MONTREAL — Thousands of Canadian convenience stores could avoid closing if more provinces allowed beer and wine sales to help mitigate the perilous impact of contraband cigarettes, the industry’s association said Tuesday.
More than 2,300 neighbourhood stores closed down last year, pushed in large part by falling sales of legal tobacco.
Illegal tobacco sales cost stores more than $2.5 billion in sales and $260 million in profits last year, said an industry-sponsored report prepared by PricewaterhouseCoopers and HEC Montreal.
The industry is heavily dependent on cigarette sales. Two out of every three cigarettes sold legally in Canada are purchased in convenience stores.
The study found the ability to sell beer and wine in Quebec and Newfoundland-Labrador helped to offset some of the pressure. Quebec’s rate of store closure was 6.9 per cent, nearly half that of Ontario.
Michel Gadbois, executive vice-president of the Canadian Convenience Store Association, says more provinces should allow such sales at neighbourhood stores.
“We have shown in Quebec and Newfoundland that it’s under control, we know what we do,” he said in an interview from the association’s annual meeting in Laval, Que.
Several governments have balked at such moves in the past after promising to consider them. In Ontario, for example, beer continues to be sold largely by the Beer Store, which is owned by the brewers.
The organization fears rising provincial sales taxes will continue the current trend of three retailers closing each day.
About 75 per cent of the closures last year were in Ontario and Quebec, the two key markets for contraband cigarettes.
The Quebec government last week announced that the provincial sales tax will increase by two percentage points over two years. Rising taxes in Saskatchewan and Nova Scotia should expand illegal activity in those areas of the country, Gadbois added.
“At the moment we don’t see how the trend is going to slow down,” he said.
In addition to contraband, Canada’s convenience stores were hurt last year by higher credit card fees and the effects of the economic recession.
Credit card fees accounted for $200 million in costs, some $50 million of that as a result of a recent increase in processing fees by major card companies.
Conservative MP James Rajotte told the industry Tuesday that the government has responded to the industry’s concerns by releasing a draft code of conduct for the credit and debit card industry that could be law by June.
“I want to assure you that our government is fully prepared to continue listening to your industry and to continue to defend it to ensure its growth,” said the Alberta MP and chairman of the House of Commons committee on finance.
Gadbois called the proposal a good first step, but urged the government to lower credit card fees. They are two per cent in Canada and the United States, but less than half that in Europe and Australia.
“There’s a duoploy out there — Mastercard and Visa — and they’re choking everybody with their prices,” he said.
The industry’s profitability was also hurt by an average five per cent increase in the minimum wage.
Overall, the net profitability of convenience stores was barely holding at about one per cent, about half the level in 2008.
The steady erosion of profits forced companies to control costs and generate traffic through the introduction of fresh food.
The future is expected to remain challenging as the maturing industry faces slowing sales growth, the study said.
That has forced consolidation as many independent retailers joined large chains or buying groups.
Suncor (TSX:SU) acquired Petro-Canada (TSX:PCA) and Quickie Convenience Stores purchased the 7-Eleven network in the Ottawa area.
Alimentation Couche-Tard (TSX:ATD.B), Canada’s largest convenience store chain, continued its U.S. expansion.