Repeal 'tied house' rules

Time to abolish the ‘tied house’ rules

Would it be the end of the world if one of B.C.’s big restaurant chains acquired, or invested in, a B.C. winery?

B.C.’s liquor regulators seem to think so. Under Solicitor General Mike Farnworth, the Liquor and Cannabis Regulation Branch (LCRB) continues to rigorously enforce arcane “tied house” rules to ensure liquor manufacturers do not acquire ownership or financial interests in restaurants and liquor stores and then uses that ownership or financial interest to limit consumer choice by preventing other manufacturers from entering the marketplace.

Any level of common ownership, even 2%, is enough to establish a “tied house” relationship as are family connections. When a “tied house” is identified, the LCRB prohibits the sale of the manufacturer’s products by the restaurant or retail store.

The “tied house” rules have outlived their usefulness and serve no useful purpose in B.C.’s ultra-competitive alcohol marketplace. Abolishing the “tied house” rules would open the door to permitting restaurant and hotel chains to invest in, or acquire, B.C. wineries.

Often, these chains have problems getting sufficient volumes of B.C. wines to supply all the restaurants in the chain. That problem could be eliminated if restaurants were allowed to establish affiliated “house” wineries.

Permitting restaurants to purchase or invest in wineries would increase the capital available to the wine industry and provide another exit alternative for retiring wine growers.

“Tied houses” have long been a fact in the U.K., where it is common for pubs to be owned by, or be under the financial influence of, one of the major breweries. But that has long been banned in most North American jurisdictions.

“Tied houses” have been banned in B.C. since 1952, when B.C.’s Liquor Inquiry Commission exposed the fact the the province’s larger breweries were making or guaranteeing significant loans to licensed hotels and beer parlours in return for the pub agreeing to only sell only the brewery’s product.

The commissioners determined local brewers exercise absolute control over numerous retail outlets. For a brewery, that ability to dictate the choice of product was a considerable asset as at the time provincial law allowed a pub to have only one beer draught line at a time.

The problem with regulation is that circumstances change but rules remain frozen in time. Laws that may have served a purpose at one time remain embedded in law, long after they have ceased to serve any useful purpose. This is certainly true of the “tied house” rules.

At one time, the beer industry in particular was dominated by a few players capable of using their dominant position to engage in abusive trade practices. This is no longer the case.

The modern consumer demands a plethora of choices. There are numerous players in both the manufacturing and hospitality sectors and the market for alcoholic beverages is highly competitive.The provincial regulation, tracing of ownership chains between wineries and restaurants is a cumbersome and time consuming process.

The LCRB is better off deploying its scarce resources policing under age drinking and over consumption.

Provincial “tied house” laws are not necessary because the Competition Act already provides regulation of abuses of dominant position and restrictive trade practices and is more than adequate to deal with any problems that arise.

The federal law is sophisticated, nuanced and administered by an expert economic tribunal capable of assessing the competitive impacts of improper behaviours. In comparison, the provincial law is frustratingly vague, over-reaching and poorly administered.

Over the past 70 years, there has been some relaxation of the “tied house” rules. Exemptions have been created for brewpubs and stadiums, and wineries are permitted to have on-site winery stores and restaurants.

In 2013, the “tied house” rules were amended to allow licensed small and medium manufacturers (annual production must not exceed 100,000 litres for a distillery, 750,000 litres for a winery and 300,000 litres for a brewery) to have an association with up to three licensed establishments located away from their manufacturing site, where their liquor may be sold.

The time has come to repeal the “tied house” rules completely.

Al Hudec, Oliver