Day 559

Attendance was a bit light today, perhaps a casualty of St. Patrick’s celebrations two days ago, or perhaps a sign of student exhaustion near the end of the term.

In Human Resources, designing compensation packages. That includes financial considerations, of course (which can further be divided into direct rewards: wages based on your position; and indirect rewards: benefits that all employees of the company receive, regardless of position.) But rewards can also be non-financial–perhaps there’s an employee recognition program, or the availability of flex-time or job-sharing.

Determining wages will depend on how much can your company afford, what your company’s compensation objective are, the perceived worth of each job and the employee’s relative worth. This will be balanced by the current labour market, the level of wages in your business sector, the current cost of living, the possible effect of collective bargaining, and of course the legal minimums required.

In Beer Industry, we had a visit from Ted Moroz, President of The Beer Store (TBS), the Ontario entity formerly known as Brewer’s Retail. This venerable institution was founded in 1927 at the end of Canada’s Prohibition. While the Ontario government quickly passed laws giving itself the exclusive right to manage the sale of spirits and wine (a monopoly the Liquor Control Board of Ontario still holds, generating over a billion dollars a year in revenue to the provincial government), the brewers of Ontario–about 50 at the time–lobbied to retain control of beer sales. Over the years, the number of brewers shrunk as the larger ones gobbled up the smaller ones, until there were only two left–Molson and Labbatt. About ten years ago, Sleeman got big enough to buy a share of The Beer Store as well. What many Ontarians don’t realize is that all three of these entities–and the profits generated by The Beer Store–are  now owned by foreign multinationals.

Beer is big business in Ontario, and The Beer Store handles about 70% of that business, with 2300 full-time and 4600 part-time employees working in 440 stores and 8 warehouses, generating $2.7 billion in sales annually. Of those 440 stores, 254 are the old-style “In & Out” stores, so named for the signs on the curb marked “In” and “Out”, in case you can’t figure out how to get your car in and out of the parking lot. Inside, you walk up to the cashier, tell him what you want, he mutters something into a microphone, and a few seconds later, with an ominous thunder, your case of beer comes sliding through a curtain along a set of rollers. (For those of you outside Ontario, I am not making this up. Back when alcohol was considered a social evil, the shopping experience was designed to be as unpleasant as possible.) Almost 100 other stores have been redesigned as “Ice Cold Express”–the cashier at the microphone remains, but against one wall there are cases of the most popular brands that customers can now grab themselves rather than have to order from the man with the microphone. Another 83 stores are much more modern self-serve stores, often giant walk-in refrigerators stacked with cases of beer. And two new stores in Toronto are “beer boutiques” catering to the urban pedestrian crowd.

There are certainly advantages to being in TBS. You know everyone walking into the store is looking for beer (as opposed to the people entering an LCBO, who might just as easily be seeking out spirits, wine or cider.) The TBS also has an efficient warehousing and distribution service second to none. As Ted Moroz pointed out, they can deliver any listed beer to any store in Ontario within 24 hours.

This doesn’t come free, of course. First, you must pay homage to the gods of standardization–if you want to get your beer into TBS, it must be packaged either in industry standard 341 mL bottles with twist-off crowns and standard-sized labels or 355 mL aluminum cans. Then get out your wallet: there’s a listing fee of $2800 for each SKU (each label AND each size of package such as 6-pack bottles, 12-pack bottles, etc.). On top of that, there’s a store fee of $235 for each store you place your product in (up to 233 stores. After that, it only costs you $50 per store.) Then there’s a volume fee of $3.77 per case of beer for the first 25,000 hL. In addition, if you want some floor space in the middle of the store for a display, that’s about $200 per store.

So if I want to place cases of my beer in 6-pack bottles in 100 stores, it will cost $2800 listing fee + (100 x $235 store fee)  = $26,300 plus $3.77 for each case of beer.

As instructor Jason Fisher pointed out, this might be tenable for a craft brewer for the first label or two, but get into different sizes of packages and/or multiple labels and the fees will quickly multiply into six figures.

This may not be the case for much longer. As Ted Moroz admitted, public opinion is shifting from pro-TBS to anti-TBS. My feeling is that sometime in the next decade, the provincial government will end the Big Three’s 85-year-old beer monopoly and either come up with a new model of beer retail store, or simply allow beer sales in variety and grocery stores.

Until then, craft brewers will have to do the math and estimate if TBS or the LCBO is the best pathway to profitability.

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One Comment on “Day 559”

  1. TBS… ARRRGGGHHHHH. Dislike.

    (Sorry, you hit a nerve there.) 😀

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