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The Privatization of Liquor Retailing in Alberta

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Introduction

On September 2, 1993, Stephen C. West, the Province of Alberta's Municipal Affairs Minister responsible for the Alberta Liquor Control Board (ALCB), announced that the ALCB's role as a liquor retailer would be phased out, and that private sector-owned and operated liquor stores would replace government-owned ALCB stores. All ALCB stores were closed between September 4, 1993 and March 5, 1994. Alberta thus became the first province in Canada with a completely privatized retail liquor distribution system.

Alberta is not the only jurisdiction in recent years to change from a public to a private system of liquor distribution. On July 1, 1985, Iowa gave up its monopoly on the wholesale and retail sale of wine, and in March 1987, it gave up its retail monopoly on the sale of spirits. Prior to that, West Virginia gave up its retail monopoly on the sale of wine, and implemented a system of private retail licensees. Four other states and the province of Quebec have eliminated their monopolies on the sale of wine since 1970.1 While there have been a number of studies examining how Iowa's privatization of liquor retailing has affected alcohol consumption in Iowa (e.g., Wagenaar and Holder (1991), Holder and Wagenaar (1990), Mulford et al. (1992), Fitzgerald and Mulford (1993b), Fitzgerald and Mulford (1992)), there has been little analysis of the economic impacts of the privatization of liquor retailing.

Several relatively recent economic studies that deal with liquor stores (i.e., Zardkoohi and Sheer (1984, 1986), Swidler (1986a)) examine liquor price and consumption differences between public and private ownership states, one (by Swidler (1986b)) looks at the implications for government revenues of uniform retail pricing by a state-run liquor monopoly, and one (by Smith (1982)) analyzes differences in state regulations governing liquor store licensees. None of the studies undertakes a detailed before- and after-privatization comparison of key economic variables such as location, price, product selection, employment and wages.

Privatization initiatives have become increasingly important over time and it is important to study these initiatives so that the efficiency implications of their particular characteristics are well understood. This is especially important for those privatization initiatives, such as liquor retailing, that are likely to be replicated in multiple jurisdictions.

This paper takes the opportunity offered by the Alberta experience with liquor retailing privatization to examine the sort of market structure and its characteristics that are produced by market forces under privatization and to compare these with the market structure and characteristics of the government-owned and operated liquor distribution system. The impact of government imposed restrictions on the evolution of an efficient retail distribution system under privatization will also be assessed.

In the next section of this paper, some important characteristics of the government-owned liquor distribution system in Alberta are described. This is followed in section 3 with a brief description of several models of privatization that were considered by the Alberta government. The efficiency implications of government imposed restrictions on both wholesale and retail liquor distribution are also addressed. Section 4 presents a detailed description of the privatization process, including the sale of ALCB properties, the reduction in ALCB staff, regulations governing new private liquor stores, and the new supplier arrangements.

In section 5, the economic impacts of privatization are analyzed. This analysis looks at the impact of privatization on liquor store locations, product selection, price, government revenues, and employment and wages. In section 6, some of the social impacts of privatization are discussed. Section 7 contains a summary and some concluding remarks.

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Last Modified: January 21, 2001.