I think a blended model is a good solution. In Ontario, LCBO's selection has gone downhill over the last 10 years. They've gotten complacent because they haven't had to worry about competition. They've still got a huge amount of purchasing power because of the sheer volume, though, so they should be able to anchor prices against excessive profit gouging.

It'll be harder for corner stores and boutiques to compete on price, but they're also much more able to specialize and serve niche markets.

This is basically the same system Quebec has had for years, and it always seemed to work well there.