It could cost Ontario taxpayers more than $1 billion in damages to the Beer Store to keep Premier Doug Ford’s campaign promise to sell beer in corner stores.
That’s because of a complex 10-year deal signed by the previous Liberal government with the major breweries that allowed the sale of six-packs in 450 of the province’s 1,500 supermarkets.
Under that 27-page “master framework agreement” (MFA) inked in 2015, the brewers agreed to invest $100 million in upgrading beer outlets over four years and to freeze prices for two years.
While those terms have already been fulfilled, the Progressive Conservative government wants to renegotiate the deal so beer can be sold in more than 10,000 convenience stores, big-box outlets and supermarkets, as Ford promised in last spring’s election campaign.
Sources told the Star the same lawyers for the Ontario government and the major beer companies that hammered out the accord almost four years ago are currently in high-level talks aimed at undoing it.
After listening to an AM640 panel on the beer controversy Monday with Global News’ Alan Carter and the Star’s Martin Regg Cohn, the premier called the radio show to chime in.
“As for the discussions we’re having with the Beer Store I can’t get into it, but just arbitrarily you guys are throwing out $200 million,” said Ford, apparently referring to the “hundreds of millions” in potential damages mentioned by the journalists.
“The reality is Molson’s and Labatt’s and Sleeman’s, their sales are going to go up. Now we put in 10,000 stores. Even if people buy one beer out of those stores, that’s 10,000 additional beers a day.”
However, industry officials argue that adding thousands of small retail outlets would dramatically increase distribution costs, lowering profit margins for brewers and leading to higher beer prices for consumers.
In a fundraising email blast sent to Tory supporters on Monday, Ford told them, “You aren’t a baby and the government shouldn’t treat you like one.”
“We’re making some changes. Soon you’re going to be able to pick up a case of beer, or a bottle of wine at corner stores across Ontario. Why? Because why not,” he said, urging backers to send the Tories a $1 donation.
“When Ontario started letting some grocery stores sell beer and wine, did the sky fall? Of course not. It’s time politicians started treating adults like adults, not big helpless tax machines.”
In his AM640 interview and in the PC fundraising appeal, Ford did not address the potential damages that could be awarded to the Beer Store for breaking the contract.
“Well, we aren’t at that point right now. We’re negotiating with the Beer Store and I’m sure you appreciate, Alan, I can’t get into all the details,” he told Carter.
“But we don’t believe anyone should have a monopoly on beer and wine.”
The 2015 contract between former Liberal premier Kathleen Wynne’s administration and the brewers spells out the potential liability for taxpayers in ironclad terms, regardless of any change in government.
“An arbitration tribunal … shall treat all obligations in this agreement … as binding and enforceable against the province despite its status as the Crown, even where the alleged breach results from a change in legislation or public policy,” the deal states.
Industry sources said the price tag for taxpayers could easily eclipse $1 billion in compensating the Beer Store for the $100 million already spent, the lost profits during the two-year price freeze, and the “descaling costs” if the 450-outlet chain is forced to close stores and lay off employees due to a decrease in business.
“Such an award shall be calculated on the basis of the normal principles of damages for breach of contract,” the agreement says.
Queen’s Park could be on the hook for hundreds of millions in severance payments, pension liabilities and lease termination costs if the Beer Store, which employs 7,000 unionized workers, is shuttered.
In a statement, the Beer Store would only confirm it is in talks with Queen’s Park “aimed at reaching a mutually agreeable amendment to the MFA to improve customer convenience and choice.”
“We cannot disclose the details of these ongoing discussions,” said the retailer, which is owned by Labatt, Molson, Sleeman and about 30 smaller Ontario brewers.
Robert Benzie is the Star’s Queen’s Park bureau chief and a reporter covering Ontario politics. Follow him on Twitter: @robertbenzie