Minister Peter Bethlenfalvy,
I am reaching out to you to highlight some of the issues the convenience stores in Ontario and the 400 LCBO Convenience Agency Stores are experiencing with little responses of understanding from the senior management of the LCBO. As a government monopoly, we need you to review the issues below as well as our recommendations to create a better small business environment in every community in Ontario.
The Ontario Convenience Stores Association represents the interests of over 8,000 stores in Ontario – 5,000 of which are independent family-run stores. Our membership is made up of corporate chains, regional chains, and independents. These stores employ more 78,000 workers across the province.
I will discuss the unfairness of the LCBO to Convenience stores first and then discuss the issues pertaining to the LCBO Convenience Agency model in Ontario. Both need to be reviewed as we move to a more open and transparent beverage alcohol market in the province.
LCBO Urban Store Promotions: Competing with 8,500 family run C stores
We have asked the LCBO senior management to disallow the promotion of free products with the purchase of beer and alcohol that compete, take away and potentially hurt the convenience sector. During the month of February 2022, government run LCBO stores were offering free bags of Lays potato chips (picture attached) with the purchase of Budweiser beer and a free 6 pack of Canada Dry ginger ale (picture attached) with the purchase of a Bacardi Rum product.
As you can appreciate, our 8500 member C stores both depend on the revenue from selling these products, often in the same plazas where the LCBO is giving them away for free. There is marked unfairness in this practice as the LCBO likely receives 1000’s of promotional dollars from the beer and liquor companies to give away these products, while the C store loses business. We understand the AGCO regulations allow for offers of promotional items under a certain value.
We are not opposing the promotions of free playing cards, glassware, mittens/toques, or even mini bottles of alcohol, but are very concerned with the new precedent offering convenience store products that small convenience store operators rely heavily on to pay the rent and operating costs.
We have asked the LCBO throughout 2021 to cease giving away products we sell and need to see some compassion as this is not the core business of the LCBO.
LCBO Convenience Agency Model (400 Stores located throughout rural Ontario).
We are pleased to see the expansion of this business model and realize from talking to many Agency outlet family run stores there are many flaws in the business model that need to be addressed.
The LCBO needs to protect the integrity of the program and provide rural beverage alcohol customers the same access to their favourite products and promotions in every rural community. Agency stores are limited in their offerings, rural customers are not offered the same promotions as urban consumers in major centers.
LCBO Agency Stores work on very thin margins when selling beverage alcohol. The average margin is 9.8% – 11% — leaving little room for these stores to thrive, invest or improve. Out of this meager margin, delivery fees must be paid at an exorbitant $2.50 per case for LCBO products and .76 per case for beer, credit card fees are in the range of 2.5-3.5%, and inventory holding costs are hefty as the inventory value is substantial.
Ever increasing costs of labour from constant and hefty minimum wage increases, rising electricity costs for refrigeration, and general rent and overhead costs leave little to no profit for the convenience operator. Expanding beverage alcohol through the agency/convenience model was to benefit these family stores.
We would appreciate your Ministry review with us and the hard-working Agency Store owners on new ways for this retailing concept to grow, improve, and help the families as we lay out some ideas below.
We are asking that your Ministry consider these recommendations as we move further into an open market as part of the PC platform. We patiently await a more modern system on how Ontarians can access their beverage alcohol in the future as we catch up to all other jurisdictions’.
One area that the Ministry of Finance could quickly consider is the retail sales costs of all beer and liquor products sold in our Agency Stores while respecting the minimum prices set out by the LCBO.
The option of charging a higher price and allowing the Agency Stores to earn a higher profit is the easiest solution.
Keep in mind that bars, restaurants and even delivery companies can charge higher retail prices on these same products to recoup operational costs such as delivery costs. We also know that people shop in the convenience stores for quick and local services with the understanding that they will pay a higher margin for the convenience and location.
1) The government doesn’t have to fight with large brewers about reducing their profits or not allowing them to pass along delivery costs.
2) Customers know that C stores charge more than grocery stores or mass market retailers.
3) Set a maximum amount the agency can charge to control the amount the customers will have to pay. We suggest this be a 10% above the retail the beer stores post. The 10% + the 9.8 % Agency Stores make now is equal to the average margin C stores make on selling beer in Quebec and the USA. i.e., 20%
Hopefully there are internal discussions with MPPs and Cabinet on this issue and we can find a solution that allows our members to make a decent living without everyone downloading all their costs on the rural retail retailers.
There is a need for a complete review of the LCBO Agency Store model, and this is a great opportunity for your Ministry to work alongside our members who can provide valuable input and express their concerns. In the past they have been uncomfortable expressing their concerns and have had little confidence their voices would be heard. In turn however, they would be more than willing to work with the government on a better business model going forward.
We look forward to having a meeting with the Ministry where we will include some Convenience Agency store owners to discuss the issues as mentioned above.
CEO – Ontario Convenience Stores Association