Does NB Liquor have an unfair advantage?
Published Saturday March 14th, 2009
A lack of transparency in the province's contract with Moosehead Breweries Ltd. to brew a pair of private-label beers leaves New Brunswick taxpayers unable to determine whether they received value for their money, say a trio of business professors.
"I'd like to see the business model. I'd like to see the business plan - I'd love to have been at that meeting," said Dr. John Pliniussen, associate professor of sales, e-marketing and innovation at Queen's School of Business in Kingston, Ont.
Pliniussen was commenting on the decision of NB Liquor to create Selection Lager and Selection Light, a pair of beers being manufactured for the Crown corporation by Moosehead Breweries. The beer enjoyed a successful province-wide launch Thursday.
The agency and the provincial finance department won't release terms of the deal with Moosehead, citing a non-disclosure agreement in the pact.
"It would have been really interesting if NB Liquor had said 'Here's our reason and our logic and our goal for doing this and how much it's costing us.' Just present a clear picture so we don't have to second-guess what the logic is. Because after all, (taxpayers) are paying for this.
"(Taxpayers) should be asking for an update every six months. Are they making money? Is it working? If so, great. If not, admit it and get out of the business. But how will anyone know? It's impossible if (NB Liquor) isn't being transparent."
The corporation said last fall it was losing market share in the domestic beer category - the most popular of all its products - and it said lower prices in Quebec and Maine were drawing New Brunswick customers across the border. President and CEO Dana Clendenning said NB Liquor was losing about $12 million annually in sales.
But Pliniussen wonders if discount suds are the answer.
"We don't have all the facts, but it sounds to me like the decision was 'Beer sales are down, let's just worry about beer sales', as opposed to revenue from all sources of products that they could carry," he said.
"What happens when wine sales and vodka sales go down? Are they just going to say 'Let's go there too'."
Niraj Dawar, a marketing professor at the Richard Ivey School of Business at the University of Western Ontario, is concerned that NB Liquor - which is solely responsible for distribution and price-setting - has an unfair advantage over other brewers in the province. The province's beer has an everyday retail price of $18.67 for a dozen cans, while other beermakers have to apply to sell at the minimum price and may only do so for a limited amount of time.
"The distributor has 100 per cent market share - they are the only channel through which you can reach the market," said Dawar. "They clearly have a lot of power. The brewers will be somewhat upset that their primary channel of distribution and their primary channel to the market is now competing with them, and competing with them on terms that they are not allowed to have and setting the rules so that the retailer benefits, at least in terms of pricing."
Fellow Ivey professor Jeffrey Gandz agreed the agency appears to have an unfair advantage over the competition.
"Anybody except the government would be in trouble, with the monopolist folks, wouldn't they?" he asked. "The private sector is going to scream about unfair advantage.
"There are those who feel very strongly that the government should not be in the liquor business at all. I would say the notion of government competing on unlevel playing fields is something the private sector would not love."
Observers are also critical of NB Liquor's decision to pursue a "grassroots campaign" that won't benefit from a multi-media advertising campaign.
"The result is likely to be a very small market share," said Dawar. "They don't have an established brand, they are unlikely to be able to invest long-term in building that brand the way the large brewers do, and they're unlikely to have a consistent brand-building strategy over time. This seems more like a tactical brand rather than a strategic brand.
"When Loblaws rolled out President's Choice, they had a very long view. They knew they had to maintain quality standards, consistency and roll it out across product categories. In this case, there appears to be none of that."
"It's interesting that they decided to go without a marketing budget, for now," Gandz added. "Will it just walk off the shelves? It may. There will be a segment of people who will go for no-name beer. It will be an interesting case to watch.
Pliniussen was critical of NB Liquor officials describing New Brunswick as "a beer-drinking province" in media reports.
"What a horrible thing to say," he noted. "Do you really want to be known as the beer-drinking province? New Brunswick has so many wonderful assets. There are some sophisticated palates in Atlantic Canada - I've lived there. I don't think I would endorse that approach."
NB Liquor spokeswoman Nora Lacey said the agency was thrilled with Thursday's launch.
"We are extremely pleased with the Selection Lager and Selection Light launch," she said. "More public tastings will continue in all 45 corporate stores (today) from 3 p.m. to 7 p.m."
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