2015 Report Card RAISE THE BAR A report card on provincial liquor policies for restaurants and bars TABLE OF CONTENTS 3 3 4 Introduction Consumer pays the price A Report Card for Canada 5 6 7 8 ATLANTIC CANADA Newfoundland and Labrador Prince Edward Island Nova Scotia New Brunswick 9 10 CENTRAL CANADA Québec Ontario 11 12 13 14 WESTERN CANADA Manitoba Saskatchewan Alberta British Columbia 15 Our methodology 2015 Report Card    Raise the Bar INTRODUCTION “A guy walks into a bar.” That’s how many jokes begin. We listen, wait for the punch line, laugh with vigour, and gear up for the next time we hear about that same “guy” walking into a bar. While that may be the world of stand-up comedy, it is not the real world, the one in which Canada’s food and beverage service industry is compelled to operate. In their “real” world, they cope with unnecessary and unhelpful laws and regulations. They deal with laws that change with every province, making the consumer experience different in each regulatory environment. Throughout Canada, lawmakers, through inflexible regulations, place roadblocks to good service and a positive customer experience. Consumer pays the price Canada’s food and beverage industry faces a variety of issues in each of the country’s 10 provinces, but the shared problem centres around the cost of alcohol. In most regions of the country, restaurants, bars, and even caterers pay the same or more for their beverage alcohol products than citizens would pay for these same products at their local beer and liquor retailer. Specifically, Canadians can now buy a case of beer or a bottle of wine for the same price as their corner bar or restaurant whose business it is to serve these beverages. In those circumstances where wholesale pricing is available to restaurant and bar owners, it is not nearly the discount available with other wholesale products. In all other industries, whether it’s food sales or manufacturing, there is a different price point for the company buying wholesale which, then, supplies the product to customers at retail. Bargains at the wholesale level are typically passed on to those customers. Little of this typical business environment exists in the world of beer, wine, and liquor sales. Restaurants Canada wants to change all that for one simple reason — bar and restaurant owners, despite the competitive nature of their industry, must pass along their costs to customers. No one wants that. Customers don’t want it. Just as importantly, the food and beverage service industry doesn’t want it. Unnecessary and expensive regulations, the cost of which are borne by customers, will ultimately drive them away. That’s an outcome that is bad for the public, restaurant and bar owners, and, even, the government, a beneficiary of a profitable food and beverage industry. In a 2015 Restaurants Canada survey of licensees across Canada 72% 97% 82% 30% 3 said the cost of beer, wine and spirits has a negative impact on their business. want to see wholesale pricing in their province said their customers complain about the high cost of alcoholic drinks. said they receive value from their local liquor/beer supplier Source: Restaurants Canada survey of 351 licensees representing 3,712 businesses. 4 Restaurants Canada A Report Card for Canada Restaurants Canada has evaluated the current regulatory environment facing the food and beverage service industry across Canada and, as well, surveyed its own membership of restaurant and bar owners. To each province, it has awarded a performance grade. By citing the successes and failings in each region, this report card spotlights opportunities for government-mandated change. It draws attention to changes required to make the restaurant and bar experience both an enjoyable and an economical one for Canadians. Governments and the regulations they enact are meant to support businesses that bolster Canada’s economy while protecting the interests of consumers. That, at least, is the intent. Oftentimes, however, regulations fall short. They prevent businesses from providing to their customers the most choice at the best price. In Canada, as an annual average, we host more than 16 million tourists, most of whom visit our restaurants and bars. They come to Canada expecting to re-cork their unfinished bottle of wine, to have an alcoholic drink without ordering food (if they so wish), and, most importantly to pay a fair price for their drinks while the restaurant and bar owners make a fair profit. The system breaks down when the merchant is forced to buy from only one supplier and is denied wholesale pricing. An Important Industry Canada’s licensed restaurants and bars are a big part of the overall restaurant and foodservice industry, which represents: 1.2 million 282,000 $72 billion 91,300 direct jobs indirect jobs in economic activity businesses across Canada Source(s): Statistics Canada; Restaurants Canada Wherever you live in Canada, this is unacceptable. But where do you live? Care to see how your region is performing in terms of what is, ultimately, in your best interest? Scroll down. Find home. See your province’s score and its commitment to productive change. 2015 Report Card    Raise the Bar 5 ATLANTIC CANADA A failing grade on The Rock F In Newfoundland and Labrador an uninspired regulatory environment plagues the food and beverage service industry. That industry has one place to buy its alcohol, from a liquor monopoly that offers little choice and among the highest prices in Canada. The competitive nature of an industry that retails to the public is nowhere to be seen when one supplier holds all the power. In fact, the supplier of alcohol, the Newfoundland Liquor Corporation, is also the regulator of the industry that serves the product to the public. This underscores the lack of understanding and appreciation of the customer that typically exists when monopolies are at work. Such a system robs the people of Newfoundland and Labrador of the obvious benefits of competition and choice. “The Newfoundland Liquor Corporation expanded from a supplier to a fierce competitor focused on increasing its profit to the detriment of the bar/restaurant industry.” At the heart of the “F” awarded to Newfoundland and Labrador is the need for major change that recognizes the realities and contributions of the food and beverage service industry. Instead of being treated like partners or customers, business owners are treated as entities that need to be policed. What message does it send when NLC inspectors show up wearing uniforms, flak jackets and utility belts? In the meantime, consumers lose on many fronts. As just one example, no one can order an alcoholic beverage in a restaurant without ordering food. While Restaurants Canada fully supports responsible consumption of alcohol, this law simply drives up costs for the customer. Adding to the problems, approval to serve alcohol in Newfoundland and Labrador is difficult to get, and liquor license costs are among the highest in Canada. Along with the sheer number of license types and the requirement to publicly advertise all liquor license applications, it all speaks to an out-of-date, inflexible system. It’s complex and timeconsuming. It penalizes the most successful operators by making them pay more for their licenses. Most importantly, it creates costs borne ultimately by the consumer. For this situation to improve, the food and beverage service operators of Newfoundland and Labrador must be treated as partners with government, and recognized for the value-add they provide. Decision-makers need to review laws and regulations that govern this important industry. One small element to consider? The minimum wage law does not consider that servers of food and alcohol benefit from gratuities that bolster their incomes. Allowing operators to adjust their minimum wage costs accordingly would be one step in the right direction. “Pricing, pricing, pricing is our issue.” 6 Restaurants Canada ATLANTIC CANADA Much better on The Gentle Island BOn Prince Edward Island, the consumer is better served thanks to the collaborative working relationship between government and the food and beverage service industry. There, government appreciates our industry’s contribution to the Island’s economy specifically through its support of tourism and employment creation. PEI is the only province, other than Alberta, with a comprehensive wholesale discount program on all products. This productive relationship provides a platform for change – change that is needed to vault PEI’s score to the coveted A+. “The rules are so ridiculous and controlling” “Even trying to bring in a new draft beer can be complicated.” What would help? Well, for starters, PEI could enhance its current wholesale pricing program by inviting competition into the supply chain. In short, allow the food and beverage service industry to buy its alcohol products from more than one supplier (the PEI Liquor Control Commission). Foster choice and competitive prices. This would help address the challenges linked to the small population base. Because PEI is a small province, selection of product is limited. Prices are high. The consumer would be wellserved, as well, by a recognition that individuals who serve liquor need not fall under the broadly applied minimum wage laws because, in fact, these employees typically earn much higher income due to gratuities. Keep the cost of wages at a reasonable level and the price of the product can be more reasonable for Islanders and tourists alike. In PEI, there are liquor laws that are arguably archaic or, at the very least, baffling. One example? It’s illegal to swear in a licensed restaurant and it’s up to the owner to ensure there is no vulgar or profane language in the establishment. Notwithstanding these issues, the PEI story speaks to the government’s understanding of the file. Legislators deserve credit for the province’s comprehensive wholesale program and allowing the sale of PEI-manufactured products for take-away. “The problem is the selection and high price of alcohol, particularly in a small province.” 2015 Report Card    Raise the Bar 7 ATLANTIC CANADA Nova Scotia is on the right path, but it needs to keep going. C+ Let’s look at that “half full” wine glass. We see it as “half full” because, in Nova Scotia, several private-sector liquor stores are permitted to sell product (wine, spirits, and beer) that is not listed by the NSLC (Nova Scotia Liquor Corporation). For these nonlisted products, the liquor store owners can negotiate price and select from different providers. Those licensed to sell these beverages in Nova Scotia can even buy direct from wineries, craft breweries and craft distilleries. This translates into more choice and, arguably, better prices for their customers. Like PEI, political decision-makers in Nova Scotia exhibit an appreciation for the “People are choosing to drink at home because of high prices. Wholesale pricing is needed.” “Rules need to be totally overhauled. The food-with-alcohol rule definitely hinders growth. Would like to sell growlers of local beer” Still, all is not perfect. It’s the province with the highest HST in Canada. Its minimum wage laws include liquor servers despite their opportunity to earn more, because of tips, than a typical employee collecting minimum wage. And, of course, government should eliminate the dated law that requires a working kitchen in every establishment that serves alcohol. contribution that the food and beverage service industry makes in that province. For example, they are working to eliminate major irritants such as the existence of “dry” regions in the province. They also acknowledge the industry’s contribution through moderate costs for liquor licenses, a limited amount of red tape, accommodations provided for special events, and, in some instances, allowance for recorking and BYOW (bring your own wine). NSLC currently gives a 10% discount on wine and spirits to licensees within the province. The Nova Scotia government and Restaurants Canada share a common objective in their ongoing consultations. When it comes to the purchase of alcohol in restaurants and bars, they strive to provide Nova Scotians with choice and the best possible prices. This goal can be reached in a marketplace supported, not impeded, by regulation. And once achieved, it can improve upon the province’s current C+ standing! “The high cost of alcohol reduces the bottom line – very little equity left to re-invest in my business.” “We have an archaic requirement for a dining room area when we don’t focus on food” 8 Restaurants Canada ATLANTIC CANADA Do you live in New Brunswick? Well, there’s work to be done. CWhile New Brunswick has introduced a small wholesale pricing program for full cases of wine and spirits, overall prices are high for that province’s restaurants, bars, and caterers. There is simply not enough competition in distribution at the wholesale level. For example, the food and beverage industry has no power to negotiate price with local wineries or craft beer companies. Instead, these products are sold to licensed establishments at New Brunswick liquor store prices. Buying a drink in a tiny lounge that serves less than 30 people? You’re in luck. N.B. regulations don’t compel that establishment to have an operational kitchen. More than 30 seats, however, and the kitchen rule applies. It’s yet another expense that is ultimately absorbed by customers, the same group that regulation is designed to protect. Like its counterparts in the rest of Atlantic Canada, New Brunswick has laws that warrant change. How about this one? If you’re in a restaurant and you want an alcoholic drink, you must sit down to consume it. If you are on the patio, no bottle or cans for you, but you can drink from a bottle inside the establishment. The door is not closed to negotiations. While there is no pressing political will to change New Brunswick’s laws or regulations as they apply to the food and beverage service industry, meaningful consultation is at work. With political will, the province’s modest wholesale pricing program can expand, prescriptive legislation can be “The high cost of alcohol adds significantly to the total cost of the guest experience, thereby discouraging additional visits.” relaxed, and minimum wage requirements can be reviewed in light of servers’ gratuities. Lastly, Restaurants Canada is hopeful that government will reject the idea of an HST (harmonized sales tax) increase to 15%. Change is possible. Change is what is best for New Brunswick consumers. “Lack of wholesale pricing impacts profitability. That impacts employment.” 2015 Report Card    Raise the Bar 9 CENTRAL CANADA Québec’s rules from the ‘70s need an update C+ If you’re ordering a beer in La Belle Province, you will likely have many brands from which to choose. What you will not have, however, is the cost benefit brought about when a business owner can buy his or her product wholesale through a highly competitive supply chain. The SAQ, Québec’s liquor control board, has the monopoly on sales of wine and spirits to bar and restaurant owners with no volume rebates. Monopolies don’t work for business owners. They don’t work for their customers. “There are fewer customers in our business because of the high costs of alcohol.” Times have changed in the hospitality industry. Regulations in effect since the 1970s no longer make sense in our transformed industry. Why is a meal required when serving alcohol? Why can’t a minor stay past 8:00 p.m. on a patio where liquor is served even if accompanied by a parent? Why can’t servers open bottles in advance of a big dinner? The only possible answer is that law has not kept up with modern life. After years of standstill, there have been positive changes recently in Québec to improve the marketplace for the hospitality industry and the customers it serves. Last year’s provincial budget not only reversed the retroactive tax increase on alcoholic beverages purchased by licensees, but reduced those taxes to align with retail alcohol purchases. The Québec government is also working with the hospitality industry to reduce the number of permits required to serve alcohol. For example, with this change, a separate permit would not be required for each room in which liquor is served, including the patio. Another welcome effort is the government’s commitment to look for different ways to replace the antiquated bottle stamp system. Did you know that bar and restaurant owners must ensure a paper stamp is affixed to all bottles of beverage alcohol to prove where they were purchased and that taxes were paid? The government’s predisposition to change and its commitment to reduce red tape works to the benefit of Québec consumers. It represents modernization for the good of all stakeholders. “The alcohol permit process is very complicated (bar, dining room, patio)and could be simplified.” 10 Restaurants Canada CENTRAL CANADA Ontario has work to do D+ When it comes to purchasing their products in Ontario, restaurant and bar owners have plenty of selection. Unfortunately, this expansive selection comes at a price and, specifically, it applies to the price of beer. In addition to paying slightly higher than retail for spirits, brewers take strong advantage of the fact that restaurant and bar owners cannot shop anywhere else. They charge upwards of 30% higher prices. And payment options are restricted as well. So, when you step up to a bar in Ontario, know that the bar owner had to pay well above retail. All is not lost in Ontario. Recorking of wine bottles and BYOW are both allowed. Kitchens are not required of those serving alcoholic beverages and customers don’t have to order food with their drinks. The long wait time for new and amended licenses is unacceptable. Slow-grinding wheels of bureaucracy cost the province’s economy and inconvenience its citizens. The recent, highly publicized consultation with government did very little for our industry. In fact, the province took Restaurants Canada’s recommendation to allow licensees to sell sealed, take-home draft beer containers (growlers) and turned it into a new revenue source for the LCBO. The province of Ontario will have to work harder to score better than D+. “Allowing brewers to charge $10-$15 more per case of beer is crazy. We shouldn’t be paying more than retail customers and, in fact, we should be getting a wholesale discount.” “This is a classic example of large corporations taking advantage of small businesses just because they can.” 2015 Report Card    Raise the Bar 11 WESTERN CANADA Manitoba moderately “Friendly” to the hospitality industry C In Manitoba, it’s safe to say these are the best of times and the worst of times. Hence, the downthe-middle “C” on this year’s report card. On the positive side, Manitoba receives high marks for the ground-up rewrite of its liquor laws. Today, thanks to the good work of the province’s Hospitality Advisory Committee (reporting to the province’s Liquor and Gaming Authority), restaurants can serve alcohol to customers without the obligatory food order that exists in so many other parts of the country. And Manitobans “Listing new standard products can be tedious; special orders are really tedious.” make legal exceptions to their own rules. With important events such as Olympic Gold Medal Hockey or FIFA Women’s World Cup or the Junos or the Grey Cup, the hospitality industry and its customers enjoy extended operating hours. This is not an indictment on responsible drinking, but a recognition that governments and the rule makers must be flexible. In Manitoba, they are. These positive actions are tempered, however, by the fact that bars and restaurants receive no form of wholesale or discount pricing for their alcoholic products. Manitoba Liquor and Lotteries (MBLL) maintains a wholesale monopoly and exclusivity on the sale of beer and spirits to the businesses serving food and alcohol. With some minor exceptions, MBLL determines pricing for all wine, beer, and spirits. Where there is no room for negotiation, the price of a product is set. This eliminates the potential for consumers to benefit from price reduction and enhanced choice. It’s what earns Manitoba its “C.” “Huge strides have been made in the reduction of red tape regarding some events, while others remain difficult.” 12 Restaurants Canada WESTERN CANADA For Saskatchewan, barely a passing grade D+ Monopolies simply don’t work for consumers and, if you live in Saskatchewan and you frequent a local bar or restaurant, you’re experiencing that reality firsthand. The owners of those bars and restaurants, at least on an acrossthe-board basis, cannot buy their alcohol products wholesale. They enjoy none of the benefits of supply chain competition. Except in some unique cases, there is no negotiating for discounted price, no payment terms and, worst of all, these businesses can only buy from a monopoly, the Saskatchewan Liquor and Gaming Authority. This scenario does not work for the consumer who could benefit from lower prices that typically exist in a less regulated marketplace. Worse yet, there is an unfair tax burden. In Saskatchewan, consumers pay a 10% Liquor Consumption tax, twice the amount of the province’s retail sales tax. Add to that the 5% GST and you have a punitive tax specific to the consumption of alcohol. Incidentally, in this same province, there is no provincial tax on restaurant meals. In Saskatchewan, however, not all regulation is bad regulation. Today, applicants wishing to serve liquor can readily acquire a license with minimal red tape. Restaurant and bar owners can serve alcohol without food. “The general public does not realize we pay exactly the same price as they do for the alcohol we serve.” “If I’m reselling and helping generate higher taxes, I should be able to purchase at a discount in relation to a retail customer.” Customers can recork their unconsumed wine and, in some circumstances, even beer. So there have been improvements in Saskatchewan and they have been positive, but the piecemeal approach to regulatory reform does not allow for measurable savings to the food and beverage service industry. Without savings at the wholesale level there can be no positive outcomes for the consumer who pays retail with every order of wine, beer, or spirits. 2015 Report Card    Raise the Bar 13 WESTERN CANADA Alberta leads the class of Canada B+ For Alberta’s restaurant and bar owners, it’s a marketplace deemed the best in Canada. Why? It is because these business owners enjoy the broadest selection of alcohol products at the best average prices relative to other Canadian jurisdictions. In large measure, this is an outcome of Alberta’s flat tax mark-up system and access to wholesale pricing. Alberta’s restaurant and bar owners also have the flexibility and convenience of purchasing alcohol products either directly through the Alberta Gaming and Liquor Commission (AGLC) at the full wholesale price or, as well, through any private retailer in “We need to give restaurants the right to have off-sales available to their guests and customers, just as hotels have enjoyed for all these years.” “Not being allowed to infuse flavours into spirits (bitters even!) is just crazy.” the province at negotiated prices and payment and delivery terms. What alcohol these businesses order, what they pay for it, how they pay for it, and from whom they buy it, are all facets of this province’s competitive wholesale environment. This level of support for the hospitality industry translates into reasonably priced and conveniently available alcohol products for Albertans. Recent pilot programs forecast even more flexibility in Alberta’s regulatory environment. These test cases have allowed restaurants and bars to extend their hours for special events such as the Olympics and the Calgary Stampede, providing their guests with more opportunity to celebrate. And best of all, if you are on the customer side of that restaurant and bar experience, Alberta has no sales tax. As with any report card, however, there is always room for improvement. Smaller restaurants and bars, for example, would benefit from a change in the minimum case ordering restrictions. As it stands now, Alberta licensees can order at wholesale prices from the AGLC, but the minimum case requirement prevents many small restaurant and bar owners from taking advantage of this wholesale pricing. Alberta enjoys a reputation as a business-friendly province. Careful attention must be paid, however, to ensure this label continues for the future of the province’s hospitality industry. The last two provincial budgets, for example, add up to an ill-advised average 15% increase in liquor taxes. Government has also announced its intention to phase out a distinct liquor server wage in 2016. A change to this minimum wage law would no longer recognize that servers in restaurants and bars access tips not typically available to other minimum wage employees in the province. To remain best-in-class, Alberta must modernize antiquated liquor laws, reduce minimum case ordering requirements and reverse the planned phase-out of the liquor server differential. 14 Restaurants Canada WESTERN CANADA Beautiful British Columbia not so beautiful when it comes to liquor prices C+ If you live in glorious British Columbia, you can expect unparalleled vistas, challenging mountains, and less-than-ideal liquor laws. Restaurant and bar owners, along with the province’s caterers, must pay retail price for the products they sell to their guests. There is no wholesale pricing and no opportunity to buy from outside the Liquor Distribution Branch monopoly the B.C. government has in place. B.C. liquor products, when compared with other provinces, are expensive to buy. For example, the provincial sales tax on liquor, at 10%, is 3 points higher than the sales tax on other items in the province. This is not good for the hospitality industry or the people it serves. “We built a patio and experienced a very slow permit process even though we already possessed a liquor license.” “I had to re-apply for my license after moving my business. It took 2 months to fill out all the paperwork when everything was already on file. I did not change ownership – just location – and within the same municipality.” The B.C. government deserves credit for recent efforts to simplify and modernize liquor sales in the province. These changes eliminated a number of complicated rules including food-ordering requirements that once had to accompany orders for alcoholic beverages. As well, new rules now allow restaurant and bar owners to offer Happy Hour specials providing minimum prices are maintained. A liquor server minimum wage has been introduced in B.C. This wage is lower than the minimum wage in force for individuals not compensated with tips. This change allows owners and managers to re-deploy better wages to back-of-the-house staff who work without access to tips. Earlier this year the B.C. government also introduced new wholesale pricing policies for wholesale alcohol customers such as private liquor retail stores, but those changes exclude restaurant and bar owners who remain “High cost of goods and poor availability of products is a problem.” the only wholesale customer to receive absolutely no wholesale discount on the alcohol products they purchase. Despite its effort at regulatory improvements, B.C. gets a “C+” on this year’s report card. Until B.C. allows its liquor licensees to access wholesale pricing and until they are allowed to purchase liquor from private retailers, there is little motivation to improve that grade. The government’s recent liquor review consultations and resulting regulatory changes are welcome, but they must translate into purchasing policies that benefit all stakeholders. “Customers would naturally think we pay less for our alcohol purchases.” A REPORT CARD FOR CANADA – OUR METHODOLOGY Restaurants Canada’s report card Raise the Bar rates provincial government policy and legislation on beverage alcohol for licensed establishments. Provinces were ranked in four major categories and, after analysis and weighting, given an overall score. Within each category, provinces were allotted points on the criteria listed below. In cases where government laws and regulations were supportive of the hospitality industry, points were awarded. Conversely, laws and regulations that were punitive or unhelpful resulted in a reduction in the points tally. Provinces were evaluated on the following four categories: 1. Pricing and selection. This category included factors affecting the supply of beverage alcohol to restaurant and bar owners. Provinces were awarded/deducted points based on availability of wholesale pricing, the prospect of restaurant and bar owners purchasing directly from suppliers or other sources, competition in the supply chain, available payment terms/methods, existing surcharges, and the number of products from which to choose. 2. Licensing and Regulation. This category took into consideration the cost of regulation to restaurant and bar owners. It evaluated the complexity of the licensing process, license wait times and required (and costly) advertising linked to license applications. The actual cost of licenses and their renewals along with mandated kitchen requirements were also part of the points-award/deduction process. 3. Customer Sales. This category included factors that affect the final price of the product to restaurant and bar owners over and above the actual cost to them of the product they sell. Points were awarded/deducted for customer surcharges (i.e. extra taxes), licensee off-sales, and the absence or existence of a minimum wage for liquor servers which is the same as required for employees who have no access to additional revenue from tips. 4. Political/Regulatory Activity. This category measured the political willingness to improve the current system. Provinces were evaluated on their recent activity to review, modernize, and simplify the liquor system for licensees. Government’s consultation process to bring about change for the hospitality industry was measured. Lastly, governments were graded on their appreciation of the hospitality industry’s contribution to their provincial economy. Based on feedback from members, Restaurants Canada assigned weights to the above four categories to calculate a final score for the province. Members have established pricing as the most important issue when it comes to beverage alcohol. As a result, the first measurement factor, Pricing and Selection, had a weight of 45 out of 100. Licensing and Regulation is the second most important issue for the industry and, as a result, was given a weight of 30 out of 100. For Customer Sales the weighting was 15 out of 100 and for Political/ Regulatory Activity, it was 10 out of 100. Grades for each of the four main categories were then weighted based on the above scale and a total grade was awarded. NOVEMBER 2015 Phone Web E-mail Twitter Facebook 1-800-387-5649 RestaurantsCanada.org info@restaurantscanada.org @RestaurantsCA RestaurantsCanada