Today is an important media day for anyone who, like me, hates the Liquor Control Board of Ontario (LCBO).
There are two reasons.
First, the National Post ran a column today on its op-ed page by journalist and consumer affairs writer David Menzies that is the best succinct analysis I’ve ever read of what’s wrong with the money-losing (you read that correctly!) crown agency. Menzies’ conclusions fit with some of my own research, and fill the dismal overall story beyond the more narrow packaging waste issue that we look at in our magazine and website. In my editorial in the forthcoming February/March edition I offer readers some insights into cynical strategies the LCBO is using to avoid recycling fees and a deposit-refund system for used beverage containers.
The second reason is that I’m told there will be a rather sensational segment tonight on Global Television’s Six O’Clock News program. Global TV advertised what it claimed will be revelations of a major piece of LCBO financial mismanagement throughout the SuperBowl on Sunday, apparently at every commercial break! (I have to confess I wasn’t watching the game.) I’m told there was even a two-minute long teaser at the half! Apparently they have a fired LCBO accountant who has blown the whistle and claims millions of dollars have been squandered. So tune in tonight and watch, and then check back here for commentary tomorrow.
Now, here’s Menzies’ wonderful piece. Way to go, Dave!
The truth about Ontario’s booze baron
Monday, February 06, 2006
After 15 years as chairman and CEO of the Liquor Control Board of Ontario, Andy Brandt is stepping down. Not surprisingly, a recent press release emanating out of the LCBO’s bloated PR department heaps copious quantities of praise upon the former accordion teacher. Example: “Proof that Andy and the organization has succeeded is clear: record annual sales, record dividends, high customer satisfaction ratings and knowledgeable employees committed to service excellence, all of which is conducted in a socially responsible manner.”
The release goes on to hail Mr. Brandt’s supposed customer service initiatives, including the decision to allow LCBO customers to obtain Air Miles.
Alas, much like the LCBO’s gleaming, multimillion dollar liquor stores, Mr. Brandt’s record behind the helm of Booze Inc. appears impressive at first blush. Dig a little deeper, though, and a vastly different picture emerges.
For starters, let’s analyze those “record annual sales and dividends.” Take away the tax component of the LCBO’s annual sales (which the LCBO classifies as “revenue”) and the corporation actually loses money. For example: In fiscal 2002-’03, the LCBO claimed “net income” of $939-million on sales of $3.1-billion. But after paying the $975-million tax, the LCBO actually lost $35-million, forcing it to dip into retained earnings.
How is it possible for a state-sanctioned booze monopoly to lose money? Actually, it’s not that hard when capital and operating costs soar through the roof thanks to the LCBO spending money like a drunken sailor on its opulent retail stores (the unspoken strategy is to torpedo privatization by creating a network of stranded assets).
As for the LCBO championing its “high customer satisfaction ratings and knowledgeable employees,” this, too, is a crock. The LCBO’s employees are unionized (making far more per hour than just about any other retail staffer.) They also enjoy the fact that there is precious little competition. That’s why a rank-and-file LCBO clerk doesn’t care if you’re unable to find a certain brand of Scotch or bottle of vodka. After all, what’s a dissed consumer to do? Drive to Buffalo?
Perhaps the most outrageous claim is that the LCBO operates in “a socially responsible manner.” Social responsibility is the chestnut the LCBO trots out to justify its very existence. It works like this: Alcohol is a potentially addictive and even dangerous substance; therefore, the province can’t possibly entrust the sale of booze to private-sector entrepreneurs (we’ll overlook the fact that an even more potentially addictive and dangerous substance, tobacco, can be obtained at the local variety store.)
Still, in recent years, the LCBO has immersed itself in a Catch-22 of its own making. “Social responsibility” boils down to preaching moderation via the occasional “don’t drink and drive” TV or billboard advertisement. Yet, the lion’s share of the board’s marketing budget goes toward promoting consumption (the liquor board even runs contests giving away vacations and home theatre systems.) By simultaneously discouraging and promoting consumption, the LCBO is essentially sucking and blowing at the same time.
As well, Mr. Brandt made many enemies in the domestic wine patch during his tenure. According to the Wine Council of Ontario, domestic vintages take a back seat to imports at LCBO stores. While Ontario varietals can account for up to 30% of total LCBO wine sales in any given year, many LCBO stores give Ontario wines as little as 14% of shelf space. The unspoken strategy is that the LCBO actually perceives Ontario wineries as a competitive threat given the existence of their on-site wine stores.
Aside from being shameful, this strategy of favouring foreign vintages is economically perverse. According to a 2002 KPMG report, the sale of a bottle of Ontario wine adds about $4 of non-tax income to the provincial economy; the sale of a bottle of foreign wine adds less than 50 cents to the economy.
Last but not least, there is the behaviour of Mr. Brandt himself. In 2004, this newspaper revealed that Mr. Brandt was receiving a secret $2,100-a-month living allowance from the board to maintain a Toronto condominium (dating back to 1991). As well, it was revealed that Mr. Brandt was being provided with a luxury car. But Mr. Brandt chose not to reveal these perks as mandated under the Public Sector Disclosure Act. Nor did he claim these plums as taxable benefits as required by the Income Tax Act.
Interestingly, Mr. Brandt was not reprimanded for his double-dipping. All of which was quite odd given that news of Mr. Brandt’s allowance came on the heels of Glen Wright’s abrupt resignation as chairman of the Workplace Safety and Insurance Board. (The WSIB was paying Mr. Wright $2,800 a month to maintain a Toronto apartment. He resigned after Premier Dalton McGuinty claimed his use of public funds was “inappropriate.”)
If the LCBO were a publicly traded company, Mr. Brandt wouldn’t be retiring with accolades; rather, he’d have been frog-marched out a long time ago.
We can hope the LCBO’s new chair and CEO will be someone who will run the monopoly in a more responsible and transparent fashion. Better yet, there has never been a better time for Ontario to follow Alberta’s lead and privatize this obsolete booze bureaucracy once and for all.