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One Step Forward, Two Steps Back? Parliamentary Secretary Yap Recommends Liquor Sales in Grocery Stores

Carlos Mendes

It looks like those of us hoping to see Parliamentary Secretary Yap’s full report will have to wait a little bit longer to get our hands on it.  Last Thursday, the Ministry of Justice sent out a press release stating that the full report, which contains over 70 recommendations, won’t be released until it has been reviewed by cabinet and some additional ‘policy work’ has been undertaken.  The tentative date for its full release is early 2014. Until that time, the Ministry will periodically release a few individual recommendations, and as was widely reported last week, the first of these concerns liquor sales in grocery stores.  

While the Ministry’s press release was short on details, it does contain a few indications of what Yap’s new distribution model may look like.  The first thing I noticed, and with some disappointment, was that BC won’t be adopting a Washington State or Quebec-style model and permitting liquor sales in convenience stores, nor will it allow retailers to use existing shelf space to sell liquor. Instead, they’ve opted for the ‘store within a store’ model currently used in some jurisdictions, where small, segregated liquor retail outlets are located within larger grocery stores.  

The principal component of Yap’s model, (and the one that has received the most attention from liquor law reform advocates), is the maintenance of the current Licensee Retail Store (“LRS”) license cap.  Driven largely by the concerns of harm-reduction groups, the Liquor Control and Licensing Branch won’t be issuing any new LRS licenses after the Liquor Control and Licensing Act (“Act”) is amended or replaced to implement Parliamentary Secretary Yap’s recommendations.  Instead, grocery stores wishing to sell liquor will need to purchase an existing LRS license, and then transfer it to their retail location.  While the transfer of an LRS license is currently subject to a number of restrictions, I anticipate that these will be simplified once the Act is amended or a new Act is brought into force. Regardless, the retention of the current LRS license cap raises numerous issues, the principal one being cost. The current market rate for an LRS license is between $1,400,000.00 and $1,600,000.00, and with the maintenance of the cap, this rate will likely increase.  With the costs of acquiring an LRS license being prohibitive to all but the largest retailers, it is likely that going forward the majority of new private liquor retailers will be located in big box grocery retailers.  

Having spent a fair bit of time negotiating commercial leases and helping property owners get municipal approvals for redevelopment projects, the practical implementation of the ‘store within a store’ model raises a number of concerns for me.  The first matter that will confront grocery retailers hoping to sell liquor is whether to expand their premises or maximize existing space.   I would estimate that less than 5% of all large retail outlets are situated on land owned by retailers.  Consequently, any expansion of currently demised floor space will need to first go through the landlord, and will require a modification of the retailer’s lease.  Getting a landlord on-side, and then re-negotiating the terms of a lease, (especially when you’re dealing with a large retailer and a large commercial landlord), can take a fair amount of time.  If a retailer manages to modify their lease, they will then need to work with the landlord to get the requisite approvals from the local municipality.  Local government often moves at a slower pace than private enterprise, and getting their approvals for redevelopment plans and permit issuance can also take some time. Add in the costs of professional fees for architects, engineers, and lawyers to get the foregoing issues addressed, and expansion could be prohibitive, even for large retailers.

Consequently, most retailers will likely need to maximize existing floor space by creating small, segregated boutiques. The industry group representing LRS licensees, the Alliance of Beverage Licensees, has expressed concerns that this will lead to decreased consumer choice by forcing many retailers to overlook local craft beer, wine and spirits in favour of imported and mass-produced products. These types of concerns have been echoed by many craft beer and liquor law reform advocates, who fear that recent gains in consumer choice will be diminished, and that we’ll return to a time when only low-quality macro beer and imported wines are available for purchase in our local private liquor retailer.  Ironically enough, should this type of scenario come to fruition, the clear winner would be the Liquor Distribution Branch, which (especially in smaller markets) would come out as the only real option for consumers looking for quality, local products.  The clear losers would be consumers.   

While I’m disappointed with what I’ve learned so far about Yap’s ‘made in BC’ model, I’ve tried to suspend my judgement as best as I can.  As the press release notes, the new model still needs to be developed, and a lot of work will need to be done to iron out its many inherent kinks.   Ultimately, the true nature of this change to BC’s liquor distribution model won’t be clear until the full report is made public and, more importantly, the new Act comes into force. Until then, let’s hope that the government does a good job of listening to industry feedback and dealing with the multiple issues it faces, so that when we start seeing liquor in grocery stores in a few years’ time we won’t be left looking at other jurisdictions and wondering what might have been.