never followed the recommendation.
As a monopoly, the SAQ feels no pressure to cut down on costs as a way to increase profit. A new study by Montreal business school HEC shows that the SAQ has done nothing to increase efficiencies in the past 30 years. They don’t need to: any increase in cost just gets taken out of your pocket.
So, fine: the SAQ doesn’t exist to give Quebecers a break, but there could be other reasons for its existence. To provide a better selection? Maybe to promote consumption of local products? Or even to promote responsible drinking?
No, no, and no.
In terms of selection, the SAQ tries to keep a uniform inventory of products in each store — and the result is a lack of diversity, according to a recent study, Monopole Inc., by two economists and a wine professional. In the privatized beer market, if you can’t find what you like at the grocery store, chances are you can head to a nearby dépanneur and find a local micro-brew that’s more to your taste. But if your favourite wine or vodka isn’t at the SAQ, you’re out of options.
As for local products, they’re often not even available at the SAQ because the market uniformity requirement means that small producers can’t make enough booze to sell at every SAQ. LS Cream Liqueur, a Haitian product created by a Montrealer, wasn’t sold at the SAQ until the product won multiple awards abroad. Ditto for PUR Vodka, another Montreal company that couldn’t get on the government’s shelves until it was declared the world’s best vodka.
And how about responsible drinking, something the government might promote? Well, the SAQ spent $15 million in developing a loyalty points card so that they could track your purchases and micro-target customers in a way that encourages you to buy more. This is not the behaviour of an organization concerned with responsible drinking.
The concept of government-controlled liquor stores made sense in the aftermath of Prohibition, when puritanical views of alcohol prevailed. But society is more liberal than it used to be. And while the Commission des liqueurs used to hide their bottles and impose quotas on consumers, the SAQ today acts like any other retail business.
There is no reason for the state to be involved in the sale of alcohol any more than it should be involved in the sale of fruit, pens, or televisions. Even its staunchest defenders have difficulty justifying the status quo.
“If the SAQ didn’t exist, it would certainly not be a priority to create it,” wrote one researcher at IRIS, a pro-monopoly think tank. He went on to argue that it should be kept intact because of the money it brings in — forgetting that these margins arise from ripping people off.
December is a great month for the SAQ. Sales are up thanks to office parties, Christmas celebrations, and the New Year’s champagne binge. But next time you walk into their store and pick up a bottle, ask yourself: what is this really worth?
Tom Kott is a Montreal writer and public relations consultant. He is an avid liquor enthusiast and home brewer.
Original post HERE.