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Eat & Drink

LCBO bureaucracy forces craft brewers into Beer Store

Posted by Ben Johnson / May 12, 2014

Beer Store craft breweriesWhen Flying Monkeys Craft Brewery and Kensington Brewing Company both announced new beer releases last week, the news from both companies was somewhat surprising: Both would be releasing their new beers in The Beer Store. Yes, Flying Monkeys' El Toro Bravo Dark Rye Ale and KBCo's Fruit Stand Watermelon Wheat will soon be available to Ontario's beer drinkers, but in order to get them, we'll need to patronize our province's increasingly contentious, mostly foreign-owned, private, beer monopoly.

But why?

The short answer, unfortunately, is because both companies feel they didn't have any other choice. The long answer is slightly more complicated. As you may or may not already know, brewers in this province are currently limited for places they can sell their beer. Current liquor legislation states that brewers can sell their beer at their own brewery's onsite retail store, through the LCBO, or by paying to get into The Beer Store, which is privately owned by three of the biggest breweries in the world.

Both Flying Monkeys and KBCo have released other products in the LCBO previously, however, owing to the fact that the LCBO only offers each brewing company a limited number of products they are allowed to sell (commonly referred to as SKUs) these brewers, and many others, have been told they simply can't sell these beers at the LCBO.

"Our decision came to us simply by the LCBO not wanting it," says Brock Shepherd, Founder of Kensington Brewing Company. "We tried twice," he says. "The general public wants it at retail, and the only other choice is The Beer Store."

Likening his new partnership with The Beer Store to a "necessary evil" Shepherd contends he's doing what he has to do to run a business. "We are testing it out to see if our beer works in that environment."

So too, do the folks at Flying Monkeys see the Beer Store as a test of sorts, but they're interested in seeing if the Beer Store will live up to its own hype. According to the brewery's press release, "The Flying Monkeys are making a conscious investment in The Beer Store releasing a real specialty beer to embrace the cartel's claim that they support Ontario craft beer."

"TBS boasts about vendor neutrality and equal access in all of their media rhetoric. However, "vendor neutrality" gets everyone who pays the listing fees access to the system, it does not mean non-owner brewers are treated fairly and equally in terms of access to retail shelf space."

And so, as Andrea Chiodo, Creative director for Flying Monkeys explains, they are going to put the Beer Store through their paces. "We are definitely testing TBS with this release," she says, "and we hope it pays off. We already export to other provinces, the US, Mexico, Brazil, Scandinavia, and Taiwan, so we've had a glimpse of the challenges and advantages that come with the territory of a three-tiered system. However, until the politicians stop kowtowing to the lobbyists and propaganda of the Big Brewers, we have to play the field as it lies."

She reiterates that this doesn't mean they've accepted The Beer Store's monopoly. "We will never join the Dark Side," she says. "Someone is not your friend if you have to pay him to be your friend."

And while it's all well and good that Chiodo and Flying Monkeys and Shepherd and KBCo are using the system to call attention to its deficiencies, the unfortunate fact remains that they're doing so because they have to. Two Ontario craft brewers who are willing to work within the government-run retail environment that is provided by the province (and have done so before) are now literally being driven away and forced to do business with the only other option they have: a privately-owned company with owners based in Belgium, Brazil, Japan, and the United States.

And doing business with those guys isn't cheap.

"It costs us approximately $30,000 to put this beer in 100 stores," Andrea Chiodo tells me of El Toro Bravo. "There is an initial $3000 TBS listing fee plus an additional $250 per store (so 100 stores would cost $25,000). In addition, there is an addition $1 per bottle service fee charged upon sale for processing and shelving the beer." With this test case, she tells me, Flying Monkeys will consider it a success if they break even.

Accordingly, without a rule change, the current system not only costs Ontario businesses like Flying Monkeys who have to pay to play, but it is taking money out of provincial LCBO coffers and putting it into the pockets of AB-InBev, Molson-Coors, and Sapporo, three companies that really don't need any help from Ontario, financially.

AB InBev posted $1.37 billion in profits for the first quarter of 2014, Molson-Coors "handily beat expectations" this past quarter, earning $163.4 million (US), and Sapporo Holdings Ltd. net profits surged 5.2 percent to ¥9.45 billion last year (roughly 1.6 billion Canadian).

So what's the solution? Well, it's not the Beer Store or the Ontario Convenience Stores Association (OCSA), as Shepherd will tell you. "I don't like the tactics of either of them," he says. "The OCSA does not represent mom and pop corner stores, just the corporate convenience stores that pay to be members (sound familiar?)."

Peter Chiodo, owner of Flying Monkeys, hopes that by raising awareness, a new retail model might emerge. "Hopefully, growing public awareness and social pressure fostered by Ontario's beer writers and craft beer culture will influence small brewers' infiltration of the system."

He hopes that one day brewers will have designated shelf space somewhere so they're not competing with one another in an already crowded marketplace like the LCBO. "Craft Brewers could pay for a slot or a space in a store," he says, "but they could rotate different brands through that space without having to continually pay for new listings."

Until then, both companies--and the rest of Ontario's brewers--have little choice but to try to work within the system as it is. As Peter Chiodo says, "We're still crying for change, but we cannot go out of business during the revolution."

UPDATE: In response this post, blogTO was contacted by Jeff Newton, the President of Canada's National Brewers, the lobby organization that represents Labatt, Molson and Sleeman, with the following correction to Ben's story:

"We're thrilled that Flying Monkeys Brewery is adding additional products to our stores and that Kensington Brewery has decided to make their new releases available on Beer Store shelves. We look forward to a long and productive relationship with them and all of Ontario's craft brewers. Ontario craft beers represent 20 per cent of the more than 400 brands sold at the Beer Store and their sales have grown by 67 per cent since 2008. The Beer Store is keen to help these brewers and other small brewers sell more in our system. It's important that craft brewers have the right information about the Beer Store's listing fees, and we feel it's important to correct the information quoted in [the above] post.

1. The Beer Store charges small brewers only 47.2 cents a litre as its basic retail service fee. That works out to 16 cents per 341ml bottle, not $1 per bottle as quoted.

2. The total Beer Store listing fee to list in 100 stores is actually $25,880 and not the $30,000 quoted in the original post. This fee is made up of the one-time base listing fee of $2,880 plus the one-time fee of $230 per store on the first 233 stores selected. The post incorrectly reported these charges as $3,000 and $250 respectively."

El Toro Bravo Dark Rye Ale is the second Spanish cedar aged beer in the Flying Monkeys' The Matador Series and is available now at select Beer Store locations for $10.95 per 750 ml bottle.

Kensington Brewing Company's Fruit Stand Watermelon Wheat will be available in 473ml cans for $2.95 beginning in June at self-serve locations of The Beer Store.

Ben Johnson also writes about beer over on Ben's Beer Blog. Follow him on twitter @Ben_T_Johnson.

Discussion

48 Comments

peanut gallery / May 12, 2014 at 02:28 pm
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What about buying direct?

Can you buy direct? Are the economics any better for the producer? I've started buying beer from Amsterdam Brewery which has special pricing on a "25" if you pick it up in their store.
We need beer in corner stores / May 12, 2014 at 02:34 pm
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I like kensington beers but I'm still not supporting the beer store! Hope they can still make their sales.
Ben replying to a comment from peanut gallery / May 12, 2014 at 02:34 pm
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Yes, you can buy directly from breweries' onsite retail stores but this is problematic for most companies who can't afford real estate in areas with high foot traffic because their facilities are located in industrial or cheaper areas.

And contact breweries like Kensington don't have any brewery to sell from at all.
duhTBS / May 12, 2014 at 02:44 pm
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When it comes to liquor and weed, this country is dumb as rocks.
david / May 12, 2014 at 02:49 pm
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In my small poor country in Europe. Beer and liquor are sold in every market and stores. They are well kept in a glass cabinet with a lock. Sale of alcohol is allowed 10am till 8pm ,Before and after that time cabinets are locked ! Fees for selling alcohol out of this timing are very high, few thousand euros and store closing ! We don't have a problem with alcoholism or crime.

Why the same cannot be done in Canada? I'm sick of these Monopoly in Canada. Monopoly on internet, phone, TV, alcohol, sounds like ex USSR rules ! Well controlled and well monitored ! Canadians need freedom !!!!
Sandra / May 12, 2014 at 02:50 pm
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The nanny state strikes again...
gonzo / May 12, 2014 at 03:06 pm
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I think we should create a gov't run store for bread. We can call it the BCBO. The only place you'll be able to get bread will be at the BCBO stores.

The big benefit will be that as such a mass buyer of bread, the BCBO will help keep prices down, plus offer a wider selection than a normal store would. It's a one stop shop for all the best bread!

It will also give us a more safe and secure society. After all, grocery stores and convenience stores will just sell bread to any tom dick and harry that walks in - and we all know that gluten leads to obesity.
Hadda Nuff / May 12, 2014 at 03:17 pm
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Folks: There is an election going on right now. It is the perfect time to hold the 3 monkey leaders (apologies to the brewery) to task and make them treat the beer drinkers of this province as grown ups. Why can't I buy a 24 at Loblaws, or at the corner store at the end of my street?
Enough of the sanctimonius preaching about underage drinking and about how the evils of booze effects our health.
Beer drinkers of Ontario: Rise UP and burp in the face of bureaucratic redtape. Lets move this province forward!
Rick / May 12, 2014 at 03:22 pm
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Flying Monkey's is ok beer. I wish they would turn down the hoppiness though - Every freakin beer brewer is coming out with Hoppy beer!!! BLAHHHHHHHHHH
mrmigu replying to a comment from Rick / May 12, 2014 at 03:43 pm
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if you don't like hoppy beer, stop buying IPAs
Chester / May 12, 2014 at 03:43 pm
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Those two organizations just don't get it.
Rico replying to a comment from Chester / May 12, 2014 at 04:15 pm
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When there are 2 organizations, they don't need to get it. Province has 3 organizations, and they all don't get it.
MODERNIZE BOOZE SALES / May 12, 2014 at 04:20 pm
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GET ELECTED = ROCKET SURGERY
W. K. Lis / May 12, 2014 at 04:39 pm
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ALL three political parties had their chances since the end of Ontario prohibition in 1927. Took parts of Ontario until 2000 to follow suit. Time for all three parties to agree to end the monopolies.
BeeRam / May 12, 2014 at 04:52 pm
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I refuse to believe that the convenience store nearest me a lovely and devote Muslim will either stock beer or make available the beer I want to buy I would rather go the BC alternative of the early 90's or the way it is in Pennsylvania give greater power to the responsible trained bar staff. Let those brewery owners and bar owners who want to sell off license to do so. I think I would have better luck dropping by Nickel Brook which is near me to pick up their beer and the beer of whoever they make a arrangement with. The Convenience stores be damned and their lobbyist. I don't want more places to buy beer I want better places to buy beer.

I think the majority of the province wants this minor tinkering with the existing laws and licenses not a mass change for the worst.

I have been to a number of other jurisdictions and whoever thinks that there is not a monopoly everywhere is deluding themselves and everyone else. Distributors or the government we need to decide which responsible party we want to dealt with and if there is a problem with the ownership of The Beer Store there is a way around that a fair and open dialog to reduce their effect on smaller breweries and ensuring them less exposure to risk. They would do it if the deal were right.
Questionable / May 12, 2014 at 05:18 pm
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"$1 per bottle service fee charged upon sale for processing and shelving the beer"

$1 PER BOTTLE. A 6-pack of Flying Monkeys is about $13. Need anyone say more?
Matt / May 12, 2014 at 05:44 pm
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You guys all say you want beer sold at corner stores, but it's not like you will find these these small craft breweries at the corner store across the street. It's going to be only 20 different beers at each store. How are they going to have the space to sell any more? People are dumb if they think their options would be more than just Budweiser, Canadian, and Corona....
Holy Thundering Jesus / May 12, 2014 at 06:42 pm
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the beer store is even worse!
revolution101 / May 12, 2014 at 07:14 pm
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The only way to topple the bureaucracy is to boycott both the LCBO and the Beer Store. They know that most Ontarians are pushovers (the rest of the continent has moved on from Prohibition) and will keep trying to rip us off. You can brew beer and liquor on your own or buy direct from the brewers. Stand up for your rights Ontario
CSHunt / May 12, 2014 at 07:40 pm
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Matt - go to Montreal and tell me what you see at the corner stores. All kinds of beers. So, wrong.
Steven / May 12, 2014 at 11:56 pm
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I thought the Beer Store was the place to bring your empties from the LCBO.
Mark / May 13, 2014 at 05:34 am
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Cant we collect signatures or something to collectively show the government that we want a privatized system when it comes to booze? I'd sign it...
flob / May 13, 2014 at 07:49 am
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Jesus H.

This madness must stop.
Beer Luver / May 13, 2014 at 09:42 am
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If a beer gets denied a LCBO listing it probably means the beer is not good or it didn't sell. Both of these breweries need to stop flooding our shelves with crappy seasonals and meaningless one offs. Has anyone tried watermelon wheat? Do us all a favor and keep this off the shelf to make room for better beer.Rather than crying the "I'm a small craft brewer" to the media spend your time on better recipes... Like we need another liquid in a tall can coming out of Wellington Brewery anyway...
Kawasaki / May 13, 2014 at 09:46 am
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Matt most people do not drink local beer anyways. I'm sure the corner stores will sell most major brands anyways so that's not a problem to the general public.
Ben replying to a comment from Beer Luver / May 13, 2014 at 09:53 am
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You are, of course, welcome to your opinion about any beer, but the fact is that the decisions don't appear to be made based on how "good" the beer is (as a perusal of LCBO beer shelves would tell you). They are mostly made on the premise of giving as many brewers as possible one SKU (so that they can support as many brewers as possible) and how well a beer will sell.

While this seems like a fair system, it has flaws. Namely, we get myriad iterations of "liquid in a can" because a new brewery launches with one beer and gets some shelf space and then established craft brewers with multiple SKUs have to "prove" their new beer before it will sell. As an example, I know that Muskoka had some issues initially getting Detour on LCBO shelves--which is insane because Muskoka clearly makes great beer and Detour is amazing.
steve replying to a comment from Beer Luver / May 13, 2014 at 10:06 am
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If you read the article they are not in the lcbo because the lcbo limits the number of different products from any particular microbrewer, as stated in the article you just read.
altesteiner / May 13, 2014 at 10:28 am
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The Green Party will abolish the Beer Store monopoly.

For this and a number of other good policy reasons, I will be voting Green.

Just because the media and their megabrewer advertisers conspire to starve the Greens of publicity does not mean there is no alternative!
Gloria / May 13, 2014 at 11:05 am
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I was shocked when I first moved to Canada to find out you can only buy alcohol at the LCBO & Beer store. The gov. is raking it in, time for a change and let smaller shops sell alcohol where the consumer can get more variety.
bobbyc replying to a comment from Rick / May 13, 2014 at 11:13 am
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That is so true. I don't mean this particular beer but sometimes a person just wants to have a nice clean lager!
bobbyc replying to a comment from CSHunt / May 13, 2014 at 11:18 am
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How is going to Montreal going to prove anything? Quebec has always been more progressive about such things. I think Matt is right. We have been fighting for corner-store sales for decades and -given that- if/when we do finally achieve that goal we will likely discover that the Big Three STILL dictate what and where we can buy 'other' brands.
CSHunt replying to a comment from bobbyc / May 13, 2014 at 11:39 am
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Every place is different until they're not. Go places other than Montreal. They get by fine without being controlled by the big breweries. Or continue to bury your head in the sand and accept government control of every facet of your life.
James / May 13, 2014 at 11:48 am
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Are many people interested in paying $10 for one bottle of Flying Monkey??
bobbyc replying to a comment from CSHunt / May 13, 2014 at 12:15 pm
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Thanks man. Sorry I disagreed with your comments. I thought we were having an adult discussion. Back to burying my pathetic head in the sand.
Chris / May 13, 2014 at 06:02 pm
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No sale. Sorry Flying Monkeys, I do not and will not shop at the beer store. Never, ever. Open up the market to "real" beer stores and I will buy this beer. Until then, I guess I will lose out for now.
Chris replying to a comment from revolution101 / May 13, 2014 at 06:06 pm
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Been brewing my own beer for 30 years. Tax free beer hasn't tasted better.
Elsie B. O. replying to a comment from Ben / May 13, 2014 at 06:19 pm
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"[T]he decisions don't appear to be made based on how "good" the beer is (as a perusal of LCBO beer shelves would tell you). They are mostly made on the premise of giving as many brewers as possible one SKU"

This is simply not correct. Every product the LCBO sells has a unique SKU, even different sizes of the same product have a unique SKU/product number. The only time a SKU is shared is for different vintages of the same wine, and that isn't even always the case.

"the LCBO only offers each brewing company a limited number of products they are allowed to sell (commonly referred to as SKUs)"

The submission process for retailing products at the LCBO is completely transparent, and can be viewed at

http://doingbusinesswithlcbo.com/

There is no mandate to limit products by supplier, but there are sales targets, and marketing commitments, etc. It is certain that if there was an overwhelming demand for these products, they would be sold at the LCBO, and even if they were, if sales targets weren't met, they would be dropped.

Previous products that weren't going to be sold include Crystal Head Vodka, and Ciroc, both of which were added in response to considerable consumer demand.
CSHunt replying to a comment from bobbyc / May 14, 2014 at 07:50 am
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Guess you needed to try harder to have an adult discussion. That's okay - these things need practice. Again, go to Montreal or ALMOST ANY OTHER PLACE and see how they do it. But, then, you'll probably just say "what's the point of that? Toronto's clearly different!" Move along, now.
JohnB / May 14, 2014 at 08:16 am
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Why is this surprising people? All grocery chains do exactly the same thing with packaged food. The fees -- called shelving or stocking fees (and they are substantial) -- are part of the way the grocery stores make a profit.
KB replying to a comment from James / May 14, 2014 at 08:22 am
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We just did, last night. It's a very large bottle and poured two pints. That seems less than two pints of craft beer + tip at the bar, doesn't it? It tasted great, was strong, and we felt satisfied with our one big bottle between two of us.
Richard S replying to a comment from JohnB / May 14, 2014 at 08:36 am
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Except that, in this case, the listing fees (plural) go to the owners of The Beer Store, which are the 3 big, major breweries.
So, Bud Lite Lime pays a listing fee to be on the shelves. It pays it to..Anheiser Bush, who makes Bud Lite Lime. It's a fake listing fee that keeps any non-macrobrewery off the shelf. Pretty cut and dry, to be honest
Yep! / May 14, 2014 at 11:41 am
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Elsie B. O. > Finally, someone who knows what they're talking about.

I would, still, like to plead for better convience. Opening up small kiosks in grocery stores, or outlets in Malls with grocery stores, like Yonge and Eglinton Centre, or Maple Leaf Gardens on Carlton. You have no idea how convient this is, I love it.

Have you seen the size of these cornerstores? They're so tiny. Where will they have room to stock booze? Have a feeling some larger cornerstores (like 7/11) would end up edging out all the little guys.

Beer Luver > I understand a 100% where you're coming from. I've been left feeling disappointed, too, after trying out these new fangled beers. Four disappoinments was enough for me to conclude "Why bother, stick with what I know."

Customer demand is not the samething as sales. Any company can hire a group of people to create false customer demand. Truth be known, if it tastes good, people will buy it. If not...
Wulv / May 14, 2014 at 02:11 pm
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One of the major hurdles with getting beer in to more convenient areas for consumption in Ontario are the distribution laws. The distribution Laws for alcohol in Ontario need to be changed before they can even think about getting craft beer in to stores.
Simon Tarses replying to a comment from david / May 14, 2014 at 09:41 pm
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Looks like we have a troll blabbering his head off talking fake bullcrap about a part of the world he's most likely not from. Hey shamus, the restrictions in question are in Ontario only, not all of Canada. Please stop making your argument look like crap by pretending to be somebody you're not from someplace you probably aren't.
B / May 14, 2014 at 11:09 pm
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so basically in the current system, if you can't sell your beer to the majority of Ontarians from day 1, then you have no place in the market. sheer stupidity.

that's like telling a young Ray Kroc "you're not allowed to sell your burgers anywhere else because today half of america doesn't come to your one store, in that one town. but your burgers are pretty damn tasty."
Elsie B.O. replying to a comment from B / May 17, 2014 at 02:34 pm
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No, B....

These brewers are still in the market, and able to sell to licensees or the public directly if they have the appropriate licensing. This is stated clearly in this article. They are just not able to get province-wide distribution via the LCBO for all of their products.
Jamie / July 22, 2014 at 06:09 pm
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Ben, Apples to Apples You never stated the cost of service to supply beer in the LCBO?

Beer Store up front cost are more expensive but cost of service fee is less
From what I can remember Cost of service per 6x341mls
LCBO - 1.25
BRI - 0.95
( I may be wrong on the pricing, but for sure BRI is cheaper)

This also raises the point what will corner stores cost of service be???

This cost of service is their margin which also covers their operating cost - Building, Employees, Utilities etc.
Richard / October 17, 2014 at 10:05 am
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I think it ridiculous that a company that sells 80% of the beer in Ontario is not Canadian anymore. They should be force The Beer Store to have Canadian Ownership. I think the antiquated laws in Ontario need to change.

I have not purchased beer from The Beer Store in at least 10 years. I like to buy one of this, and one of that and this is just not possible at TBS. The shopping experience at TBS is awful. I really hate going there. They need to tear them all down and replace them with nicely stocked retail store with shelves so you can roam the aisles instead of being forced to pick a 12 pack from a shelf of beers that you can’t read from a distance because their coated with a decade’s worth of dust.

The LCBO just does not have the shelf space to sell more SKU's. The nice new stores they built a way too small. They should have built them 3 stories tall. One floor for wine, one floor for liquor, and one floor for beer. If the LCBO or the Beer Store cannot meet the needs of demanding Ontarians’ and the small craft brewers, then it's time to allow competition in the market place. Allow the craft brewers collaborate and open their own retail stores.

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