Cutting the wholesale price of alcohol sold to restaurants and other retailers will cost the LCBO $200 million in annual revenue, according to an estimate in the Ontario budget released Thursday.
The new wholesale pricing system, mandated by the provincial government last year, is set to take effect on April 1.
“The government is reducing wholesale markups by about $200 million to support producers and retailers succeed in the expanded marketplace,” the government said in the official budget document.
At a press conference before giving his budget speech in the legislature, finance minister Peter Bethlenfalvy said he hoped savings would be passed on to consumers, but admitted there’s no guarantee.
“Fundamentally, competition will drive where the money goes,” said Bethlenfalvy. “And I think that’s the best way, rather than government deciding.”
NDP Leader Marit Stiles said the $200 million in lost revenue is money that could have otherwise gone into government spending on health care or education.
“This government continues to tinker with the LCBO, something that works well and provides important revenue for health care in this province, and that’s very concerning,” said Stiles.
There’s no way to know whether the money will wind up as savings for consumers, or some extra padding for the bottom line at retailers, including major grocery chains like Loblaw or Sobeys, big box stores like Walmart or Costco, and convenience stores, Stiles added.
“We don’t know where they’re going yet, so we have to ask the government some big questions about this,” Stilles said. “I don’t understand why this government continues to tinker with something that works very well and provides very important revenue for the province of Ontario.”
The new wholesale pricing model replaces a complex structure previously in place, and will effectively mean a discount of roughly 11 per cent off the LCBO’s retail price for wine, and according to industry estimates, up to 16 per cent off the retail price for ready-to-drink beverages (RTDs), including hard seltzers.
The head of the association representing the restaurant industry questioned the deeper discount for RTDs, which are sold largely by retailers, including convenience stores.
“The impact of LCBO’s new pricing model on the restaurant industry is not clear,” said Kelly Higginson, CEO of Restaurants Canada. “We have been advised that restaurants will be better off under the new model, but we have yet to see any details to support that claim.”
Still, Higginson said restaurants will likely pass on some of the savings from the new wholesale pricing.
“At this time of considerable affordability challenges,” Higginson said, “our operators are looking at any and all ways they can pass savings onto their guests.”
