On Thursday, June 22, I participated in a panel discussion on funding the blue box at the annual conference of the Municipal Waste Integration Network (MWIN). The panel was moderated by Guy Crittenden, editor of Solid Waste & Recycling magazine, who had a tiger by the tail with this panel, since the debate became very animated.

One of the most heated exchanges occurred between myself and Lyle Clark -- a representative of the Liquor Control Board of Ontario (LCBO) -- who was supported in his statements by a couple of audience members who work directly or indirectly for Tetra Pak. Certain statements I made were questioned and dismissed as “pure fantasy” by the LCBO and Tetra Pak people. They’re entitled to their opinion, of course, but I said at the conference that I’d post some documents in this space in support of my assertions, which I didn’t have handy at the conference.

The gist of my statement was that the LCBO’s real agenda in selling more wines in Tetra-Paks (as opposed to glass bottles) is a commercial one not an environmental one.

Specifically, I asserted that the LCBO’s commercial agenda was to bring in cheap wine in bulk (directly itself or via “partners” such as French Rabbit -- a brand that did not exist until it was first listed in the LCBO), package that wine in Tetra-Paks and sell it as “premium” wine in order to reap enormous profits. (It’s worth noting that LCBO executives are given bonuses based on the LCBO’s financial performance.)

The denial of the LCBO representative was vehement.

In support of my claim, I offer some documents. (For your convenience, these are posted as downloadable pdf files under Posted Documents on the left side of the home page at www.solidwastemag.com):

1. 2005 Deloitte-Touche Operational Review of the LCBO

The first attachment is an excerpt from a copy of the 2005 Deloitte-Touche Operational Review of the LCBO. In my opinion, it’s quite “puffy” in tone, touts the LCBO and puts forth an LCBO policy “wish-list” (which is not surprising given that the consultants worked closely with LCBO management in preparing it). For our purposes here, what are notable are the recommendations on Page 12, two of which are significant:

-- The first relates to pricing: that the LCBO be granted the power to apply differential or variable mark-ups on products at its discretion (a trade illegal practice that was suspended by the Ontario government as a result of a GATT challenge from Europe in the early 1990s which challenged LCBO listing policies, winery retail store licenses, etc.).

-- The second relates to the development of LCBO “private-label products” or house brands which would mean that it would not only be wholesaler and retailer but further extend its quasi-monopoly into becoming a manufacturer/brand-owner.

2. Ontario Tetra Pak Facilities press release and LCBO/WCO alternative packaging letter

In its Ontario Tetra Pak Facilities press release, the LCBO announces that it is “sponsoring” two Tetra-Pak co-packing facilities to, “…to package wine from Ontario and around the world.”

In combination with the other documents, the agenda behind the LCBO's Tetra Pak initiative is clear. This isn't about improved environmental performance, and it isn’t even about avoiding a deposit-refund system, or avoiding blue box fees (although those might be side benefits). This is about the LCBO creating a new wine category that is highly profitable for it. The LCBO is shifting from being a distributor and vendor of wines into being producer of sorts -- stage managing the bulk import of wine and coordinating the packaging of it in Tetra Paks, and then selling the wine in Ontario with enormous margins.

This shift raises important policy issues for the government and for wine producers. Do we want this monopoly wholesale and retail entity now engaging in this kind of activity? What of the impact of the LCBO’s “abuse of dominance” to Ontario wine producers? As an aside, it’s worth thinking about the fact that the LCBO says that French Rabbit in Tetra Paks was the most successful launch in its history – not surprising given the LCBO’s heavy subsidization of the launch. Why did the Ontario government’s sanctioned wine and spirit vendor invest in the launch of a foreign wine and not an Ontario product and why is the LCBO now allowed to engage in heavy employee and consumer inducements to keep pushing French Rabbit now that its sales volumes have tanked? The implications are chilling for Ontario producers.)

Whether or not policymakers approve of the LCBO’s new commercial plan, it seems to me that it’s ridiculous for the LCBO to deny that this is going on.

Consider that these proposed Tetra Pak facilities will package imported bulk wines (in addition to local products). Under the federal Importation of Intoxicating Liquors Act the LCBO must be the import agent, which means that it is the de facto brand-owner of the imported bulk wine. The LCBO is more than a little conflicted here.

It’s my contention that the Tetra Pak program is not about protecting the environment, but rather that environmental protection (as is often the case in our society) is being used as a “fig leaf” for the LCBO’s commercial agenda, which is sponsorship of the production of products that will become its “house brands.” This is analogous to those “private label” soft drinks and other items you see in grocery stores, such as Loblaws’ “Presidents Choice” line of products. These afford the grocery chain higher profit margins at the expense of national brands. This is good and well in the world of supermarkets, but we really must pause and reflect upon the implications of a government-sanctioned monopoly for liquor engaging in this.

Again, this relates to the “private-label” recommendation in the documents. If the LCBO also has complete discretion in how these bulk imported wines are marked-up for sale (the “pricing” recommendation) they will be enormously profitable -- bought at low bulk prices and shipped over in container ships, likely in large “bladders” the size of a tractor-trailer container, poured into Tetra Paks and marked-up as "premium" wines. Note the LCBO’s ongoing communications positioning Tetra Paks as a “premium package” and the conditions (in the 3rd attachment’s last paragraph) being placed on listing new wine products by Ontario vintners. Essentially the LCBO is telling local producers that if they want their new products put on shelves, put them in Tetra Paks. Otherwise, you can only add a new product by taking an old one off the shelf.

For Ontario wine producers this should be highly alarming. The LCBO will have an economic incentive to give preferential treatment (more and better shelf space in its stores) to its imported bulk products. Even if Ontario producers choose Tetra Paks, they will have to be price competitive with bulk wine imported cheaply and sold as premium wine. Ontario wine producers already face competition from low cost and highly subsidized producers such as those in South America. There is in fact a global glut of wine production. Now they’ll potentially face direct competition from their own local liquor monopoly!

This agenda to drive subsidized imported wines will have some very serious implications to Ontario wine producers. Of note is Deloitte Touch’s disclaimer on page 3: “..the potentially largest opportunities are related to pricing, product costs and vendor funding which have significant policy implications which are beyond the scope of this review.”

Who looked at the economic and environment “policy implications” prior to the LCBO embarking on this initiative, and is anybody going to?

Whatever happens, I leave it to readers (and delegates from the MWIN conference) to read the documents and decide for themselves whether my description of the LCBO’s commercial agenda is plausible or “pure fantasy” on my part, as was alleged at the conference.

Permalink | Comments (0)