SAQ under scrutiny

Quebec may privatize liquor sales

Quebec’s program review committee, chaired by former Liberal MP Lucienne Robillard, has called for the end of the SAQ’s monopoly on selling alcohol. The Committee, tasked with recommending better management of public funds, tabled its final report back on August 31. Their recommendations prompted a quick response from the SAQ.

The Committee’s “Focus on Performance” report tackled several topics including the government’s monopoly on alcohol sales. The report notes that the SAQ accounts for about 90% spirits and wines sales; grocers and wholesalers sell the other 10%. The SAQ responded that the beer market is in private hands and represents 43% of Québec’s alcohol sales.

The Committee argued that Québec’s model is failing -- because of private sector strategies, online sales, and consumer requests for change. Consumers are purchasing their drinks outside the province (valued at $90 million), mainly in Ontario. Ontario is also planning to legalize wine sales in local stores.

 

Good management?

The Committee also compared the SAQ’s operating ratios with eight provincial agencies and those in New Hampshire, Vermont and Pennsylvania.

 

Their findings show that between 2010 and 2014, the SAQ had the highest ratio of administrative expenses to net sales, apart from Newfoundland. The SAQ’s ratio reached 21% in 2014. The same year, it was 16% in Ontario, 10% in British Columbia, and 8% in New Hampshire and in Pennsylvania.

The SAQ’s revenue-to-compensation ratio on net sales has been about 13% since 2010. All other jurisdictions had lower ratios; in 2014, this ratio was 6% in British Columbia, 5% in Vermont and 4% in Pennsylvania.

The Committee concluded from these stats that the SAQ is poorly managed, claiming these “disappointing results” are due to the SAQ’s monopoly. They propose partially privatizing Québec’s liquor market.

 

The SAQ responded that the state-owned corporation shows strong financial health and has registered productivity gains over the past decade. The SAQ’s profits doubled in the past 10 years, from $546 million in 2005 to $1.034 billion in 2015. The SAQ stresses that profits from liquor sales are not pocketed by private interests, but are used by the government to the benefit citizens.

 

In 2014-2015, the SAQ made annual dividend payments to the Government of Quebec of just over $1 billion. Tax revenue from these sales reached $601 million in 2014-2015. As for its efficiency, the state-owned SAQ argues that their stores achieved an average annual sales growth of 6.4% between 2004 and 2014. In this regard, the SAQ ranks second among Canadian liquor boards, the first being Newfoundland.

 

Both boards have the highest ratio of administrative expenses to net sales. The SAQ defended its management, arguing that in 2005, it cost 25 cents to generate $1 of sales while today it cost the SAQ 19 cents.

The Committee favours privatizing some of the market -- to promote competition with the SAQ. The SAQ argues that Alberta’s privatization of its market in the early 1990’s did not lower prices. The SAQ points to an Institut de recherche et d’informations socio-économiques (IRIS) report that the prices of spirits in Québec increased by 17% between 1992 and 2014, two times slower than in Alberta. The same trend applies for wine, according to the study.

The Couillard government has not announced how it will proceed.