7. Monopolies and the Three-Tier System Flashcards
What is the only major outlet in Sweden that is allowed to sell alcohol?
Systembolaget
If a bar/restaurant in a country w/gov’t-run monopoly wants to purchase wine, how must they do it?
Either through the monopoly, e.g. Systembolaget, or from specialist independent distributors.
What is the ultimate aim of a gov’t run monopoly?
How does it achieve this (3)?
To limit the sale/consumption of alcohol.
- reducing the no. of venues where it may be purchased.
- heavy taxation
- reducing competition, which could lead to price pressure.
List the steps a producer must go through in order to have their wine sold in Systembolaget (4):
How long does the process generally take?
- Register w/an importer that is an approved supplier of System.
- 4 x a year, System issues tender requests for wine style/types it wishes to be stocked.
- Suppliers submit samples for consideration, which are tasted blind by a panel.
- If passed on, 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.
Despite the bureaucracy, what are the benefits of a Gov’t-Run Monopoly such as Systembolaget, for the gov’t/consumer/producer?
Gov’t: Heavy taxation = profits for gov’t; 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: opportunity for smaller producers to make inroads over big ones, as decisions are based on quality alone; though process is lengthy, if chosen, the producer’s wines will be stocked at all System stores, giving them the chance to sell large volumes.
Describe the Monopoly in Canada (3):
- monopoly present in every province except Alberta.
- e.g. in Ontario, all sales controlled by LCBO, either through their stores or approved agencies.
- Alberta now has private market for wholesale distribution, but heavily monitored by Alberta Gaming and Liquor Commission.
Name/dates of the act that led to the USA’s 3-Tier System:
Volstead Act aka Prohibition.
1919-1933.
What was the original aim of the 3-Tier System (2)?
What benefits were the gov’t seeking (4)?
- to prevent a return to the ‘saloon’ days of gambling, prostitution, cime, drunkenness.
- to get rid of ‘tied houses’ (saloons which were required to buy all products from particular brewer/distiller) and prevent producer monopolies.
Benefits: increase prices (restricting sales), additional jobs, easier regulation + collection of taxes, generate revenue via taxes.
What are the 3 tiers of the 3-Tier System?
- Supplier (producer, importer)
- Distributor (wholesaler, broker)
- Retailer (on/off premise, supermarkets, bars/restaurants)
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 (2)?
What is increasingly becoming an exception to these rules?
Producer may also be Importer (e.g. Gallo), but not Distributor.
Distributor may also Import (e.g. Republic National Distributing Co.) but cannot Produce.
Some states allow wineries (or breweries/micro-distilleries) to sell directly to consumers, usually with conditions attached.
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 a companies practices are legal according to state/county rules.
What are the 3 MAIN categories that (American) States fall into with regard to the 3-Tier system?
an e.g. 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 gov’t involvement is relatively minimal, e.g. NJ
- ‘Franchise’ States; states that have laws severely restricting ability for suppliers to change distributor arrangements, e.g. CT.
How many Control States are there in the US?
4 e.g.s and how their laws differ?
17 total.
- Idaho: monopoly of off-premise sales of bevs >16% abv.
- Michigan: monopoly on wholesale of spirits.
- New Hampshire: beer/wine in grocery/convenience stores only, small no. of shops that specialize in smaller brands.
- Pennsylvania: all spirits sold in ‘package stores’, bars/restaurants must buy from them as well.
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: distr. may enter into agreement w/supplier, drop other suppliers, invest heavily in marketing, staffing, infrastructure etc..
FRANCHISE STATE: Appt of distributor is essentially a ‘lifetime appointment’; little recourse for supplier if dissatisfied w/performance. They may appoint additional distributors as a result.
What is the main benefit of establishing a Franchise State?
- protects Distributor from catastrophic loss of revenue if supplier decides to suddenly pull out of agreement.
