Some alcohol prices in Ontario could rise in the new year as some changes take effect in the alcohol market.
The changes follow Premier Doug Ford's plans to expand and modernize the province's alcohol distribution system, with beer, wine and coolers now sold in convenience stores, the footprint of The Beer Store sharply reduced and an empty container change system introduced.
When the expansion was announced last year, the government said all retailers would receive a 10 percent bulk retail discount. LCBO This spring, the government temporarily increased that discount to 15 percent for bars, restaurants and convenience stores, citing a need to protect them from the impact of U.S. tariffs.
That period expires on Dec. 31, and some of these businesses say that could mean they will have to pass on price increases to their customers.
According to Kelly Higginson, president and CEO of Restaurants Canada, restaurants already operate on low profit margins, with 41 per cent unprofitable. It's reasonable to assume that at least some of them will give up higher alcohol prices from January 1 due to the reduced discount.
“We've also seen double-digit inflation pressures in food, insurance, commercial rent, you name it, they've increased,” she said in an interview.
“We haven't raised menu prices as much as our production costs have increased, but we will have to raise alcohol prices. We won't have a choice because we can't keep raising food prices.”
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Anne Kotawala, president and CEO of the Convenience Industry Council of Canada, also said some corner stores may have to increase their alcohol prices. But what they and many others in the alcohol market are perhaps more concerned about is the looming new cost structure.
The LCBO becomes the exclusive wholesaler and sets a new formula that adds taxes, surcharges and fees to the supplier's set price, which some fear will lead to excessive price increases for some retailers.
In the fall, major retail associations asked Finance Minister Peter Bethlenfalvy to delay the proposed new pricing model from its planned implementation date of January 1.
“As we review the proposed LCBO pricing model, significant discrepancies have emerged between the projected impacts of the LCBO and industry estimates of how much prices will increase for retail and hotel customers,” said the letter, signed by the Convenience Industry Council, Restaurants Canada, Beer Canada, Drinks Ontario, Spirits Canada and the Restaurant, Hotel and Motel Association of Ontario.
The government “listened to stakeholder feedback” and delayed implementation of the new pricing system until April, a spokesman wrote in a statement.
Some in the industry hope the LCBO will make changes to the formula before then.
“We continue to work with the government on our concerns about the proposed pricing structure to ensure that any changes reflect the unique nature of our industry and support prices for consumers,” Kothawala wrote in a statement.
Another factor that could increase prices for consumers is the shift to alcohol processing.
Under the expansion announced last year, all grocery stores that sell alcohol were required to accept empty items on Jan. 1, but they resisted this and recently reached an agreement to avoid this, with The Beer Store given ongoing responsibility for the deposit return program.
Consumers will continue to exchange empties for their deposits at beer stores, and grocers will foot the bill. They may well pass on some or all of the costs of this system to consumers by raising prices.
Grocers are pleased that bars, restaurants and convenience stores will now receive a 10 per cent volume discount instead of 15 per cent because it “levels the playing field,” said Gary Sands, senior vice-president of public policy and advocacy at the Canadian Federation of Independent Grocers.
Grocery stores did not receive the temporary increase to 15 percent and were unhappy that they had to incur additional processing costs (convenience stores were exempt from this obligation) and receive a smaller discount.
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