Missed Opportunities

Posted March 6, 2012

In response to proposals in Ontario and New Brunswick to privatize liquor retailing Finance Minister Steele has declared that Nova Scotia would not be pursuing the idea. He argues that the price that could be achieved is not adequate compensation for the revenue stream that would be foregone.

Several early comments understood the article to advocate sale to a single buyer. This article has been amended to clarify that this is not the intent.

Superficially, he is right. The NSLC’s profits ($223 million or 38% of sales in 2011) service a great deal of provincial debt at today’s low interest rates. Any purchaser is almost certain to pay higher interest rates than the province, so it would be unwilling to adequately compensate the province for the lost revenue.

But there is a version under which the Minister could keep his revenue and still make a profitable sale. The province could sell retail outlets with the condition that:

1) the NSLC would continue to set wholesale and retail prices in the same manner that it does today
2) the purchaser would continue to pay to the government as a tariff the same % of sales that the province presently receives
3) the pay and benefit levels of existing NSLC staff will be protected.

The retail outlets would be sold one at a time to a variety of bidders so as to eliminate the current near monopoly. Those smaller stores, particularly in rural areas, which did not receive attractive bids should be retained by NSLC.

Who would bid on such an arrangement? Actually any organization that thought they could do a better job of retailing than NSLC. For example, consider Sobey’s and Superstore, who are already landlords to a number of NSLC stores. By integrating inventory management, storage, and checkout (which would also be a convenience to customers) and applying their merchandising knowhow they could add to the profit margins and would be willing to pay for the right to do so. Note that the retail outlets would be sold individually so as to not continue the monopoly.

Minister Steele is smart enough to know this but he is unlikely to pursue the opportunity. The problem is that although the province would benefit and individual employees be protected the public sector unions would be adversely impacted. Apparently this is a no-go zone for this government.

For evidence look at the health care sector. The district health authorities have been instructed to reduce spending by 3% after a freeze the prior year. Government then made the absurd suggestion that this could be done without affecting patient care. Doing the best they could, the authorities found that they could make savings by outsourcing things like cafeteria and laundry. Again this could be done and savings achieved while protecting the pay and benefits of existing employees. Nevertheless, the province vetoed the proposal. So the savings will instead have to be made in areas that more directly affect patient care. This appears to rank lower in the government’s priorities than the interests of public sector unions.

It is the responsibility of government to use our limited financial resources to get the best possible education, health care, community services, and regulatory environment. Selling booze, doing laundry, or running restaurants are not exactly core functions. Outsourcing these can free up more funds for the things that matter.

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  • The proposed format is flawed
    Abolish the NSLC as it presently exists.
    Sell franchises or licenses in a manner similar to Tim Horton’s or Wendy’s or Canadian Tire.Do not permit any entity to own either directly oy indirectly all or in part more than 5 outlets.They would each set their own pay schedules and hire whosoever they chose.Permit liquor wholesalers to import and distribute to the franchisers and maintain their own distribution center(s) and set their own prices.
    The appearance of the outlets would be maintained in the same manner as individual restaurants or shoe stores or bars are now..If you don’t maintain them and offer service they go out of business.If I don’t like the selection offered at one outlet I can go to another.Drug stores operate like this.
    The government would have to establish a Board to award franchises and set qualifications–financial stability,criminal checks.and and a method for revoking the same.Hire somebody from Horton’s–they seem to know what they are doing.
    There are other details necessary to refine this concept,but if the goal is to remove the monopoly of the government and reduce prices this is a blueprint.
    If the goal is to continue excessive prices and provide overpaid jobs and provide the gov’t with excessive profits then continue on the present path
    Why are we paying top dollar for people who in the words of another contributor are “shelf stockers” They require no more skills than the MacDonald’s staff for example.They receive their present rate of pay because government cannot/will not bargain in the interests of the true owners–the taxpayer.
    Certainly choice may be limited in smaller areas==I don’t see a Sobey’s or Superstore in the middle of the Wentworth Valley or Musquodoboit.Bur those people do go to the “big city” on occasion to “stock up”
    Do you not think that bars get”kickbacks” now–did you never meet a liquor agent.That is their job.

    Bill F | March 7, 2012

  • Keith thank you for your posting.

    I should have stressed that the sales would be one retail outlet at a time. So we are eliminating a monopoly, not creating one. I did say and would repeat that existing workers should have their wages and benefits protected.

    In this format we would find out quickly enough if you are right after the first dozen or so retail outlet stores. If so then the program should stop.

    But I expect that good retailers such as Sobey’s, Superstore and others will create a very competitive atmosphere which will serve customers well. You are right that there may not be much interest in smaller stores in rural locations. If so then NSLC should keep them. Outlets should only be sold if the province is getting a substantial price, so nobody will buy just to close them.

    Bill

    Bill | March 6, 2012

  • Bill, your dogma has overriden any common sense. What you are suggesting would result in a few things happening which you overlook, even presuming that a large retailer would be willing to accept your terms, which I rather doubt. Under those terms the only way they can make money is to run a bare-bones operation or to raise prices.

    NSLC has minimal useful real estate to sell off, so there is no real value there. Under your terms the buyer can only make a profit if they reduce operating expenses. They would need to allocate space for a warehousing operation and manage the logistics – but they already do that, so that is the easy part. The hard part is that they would throw out 1000-1500 people from “living wage” jobs and replace then with a small number of shelf-stockers making minimum wage and minimal benefits. What is the impact of that on the economy? Is that a good public policy choice?

    Then they would apply their retail formula to the operation. The NSLC has stores in small towns that they would need to immediately close. That selection gets replaced with agency stores with a much smaller selection. Too bad if you live in one of those places. If they follow their grocery model those outlets would have higher prices as well. They would then apply their typical big-box merchandising techniques to the remainder of the outlets. What you get is no service, no displays, a lousy assortment of products, and a warehouse-style operation. Need help? Forget it. Staff are untrained and do not provide service to customers. They would depend upon their market dominance to force whatever they offer onto customers.

    Of course, it would be a popular move among bars and restaurants, who would solicit kickbacks from the retailer. That cost would get passed along to the retail customer of course. The large suppliers would be forced to buy shelf space as the grocery suppliers now are forced to do as well. That also gets passed along in the retail price. The small suppliers get squeezed out and their products disappear from the shelves. And of course our local producers would get no shelf space or promotion whatsoever.

    So what you have created is a far worse system that gives no benefit whatsoever to the government, throws a bunch of people onto the unemployment line, reduces service and selection, introduces corrupt business practices, and wipes out much of our local industry, all in the name of ideology. A very poor trade in my view.

    A private monopoly is even worse than a public monopoly. Ever hear of NS Power?

    Keith | March 6, 2012

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