Why does the LCBO offer AIR MILES?

The Liquor Control Board of Ontario (LCBO), Ontario’s near monopolistic retailer of alcoholic beverages and one of the world’s largest single purchasers of alcohol, awards customers with AIR MILES for purchases. AIR MILES, like Aeroplan and other award schemes, are largely meant to incentivize consumption. A while ago I asked the LCBO why, as a monopoly, would they offer AIR MILES to consumers? If consumer basically don’t have any other option than to purchase from the LCBO, it’s unlikely that offering AIR MILES incentivizes consumption. That is, in a monopolistic situation, it doesn’t make much sense to offer bonuses when the consumer doesn’t have any other option.

This is the reply I got from the LCBO:

Unlike other retailers, the LCBO cannot offer deep price discounts on product since to do so would not be socially responsible.  Since 1997, the AIR MILES Reward Program has been effective at giving LCBO customers added value. Customers don’t necessarily buy more product when they collect AIR MILES, but rather it encourages them to try new products.

There is no net cost to the LCBO or the taxpayer with the AIR MILES program because supplier funding more than offsets any cost associated with program, and in fact, contributes additional revenue to the LCBO.  Our suppliers, not the LCBO, pay for the vast majority of Reward Miles offered. [emphasis added]

LCBO participation in the AIR MILES Reward Program is in keeping with the buying public’s expectation that the agency continue to evolve and modernize to better serve its customers, while protecting public safety through vigilant, responsible service.  

LCBO employees take that social responsibility mandate seriously.  In fiscal 13-14, LCBO Retail staff challenged more than 11.4 million individuals for reasons of age, intoxication or suspected second party purchase and refused service to over 414,600 individuals.

LCBO promotions, such as AIR MILES, along with other marketing and retailing initiatives help us engage customers in a discovery of the world of beverage alcohol and have contributed to delivering 20 years of consecutive record dividends to the province – including an all-time high dividend of $1.74 billion in fiscal 2013-14 (excluding taxes).  This revenue helps pay for health care, education, infrastructure projects, and other important government programs and services.

(Heather MacGregor, Media Relations Co-Ordinator, Corporate Communications, LCBO) 

Although this response isn’t entirely revealing, it does shed light on what’s happening in the back room. It looks like the LCBO suppliers are funding the AIR MILES program, not the LCBO. Further, the LCBO offers AIR MILES to develop better customer-service relations.

The complete rationale behind offering AIR MILES in a monopolistic market isn’t totally revealed, however, this response makes their offering of AIR MILES a little more sensible.