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Flashcards in D2C07 Other Types Of Market Deck (12)
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1

Define other types of market compared with free market.
Example?

> Certain countries have adopted legal structures which limit the supply chain options available to producers and control the sale of wine to the end consumer
E.g., monopoly, USA three-tier system

2

Examples of countries with monopoly markets

> Canada except Alberta. E.g., Liquor Control Board of Ontario (LCBO)
> Sweden - Systembolaget is the only retail outlet allowed to sell alcohol; specialist independent distributors licensed under special conditions

3

Benefits of monopoly markets to producers

> Staff advise customers based on their requirements, not promotions/incentives.

> Final decision to stock is based on quality alone - chance for small producers.

> Once adopted, available throughout the country

4

Disadvantages of monopoly markets to producers

> Potentially reduced sales because of high prices

> Very difficult to enter and considerable amount of bureaucracy to deal with

e.g. Systembolaget in Sweden, must become an approved supplier, then win a tender process, involving impressing a blind tasting panel, and chemical analysis that wine being sold is the same as wine tasted by the panel.

5

What was prohibition?

Between 1919 and 1933, the Volstead Act prohibited the production, sale and consumption of alcohol in the USA, with the exception of wine used for religious purposes

6

What were the reasons for introducing the three-tier system?

> To prevent a return to the pre-prohibition ‘saloon’ days of gambling, prostitution, crime and drunkenness

> Many saloons were tied houses, required to buy all products from a particular brewer or distiller

> 3-tier system therefore prevents direct sales from producer/supplier to the retailer to avoid producer monopolies and increase prices, thereby reducing likelihood of drunkenness.

7

What are the three tiers?

> Producer/importer
> Distributor, including wholesalers, brokers
> Off premises retailer / on premises retailer

8

What is the key rule of three-tier system?

> A producer cannot by-pass a wholesaler and sell direct to retailer
> Producer can be an importer but not a wholesaler
> Wholesaler can import but not produce

9

Benefits of the three-tier system to producers

> Distributors specialise in logistical efficiency and the largest of them service huge areas of country

> Trained sales force and marketing material - potentially provide producer with exposure that would be extremely costly to gain otherwise

10

Disadvantages of three tier system to producers

> Complicated state-level laws to deal with

> Higher prices potentially limits sales

> Consolidation: no. of distributors decreased by two thirds in the last 20yrs (3000 to 1200), while US wineries seeking to enter market increased by a factor of five (2000 to 9500)
>> This bottleneck works to the disadvantage of smaller producer:
>>> product lost in the massive portfolio of large distributors
>>> reduced control over marketing and selling
>>> direct sale to consumer provides alternative, but additional costs of labor, advertising, shipping, legal compliance

11

Why is there a trend for companies becoming bigger, throughout the supply chain in the US?

> Conglomerate can provide an array of products to a large distributor including export markets
> Large distributor needs only to deal with one large company to gain a rain gear of desirable brands that need limited hand selling
> Multiple retailer provide a range of products whilst dealing only with one or two large distributors

12

What is the main aim of government adopting a monopoly model?

To limit alcohol consumption, through high-pricing.

By removing the incentive in a free market for store to compete with each other, these monopolies encourage the sale of alcoholic beverages at responsible prices.