Ice-cold reality? MLL’s Hot Buys punish local, reward global

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This article was published 18/12/2023 (679 days ago), so information in it may no longer be current.

It has often been said that with great power comes great responsibility. It’s a saying that you can bet is not part of the Manitoba Liquor and Lotteries mission statement.

A recent Free Press story examined concerns raised by craft brewers in Manitoba over the MLL “Hot Buys” program that has seen some beer, wine and spirits discounted by 40 per cent.

The marketing program requires the manufacturer to offer 20 per cent of the discount, while and the other 20 per cent comes from MLL cutting its margins.

There are many ways of looking at the Hot Buys program.

It’s a heck of a deal for consumers, particularly if your favourite type or brand of alcohol is enrolled. But there are concerns, particularly around how the program has disrupted local brewers.

Theoretically, any manufacturer is eligible for the program. Remember, however, that in order to qualify for the MLL discount, the manufacturer has to absorb a 20 per cent discount of its own. If that’s too rich for some smaller producers — and for many local brewers, it is — then they are immediately put at a huge market disadvantage with competitors that have the economies of scale to absorb the discount.

The Manitoba Brewers’ Association — which represents smaller manufacturers — reported that sales of craft beer have declined noticeably in 2023, while the sales of brands from larger national and international brewers rose.

MLL should really know better than to unleash a promotion that would clearly put local brewers at such a significant disadvantage. The Crown corporation should also have known better because this is not the first time it has created this kind of problem.

In 2006, private wine stores won a multimillion-dollar settlement against MLL, which had been accused of using predatory marketing practices to compete unfairly.

Provincial legislation requires all the private wine stores to buy their products through MLL. If the privates sell the same wine sold in Liquor Marts, it must be priced exactly the same.

However, in the early 2000s, MLL used Air Miles rewards and deep discounts on some products that gave it a huge advantage over the private stores.

As part of that settlement, the private wine stores obtained an assurance the province would not expand the number of licensed private wine stores in the future. While MLL has consistently refused to confirm that provision, since the settlement the number of private wine stores has not increased.

What brought about the predatory marketing? Throughout the saga, there was clear evidence MLL harboured a certain resentment toward the private retailers.

When they first opened back in the mid-1990s, private wine stores represented a small hole in MLL’s iron-clad monopoly. In the public battle that pre-dated the lawsuit, it became abundantly clear the Crown entity saw the stores as competition that had to be stamped out.

Does that same animosity impact MLL’s relationship with local brewers and distillers? Unclear at this point, but it is worth noting that new regulations were introduced earlier this year that reduced the markups charged to craft brewers that serve their own products at on-site tap rooms.

What explanation does MLL have for this, a second round of predatory marketing that has put local businesses at a disadvantage?

CEO Gerry Sul and Robert Holmberg, vice-president of liquor operations, both refused to comment on the story in Saturday’s Free Press. An MLL spokesperson did provide a statement that, taken on its own, suggests the Crown monopoly remains somewhat clueless about what it has unleashed with Hot Buys.

The written statement argued the discounts provided “exceptional value” for customers in this, MLL’s 100th anniversary year. The statement noted that the discounts were a huge benefit to bars and restaurants that are also obligated to buy their alcohol through MLL.

As for the allegation that the Hot Buys program really only benefited the huge conglomerate brewers — none of which have breweries in Manitoba anymore — MLL had no comment.

Fortunately, newly appointed Culture Minister Glen Simard, who is responsible for MLL, has already determined the corporation erred in offering matching manufacturer discounts. He said there would be changes to “ensure a level playing field for Manitoba brands.”

The frustrating aspect of this story is how easy it would have been for MLL to design a discount program that gave smaller brewers an opportunity to participate with terms that better matched the size of their operations.

The program could have been structured so that it did not require smaller operations to give away so much of their bottom line. Or, perhaps it could have had two different streams: one for larger manufacturers and one for smaller, local operations that do not have the margins to give away a fifth of the shelf-price of their products.

The monopoly enjoyed by MLL has huge benefits for the province. All of the profits from alcohol sales go into general revenues to support core government services. Last year, that came to more than $319 million.

However, with that power, it needs to be much more thoughtful about how it disrupts the local market. In this instance, its actions were nothing less than irresponsible.

dan.lett@winnipegfreepress.com