INCREASING CHOICE AND FLEXIBILITY IN B.C.’S LIQUOR DISTRIBUTION SYSTEM (2023)

Issue

B.C.’s liquor distribution system has seen several positive reforms in recent years, but additional changes to the distribution system and its rules are warranted to create more flexibility for product delivery and format choice, and greater business opportunities for liquor retailers and manufacturers.

Background

The Liquor Distribution Branch (LDB) is a branch of government responsible for the wholesale distribution and retail sale of alcohol in B.C. The Liquor Distribution Act gives the LDB the sole right to purchase alcoholic beverages within B.C. and to import from outside the province, making it one of the largest purchasers of liquor in the world. Liquor retail licensees (private liquor stores, or ‘cold beer and wine’ stores) are required to order their product primarily through this government-controlled distribution network and are subject to myriad rules and regulations as part of this.

B.C.'s liquor distribution system has been a subject of debate for many years, with various stakeholders calling for changes to improve the system's flexibility and adaptability. The Greater Langley Chamber of Commerce believes that specific changes to the current regulations are necessary to promote growth and create new business opportunities for both private liquor retailers and manufacturers.

Loosening the "Tied House” Rules

A “tied house” is a liquor retailer or establishment that has an association (financial or otherwise) with a liquor manufacturer or its agent that is likely to lead to those products being favoured and promoted at that business. This includes instances where a liquor manufacturer has a financial or other association with other licensees, such as a retailer, bar, or restaurant, through an ownership stake themselves, through a third-party operator, or through an immediate family member.

Where a “tied house” relationship exists between a manufacturer and another licensee, there is a strict limit of three locations where the manufacturer may sell their products. For example, if a company owns both a brewery and liquor retail outlets, it can only sell its own brewery products in up to three of its own retail locations.

This rule, a holdover from decades ago , limits the distribution of products and prevents breweries and other manufacturers from reaching their full potential in terms of sales and growth. Given the expansion of breweries and the growth of the beer, wine, and cider market in B.C., this rule should be changed to allow breweries greater distribution of their own products to their own retail outlets. This change would create new business opportunities for breweries and increase consumer choice in the marketplace.

Allowing Direct Delivery For Ready-to-Drink (RTD) Manufacturers

B.C. is currently the largest market per capita for “ready-to-drink” products in Canada, driven by “spirit-based refreshment beverages” such as hard sodas and hard seltzers. Due to their popularity, these products are important offerings for private liquor retailers, and their uptake by the market has led to the establishment and growth of several B.C. distilleries and other liquor manufacturers.

Currently, commercial distilleries in B.C. are allowed to manufacture “spirit-based refreshment beverages” but are forbidden from making direct delivery to liquor retail outlets or hospitality licensees. Instead, all sales of these products are handled through the wholesale operations of the LDB. In addition to spirit-based products, similar restrictions exist for “wine-based refreshment beverages” produced by wineries, and “malt-based or sugar-based refreshment beverages” produced by breweries.

This rule is misaligned with existing models for other liquor products from breweries, cideries, wineries and even craft distilleries, which are permitted this level of direct delivery for their beer, cider, wine, and pure spirits.

This rule limits the access retailers have to these popular products by forcing all distribution through the LDB structure. Instead, the direct delivery rules should be changed to allow B.C. commercial distilleries to direct deliver spirit-based beverages to other liquor licensees, and expand the direct delivery allowed to breweries and wineries to include their own “ready to drink” products as well.

Not only would this change level the playing field for manufacturers and allow more distribution access for private retailers, it may incentivize non-B.C.-based ready-to-drink manufacturers to set up premises here so that they too could access this expanded distribution network, creating more jobs and opportunity in the process.

Allowing Retail Stores Greater Flexibility on Format Break Down

Currently, B.C. liquor distribution rules dictate that products ordered by retail outlets must be sold in the format they are provided in. For example, if a retail outlet orders a 6-pack of a product, it cannot break that 6-pack into single cans to sell at its establishment. Instead, it must order single cans separately from its order of other formats.

Allowing retail stores to break down larger formats into singles would allow for better sell-through and sales options for retailers to move products for which consumers may not want to purchase in quantities of 6, 12 or 24. For customers, this change would create more choice and selection, allowing consumers interested in single cans to purchase only the quantity they want and not be forced to purchase more. Finally, for government it would likely result in increased revenue as single can prices are typically higher, generating more tax revenue.

Enhancing Distribution and Delivery to Private Retail Outlets

Currently, the B.C. Liquor Distribution Branch limits deliveries to most licensees to once per week, granting an additional delivery day for licensees who consistently order higher volumes

However, for many retailers this limited delivery schedule poses several challenges: businesses may be forced to over-order to ensure they have stock between deliveries; if their ordered product is missed by the LDB shipper the business will have to go without that product until their next shipment; some retailers may be unable to physically store enough product safely if it is all delivered at once; and smaller retailers may struggle with financing larger orders that come less frequently as opposed to paying for more frequent, smaller orders.

Private liquor retail outlets should be provided with greater distribution and delivery options than they have currently by lowering the thresholds for additional deliveries, and allowing more licensees to access additional delivery dates This would allow retail licensees to receive more frequent deliveries, better serve their customers with a wider selection of products, accommodate limited space for storing additional product, and better manage stock and inventory to minimize waste/returns and increase sales. This change would make it easier for private retail outlets to operate, could increase their business opportunities, and would increase consumer choice in the marketplace.

Allowing Flexibility for Licensee-to-Licensee Sales

Liquor retail licensees are currently restricted from selling liquor to licensed establishments, such as restaurants or bars, or to other types of establishments that are authorized to sell liquor. These establishments are correspondingly forbidden through their own licensing to make purchases from retail licensees.

This rule unnecessarily limits the distribution options for hospitality businesses and removes an entire customer stream from the private retail sector. The existing rules already allow for hospitality businesses to procure some product outside of the LDB system through direct delivery of beer and wine from approved manufacturers and distributors, but there has been limited rationale provided as to why similar products cannot be procured from private liquor retail licensees.

Allowing greater flexibility for licensee-to-licensee sales would support both the hospitality and liquor retail sectors by broadening their options for distribution and access of these important products, and would provide valuable distribution redundancy in the case of any future LDB disruptions, such as was experienced during the 2022 job action by the B.C. Government Employees Union which ceased LDB wholesale and distribution operations.

THE CHAMBER RECOMMENDS

That the Provincial Government:

1. Amend the “tied house” rules to permit liquor manufacturers to distribute and sell their own product to other licensees with which they have a financial or business association.
2. Allow commercial distilleries in B.C. which manufacture “spirit-based refreshment beverages”, wineries which produce “wine-based refreshment beverages” and breweries which produce “malt-based or sugar-based refreshment beverages” to make direct delivery of their product to private liquor retail and hospitality licensees.
3. Allow liquor retailers the option, with corresponding record-keeping, of breaking down larger formats of product into single cans for sale.
4. Work with the Liquor Distribution Branch Wholesale Operations to provide enhanced delivery options, including more frequent deliveries for private retailers.
5. Work with industry to develop options for licensee-to-licensee sales between liquor retail licensees and licensed hospitality establishments for those products already allowed to be distributed directly by manufacturers.