Excerpt from the Official Report of


March 27, 2014

Response to Bill 15, the Liquor Control and Licensing Amendment Act

S. Simpson: I'm pleased to get up and respond to Bill 15, the Liquor Control and Licensing Amendment Act. As the minister has said, this bill was somewhat motivated by a piece of work that was done by the government, by the Parliamentary Secretary for Liquor Policy Reform, when they proceeded to do their review.

The secretary produced the report around the liquor policy review that, of course, brought some 73 recommendations forward. Of those, as the minister has said, a handful — maybe about 15 or so — get dealt with in some fashion by this legislation. The rest will presumably be addressed at some time in the future, as the government has indicated its support for all 73 of the recommendations in this report, though it's not entirely clear how some of them are going to play out.

The situation we have here is that we have a piece of legislation that's pretty much enabling legislation. It's quite interesting. The key pieces that have generated most public discussion around this bill actually aren't covered by the bill in many ways. They'll be covered at some future time. Those pieces include liquor in grocery stores, issues around pricing and issues around the sale of licences and the potential sale of licences. We'll talk about those a little bit as we proceed here.

The one piece that is covered here a little bit, I think, is happy hour, and I'm sure that there will be lots of people who are interested in that particular aspect.

The interesting thing is that if we look at the report that motivated this initiative, the report that was authored by the parliamentary secretary and provided to the minister, it does lay out these 73 recommendations. Many of them are common sense. I think most people just say that it's about time that those things change. They're small items, and we'll talk a little bit about some of those, but they're important items for people in the industry.

Those changes have been made. But some of the bigger items, the ones that have got a lot more attention…. Probably the most telling thing about the report that was done was that there really was no analysis for these changes. The changes largely…. The parliamentary secretary and the minister have both spoken about this.

There were a number of people, significant numbers of people, who went to the website or who responded to the parliamentary secretary's blog. At one point I recall the secretary saying to the media that about 800 people had responded, saying they wanted to be able to buy liquor in grocery stores, and that had motivated a recommendation around liquor in grocery stores, which is fair enough.

However, the problem, of course, is that there are significant economic and financial questions about doing this. There are significant questions about the impact on the private liquor industry and how they will be affected. I suspect that's somewhat reflected in the fact that most of the people in the private liquor industry have been less than enthusiastic about this particular change and about whether it makes sense to take what is largely a small- to medium-sized business sector, the liquor store business, and look at potentially turning that over to the corporate food retailers.

While we're not exactly sure what constitutes a grocery store for the purposes of these future changes, these projected changes, it's a pretty safe bet that it will involve the larger players, whether it be the Overwaitea group, the Thriftys, the Safeways. Those people of that scale is where we are going to find these. They're going to be the people, if anybody, who are going to advance and want to put liquor in these stores — and, potentially, at the risk of some of the smaller operators.

It hasn't been totally sorted out how this is going to work, so I think that there are some questions. I think the minister would know this. One of the things that the people in the private sector have said to me is that it's created problems for them doing business today. The problem it's created, in some cases, is that in the case of some of these operators who are looking either at improvements to their stores or some form of expansion or changes in their stores, they have had challenges when they go to talk to their lenders, their financial institutions, about getting the money to make those changes.

The challenges they've faced is that the bankers — the banks, the financiers, the lenders — have said: "Look, we are simply uncertain about what these changes might mean for your industry. Consequently, we're uncertain about how to value your asset, because we don't know whether these changes will affect the valuation of your asset. If that happens, we may look at how we lend you money in a different way."

I've been approached by some of those people, saying: "Look, this is a problem, because the uncertainty that it's creating creates challenges for me as a business person in terms of how I proceed with this business model." That's the challenge with the report that was written. It did no analysis of this. There was no economic analysis in the review that said: "Here's what potentially happens in this sector." That's a problem.

We also saw, of course, and we have heard from organizations and groups — like Mothers Against Drunk Driving, like some of the addiction experts — who have said that they have significant questions and that they haven't felt that those questions have been answered in the review, nor are they seeing any answers in the legislation. Maybe we'll get an opportunity from the minister in committee stage to flesh some of those issues out and get some answers to that, but they've raised those concerns.

Part of the challenge, I think, around Bill 15, around this particular piece of legislation, is that for many people in the sector, it probably raises more questions than it answers, this piece of legislation. When you look at the schedule that the government has talked about, heading out into 2015, late into 2015, in order to implement a number of the changes that are envisioned here and have been talked about on the broader liquor review….

As the minister says, and officials in the ministry have told me, there will be, a year from now, another piece of legislation — I think the minister said a major rewrite of the act in its entirety — so we're going to see what that looks like at that time.

Presumably, at that time we're going to get a sense of what those changes might look like. This particular piece of legislation is pretty minimal in some ways in terms of what it accomplishes and what it does. The problem, though, is that the issues it engages are very real and very substantive issues for people in the sector and for people who are concerned about this. I want to talk a little bit about those issues that jump most to mind.

There's the discussion about putting VQA products in Safeways with a licence or a permit that is unique to them, and that's not a bad idea. I think that most people would say: "Well, if we can get VQA wines and some craft beers in and promote the B.C. product, that would be a good thing to do." I know, at least at this point…. We'll see whether the minister is able to provide us some advice on this when we get to committee stage.

I can imagine that with the trade agreements that are in place, it will take about a minute for the Washington State or the California industries to say: "Wait a minute. We want this product on these shelves too."

It's one thing to go and put local B.C. products in a farmers market on a Sunday afternoon. It's quite another matter to have shelf space in a Thrifty Foods or a Save-On-Foods where you're selling product. I think it's a pretty safe bet that those people in other jurisdictions where we have trade agreements are going to look at this and say: "How is it okay that those products are there, yet my products can't be on the shelf as well?" How do we deal with that?

We haven't received any answers or any response from the government on this and, as I understand, neither have others who have inquired of the government as to how to deal with that matter.

We also know that we've now heard that we have the cap on the 670 licences for private stores. Yet we're now hearing that agency stores, which are under the LDB act, are going to be issued licences under, in fact, that liquor control and licensing rather than under the LDB act — so that's 220-odd agency stores.

Then the question becomes, since we now know that you're going to be able to sell these licences and move them around the province, that the five-kilometre rule will no longer exist. For people who might be paying attention, the current rules say that if you buy a liquor licence, a licence for a liquor store, you can't move it more than five kilometres from its current location.

What happened in that instance, of course, is that people actually bought liquor stores. They bought the store. They bought the facility, and in most cases, with a few exceptions, they stayed where they were, and they operated their new business where it was located. The value was the asset — included the bricks and mortar in the store.

Now, of course, the asset is the piece of paper — much more. I can go to Quesnel and buy a licence and bring it to the Lower Mainland and open a liquor store in the Lower Mainland, as long as I'm a kilometre away from any other store in the area. That creates a problem, and we'll talk a bit about that.

You have this situation now where these licences are incredibly valuable. The potential for people to pick those licences up and want to relocate them out of communities and into other areas that are higher population and, potentially, better revenue-generating communities for a liquor store is significant.

While the government talks about the importance of convenience — that being part of the argument for the grocery store model — the reality we have is that you may create a situation where people who currently have liquor outlets may lose them. There may be less outlets in any given town or jurisdiction if there was a reason to relocate those because of the value of the licence. We may see that happen. That's a problem, and I think that's a significant problem. It could make some people who get to sell those pretty wealthy, but it's a significant problem.

As I said, we've got these agency stores, which are licensed under a different piece of legislation at this point, and agency stores or stores where you have communities that don't have other liquor stores, don't have other availability and access. These agency stores are given the special licence to be able to sell some product, liquor, in order to ensure some accessibility to liquor for people. You've got 220-odd of those agency stores. Now they're going to get a new licence, which will license them under the same piece of legislation as the current 670 permitted liquor stores.

Then the question becomes: if they have those licences, are they going to be able to sell those licences in the same way that a liquor store can sell its licence? Are they going to be able to sell those agency store licences and move them? Are they going to be under the same rules as this new set of rules for the 670 licensed liquor stores today which will be able to sell their licences and have them relocated?

Well, we don't know that, and maybe the minister will be able to enlighten us about that when the time comes on that issue.

Liquor in grocery stores. This is interesting. It's not entirely clear, other than for the 800 people or so who are on the blog, what exactly gets accomplished by putting liquor in grocery stores. Convenience, maybe. In most cases, though…. We certainly saw this in the research that was done by the Vancouver Sun. They looked at major food stores in the Vancouver area and found that out of 53, I think only two of them today could open a liquor store or a store within a store under the current rules because everybody else has a liquor store within a kilometre or less from their spot.

The reality is, and it should be no surprise to anybody, what the people who've opened private liquor stores, primarily — and some government liquor stores — have done is they locate near food stores because it's good for business. It makes sense in terms of them wanting to capture the market, because they know full well, as we've heard before, that somebody goes and buys their groceries, and they walk across the mall or the parking lot and go to the liquor store and buy their bottle of wine or their case of beer or their other beverage of choice. That's what they do. The convenience is real, and it's there.

We also know that in most cases those stores are significant. One of the things that's happened, and I think it's a positive in this industry, is you've seen some significant investment in private stores. What you have are stores that are physically quite nice. They're well-lit. They're well-stocked. They have specialty products. They have more commercial products. All of that's there.

These are significant stores in terms of what they carry, how they're supplied and how they're operated — very similar, many times, to a government store, when you look at them. I've gone into private stores and would be hard-pressed to tell the difference between some private stores and some government stores in terms of what they offer.

Part of the reason for doing this, of course, is they are significant. They're 3,000- or 4,000- or 5,000-square-foot facilities, and the significance, the size of them, allows for all of that variety, allows for all of that selection. What we know about the notion of the store within a store is that's not going to happen.

You go into…. Anybody, and I'm sure that the members of the House who have all gone shopping and been in Safeways…. We all know the major food chains and the major food stores have got a lot of product there, too, and they don't have a whole lot of space. If they're existing stores, they're going to have to remove something in order to create the space necessary to be able to put in the store within a store. Maybe they can carve out 1,000 square feet — maybe less than 1,000 square feet.

The question becomes: are you better off, in terms of that convenience, having 800 or 1,000 square feet of liquor store inside your Save-On-Foods, or are you better off walking 150 metres through the mall to get at the 5,000-square-foot store with all of the selection that it would provide? I think that's an important question.

Also, when you talk about convenience, and we'll have to see when the regulations get written…. The notion of a store within a store, with separate cashiering and teller services versus the tellers where you would check out food — is there a convenience there, when you have to line up at one teller in order to pay for your bottle of wine and then you go over and line up at the next teller to pay for your groceries? I'm not sure about the convenience there.

The other thing with this is that I think that there are a lot of people who looked at this and said: "I've been to California, and I've gone to this local store in California and been able to buy my product at Costco" — or wherever — "and they had a great selection. They also a very good price. They had a better price than the other liquor stores. They were able to better price because of volume." Well, I have heard no suggestion from anybody, including the minister or the parliamentary secretary or anybody else, that prices will necessarily be any lower in these food stores.

Obviously, at the end of the day, they will make their own decisions, but the reality is that the markups are pretty firm. I just don't see how the prices get a whole lot better in a Save-On-Foods, where you pick up your bottle of wine or your case of beer, than in your private liquor store. There is nothing to indicate that the prices will be any better. I suspect that's one of the things that people who, in fact, were looking at the possibilities around these private liquor store options were hoping for.

The other piece that we're seeing here, of course, is the question also around the single price. This is interesting. I recall the parliamentary secretary, back when he was in the middle of his work and doing this, being asked about pricing issues and saying at that time that it was not part of his mandate to deal with questions of pricing. That would be dealt with at some other place or time. It wasn't part of his mandate in the work that he did in producing his report.

Yet, interestingly, the piece that jumps out is the decision around the single wholesale price. So that people know — some suggest it's quite complicated — we have a current pricing system where private stores are priced…. They receive a discount, and that discount is there to allow them to cover overhead and to create some profit for themselves. They are discounted off the price that's in government stores.

The suggestion now is that we will go to some form of single price. When I talk to folks in the private stores, they are mixed about this. Some like that idea; some are less keen about it. They don't have a sense of where that price is going to land. Is it going to land around where their pricing is today? Will the price in government stores be adjusted? Or are the prices going to move up? And how is that going to work?

What we know, of course, is that government revenue is a significant issue here. We know the government gets significant revenue. I mean, it probably puts about $1 billion a year, in that range, into revenues to help pay for other services. So it's a significant amount of money.

We've seen no analysis here — first of all, how this change in wholesale pricing might or might not work, and what it might do to revenue streams. We don't know that, and that's got to be a significant question. Where do you move the pricing? Do you move it in the private stores or in the government stores to create this level price? And how does that make sense? You have these issues where there just seems to be a whole lot more questions than there are answers in terms of how those matters will be dealt with.

You have a situation today where we have a system, in terms of liquor distribution, that works pretty effectively, and the opportunity for retail. We have about 1,400 outlets in the province where you can purchase liquor — 200 government and about 1,200 on the private side.

The system works pretty well. The revenue steam to government is pretty successful. The distribution system is very cost-effective in distribution, mostly because the money gets made in the markup. So you're not taking it out of distribution, trying to make your money out of distribution; you're making it out of markup on product. It allows distribution to be done very efficiently and very cost-effectively.

If you talk to people in the private sector…. Members will recall back a year or two ago that the government was envisioning the notion of privatizing liquor distribution. The discussion that was ongoing then was around privatization of distribution. Of course, at that time many of the private operators — brewers, those folks — were saying, "This is crazy to do this," because they looked at the Alberta model, where private distribution is in place and the industry's privatized, pretty much in its entirety.

They looked at what it cost them to move product in Alberta versus moving product in B.C., and it was much more cost-effective in British Columbia for brewers, for people who are in the industry. They didn't want the changes because it was going to increase their costs, which they would, of course, at some point have to pass on to consumers.

We have a very effective distribution system today, and it's not at all clear whether that will change. I think maybe this will come in next year's legislation when we see what's there. We know the government has mused about creating a Crown corporation to run the liquor industry or the liquor business for the province. That might make sense, I guess. As with most Crown corporations, the devil is in the details, and it will depend on what those details tell us.

We know that they're looking at selling current warehouse space around liquor distribution. I know that it's in my constituency, the current facility. It is an old facility, and it might make perfect sense to go and have a purpose-built facility somewhere else that's more effective and more efficient. But we don't know where this is going.

Consultants have been hired who have previously worked pretty closely for people who have been the strongest advocates of privatization, and those consultants are now advising government around distribution options. The door is clearly still open for them to provide advice that would suggest a different model, not just a different location. We'll have to see what happens with that when that discussion comes forward.

You have a situation currently where we have a report, produced by the parliamentary secretary, which is a shopping list of recommendations. You have a piece of legislation that's been brought forward that doesn't deal with most of them. It deals with things — and the minister talked a little bit earlier — but it essentially provides some ability for agency store licences and duty-free store licences now to be established with these different licences.

We're not exactly sure what that's going to mean in terms of what you can do with those licences. It allows breweries and wineries and distilleries to sell and serve different types of liquor in different fashions and will allow private liquor stores to keep liquor off site. It makes sense.

It allows for liquor licences transferred, the transferee being able to use the licence while the LDB is completing its due diligence — a good thing to do. If somebody takes over a business, they should be able to run it while the agency does its due diligence to make sure that in fact they're somebody who we want to have a licence. It makes perfect sense.

It provides some additional training programs; allows for that. It allows for some changes structurally around the LDB, promotion of educational materials and, potentially, happy hour — which may be the thing that will be on most people's minds when it comes to this.

What it doesn't do is answer the questions on these big issues about what we're going to do with liquor moving forward. It doesn't answer questions about what the government's intentions are around current government stores and whether there's any view on that.

Now, we know that there are collective agreement issues. I believe the current collective agreement with the B.C. Government and Service Employees Union in fact identifies the number of government stores that need to remain in place for the next number of years. I believe that's a collective bargaining issue.

I'll note for the hon. Speaker that I am the designated speaker here.

You have some ability to…. You have some limits on what can be done in the short term. That doesn't mean that plans can't be made going forward to make some further changes around those issues.

You have questions that get raised again around impacts on revenue. And what we know — just to note for people who may be following the debate — is that in fact the returns from the government stores are significantly better in terms of return to the public purse than in the private stores. The private stores do great business, and they work hard, and I have no complaints. But we get the better part of our return out of the government stores.

It's important to know that that is the case. So any suggestion that starts to change that model between government and private stores or changes the model in any significant way by adding another player in — in this case maybe the corporate food retailers, the big chains — is going to change the funding model or going to change the revenue stream model, potentially, that comes to government. That is a serious issue for folks involved in the delivery of services.

When we look at some of these issues, you have to ask yourself whether the government is going to have to make changes to this legislation. The one-kilometre rule…. What that rule says, for those who might not know, is that you can't have a liquor store within a kilometre of an existing store. As I have noted before, the Vancouver Sun did some assessment — I think it was the Vancouver Sun — of what happens in the city of Vancouver and how almost no food store could take advantage of a licence currently unless they were able to buy out and advance an existing licence at some point.

The challenge there, of course, is: how is this going to work? Are they going to look to buy those licences out? Are they simply just not going to engage in this? We haven't heard, really, from the food industry, the retailers, very much about how they feel about this. What we do know, my understanding, is that they didn't ask for this, that they weren't making the requests for this opportunity. Clearly, if it comes, they'll take advantage of it, particularly if their competitors are taking advantage of it.

As we get to the committee stage here of this legislation, we're going to be looking for the minister to be able to answer some pretty specific questions about how these models are going to work moving forward and about the rationale around single pricing, wholesale pricing. How will the permitting and licence sales be operated so that it works? What are the projections for takeup in terms of potentially shifting a significant amount of this business into the food retail operations?

What might a store within a store look like, and what is the thinking around how that will function? Who will be eligible, and who won't be eligible? How, with the new licensing model, will there be assurances that smaller communities and outlying communities won't, in fact, lose their current stores to people who want to purchase those licences up and relocate them to places that create better revenue opportunities? And when that occurs, what happens to that community where the licence exited the community, and how do they still continue to get the services that they will want?

We'll be looking…. There have been questions, as I said, that have been raised by people in the private sector who are concerned about this, who are owners of private stores and others who are quite concerned about the model. We'll be asking some of their questions to see if we can determine answers that will help them to better understand what is and isn't occurring here. Folks around Mothers Against Drunk Driving and others have raised concerns about broadening out these sales, have raised concerns about how happy hour will be managed. We'll be looking for answers there.

We'll be looking to get a better sense of how the government is consulting with local governments. Obviously, any time you're dealing with liquor and the sale of liquor, it sometimes creates, at a very minimum, responsibilities for local governments around policing, around other issues of potential noise and disturbance that can sometimes come with liquor. What consultation has been done there about what the expectations are about how local governments will be able to manage or control the decisions that are made around where outlets will and can be located, including authority they have now, and will any of that change as we move forward?

I suspect a lot of what we'll talk about will be things that will be almost foreshadowing maybe next year's legislation as much as what is in this legislation.

Part of the reason for needing to get at these questions is because this is a piece of legislation that's very similar to many things that the current government puts in place. It's what is called enabling legislation. It tends to create frameworks that answer few questions but allow for change to be done through regulation.

Change through regulation is change that can be done behind closed doors. It can be done without any discussion in this chamber at all. It can be done in ways that at some point you read about it in the B.C. Gazette down the road somewhere, that the changes have been made and that this is what the regulatory regime will be.

That's a bit problematic with areas like this, because there does need to be a public discussion. The public discussion has to be one that's more engaged, with all due respect to the parliamentary secretary, than the parliamentary secretary in fact engaged in. It needs to be a place where there can be more back-and-forth and more discussion. What we certainly know from talking to people in the private sector is they continue to not have answers to many of their questions and concerns about how this will unfold. We're going to try to get a few of those answers anyways when we get to committee stage of this.

As I said, this particular piece of legislation is pretty modest in many ways in terms of what it looks to accomplish. Some of it's pretty benign, and some of it's just common sense. There may be some pieces that we'll have to look at more closely as we move forward, but this is only the beginning of a much bigger debate about liquor policy in this province.

This legislation is only the beginning of that much bigger debate about liquor policy, and I'm sure that debate will continue well into next year. Since many of these changes are anticipated well into next year, in 2015, we'll be talking about it for some time to come.

I look forward to the comments of others who, I'm sure, will be getting to their feet here in moments to add their contribution to the debate, and I look forward to getting to committee stage in the coming days or weeks, where we can try to get to some of the more substantive pieces of this legislation. Where, as many have said, it's raised more questions than it's answered, we'll see if we can get some answers to those questions as we move forward.


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