Beer Store: Expert corrects RCC analysis and finds no evidence to support jobs or price claims
TORONTO, May 28, 2019 /CNW/ - The following is an economic analysis letter released publicly by the Beer Store (a complete version with footnotes is available via contact below):
Attention: Mr. Charlie Angelakos, Chair, the Beer Store
Dear Mr. Angelakos:
Assessment of Hughes Report and Retail Council of Canada Report
As requested, we have assessed the Retail Council of Canada report (the "RCC Report"), and the report prepared by Ken Hughes (the "Hughes Report") that was made available yesterday (together, the "Reports").
In short:
- The RCC report is flawed as it is based on cherry-picked data and incorrect analyses that have no predictive value about prices, jobs, or GDP growth in Ontario
- The Hughes Report relies heavily on the RCC report and as such it would be incorrect to place any weight on its obviously flawed conclusions relating to jobs and economic impact.
- As you know, we conducted a thorough analysis of beer pricing in Ontario, Alberta, and Quebec. Contrary to the Reports, it is clear, based on robust data and accepted statistical methodology, that Ontario has the lowest beer prices, despite the highest taxes, in these three provinces.
- With respect to jobs, the Reports are similarly of no use or predictive value. The results included in the RCC Report indicate that new beer retail outlets might increase jobs, might decrease jobs or might have no impact on jobs whatsoever. The RCC Report simply provides no economic and statistical analysis to make any claim about new jobs, and the Hughes Report merely repeats the RCC Report's unfounded conclusion.
- The RCC Report analysis is based on data in BC, not Ontario. Despite being written by an industry group representing grocers, the RCC Report fails to offer any evidence that there has been any impact on jobs, GDP, or beer prices in Ontario as a result of grocery stores selling beer beginning in 2015.
As this letter will set out, the RCC Report's conclusions were engineered using poor methodology and the RCC Report even goes so far as to misrepresent the result of its analyses. Among its many methodological and analytical errors, the RCC Report: (i) used distorted data and a false statistical process to generate results that "showed" beer prices in Quebec are lower than Ontario, (ii) used a poor economic model to generate results purporting to show the impact of increasing liquor licenses on jobs and then misrepresented the results of its own analysis, and (iii) used a flawed methodology to assert that increasing liquor licenses has a positive impact on GDP, despite the contradiction that their same results appear to show that alcohol sales decrease grocery sales.
(i) Beer Pricing Analysis
We have studied the beer market in Ontario for many years, applying methodologically sound and objective analytics to broad and extensive data on beer prices and sales. The analyses we performed to compare Ontario beer prices to Quebec beer prices used full year sales and volume data for all of the bottle and can beer sales from TBS and all of the stores that provide data to AC Nielsen in Quebec. An analysis of these data showed that the average pre-tax price for a litre of beer in Ontario was approximately 13% lower than the average pre-tax price for a litre of beer in Quebec in 2018.
By contrast, the RCC Report looked at very limited pricing data for a single one-month period for only four brands in specific package formats. The particular brands and package formats selected for study by RCC represented in total only 4-6% of beer consumed in Ontario in 2018. The pricing data were not volume-weighted and therefore the "averages" do not represent the actual average price paid by consumers who bought one of these products.
Cherry-picking a few brands and a few pack formats can be used to engineer whatever result the authors of the RCC Report wanted to find, but it is bad science. And it is fundamentally wrong to assign any weight to those manipulated results in any fact-based analysis of the Ontario and Quebec beer industries.
(ii) Employment Analysis
The RCC Report claims that beer retail expansion would result in a net increase of 2,100 Ontario jobs. Putting aside the methodological problems with their analysis (which for example did not look at Ontario even though many grocery stores began selling beer in 2015), the results provided by the RCC do not even support their own conclusion.
This table is the result of the RCC Report's author's statistical regression, which looked at the impact of provincial GDP, population, alcohol purchases, unemployment and alcohol licenses on grocery jobs.
While never explained in the RCC Report, the numbers circled above mean that the analysis did not show that the number of liquor licenses has any impact on jobs. These numbers mean that increasing liquor licenses might increase jobs, might have no impact at all on jobs, or might decrease jobs. In technical economic terms, the RCC Report's findings were not "statistically significant," which means that from an economic and statistical perspective one cannot draw any conclusions from the findings about the impact of alcohol licenses on jobs.
That is, of course, not what the RCC Report says about its own analysis, as they chose to ignore what their analysis actually told them and instead reported on what they wanted to say. This a fundamental misrepresentation of the analysis. It has no place in any fact-based discussion of Ontario policy.
(iii) GDP Analysis
The RCC Report claims that increasing the number of licensed stores would increase sales by $880,000 per store.
Even though some of the RCC's members began selling beer in 2015, the RCC Report curiously does not look to the impact of licenses in Ontario to conduct its analysis, but rather RCC's conclusions were based entirely on data from British Columbia.
British Columbia is not a good example from which to make predictions about the proposed beer retail expansion in Ontario. Most liquor licenses in British Columbia are held by stand-alone liquor shops and British Columbia has only very limited alcohol sales in grocery stores. The RCC Report makes no distinction between stand-alone liquor stores and grocery stores and as such, the number of stores in British Columbia that are licensed to sell alcohol does not provide any insight into the impact of selling beer in grocery stores.
Finally, on the subject of GDP growth, the RCC Report arrives at a result that, frankly, makes no sense. The results of the RCC Report's statistical model indicates that increasing retail alcohol licenses will increase grocery sales, while also indicating that increased alcohol consumption will decrease these same grocery sales. This is an obviously paradoxical result, and demonstrates the flawed methodology and analysis that runs through the RCC Report. Due to this flawed methodology and analysis, and improper interpretation of its own results, the RCC Report cannot be taken seriously.
Sincerely,
(signed)
Dr. Debra J. Aron
Senior Managing Director Ankura Consulting Group
Dr. Justin Lenzo
Managing Director Ankura Consulting Group
SOURCE The Beer Store
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