Monday, November 12, 2012

Down the drain

There's rightly been plenty of debate over the Sask Party's recently-announced plan to decree that all future liquor stores in Saskatchewan will be privately-owned. But there looks to me to be room to take a closer look at exactly what Brad Wall is determined to give away - so let's take a back-of-the-envelope look at the profits we can expect to lose due to the gratuitous privatization of new liquor stores. (Numbers are from the SLGA Annual Report for 2012 (PDF).)

SLGA's liquor sales to the public (as opposed to sales to its franchisees) totalled $351,808.000 in 2011 (p. 45). Dividing that by the existing 51 stores, the effective sales per store are roughly $4,453,269.

The cost of liquor was roughly 49.4% of the subsequent sales price ($271,173,000/$549,454,000, from p. 26; I didn't see these numbers broken down by retail vs. franchise), while the cost of store operation was 11.9% of sales: p. 17.

That means that costs added up to 61.3% of the value of SLGA's retail sales. In turn 38.7% of the price of liquor from SLGA stores was pure profit for the people of Saskatchewan. And based on the per-store sales (which I'll generously assume wouldn't be any higher in booming areas than the average), for each store put in private hands rather than public ones, the province will lose out on $1,723,415 per year.

Of course, there would be a capital cost up front to build each store. But even allowing for rather generous building costs, the new stores would figure to pay for themselves within a few years - then produce returns many times over in the years to come.

And likewise, any residual income to the province from corporate taxes on private sales would figure to be dwarfed by the ample return SLGA is currently getting on its investment in retail stores.

Unfortunately, the Wall Saskatchewan Party isn't interested in the return to the province if it can find an excuse to shovel money into the private sector. And the province as a whole stands to lose tens of millions of dollars based on this ideological exercise alone.

[Edit: Fixed typo, wording.]

1 comment:

  1. I think first sentence needs fixing. "Sask Party's recently-announced plan to." Plan to . . . what? From the rest of the post, I'm thinking it's "privatize liquor sales", but it doesn't currently say.