City on Strike - Page 4
Old 06-22-2009, 05:10 PM   #61 (permalink)
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Is it really making money?

Article by David Menzies.

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LCBO profit a facade

On one level, Ontario liquor and wine consumers live in a perfect monopoly world. A stroll through a Liquor Control Board of Ontario (LCBO) store these days reveals a Taj Mahal of booze. Richly finished oak wine hutches abound, easy listening music wafts down from ceiling mounted speakers and some stores even feature chi-chi demonstration kitchens. Indeed, a modern day LCBO outlet -- which can represent an investment of more than $4-million -- looks as though it has been designed by Martha Stewart and stocked by Saint Nick. It's a radical departure from decades ago when the average Ontario liquor store had all the ambiance of a nuclear fallout shelter. All told, in the past six years, the LCBO has spent more than $300-million of taxpayer money to give its stores the Armani treatment.

The LCBO's annual report, released last week, has the same high-gloss patina. "Our eighth straight record year," boasts the cover. With annual revenue now in excess of $3-billion, and net profit reportedly exceeding $1-billlion a year, the Ontario Crown portrays itself as a model corporation, cranking out big profits and better consumer and investor vibes than Sears, Canadian Tire and Home Depot combined.

But don't raise a toast to monopoly just yet. The LCBO's financials -- much like its opulent flagship stores -- only look pretty on the surface. An analysis of LCBO by the Brewers of Canada shows the Ontario liquor and wine monopoly to be ripping off everyone, from consumers to taxpayers, while protecting itself and its 3,362 unionized employees from attack and criticism.

In "Optimizing Beverage Alcohol Retailing," a pre-budget submission to the Ontario government, the Brewers show the LCBO's "profits" to be a conceptual sham. In its latest annual report, delivered more than 365 days after the end of its fiscal 2002-3 fiscal year, the LCBO claims "net income" of $939-million on sales of $3.1-billion, based on shareholders equity of just $248-million. That's a profit margin of 30% and return on equity (ROE) of 353%. It also claims to have paid out of its profits a dividend to the province of $975-million.

Professor Donald N. Thompson, professor of marketing at the Schulich School of Business at York University, says he knows of "no other retail [tax-collecting] business in Canada (or indeed the world) that calculates ROE this way." The dividend, he says, is in fact a tax the LCBO charges consumers and remits to the province. To the LCBO's chief executive, Andrew Brandt, this tax, which has grown steadily over the years, demonstrates LCBO's powerful financial performance and the great value of maintaining a monopoly. The corporation's unions also tout the annual dividend as evidence that the last thing Ontario needs is competition in the liquor and wine distribution and retailing.

In fact, the LCBO lost money last year. After paying the $975-million tax, the corporation lost $35-million for the 2002-3 fiscal year, forcing it to dip into retained earnings.

The LCBO issues no regular financial reports, but it can project its dividend with uncanny accuracy. Last February, almost two months before the March end of its 2003-'04 fiscal year, the LCBO issued a statement giving advance notice that it "will deliver a ninth straight year record dividend transfer to the Ontario government of $1.035-billion."

The billion-dollar payoff announcement came conveniently as the new Ontario Liberal government was reportedly looking at privatization and other schemes that might generate more revenue. The message from Mr. Brandt: Tamper with us and you could lose $1-billion.

Above all, the cash pass-through helps stave off questions about the board's management, operations and financial performance. The LCBO's real financial returns, after taxes, are all but non-existent. In 2001-'02, it earned $19-million in net income, a feeble 0.9% of net sales after the tax. Its income that year as a percentage of equity worked out to 6.7%, not much better than Canada Savings Bonds. Then it lost money in 2002-'03.

The LCBO has had carte blanche to do its own thing for several years now, and under CEO Bob Peter, former CEO of the Bay and a flamboyant marketer, LCBO's operating costs have increased an average 6.7% a year during the last eight years, to $523-million a year, or $210-million more per year than in 1994-'95. Annual capital expenditures have increased from a low of $19-million in 1996 to an estimated $60-million in 2003. Other public institutions, meanwhile, endured harsh austerity measures. The provincial treasury could have gained $44-million in new revenues simply by freezing the LCBO's annual operating expenditures.

Increasingly, it seems that the unspoken strategy of the LCBO spending spree has been to thwart privatization. Indeed, so many stranded assets have been created of late that it is unlikely the LCBO could be privatized anytime in the near future. After all, the booze bureaucrats have stealthily sunk hundreds of millions of dollars into capital investments and long-term leases in some of the priciest retail locations in the nation.

On average, more than 50% of the price of a bottle of booze is made up of various government liquor taxes and markups. The LCBO loves price increases. In August, 2003, and again on March 1, 2004, the LCBO advised suppliers of distilled spirits that it was increasing the minimum retail price at which it would sell their products. If any supplier were selling a product at the minimum price, it would have to increase its price, whether it wanted to or not. Suppliers selling at prices above the floor were also advised that they could increase their prices if they wished -- no questions asked. Can you imagine the likes of Wal-Mart and or Costco requesting price increases from suppliers?

The LCBO now is motivated to lobby the government to increase alcohol taxes, because while higher prices mean its unit sales may fall (or its sales increase will be lower) and its real profit lower, the higher taxes will mean that its reported profit plus tax collected -- will increase," says Prof. Thompson.

What can be done to make this odious monopoly behave. At the very least, the LCBO's ministerial masters must put the brakes on the liquor board's outrageous spending. One way or another, it all boils down to political will -- a commodity that has been noticeably lacking of late when it comes to Ontario's out-of-control liquor control board.
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Old 06-22-2009, 05:20 PM   #62 (permalink)
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Well that makes me even less inclined to to support it.
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Old 06-22-2009, 05:34 PM   #63 (permalink)
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ok, first of all, that's david menzies, and he's...well... kind of a nut. i don't trust his stats at all, but that's not going to be the reason i dismiss this.

i like booze taxes. i have no problem with them being high. to me, that's a good thing. tax luxuries. no issues with that at all. and is it a surprise that the revenue from teh lcbo is tax? that isn't a surprise to me... what else would they be making money on? given that i like taxes, i don't see a problem here.

second, it's none too surprising that a large organization does not make as much money while it is pouring cash into renovations. my personal savings are a lot lower when i am renovating my house. that's to be expected.

david menzies is a hockey and automotive specialist. is that really who's word you want to take on this? really?
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Old 06-22-2009, 05:37 PM   #64 (permalink)
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this is a great article on the lcbo, written by a phd friend of mine for his dissertation:

http://www.cpsa-acsp.ca/papers-2006/Bird.pdf
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Old 06-22-2009, 05:44 PM   #65 (permalink)
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Originally Posted by 'trane View Post
ok, first of all, that's david menzies, and he's...well... kind of a nut. i don't trust his stats at all, but that's not going to be the reason i dismiss this.

i like booze taxes. i have no problem with them being high. to me, that's a good thing. tax luxuries. no issues with that at all. and is it a surprise that the revenue from teh lcbo is tax? that isn't a surprise to me... what else would they be making money on? given that i like taxes, i don't see a problem here.

second, it's none too surprising that a large organization does not make as much money while it is pouring cash into renovations. my personal savings are a lot lower when i am renovating my house. that's to be expected.

david menzies is a hockey and automotive specialist. is that really who's word you want to take on this? really?
Yes, really.

I say we lobby the government to create the FCBO - Food Control Board of Ontario, so we're forced to buy all of our food under one 'company'. Think of the revenues. And I just hate those cheap, No Frills type grocery stores who affect the breadth of selection and poison us with their unknowledgable staff. And clothing, let's do it with that as well. In fact, I saw we make all retail a government institution and line their/our/who's? coffers with boatloads of money. The general public can't be trusted anyway. We should make the choice for them.
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Old 06-22-2009, 05:48 PM   #66 (permalink)
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actually we kind of do that with food already through the ontario food terminal... that might be an interesting thing for you to research. http://www.oftb.com/

and you didn't bother to read any of that dissertation did you? even after i read all of menzie's... ahem... article. there's actually a good section on revenue. and from someone who set out to makle a case for privatisation, but realized how wrong-headed that was. and who talked to all kinds of different sources like wine makers and politicians, and lcbo execs, past and future, and independent business owners, and who did a comparative study in alberta, and who had no political ties at all... definitely something to ignore, eh?
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Old 06-22-2009, 08:24 PM   #67 (permalink)
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No, I didn't read it but I will. I've been with a hyper 16 month old all day and still with chores to do. I like to do my dissertation reading in the late evening with my overpriced brandy in hand before I retire to mon chambre, parched and in extremis.
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Old 06-22-2009, 09:08 PM   #68 (permalink)
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No Cuban cigar? Velour robe?
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Old 06-22-2009, 10:50 PM   #69 (permalink)
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No Cuban cigar? Velour robe?
Some things are just assumed.
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Old 06-23-2009, 10:38 AM   #70 (permalink)
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the goverment making $ off booze and gambling is a joke imo, why not make $ off crack and prostitution, why not go all out?? What addictions are acceptable to profit off of?? How much do we really make when it destroys so many lives, i dont like my goverment in this kind of game of chicken. I understand them taxing it, they tax everything, but to give the service directly, goverment making $ off ppls addictions and misfortunes is a slippery slope 2 me.

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Old 06-23-2009, 06:00 PM   #71 (permalink)
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Yeah - when it comes to gambling though, one of the biggest addicts is the governments involved. I've never liked the lottos or the casinos as a form of hidden taxation. And there's no way they'll ever go away, even though it was all supposed to temporary when the first lottery arrived to support the 76 Olympics. There's no way they can make a budget work when they pull all that easy money out of the equation.

But then we have no real economy outside of placing bets on derivatives and such anyway, in relative terms.
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Old 06-24-2009, 01:05 AM   #72 (permalink)
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proline is the worst of the bunch, it's such a joke and i know so many ppl that are addicted, even tho i tell them they can spend less and get better odds online... ppl just love going to the store and buying those stupid tickets, with shit odds either way and blowing amounts some would find hard to believe on a weekly basis... the lotto is bad enough, but it's once a week. The goverment basically taking advantage of the most complusive ppl is bad, but with the sham odds and ways of wagering (forced to bet on X amount of games or there is a max to how many etc etc) on top of the ridiculously funny parlay odds, it's wow..... no wonder the NBA wanted no part of that shit, the goverment running that kind of shit is more then shady, to me, it's downright wrong. Legalize and tax it, if that's your wish, but dont serve it yourself in a corrupt manner (like the LCBO and how it chooses which brands to carry and how to display them, its never good when the goverment has monopoly power over an entire industry, nevermind an industry that poisons so many minds).
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Old 06-24-2009, 04:15 AM   #73 (permalink)
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I read the dissertation, 'trane. Well written, but nothing I haven't read before. The same old, LCBO argument, including their self-fellating malarkey about being socially responsible. How do they figure they're more responsible than a corner store would be? And the worry about compensating the Brewers? Fuck the Brewers. Two bullshit institutions who cut deals like the LCBO not being able to sell cases of beer with more than six bottles and the used-to-be-a-dollar floor. The decision of the LCBO to sell more 'upscale' product so they can make more money would be all well and good if that weren't the consumer's only option. When I go to the grocery store, sometimes I can afford Charmin and sometimes I can only afford the crappy, recycled shit. Imagine if that choice was made for me by people who think they know better than I what I want, and their desire to make more money by limiting my options. Can't afford it? Too bad.

My point all along has been - if you're into the LCBO, great. Go and prance around their aisles, stick your pinky finger up and nibble on the sample cheese in the expensive kitchens they rarely use, then be dazzled by the selection of quality wines and spirits and the helpful staff who seem to know it all and know best! Frolic around the last, unfair remnant of a paranoid time. Go wait in a slow moving, long line while 6 other checkouts sit empty.

It's unfair to a large portion of the public, small business owners, and an insult to a grown up, free society.
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Old 06-24-2009, 09:37 AM   #74 (permalink)
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Convenience store owners just as responsible as the LCBO?

You're out of your mind.
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Old 06-24-2009, 09:51 AM   #75 (permalink)
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Convenience store owners just as responsible as the LCBO?

You're out of your mind.
I get ID'ed for cigarettes all the time. They don't want to lose their license to sell and it would be the same for alcohol. In the case of both, whomever wants it, will get it somehow, so the socially responsible malarkey is garbage.
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Old 06-24-2009, 10:05 AM   #76 (permalink)
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I get ID'ed for cigarettes all the time. They don't want to lose their license to sell and it would be the same for alcohol. In the case of both, whomever wants it, will get it somehow, so the socially responsible malarkey is garbage.
Really?

Because I was rebuffed everytime I tried to buy alcohol until I was of age.

I starting buying cigarettes when I was 15 without fail.
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Old 06-24-2009, 10:12 AM   #77 (permalink)
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Really?

Because I was rebuffed everytime I tried to buy alcohol until I was of age.

I starting buying cigarettes when I was 15 without fail.
It was different wayyyyy back then.
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Old 06-24-2009, 10:14 AM   #78 (permalink)
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Why not simply drive down to a winery to buy your drinks? Support the winery directly, you circumvent the LCBO and you get your alcohol and can even make a day of it. It's what we do.
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Old 06-24-2009, 10:15 AM   #79 (permalink)
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I'd like to walk to the corner store.
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Old 06-24-2009, 10:30 AM   #80 (permalink)
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So, life simply becomes all about convenience?
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