Mixed reaction to beer sales in Ontario grocery stores

Reaction to the Ontario government’s decision to allow beer sales in grocery stores ranges from glee, to “cautious optimism” and outright disappointment.

Calling it the most significant change to the province’s alcohol retailing laws since the 1927 repeal of prohibition, the Wynne government announced last week it would permit up to 450 grocery stores to sell single servings and six-packs of beer, possibly as soon as this year.

David Wilkes, senior vice-president, government relations with the Retail Council of Canada in Toronto, called it a positive development for the province’s grocery retailers.

“Our grocery retailers are looking forward to the opportunity to expand their product offering to consumers,” he said. “We believe this will enhance the convenience for the purchase of beer throughout the province, and we look forward to future opportunities with respect to wine and distilled products.”

While acknowledging there is still considerable work ahead in terms of reconfiguring stores and training staff, Wilkes said the industry is flexible and able to quickly respond to consumer demands.

Gary Sands, vice-president of public policy with the Canadian Federation of Independent Grocers (CFIG) in Toronto, said he is “cautiously optimistic” about the decision.

The CFIG is opposed to capping the number of licenses at 450, which Sands believes could provide large grocery chains with an unfair advantage over independent operators – which represent about 15% of the Ontario market.

“We think it should be all stores,” he said. “You have to be very careful not to develop a process where just the big guys get these licenses.”

He said that in a sector with razor-thin profit margins, giving large chains such as Loblaw and Metro any kind of competitive advantage over their independent counterparts could be catastrophic. However, Sands said the CFIG has extracted an assurance that independents will be fairly represented in the auction for the 450 licenses.

Steve Beauchesne, vice-chair of the Ontario Craft Brewers Association and CEO of the independent brewer Beau’s All Natural Brewing Company, said the government decision, which calls for craft brewers to be adequately represented on grocery shelves, is a major win.

Beauchesne said the decision – combined with plans to open up a minimum of 20% of shelf space for craft brewers at The Beer Store, up from about 7% currently – could potentially double or even triple craft brewers’ current market share of approximately 3.8%.

“We feel very strongly that the reason our market share is so low is we’ve been essentially shut out of the main channel for selling beer up until now,” he said.

In a research note this week, Credit-Suisse analyst David Hartley called the decision a “positive first step in liberalizing selling practice for liquor in the province,” suggesting the province will proceed slowly in issuing licenses and monitoring – possibly taking up to three years to open 150 new outlets for beer sales in grocery stores.

Hartley said it makes sense for grocery stores to partner with the government for beer sales because they already have efficient supply chains and other opportunities to maximize profitability.

Based on full deployment of 450 stores, a 10% margin on sales and their current market shares, beer sales could boost earnings for major grocery retailers like Empire, Loblaw and Metro by between three and eight cents per share said Hartley.

One group not applauding the decision is the Ontario Convenience Stores Association (OCSA). CEO Dave Bryans said it is going to “radically tip” the competitive balance in the grocery industry, hurting both its 7,500 members as well as independent grocers.

He said the OCSA did an “awful lot of the heavy lifting” on the initiative, championing the sale of beer in convenience and grocery stores for nearly 30 years. He called it an “urban-driven” announcement that effectively shuts out convenience store operators and small grocers in rural communities.

“They’re the bastions of these rural communities that the big guys don’t want to service,” said Bryans. “You’re going to let them fall by the wayside by not giving them an opportunity to compete on the same playing field.”