Outsourcing back end of LDB is all about 2013 budget
By Bruce A Stewart
“We’re not going to outsource the BC Liquor Distribution Branch.”
“Yes, we are, but just the back end of warehousing and distribution.”
Shirley Bond, the Minister responsible for the BC Liquor Distribution Branch (LDB), has had a delightful year opening her mouth to exchange feet, all wrapped up in concerns that Exel, one of the shortlisted companies competing to manage the back end of liquor acquisition, warehousing and distribution for the province, has influenced the process unduly.
What the BC Liberal Government is doing, though, makes no sense strategically. All the gains (if any) will be very short-term, indeed.
Just enough, they hope, to give them an election plank to run on in May 2013.
First, the deal. The retail operations (BC Liquor Stores) remain in government hands, run by civil service employees. Only the back end is up for outsourcing.
The LDB warehousing and distribution portions, in turn, will remain in public control, but run by a private company on a long-term outsourcing agreement.
That company — as with all such agreements — will buy the assets from the government, providing a cash infusion up front, in exchange for the multi-year fee structure to provide the service (and pay off the cash paid for the assets, with interest and profit).
The gain for the government? A chunk of cash in March 2013, just in time to help balance the provincial books heading into the 2013 election. “Look, voters, we fixed the hole, but you know those evil NDPers will have us right back in the red if they get in, so vote us!”
What, me cynical? The BC Liberal government has, over the years, alienated Crown operations in a variety of different ways, mostly for “money up front.” None of the deals have been winners for the province.
When it comes to being in the business of beer, wine and spirits, there are really two appropriate courses of action for a government.
One is to go Ontario’s route. The Liquor Control Board of Ontario (LCBO) is one of North America’s sharpest retail chains. It hires people because they’ve got retail, supply chain and buying experience — as merchandisers. A person in the smallest village in Ontario served by the LCBO can have any product in the world imported to them by the LCBO — or any product carried by the LCBO delivered to their store — or, if you just want to buy off the shelf, that’s fine too.
Unsurprisingly, the LCBO makes massive profits (and is North America’s largest wine dealer), which the Ontario Government is pleased to receive each year.
Nothing in this deal gets BC anywhere close to that — and the BC LDB and BC Liquor Stores, despite having a price advantage over private sector stores in BC, is nowhere near the profitable system the LCBO is.
The other is to get out of the liquor distribution business totally, and go to a wholly private model, making money solely from taxes on alcohol products, and having competition between many private outlets drive volume up.
That way, you’d be selling off the retail stores either first, or at the same time, but not all to one purchaser. Likewise, you wouldn’t be outsourcing the back end, you’d be selling it (or breaking it up and selling the pieces to create competitive distribution networks).
You’d get cash now — and make no payments for services going forward.
Instead, the Christy Clark government is doing neither, and merely looking to do “enough” to try for re-election.
If they get another budget surprise later this year, I wonder what the next attempt to find a rabbit in a hat will be.