Chapter 7 - Other Types of Markets Flashcards
(13 cards)
What are other types of markets that aren’t ‘free markets’
Monopoly Markets
US 3-tier system
Describe monopoly markets
- some countries have a govt-run monopoly for retail sale of alc drinks (Scandanavia, Canada)
- Sweden: govt owned chain Systembolaget is only retail outlet allowed to sell alc. also some specialist independent distributors, license under special conditions
- bars & restaurants can buy from monoploy or from specialist independent distributor (who often stock small vol producers or less common wine regions)
- these countries impose high levels of tax on alc drinks, making them very expensive
- aims to limit alc consumption (privatisation of market lead to greater access & consumptino, lead to price pressure)
- shops & staff don’t promote individual products or product, simply advise customer based on their reqs (removes incentive for promotion or price reduction)
Describe the process for producers who want to enter a monopoly market like Sweden. What are advantages & disadvantages
Process:
* to get wine stocked by Systembolaget, producer must register w/ an importer whos an approved supplier of Systembolaget, but not guaranteed to have wines stocked
* 4x a year, Systembolaget issues tender request for various styles/types of wines it wants to add.
* Approved suppliers then submit samples, which are blind tasted by panel to decide.
* Once selected, wines tasted again & chemically analyzed prior to launch to confirm identical to tasting sample
Disadvantage:
* much harder to enter retail sector, considerable amt of bureaucracy to deal w/
* lengthy process up to 7-8 months from original tender to launch in shop
Advantage:
* decision based on quality alone, so smaller producers have same access to market as larger ones
* once accepted, its sold throughout entire country - potential to sell large volumes
What is the retailer market like for Canada?
- strict control on retail sale of alc bev in all Cananda’s provinces & territories except Alberta
- Ontario - retail sales controlled by Liquor Control Board of Ontario (LCBO) - either through their own shops or by approved agencies (some local producers licensed to sell own brand outside LCBO shops)
- Alberta: has private market for wholesale distribution & retailling of alc drinks, but closely supervised by Alberta Gaming & Liquor Commission
Describe history of the USA Three-Tier System and its goals & benefits
- 1919-1933 Volstead Act prohibt production, sale, consumption of alc in USA
- 1933, upon repeal of prohibition, Three-Tier System introduced to prevent pre-prohibition saloon days of gambling, prostitution, crime, drunkeness (GOAL)
- saloons were tied houses, so required to buy all products from a particular brewer or distiller
Describe the three-tier system and its laws & regulations
3 tiers system:
* supplier (producer/importer)
* distributor (wholesalers, brokers)
* retailer (off & off premise)
Laws & regulations:
* limit or prohbit cross ownership btw most retailers and upper two tiers (separation of producer & distributor developed later, but not universal)
* producer can be importer but not wholesaler
* wholesaler can import but can’t produce
* producer can’t by-pass wholesaler and sell direct to retailer (some wineries within & outside state can sell directly to consumers, w/ conditions attached)
* some states don’t allow wines purchased in another state to cross their borders
What are the benefits of the 3-tier system?
- system introduced to prevent direct sales from producer/suppler to retailer to avoid producer monopolies and increased prices
- each state implementing distributor tier meant provision of additional jobs and easier regulation & collection of taxes
- additional tax revenue generation as tax is levied at each upon each tier
- retaining distributor tier: distributor specialise in logisstical efficiency and the largest of them service huge areas of the country - have trained sales force & marketing materials, can potentially provide produer w/ exposure that would be extremely costly (time, effort, money) to gain otherwise
Why are the challenges & effects of the 3-tier system
- strict & complex legistation, implemented on state by state level
- fed govt ceded control of bev alc sales to individual state = very complicated & have led to need for ‘compliance officiers’ within alc bev companies
- no dry states today, but some dry countries
- challenges of consolidation
What are the 3 categories for which states in USA fall into with regard to 3-tier system?
- control states: where state itself holds monoplogy over 1 or more of the three tiers. generally, the only licensed off-premise retailer of alc is the state itself (some states this is only for spirits not wine) - 17 control states
- states where state doesn’t participate direclty in sale of alc: open states & franchise states
- open states: state involvement in regulation of 3-tier is minimal; suppliers & distributors free to enter/exit out of agreements to sell/distribute brands freely
- franchise states: states have strong franchise laws that severely restrict freedom of supplier to chance distributor arrangements; supplier apppoint of a distributor is almost a lifetime appointment;
What are some examples of the regulations of control states?
- Idaho - monopoly on off-premise sales w/ greater than 16% ABV
- Michigan - monpoloy only on wholesale sales and only of spirits
- New Hampshire - allows beer & wine to be sold in grocery & convenience shops only and operates state package shops (sell prepackaged alc beverages), but also allow small no of private off-premise permits, which specailize in smaller brands thate state shops dont carry
- Pennsylvania - one of strictest, all spirits sold in state package shops; bars/restaurants who sell on-premise must buy from state package shops
Why does franchise laws exist in some states? What are its advantages vs disadvantages?
- ADVANTAGE: protect distributor against sudden & massive change to their business
- ex: in open state, distributor may enter contract w/ leading supplier, drop distro rights of other brands and invest heavily in marketing suppliers brand & invest in staff, etc. if suppler abrupted decides to change, immediate loss of rev could be catastrophic for distributor
- DISADVANTAGE: if supplier has legit reason to be dissatissfied w/ perofrmance of distributor, little resource if distributor does not agree to release supplier;
- supplier may appoint additional distributor of their choosing in the same state and so some brands sold by miltiple distributors
What are some of Connecticut’s laws? What are its advantages & disadvantages?
- very strong franchise law
- restrict no of off premise license that can be held by any entity & the no of license avail in each city & town according to population - demand for license high, supply very low, small shops sometimes bought by large entities just to obtain license
- prohibts quantity discount given by distributor to limit competitive advantage of large, well capitalised shops
- encorce min bottle pricing for btl sold by distributor, which sets min price any retailer in state may sell any item
- until recently, it prohibited sale of off premise retailer on sundays
- ADVANTAGE: laws have allowed smaller businesses to prosper, warding off consolidation
- DISADVANTAGE: critics point to border wars - btw their shops & those across state lines, where prices are less and more avail of products
What is the consolidation trends in US wine market? What are the advantages & disadvantages?
TREND 1 LARGE DISTRIBUTORS: the number of distributors decreased by appox 2/3, while noumber of US wineries seeking entry to market has increased by factor of 5.
* Disadvantage: bottleneck for smaller producers, who can find product lost amongst massive portfolio
* Disadvantage distributor sales force reduce producer control over marketing & business-to-bussiness selling of the product (similar to how it would work in a free market)
* Advantage: distributor have trained sales force & marketing materials to provide producer w/ exposure that would be costly for them
TREND 2 CONGLOMERATES: large companies involved in wine production (conglomerates) are becoming bigger, generally acquiring smaller wineries
* Advantage: conglomerate can provide attractive array of produts for large distributor, who only needs to deal w/ 1 large company to gain desirable brands that need limited hand selling. multiple retailer can provide range of products to customers while only dealing w/ 1-2 large distributors
* Disadvantage: smaller producers need to seek smaller specialist to sell low vol boutique brand, but these distributors may be more limited in scope w/o coverage across so many states
TREND 3 DTC LOOSENED: consolidation has stimulated activity in the DTC category; gradually state by state restrictions are being loosened. can be good for wineries w/o vol to justify participating in 3-tier system, it still has costs of labor, advertising, shipping, burden to comply w/ state regulations
