The provincial government’s decision to expand beer sales is hitting the bottom line at The Beer Store, and has some industry members wondering if the company will get out of the retail business altogether.
A letter from president Ted Moroz to owners of The Beer Store (TBS) this month and obtained by the Star said the company had an “unexpected” $13.1 million cash flow shortfall in 2019, something Moroz attributed to the opening up of the retail market.
“The primary driver of the cash flow shortfall was unexpected, higher sales through retail channels other than through TBS. These results reflect the high level of competition and consumer choice that currently exists in Ontario,” Moroz wrote in his letter, sent to breweries that have an ownership stake in the retailer.
Moroz’s letter added that TBS would try to “remediate” the 2019 shortfall this year, but didn’t spell out how.
Molson Coors and Labatt each own roughly half of TBS, with Sleeman Breweries owning a small percentage. In 2016 under pressure from the provincial government, TBS offered independent craft breweries “ownership” stakes without financial obligations, and a place on the board.
Jeff Carefoote, owner of Toronto’s Amsterdam Brewery, which is a TBS “owner,” said he hadn’t previously seen a shortfall.
“I certainly haven’t seen anything like this since we’ve been owners,” said Carefoote.
While TBS once accounted for more than 90 per cent of beer sales in this province, that figure dropped to 63 per cent in the 2019 fiscal year, according to statistics from the LCBO’s annual report. The LCBO says it accounts for just over 30 per cent, although that figure includes sales to grocery stores, which it is currently the sole distributor for.
With the number of grocery stores selling beer hitting 450 this year and the province opening up sales to corner stores, Carefoote questioned whether TBS would ever be able to make up its lost business.
“I really don’t see how they could ever regain that market share. I think things are dwindling quickly,” said Carefoote, adding that he wouldn’t be surprised to see TBS get out of the retail business altogether.
“If your business is declining far faster than you thought it would, at a certain point, it doesn’t make sense to stay in that business,” said Carefoote. “I think they see their future more in the distribution side.”
Several industry sources said The Beer Store’s share has dropped to just above 60 per cent, with the LCBO and grocery stores each accounting for roughly 20 per cent of the market.
Asked what steps TBS would take to make up the shortfall, spokesperson Bill Walker pointed to the closure of 10 “community” stores this year, including five in the Toronto area by the end of this month. He wouldn’t say if TBS was considering raising its listing fees charged to breweries who sell their products there.
“The 2019 cash shortfall at the Beer Store is a direct result of the opening of beer sales in 450 grocery stores across Ontario and of the continued uncertainty surrounding the Beer Store’s current 10-year operating agreement with the Province, which was signed in 2015 and would be costly to terminate,” Walker wrote in an email to the Star.
Walker wouldn’t say whether there’s ever been a cash flow shortfall before.
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Last year, the Star reported that the provincial government could be on the hook for up to a billion dollars in costs for ripping up the 2015 agreement, and dramatically increasing the number of grocery stores selling beer, as well as expanding beer and wine sales to corner stores.
A spokesperson for Finance Minister Rod Phillips said discussions with TBS owners — and other industry members — are continuing.
“The Government supports meaningful change to alcohol sales in Ontario. This is one of many priorities for the government and we look forward to continuing consultations with all stakeholders in order to deliver choice for Ontarians and new opportunities for business,” said Emily Hogeveen in an email.
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