Under growing competition from grocery stores and with the threat of corner store beer sales looming, The Beer Store (TBS) suffered a $46.5 million operating loss last year.
The retailer, whose majority is owned by Molson Coors Beverage Company and Labatt Brewing Company, released its 2019 financial statement recently, and it painted a picture of an organization struggling to deal with increased competition.
The $46.5 million operating loss dwarfed the $18.1 million loss suffered by the retailer in 2018.
“The bottom line is they’re not making money on their core business,” said Matt Sooy, an assistant accounting professor at Western University’s Ivey School of Business.
At the same time as its loss mushroomed, TBS also saw its operating revenue fall to $402.2 million, from $418.9 million the previous year. Much of that revenue drop came because recycling revenue fell to $66.4 million from $75.2 million the previous year.
Under terms of a Master Framework Agreement signed with the province in 2015, TBS is supposed to run on a revenue neutral basis, meaning operating losses must be covered either by a cash-call among owners, sale of TBS assets or other means. TBS sold and leased back several of its locations in 2019.
“They’re in the death spiral,” said Alan Middleton, a marketing professor at York University’s Schulich School of Business.
Unlike the LCBO, which stocks a wide variety of alcoholic beverages, and grocery stores, which can be a one-stop shop for people looking to pick up food along with their brews, The Beer Store’s one-category offering is a relic of an earlier time, said Middleton. It may have once been a strength, but it’s now a liability, he said.
“It’s yesterday’s model in what they stock, and secondly, they’ve done a terrible job of communicating. It’s also not a pleasant retail experience,” said Middleton.
TBS president Ted Moroz denied the retailer is on its last legs, but admitted the increased competition has hurt.
“There are a lot more other retail outlets selling beer than there are Beer Stores. They’ve all taken a toll on The Beer Store,” said Moroz, who called the 2019 results “just a moment in time.”
“Overall in the last five years, it’s been positive,” said Moroz.
Molson Coors and Labatt each own roughly half of TBS, with Sleeman Breweries owning a small percentage. In 2016 under pressure from the provincial government, TBS offered independent craft breweries “ownership” stakes without financial obligations, and a place on the board. The Beer Store was originally created in the wake of Prohibition as a warehousing and retail co-operative of the province’s breweries.
At its peak, TBS controlled more than 90% of beer sales in Ontario. That figure, however, dropped to 63% in the 2019 fiscal year, according to statistics from the LCBO’s annual report. The LCBO says it accounts for just over 30%, although that figure includes sales to grocery stores.
According to several industry sources, TBS now accounts for just over 60% of sales, with grocery stores and the LCBO having a roughly equal share of the rest.
In 2019 the provincial government ripped up the 10-year Master Framework Agreement signed with TBS in 2015, and vowed to introduce beer and wine sales in corner stores. The Star reported that the provincial government could be on the hook for up to $1 billion for ripping up the agreement.
Moroz said TBS will still have a place in Ontario’s beer-retailing picture, although he wouldn’t disclose details of talks between TBS, its owners and the government.
“I can’t get into the details of our negotiations, but we’ve been more focused on taking care of the health of our employees and customers. Our goal is to continue running The Beer Store as a successful business,” said Moroz.
The head of the union representing TBS’s 7,000 employees said the provincial government needs to put the brakes on expansion of beer retailing, both for community well-being and to save good-paying jobs.
“Between Beer Store outlets, LCBO outlets, supermarkets, craft breweries and rural LCBO convenience outlets, there is plenty of consumer access. Doug Ford knows that, but he wants beer in big foreign-owned convenience store chains anyway, putting 7,000 good-paying Beer Store jobs at risk to be replaced by untrained, minimum-wage corner store clerks. That’s bad for our communities and our economy,” said John Nock, president of United Food and Commercial Workers Local 12R24.
A spokesperson for provincial finance minister Rod Phillips said the government is still looking to change the alcohol retail system.
“The Government supports meaningful change to alcohol sales in Ontario. This is one of many priorities for the government and we look forward to continuing consultations with all stakeholders in order to deliver choice for Ontarians and new opportunities for business,” said Emily Hogeveen.