Monopolies and the three tier system Flashcards
(19 cards)
What is the only major outlet in Sweden that is allowed to sell alcohol
Systembolaget
How Can smaller producers circumvent the probles posed my CONSOLIDATION of distributors/larger companies?
What consiederations must be made?
Small producers can:
- Seek out smaller specialist distributors that focus on low-volume, boutique brands.
- Increase (if possible) DTC sales (cellar door, shipping)
Considerations:
- Smaller distributors are limited in scope/coverage.
- Distribution contracts can be hard to break, smaller producers do not have negotiating power.
- Associated costs with DTC sales (labor/advertising/shipping/legal compliance with different states).
What is the ultimate aim of goverment run monopoly?
How does it achieve this?
To limit the sale/cosnumption of alcohol.
- Reducing the no. of venues where it may be purchased.
- Heavy taxation.
- Reducing competition, which could lead to price pressure.
Explain the challanges faced by smaller producers created by CONSOLIDATION in the US market over the last 2 decades:
What are the BENEFITS for larger companies?
Challanges:
- No. of distributors has FALLEN (3000 to 1,200) while no. of US wineries has RISEN (2000 to 9500+)
- Smaller producers get lost in bigger portfolios along side majorbrands conglomerates.
- Reduces producer’s control over marketing/B2B sales
Benefits:
- Accumulation of smaller wineries increases portfolio/range of brans/styles/pricepoints etc.
-Large distributor needs to deal with only 1 or 2 Large Companies that have many desirable brands.
Describe the Monopoly in Canada
Monopoly in Canada:
Monopoly present in every province except Alberta
Eg.g in Ontario all sales controlled by LCBO, either through their stores or approved agencies
Alberta now has private market for wholesale distributution but heavily monitored by Alberta Gaming and Liquor Commission
What Was the original aim of the 3-Tier System
What benefits were the goverment seeking?
Original aim:
To prevent a return to the ‘saloon’ days of gambling, prostitution, crime, drunkenness.
To prevent producer Monopolies by getting rid of the tied houses (saloons which were required to buy all products from particular brewer/destiller)
Benefits:
Removal of producer monopolies = lower prices
Additional jobs
Easier regulation and collection of taxes/ more tax by creating extra tier
Though it is illegal to skip a step in the 3-Tier System (e. g. for a retailer to buy directly from a producer), what are some allowances in terms of ownership across the tiers?
What is increasingly/becoming an exception to these rules?
Allowances:
- Producer may also be importer (e.g. Gallo) but not distributor.
- Distributor may also be a importer (e. g. Republic National Distributing Co.) but cannot produce.
Some states allow wineries (or breweries/micro-destileries) to sell DTC, ussually with conditions attached
Despite the bereaucracy, what are the benefits of Goverment-run Monopoly such as Systembolaget, for the goverment/consumer/producer?
Benefit for the:
Goverment: Heavy takation = profits for goverment restriction of alcohol sales lessens strain on health system, reduces illness/accidents.
Consumer: Decisions are based on quality alone, as retailers do not promote any specific brand/style i.e consumers are receiving good quality wine
Producer:
Oportunity for smaller producers to be referenced over big ones, as tastings are blind and decisions are based on quality alone; though process is leghthy, if chosen, the producer’s will be stocked at all system stores, giving them a chance to sell large volumes
Explain what a ‘franchise state’ is and how it differs from an ‘open state’
States which severely restrict suppliers from changing distributor arrangements.
OPEN STATE: distributor may enter into agreement with supplier. drop other suppliers, invest heavily in marketing, staffing, infrastructure etv.
FRANCHISE STATE: Appt of distributor is essentially a lifetime appointment, little resource for supplier if dissatisfied with performance. They may appoint additional distributors as a result
What is the main benefit of establishing a ‘franchise state?
The main benefit is to protect distributors from catastrophic loss of revenue if supplier decides to suddenly pull out of agreement.
Using Connecticut as an exaple describe how state alcohol laws can be very complex:
PROS/CONS?
- v.strong franchise law.
- limited number off-premise licenses available (by entity/city/town); leads to business buying each other simply to obtain license.
- no quantity discounts from distributors = no advantage for bulk buyers
-minimum bottle pricing for any given wine to be sold.
PROS: many small businesses prosper; warded off consolidation of sales.
CONS: ‘border wars’ customers crossing state lines to purchase alcohol for less$, at any time, greater selection/availability.
Main arguments for the 3-Tier System
Main arguments for the 3-Tier System:
- Significant tax revenue
-‘restriction’ of sales lessens strain on health systems, reduces excessive drinkin, injury/illness
-logistical efficiency and service to all areas of the country
-trained sales/marketing force provides produces with exposure which might be too expensive otherwise.
What are the 3 tiers of the 3-Tier System
- Supplier (producer, importer)
- Distributor (wholesaler, broker)
- Retailer (on/off premise, supermarkets, bars restaurants)
Name/dates of the act that led to the USA’s 3-Tier System
Voldstead Act aka
Prohibition
1919-1933
Given the complexity of the USA’s alcohol laws and their differences from state to state, what have some beverage companies introduced to ensure lawful compliance
Compliance officers, to make sure that the company’s practices are legal according to state/county rules.
What are 3 MAIN categories that American States fall into with regard to the 3-Tier system?
an example of each
- Control States
States in which the state itself holds monopoly over 1 or more of the 3 tiers e.g. PA - Open States
those in which goverment incolvement is relatively minimal e.g. NJ - Framchise states
states that have laws severely restricting ability for suppliers to change distributor arrangements e.g. CT.
If a bar/restaurant in a conty with goverment run monopoly wats to purchase wine, how must they do it?
Either through the monopoly, e.g. Systembolaget or from specialist independent distributors licensed under special conditions.
List the spes a producer must go through in order to have their wine sold in Systembolaget:
How long does the proces generally take?
Steps a producer must go through
- register with an importer that is an approved supplier of System.
- Four times a year System issues tender request for wine style/types it wishes to add to its range.
- Approved suppliers submit samples for consderation that they think satisfy tender request, which are tasted blind by a panel.
- Even if selected, the samples are tasted again and sent for chemical analysis to confirm that they are identical to the samples..
Takes 7-8 months for entire process, from tasting to being sold.
How many ‘Control states are there in the US?
4 exaples and how their laws differ?
17 total:
1. Idaho: monopoly off-premise sales of beverages >16% abv.
- Michigan: monopoly on wholesale of spirits.
- New Hampshire: beer/wine in grocery/conveniance stores only, small no. of shops, that specialize in smaller brands.
- Pennsylvania: all spirits sold in ‘package stores’, bars/restayrabts must buy from them as well
