When I write about price controls, I’m usually writing about price ceilings (and the inevitable failures thereof). Every once in a while, some well-meaning government imposes a price floor instead — a minimum rather than a maximum price for a given good or service. Go on, take a guess at how well that works.
Price floors are glancingly similar to Pigovian taxes — both are attempts to introduce (perceived) social costs into the market price of an item. Pigovian taxes work mildly well in moderation; price floors, however, are less subtle, less flexible, and less effective.
For example, New Brunswick has a price floor of $18.67 for a twelver of beer. This is intended to curtail the amount of drinking going on in New Brunswick; instead, it merely prompts residents to buy cheaper beer in Quebec. N.B.’s reaction to this phenomenon is… interesting.
Yep: the province is getting into the beer industry. And seeing as how this is government beer, it’s bland and inadequate.
The new Selection brands will be sold throughout the year for $18.67 for 12 cans. Other beer companies have to apply to sell at the minimum price for a limited time and can only do that a certain number of times each year.
While the beer may be cheap, Craig Pinhey, a New Brunswick wine and beer expert, said the product may be worth the price for some people.
“If you like mass-produced Canadian lager, this tastes just as good as the other ones. So why would you not save money?” he said.
Faint praise.
Of course, since the province is selling Victory Selection Beer at the same price minimum that’s causing the “problem” in the first place, it’s unlikely to help. It’s an inspired level of jackassery, and one which — to date — British Columbia has been hard-pressed to achieve.
The beer business in New Brunswick is heavilly regulated and controlled. No big deal since this is really not much different than any other province.
Past history has clearly indicated that although the day to day beer business is run by NB Liquor, the overall strategy of the beer business is controlled by Moosehead breweries. It has been an unstated goal of NB Liquor to protect Moosehead from Bud, Labatt, Molson and anything elsse that might erode their market share.
So without knowing what we know now, at the time of the launch of Selection Beer, it was a very safe bet to say it was Moosehead’s idea. It turned out to be true. There was no public tender for the Selection Beer contract, it was given directly to Moosehead.
NB Liquor has tried to “smokesreen” the raison d’etre of Selection beer…i.e low cost beer for New Brunswickers by New Brunswickers, everyday low cost for consumers…etc…
But essentially this is a very anti-competitive move by NB Liquor. The everyday low price of 18.67 per 12 pack can does not compete with Quebec prices at all so this will have no impact on “beer bleed” as NB Liquor CEO Dana Clendenning christined the purchase of beer in Quebec by New Brunswickers. What it does do is allow Moosehead to have a beer prominently displayed at the lowest price allowed in every corner of this province at no cost to them. In fact we, the taxpayers, pay them to make the beer so it can be sold back to us.
In case you don’t know, prominent display locations in NB Liquor stores are very expensive to reserve, in the order of a few thousand per month according to the marketing policie available at http://www.anbl.com. So if Selection beer is prominently displayed for 12 months (it has been for 5 months straight since the launch in March) it would should cost around $40,000. Not much you say for big breweries…I agree. The real savings for Moosehead come in the fact that they do not have to pay for the discounting of Selection beer. Normally, breweries have to pay 100% of the cost of discounting below mainstream price. The mainstream price for beer in New Brunswick is $20.99 for 12 pack cans. In other words the cost to sell beer at $18.67 is $2.32 per case sold. Lets say, on average NB Liquor sells 200 cases per store per week for 12 months of Selection beer. There are 48 stores. This adds up to well over 1 million dollars. I have not included the 70+ agency stores in NB that would sell Selection beer as well. This sure would account for a few hundred thousand in discount costs.
If you take into account, display space cost, discounting cost and other marketing costs (NB Liquor has a Selection beer website), print adds etc..) New Brunswickers have lost out on a couple million dollars that would have otherwise been paid to NB Liquor.
The 2 million dollar opportunity cost of Selection beer will have an impact. It will result in price increases for wine and spirits.
If you are beginning to think that the consumer is really getting screwed here, you are on the right track. Don’t forget to think about Pumphouse and Piccaroons. Their tax dollars are being used by a Crown Corporation to directly compete with them. Incredible but true.
CAVEAT: The numbers used above are estimates but I think very reasonable estimates. NB Liquor has so far refused to release any sales figures for Selection beer or how much they are paying Moosehead to make it.
Selection Beer Update
How is our beer doing? If you ask NB Liquor directly, they will not tell you. Try it yourself. E-mail info@anbl.com and ask for a sales update on Selection Beer. There are 4 sources currently available from which a taxpayer from New Brunswick can get information about how well Selection, the beer made by New Brunswickers for New Brunswickers is doing. (NB Liquor fails to mention that Selection is also owned by New Brunswickers)
Note: my comments are bracketed at the end of each bullet
1. A story by Jeff Lansing of 88.9 FM radio in late March that quotes NB Liquor Customer Service Manager, Gary von Richter. In this story we learn the following about Selection beer;
• initial sales results had exceeded expectations.(meaningless statement as NB Liquor never shared their expectations other than to reduce “beer bleed”)
• domestic beer sales were up 8 percent (meaningless and would otherwise be significantly skewed by late March accounting shenanigans)
• Selection had grabbed a 4.4 percent share of the domestic beer market (same comment as above)
This story can be found here:
http://www.news889.com/news/lo…..55603_7828
***interesting fact: If you look up the NB Liquor organizational chart at http://www.gnb.ca you can see that the Customer Service & Retail Operations Dept. has only one person working in the Customer Service section, the above quoted von Richter. This should re-enforce what we already know about how important customers are to NB Liquor. ****
2. A mid-April article by Stephen Llewellyn in the Daily Gleaner that is heavily based on quotes by NB Liquor Spokesperson, Nora Lacey and Moosehead employee, Joel Levesque. In this article we learn the following;
• Selection has sold 138 000 liters in its first month on the market (32 394 cases or average of 275 cases per beer outlet in NB or an average of 9 cases sold per day per outlet)
• Domestic beer sales were up 2.9 percent (this has dropped from 4.4 percent to 2.9 percent in two weeks)
• NB Liquor expects sales of Selection to grow as the warmer months approach.
• The Prospect store in Fredericton sold 6000 liters (1408 cases).
• Selection beer is not stealing market share from other domestic beers. (no proof offered)
• Moosehead is not worried about Selection beer stealing share. (Thanks for the deep insight Joel, but Selection beer sales add to Moosehead share!!!)
This story can be found at Canada East
3. An interview of Dana Clendenning by Charles LeBlanc in early July. In the interview Clendenning says;
• That Selection beer is a Top 20 beer brand in the province (can you name even 10 brands of domestic beer?)
• Has sold about 80 000 cases up to early July. (340 000 liters…that means it took 3 months, 3 good beer months I might add, to sell a little less than what sold in its first month…..talk about sagging sales!)
This interview can be seen on You Tube.
4. A paragraph in the middle of the July 10th news posting by the hard hitting news organization Fox 105 FM in Fredericton. As in the Gleaner article, Nora Lacey is the main source. In this news posting we learned that;
• Selection beer has sold 80 000 cases since its launch in mid-April (340 800 liters)
• Selection has a 2.7 percent share of the domestic beer category. (meaningless stat unless we are given the total domestic liters)
• The 2.7 percent share holds for “beer bleed” regions like Campbellton (2.7 percent of nothing equals nothing. The only sales of domestic beer in “beer bleed” regions are by accident or through force of law..i,e restaurants and bars get inspected Public Safety)
• Overall beer volume is up 2.5 percent from mid-March to early July. (skewed by late March sales…see NB Liquor “Fuzzy accounting” posting on the old blog)
• The contributing factors for the 2.5 percent increase are a. Selection beer launch, b. new flavored beers (I assume she is referring to the new Bud and Moose light Lime pop, I mean beer), c. domestic beer price freeze in April. (the truth is that there was probably no significant increase in sales once the late March sales are factored out)
This article is no longer available on the web or from FOX 105 FM.
Please note the importance of NB Liquor’s fiscal year end which is April 1. This year they granted licensee holders extended terms plus a significant discount in the second half of March. What it meant was “buy it now before year end and pay less for it after year end” This caused an enormous bump in sales at NB Liquor’s year end as hotels, bars and restaurants loaded up with as much booze as they could handle because they received a discount on anything purchased in the last part of March and they were given a long time to pay for it. Most importantly NB Liquor could report the volume of the sales immediately.
Also important to note that the 70+ private agency stores in New Brunswick were certainly encouraged to carry Selection Beer. I estimate that 25% to 30% of the first months Selection beer sales were just shipments to Agency stores, most of which occurred in late March. Shipments to corporate stores are not counted as sales until the public consumer buy it but shipments to Agency stores are counted as sales immediately. Hence the sales curve for Selection beer should look like the Kamikaze slide at Magic Mountain.
All the best Cooper Krebs
Patience, persistence and a good idea are unstoppable.