LCBO slaps suppliers with $50 million in fines, accuses them of offering cheaper prices to Quebec

“It’s a crappy way to treat your partners. It’s not a good look,” said one import agent, who asked not to be named for fear of jeopardizing his business relationship with the LCBO.

Another agent said a producer they represent was shocked when they got an invoice for allegedly breaching the terms and conditions of the LCBO’s standard purchase order.

“They were furious,” the agent recalled, adding that the European winemaker likened working with the LCBO to ‘dealing with the mafia.’

Roughly 90 per cent of the LCBO’s suppliers are in compliance with the clause, and most of the remaining 10 per cent quickly paid the fines. A handful have disputed them, according to LCBO sources.

Representatives of large liquor conglomerates, including Diageo and Pernod-Ricard, declined to comment, and referred questions to Spirits Canada, an industry association.

Spirits Canada spokesperson Lorena Patterson acknowledged the ongoing dispute, but didn’t address any details.

“Spirits Canada values our partnership with the LCBO and is actively engaging with LCBO management on this and other matters,” Patterson said in an emailed statement.

Through a spokesperson, the LCBO said it was standard business practice in the retail and grocery industry for large retailers to get preferential terms from suppliers. It also benefits Ontario consumers, the spokesperson said.

“This is common practice among retailers with significant purchasing power which is what allows us to offer Ontarians competitive pricing,” LCBO spokesperson Virginia Johnston said in an emailed statement.

Nor, said the spokesperson, should the requirement come as a surprise.

“Suppliers are aware of this requirement and are responsible for ensuring compliance with this legal obligation,” Johnston said.

Retail consultant Lisa Hutcheson said having preferred pricing written into contracts is something large retailers often do.

“It really depends on the context. A small, independent store doesn’t have the leverage. A big chain does,” said Hutcheson, managing director at retail consultancy J.C. Williams Group.

Industry sources said the crackdown began after the LCBO discovered that some products were being offered at cheaper prices at Quebec’s SAQ, and began investigating whether the SAQ had gotten better deals from suppliers.

One of the clauses in the terms and conditions of the LCBO’s standard purchase order gives the Ontario liquor monopoly the right to get the cheapest price from suppliers.

“The Supplier shall not sell any Product(s) ordered to the LCBO at a price … which is higher than the price at which the Product, in the same quantity, is being sold by the Supplier than another government liquor board or government liquor purchasing body in Canada,” reads Clause 14.

While acknowledging that the clause exists, another import agent said it’s not fair to compare it to similar clauses in other retail sectors.

“If I don’t like Loblaws’ terms, I can go get Sobeys to buy it. With the LCBO, there’s no other choice,” said the agent, who called the fines “a blatant cash grab.”

The main goal of the crackdown, the agent argued, was to help the LCBO — whose fiscal year ends March 31 — ensure it delivers a bigger dividend to the Ontario government than it did last year.

“They’re terrified of having a lower dividend. That would be terrible for them,” said the agent.

Last fiscal year, the LCBO delivered a dividend of $2.58 billion to the Ontario government. With government finances still recovering from the battering given by the global COVID-19 pandemic, it would be bad timing for the liquor monopoly if it didn’t deliver another increase, said the agent.

In its most recent Merchandising Fiscal Trends report, the LCBO said that profits were down $11 million so far this fiscal year.

The LCBO insists that its goal in the crackdown was to help consumers, as well as treating all producers consistently.

“We pride ourselves on the strong partnerships we build with our suppliers,” said Johnston. “They are fundamental to our success and our commitment to delivering the best possible customer experience for Ontarians. When suppliers do not honour our agreements, the only people that lose are Ontarians.”