| Purchasing Christmas cheer will be less joyous this year. You may find liquor store shelves looking sparse. What is normally the busiest season for liquor retailers will be a blue Christmas as customers complain that their favourite seasonal drinks are not in stock. Well-publicized provincial liquor distribution problems will be devastating to smaller retailers.
The problem can be traced back to Alberta's sole liquor warehousing system, Connect Logistics Inc., in St. Albert. In the ’90s, the province swapped a publicly owned liquor board monopoly for a private one, placing the exclusive contract for liquor distribution with Connect, a privately contracted warehouse. This system presently has a catalogue of 13,000 types of liquor from more than 70 countries that it ships to more than 1,135 liquor retailers and countless restaurants and pubs in 320 communities. For more than a decade, Connect’s service and Alberta’s distribution system has been the envy of other provinces with the cheapest liquor prices in Canada. Unfortunately, this past April the system imploded. Drinkers will be hit hard in their wallets as a result.
This year’s Christmas crunch is not helping the problem. Substantial shipments are being delivered to the warehouse and liquor inventory volume is reaching the unprecedented level of 2.3 million-cases, compared to 1.8 million last year. This is close to a thirty per cent increase.
At the retail level stores are reporting delays of 10 days, sometimes 20, if the product is delivered at all. In the pre-April system, orders used to take just 48 hours to deliver. Problems have steadily magnified since. The crisis is affecting retailers, restaurants, pubs, liquor agents, trucking companies and, most importantly, the consumer. "Some blame the recent purchase of Connect Logistics by DHL, a subsidiary of Deutsche Post, the German mail monopoly and its subsequent mismanagement, others blame the booming economy and its attendant labour shortage."
Wayne Henuset, owner of Willow Park Wines and Spirits, states that Connect Logistics’s business has grown by 20 per cent over the last year. He figures that small orders account for 16 per cent of the system’s total orders and these take the same time to pick and ship as the other 84 per cent of Connect’s business. He suggests increasing the minimum orders that retailers and licensees (restaurants and pubs) can make would alleviate some of the distribution company’s problems.
"They have made these strides," says Henuset, "as they have been bombarded by lawsuits and are trying to lessen some of the devastation the industry is experiencing." Connect is reporting that many seasonal staples such as Bailey's Irish Crème, gift packs and 1140 millilitre bottles of Crown Royal, Cuervo Tequila and Captain Morgan Spiced Rum are out of stock. Rare single malts, eclectic liquors, beers and wines are almost impossible to get.
Henuset also feels that Western Canada's two largest liquor retailers – Liquor Stores Income Fund and Liquor Barn Income Fund, both headquartered in Edmonton – are getting an unfair advantage. They have the working capital to stockpile lots of product and are having the already taxed system warehouse and store products for them, thus making them unavailable to smaller retailers.
A Connect Logistics internal memo sent September 29 stated the problems will not be fixed until January 15. This is unfortunate for some retailers who count on the holiday season for up to 40 per cent of yearly sales. Presently, Connect is running three shifts and working 24 hours a day to catch up on its backlog. Orders that were delayed three weeks are working on a one-week delay. The system is gradually improving.
Vern Raincock, president of DeLancey Direct Inc., a Calgary-based liquor import agency says the current backlog may take as long as four weeks to eliminate. While retailers seethe over delays in getting product from the distributor, importers complain of even longer expensive waits in getting their bottles into Connect’s facility. Raincock recently waited 20 days at a cost of more than $150 a day to get Connect to take delivery on a container of lager shipped from Asia. The overseas shipping of the product had cost under $3000, so the demurrage fees have now exceeded the original shipping costs. These charges will unfortunately be passed on to the consumer. In some cases his products will cost as much as four dollars more per case. Raincock adds "it is particularly frustrating that the cost of shipping the product around the world costs less than getting it the last 10 kilometres from the rail yard into Connect’s warehouse." Ironically, the province's rationale for granting Connect a monopoly in the first place was to keep prices down.
Neil Herbst, owner and brewer at Alley Kat Brewery in Edmonton says the present distribution problems are costing him somewhere between 4000 and 5000 dollars a month. Despite having product in Connect’s system he finds his is not getting sent or his customers’ orders are constantly short-shipped. These delivery problems are causing customer frustration and Herbst believes he is losing some.
Alberta has outgrown the present one-warehouse liquor distribution system. The Alberta Liquor and Gaming Commission (ALGC) has plans to review its distribution model in January. Most in the industry feel the government should enact the same market reforms to liquor wholesaling that it has on the retail side. For those unhappy with the liquor provider there is no means of recourse. Businesspeople hurt by the crisis complain that Connect Logistics has been accountable to no one, and people in the industry have lost untold millions of dollars. Without this accountability in their liquor warehousing system there seems to be no incentive to reform it, except, perhaps, the barrage of impending lawsuits. |
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