Too Good To Be True? The BC Liquor Distribution Branch Provides Industry With First Details Of New Beer Mark-Up Rates
Last week, during a series of meetings with industry associations and manufacturers, the BC Liquor Distribution Branch ("LDB") laid out the first concrete details of the new wholesale pricing model and beer markup rates announced on November 19th. Find a link to the LDB's power-point presentation to industry associations here. Not surprisingly, while the changes to the LDB's wholesale pricing model have attracted a fair amount of attention, little notice has been paid to the LDB's new mark-up rates for beer. Until now, that is.
As the government body responsible for the importation and distribution of liquor in BC, the LDB derives its annual revenues from a diverse number of sources, and the mark-up they apply to beer is one of them. Based on a brewery's annual global production level, the LDB applies a variable mark-up rate to all beer sold in the province, regardless of the point of sale. Unfortunately, the current mark-up model imposes severe financial consequences as production increases, and as a result has effectively discouraged growth in our province's craft beer industry. For example, the current mark-up rate for beer produced by manufacturers with an annual global production of 15,000 hl is just over $0.60/litre for draft and $1.00/litre for packaged product. From there, rates stay flat until annual global production hits 160,000 hl. However, once that number is reached, mark-up rates jump to around $1.10/litre for draft and over $1.60/litre for packaged product. Not only are these rates high compared to other jurisdictions, but the huge rate increase at 160,000 hl has created a 'financial cliff' that, in a number of instances I am aware of, has prevented BC breweries from expanding production. Fortunately, as a cursory glance of the new mark-up schedule illustrates, effective April 1st rates will increase gradually as production grows, and will be significantly lower across the spectrum. There will also no longer be a distinction between draft and packaged product.
I've spoken to a number of clients and friends in the industry about this change, and the majority are really excited about what it will mean to their operations and to the industry as a whole. However, a handful share my concern that this all just looks too good to be true. Call me a cynic, but although the Province claims that the new mark-up rates will not detrimentally impact government coffers, it's hard to see how that's possible, and I doubt that the Province is willing to accept decreased revenues solely to help the local craft beer industry grow. Consequently, as with any high level government announcement or presentation, until specific details are communicated to industry and the mechanics of the transition process becomes clear, I'll remain cautiously optimistic about this change. As they say, the devil is in the details, and we're a little bit short on these right now.
I first received word that a new, graduated mark-up schedule would be coming to BC when a client was alerted to this change last fall. Looking for specifics, I reached out to the LDB, but at that time none of my contacts had any real details on either the new rates or on the mechanics and timeline of implementation. Unfortunately, as anyone who attended the meeting with manufacturers will attest, there is still a fair amount of confusion surrounding this initiative on the part of industry.
I'll be monitoring the implementation of this initiative closely, and am hopeful that not only will the new mark-up rates be as beneficial to our province's craft brewers as they appear to be, but also that lost government revenues won't be offset by the imposition of new costs or charges on industry. Indeed, from discussions I've had with the LDB and with several high-ranking Provincial officials, I know that there is a genuine desire in many quarters of government to help BC's craft beer industry grow and continue to create jobs and world class product in our province. If the new mark-up rates turn out to be as good as they look, this initiative will go some way to helping these things happen.