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Wednesday, May 21, 2008

SAQ, price fixing, and Ontario: by Larry Paterson (with permission)

SAQ and the Price Fixing Scandal

In late 2005 and early 2006 a number of very strongly worded articles appeared in publications in Quebec, accusing the SAQ (Quebec's alternative to LCBO) of artificially propping up prices. SAQ eventually admitted to the charges, after initially denying them.

See below for links to a number of stories from that period.

SAQ denies price-fixing The Gazette Dec 29 2005

Wine prices in Quebec improving with age CBCnews Jan 12 2006

SAQ sacks two... CBCnews Feb 3 2006

SAQ admits price-fixing scheme The Gazette Feb 3 2006


It amazes me that all this happened next door in Quebec, and, despite a similar lack of serious decreases in the price of European wines, seems that nobody in Ontario was interested. Why?

My question is this: Can anyone remember the price of imported wines falling over the last few years? Unless I'm sadly mistaken, Quebec and Ontario share the same currencies and exchange rates, and many of the same suppliers. And SAQ and LCBO are both highly motivated to keep prices as high as they can. Both make more profits as retail increases. Is it possible that LCBO has been keeping prices of imported wines higher than they should be? If I am wrong, LCBO can easily provide a trail of price reductions on their biggest selling imports due to currency fluctuations over the same period of time as the currency fluctuations happened.

I have assembled a "Basket" of imported wines, which consists of one bottle each of the top 50 selling imported wines of 1999. I have used the changes in the exchange rate of the Canadian and US dollar over the period of 1999-2007 as a surrogate for the value of the Canadian dollar against the various currencies involved with LCBO purchasing the top 50 imports of 1999. The retail value of each wine in the basket has been altered each year to reflect the effects of inflation (as represented by the Consumer Price Index) and currency fluctations. As this chart shows, it is possible that the price should have come down on these (by-definition) mass market wines. At least you can safely state that the price increases haven't been caused by inflation or by the currency fluctuations. And it is impossible to ignore the fact that LCBO and its masters make more "profit" every time a bottle increases in price. This is the kind of thing that competition is supposed to prevent. Wonder what price the last surviving oil company would charge for gas?

This whole thing needs investigation by professionals. If indeed LCBO has been propping prices up in an effort to maintain "Record Profits for an XXth straight year" then they are poorly serving the drinking public. I have seen the evil effects of bad alcohol consumption, so I really do support the idea of a minimum price for alcohol. But any arguments that higher prices for Brand X or Y cause less alcoholism are ridiculous. If Dom Perignon has reached $200 I doubt that a single Ontario alcoholic will take the cure for this reason...


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