When the Ontario government unveiled legislation to break an alcohol retail deal two and a half years ago, the big breweries responded furiously, threatening to sue for a billion dollars.
After an initial flurry of negotiations, there has been little progress and minimal conversation between the government and Labatt and Molson-Coors about the future of the Master Framework Agreement, which gives The Beer Store an effective duopoly over beer sales in the province. . The legislation, the Bringing Choice and Fairness to the People Act, has been passed by the legislature, but has not yet become law.
Could next year’s provincial elections and the impending expiration of the MFA in 2025, and the changes brought about by COVID, including home delivery and bottle stores, finally reignite the talks?
There are incentives for both parties to reach an agreement sooner rather than later, says Trevor Farrow, a professor at York University Osgoode Hall School of Law. On the one hand, there’s price and time, said Farrow, who was a corporate litigator before becoming a professor.
“Major litigation and disputes are really expensive,” Farrow said.
The breweries, which together control 98 percent of The Beer Store, also likely know they have less leverage the closer to 2025, Farrow said. The government, in turn, might want to use a big change in the alcohol retail system as a vote-catcher.
“I think it would be very important for the government to get an agreement, or the framework for an agreement before the next election,” Farrow said. “They could still point to the fact that they passed the legislation, but it is not in effect.”
The Bringing Choice and Fairness to the People Act would have ended the MFA, allowing the government to expand beer and wine sales to corner stores and any other retail outlet it wanted. The law was approved, but has not yet been signed by the Lieutenant Governor. Elizabeth Dowdeswell, which means, effectively, that it is not yet the law of the land.
Jordan St. John, editor of The Growler, a magazine dedicated to Ontario’s beer scene, suspects that Dowdeswell will not sign the legislation anytime soon. The entry into force of the legislation would give brewers a legal excuse to finally file their lawsuit.
“It’s going to stay on the lieutenant governor’s desk until the end of time,” St. John said.
The government, says St. John, would take the lead if talks with the brewers resume. He is unimpressed by the dollar figures thrown by brewery sources in 2019, and by suggestions that the government could award The Beer Store a guaranteed distribution contract in exchange for damage to its retail arm.
“I don’t see the brewers having any influence at all. I wouldn’t give them a damn thing if it was the government, ”St. John said. “After 2025, there could be beer and wine in every store in the province.”
The Master Framework Agreement, which went into effect in 2015, is doing exactly what the previous Kathleen Wynne administration hoped, St. John said: serving as the thin end of the wedge to kill The Beer Store.
Make no mistake about it: that was the end game of the MFA. And their retail operations are on a death spiral, ”said St. John. The Beer Store has seen its share of the Ontario beer market drop from more than 90 percent at its peak, to just 60 percent. It has also seen an increase in operating losses and a drop in the number of stores, a trend that has accelerated since the MFA was signed.
In a joint statement, Molson-Coors and Labatt acknowledged that negotiations stopped during the global COVID-19 pandemic.
“We have nothing new to share at this time regarding the MFA negotiations with the government, which have understandably stopped during the pandemic. We have been in contact with government officials in recent months to discuss issues related to COVID-19, ”the statement read.
A spokesman for Ontario Finance Minister Peter Bethlenfalvy said the province has not had substantial discussions with breweries about the MFA since 2019, in part due to COVID. Still, spokeswoman Emily Hogeveen said the government has not been sitting on her hands.
“In response to the pandemic, we have made changes to take-out and delivery of alcoholic beverages in bars and restaurants, and last month we announced changes to allow the sale of local beer in farmers markets throughout the province,” Hogeveen said.
If there is no deal and the MFA simply expires, St. John suspects that the brewers will try to keep their distribution arm running. But even that will be an uphill battle.
“Sure, they could keep the distribution arm, but there would be competition. There already is, and by 2025 there will be more. There is no reason for the government to grant them any exclusivity. Brewers have zero leverage, ”St. John said.
That could also mean, says veteran marketer Alan Middleton, that brewers might be inclined to abandon the threat of a lawsuit and pressure the government to open the market fully.
“I think what they’re saying to themselves is, ‘Look, if we’re going to lose this duopoly, which has been a source of income for us over the years, let’s at least get our product in as many places as possible. . ‘”