Canada:  Saskatchewan’s liquor future uncertain three years after privatization

Mark Willingham Uncategorized

Canada:  Saskatchewan’s liquor future uncertain three years after privatization

“It’s an ongoing threat to our existence.”

Regina Leader-Post

By Arthur White-Crummey, Regina Leader-Post

November 2, 2019

Time is ticking away at Saskatchewan’s 36 publicly-owned liquor stores.

Employees have five months left in their contracts, which guarantee the Saskatchewan Liquor and Gaming Authority (SLGA) will keep its remaining retail holdings until at least March 31.

After that, it’s anyone’s guess what the government will do.

“It’s an ongoing threat to our existence,” said Bob Stadnichuk, vice-chair of the SGEU local’s negotiating committee and an employee at a Saskatoon SLGA store.

“They’re all anxious.”

There’s now roughly three years of experience under the expanded privatization system SLGA rolled out in 2016, when the Crown corporation began selling 39 public stores into private hands and allowing 11 more private stores to open. That experience is flush with lessons for the road ahead, but there’s little agreement over how to interpret them.

Stadnichuk calls it a failure that’s replaced high-paying jobs with near-minimum-wage labour and gutted some of the key economic drivers in rural communities.

Others see a successful model that’s expanded consumer choice, promoted entrepreneurship and kept money flowing into SLGA coffers.

“We’re doing absolutely fantastic,” said Garth Harris, owner of Thirsty Dogz Liquor in Preeceville.

Preeceville’s public retail store was one of six taken over by former SLGA employees. Harris, who’s also Preeceville’s mayor, said sales were up 27 per cent in his first full year of independent business.

He’s doubled his selection, increased the store’s hours and added an ice cream bar. He said his new location, right on Main Street, enlivens the town and supports the local economy.

“I’m having the time of my life, because I’m concentrating on the customer,” he said.

However, Harris acknowledges that pay for his employees has fallen by about a third relative to the old SLGA days.

“When I worked for them I was probably one of the highest paid jobs in the community,” he said. “It was a good job.”

The Leader-Post reached four of the stores bought by former employees, and all of them remain in the same hands. Their experiences, however, are wildly different.

Gloria Klub, who took over the former SLGA store in Leader along with a business partner, said she’s getting squeezed. She said wholesale prices have gone up sharply for some products since privatization.

It’s tougher in Leader than in Preeceville, given the competitive pressures of the Alberta market.

Klub has made improvements, like a walk-in freezer and expanded hours. She loves working for herself and has no regrets, but she’s not expecting a financial windfall, she said.

“There’s no way we will ever get rich.”

She said she takes home the same wage as her employees, about $15 an hour. Klub believes all of the profit is heading elsewhere: straight to the SLGA.

The SLGA hasn’t lost much revenue through the privatization process. The retail stores weren’t big money makers. In fact, every one of the now-privatized stores lost money in its last full year in public hands.

SLGA Retail Inc., a subsidiary that holds the remaining public stores, reported a $5.5 million loss over its first full fiscal year in existence, 2016-17. In 2017-18 it did better, earning $672,000 in comprehensive income.

It brought in $9.4 million over the past fiscal year, after the 39 money-losing stores were totally off the books.

That still pales in comparison with the wholesale operation, which now earns about 85 per cent of net income by selling liquor to SLGA retail stores and private operators.

But the SLGA hasn’t gained from privatization either, at least not according to its bottom line.

In 2016, SLGA liquor revenue was $641 million. It slipped to $637 million the next year and has remained flat at about that level ever since.

Clare Isman, CEO of the SLGA, says she sees the same trend in profits from liquor operations. Net income has remained steady at around $250 million for years, despite privatization.

“From a bottom line perspective, the changes had virtually no impact,” she said.

However, she’s not sure that’s the best way to measure the success of the past three years. She said the government promised privatization would bring more choice, more convenience and more competitive pricing.

“How is it three years later against those? I’d say it’s meeting its objectives,” Isman said.

The SLGA does more than just sell liquor. It has a strange tension in its mandate, Isman admitted. She has to earn profits while encouraging responsible liquor use. SLGA data on per capita sales shows a steady but slight decrease in the volume of alcohol the average Saskatchewan person purchased each year since privatization.

Isman pushed back against any notion that privatization may have made that regulatory task more difficult.

“With regard to the private stores, our expectations of those retailers are the same that they would have been with us being the retailer,” she said.

Something has changed for Isman. She said the SLGA has been forced to respond to a more competitive marketplace.

“In this competitive market, I think what we’ve had to do is really get focused and understand better what the customer’s wants and needs are, because now they have choice,” she said.

That means looking at opening hours, controlling expenses with more “urgency” and paying more attention to price.

“We’ve had to look at our margins, in terms of that whole price competitiveness piece,” she said. “We aren’t necessarily the price setter anymore.”

Stadnichuk said he hasn’t seen any evidence that more competition means better prices for customers. Quite the opposite, he insisted.

“We have seen the prices increase,” he said. “It seemed to be not as dramatic as we thought it would be right at the beginning, but a slow climb until they reached the level that they’re reaching.”

SLGA now sets standardized wholesale prices that all retailers pay. That’s different from the old system, when prices differed based on type of business. Spokesman David Morris said that meant prices changed for many at the time of privatization, with some going up and others down depending on product and retailer.

SLGA has increased its wholesale markup since privatization, according to Morris.

The first came with the 2017-18 provincial budget, when the markup on all products jumped 4.5 per cent. Then beer markups rose 2.5 per cent in February 2018 and again by 4.5 per cent in January 2019 as part of an industry-initiated price increase.

But price is just the beginning of Stadnichuk’s critique. In his view, the impact on workers and their communities — especially rural communities — has been far more severe.

At $19 to $25 an hour, Stadnichuk thinks an SLGA customer service representative’s wage is a living wage. He can’t say the same about what private retailers are paying their employees.

“In the smaller communities, those people actually could buy homes or buy cars or contribute to the economy of their community,” he said. “I’m sorry, at $15 or $11, a minimum wage, you can’t. You’re just barely surviving.”

Stadnichuk thinks there’s a strong business case to be made for keeping the remaining retail stores public. SLGA Retail Inc. is now turning a profit, after all.

“We’ve proven that we’re still a successful model,” he said.

He has confidence that Isman is the right person to make that case to the government when next spring rolls around.

“We’re satisfied with her,” he said. “She’s never given us any cause to worry.”

SLGA minister Gene Makowsky said this week that further liquor privatization isn’t on the government’s “front burner” right now as it grapples with significant changes to its cannabis retail permitting system.

And Isman won’t tip her hand about what her recommendation to the government would be on the fate of the 36 remaining stores, or even whether she would make one.

She knows workers are anxious, but she can’t predict a future that remains in government’s hands.

“There’s nothing obvious about government making a choice or a decision one way or the other,” she said.

“We’re in business. But like anything else, I think there’s always that question in the back of your mind — are we still going to be in business?”