7. Other types of market

Question 1

What is the name of the monopoly market in Sweden?

Answer 1

Systembolaget.

Question 2

What is the aim of a monopoly market?

Answer 2

Government-run monopoly of sale of alcohol aimed to promote the mindful consumption of alcohol.

Question 3

What is a common feature of monopoly markets?

Answer 3

High levels of tax on alcoholic drinks typical.

Question 4

Describe Sytembolaget’s fixed assortment process (5 steps).

Answer 4

1) Systembolaget tenders 4x/year for new products.
2) Approved tenders submit samples, which are blind tasted for approval.
3) Once selected, wines are re-tasted and chemically analysed.
4) Can take up to 8 months from tender to product launch in shops.
5) Once approved, the wine is available throughout all of Sweden - larger sales potential.

Question 5

Which Canadian province has a private market for alcohol sales?

Answer 5

Alberta.

Question 6

What negative consequence does a system such as Sweden’s have for consumers?

Answer 6

Higher levels of taxation.

Question 7

Explain the purpose of Sweden’s Systembolaget monopoly.

Answer 7

To encourage thoughtful consumption of alcohol with an awareness of the health implications of excess consumption.

Question 8

What does the research into market privatisation illustrate in opposition to a monopoly?

Answer 8

Leads to greater accessibility of alcohol and competition thus encourages downward price pressure and greater availability of cheap alcohol.

Question 9

How does Systembolaget drive customer satisfaction?

Answer 9

By having an extensive range with highly knowledgeable staff.

Question 10

What is the minimum age permitted to purchase alcohol at a Systembolaget?

Answer 10

20

Question 11

What is Systembolaget’s Temporary Exclusive assortment?

Answer 11

These wines are purchased directly by the buyer and don’t need to go through the tender process. It’s a one time purchase of a fixed volume.

Question 12

What is the fixed assortment in the context of Systembolaget?

Answer 12

These wines (all kinds of price points and volumes) have all gone through the tender process and won a listing in all or parts of the 448 retail stores. These wines will stay in the assortment as long as they sell enough volume compared to its competitors in the same price/product segment.

Question 13

What is the temporary assortment in the context of Systembolaget?

Answer 13

The wines goes through a tender process as for the fixed assortment, but the difference from the fixed assortment is smaller volumes and a one-off purchase. If the product sells well it gets a re-purchase of the following vintage.

Question 14

What is the order assortment in the context of Systembolaget?

Answer 14

These wines are registered by the importer on Systembolaget’s website/webshop and can be ordered and picked up in the consumer’s closest retail store. The wines have no distribution and marketing is needed to drive sales.

Question 15

Where might products part of the order assortment be sold?

Answer 15

Online and also direct from the importer to bars and restaurants.

Question 16

How might a producer or importer who sells via the order assortment qualify for sales via the permanent assortment?

Answer 16

By achieving strong online sales via the order assortment.

Question 17

What are the USA’s three tiers?

Answer 17

1) Supplier
2) Distributor
3) Retailer

Question 18

In the three-tier model, a producer/supplier can what?

Answer 18

Also be an importer but cannot distribute.

Question 19

In the three-tier model, a distributor can what?

Answer 19

Import but cannot produce.

Question 20

When was the three-tier system introduced and why?

Answer 20

1933 following prohibition to prevent pre-prohibition levels of drunkenness, crime, gambling and prostitution.

Question 21

What are the four key benefits of the three-tier system?

Answer 21

1) Reduces producer monopolies
2) Provides additional jobs
3) Easier to regulate and collect taxes
4) Generates additional tax revenue

Question 22

In the US at what legal level are alcohol sales controlled?

Answer 22

State level - each state has its own legislation.

Question 23

What is a key disadvantage to alcohol companies of the state level legislation?

Answer 23

There are 52 different regulatory entities so knowledge of the complexities of each state is required by anyone selling to these states. Has led to the rise of compliance officers being required.

Question 24

How many states permit inter-state sales between retailer and consumer?

Answer 24

14

Question 25

What is one consequence of the three-tier system (relating to distributors and wineries)?

Answer 25

Consolidation. The number of distributors in the USA has decreased approx. ⅔ in the last two decades while the number of wineries seeking entry into the US market has increased x5.

Question 26

What is a disadvantage of the distributor consolidation and for whom?

Answer 26

Creates a bottleneck of producers awaiting entry, particularly for smaller producers who can find their products lost in large portfolios where they potentially lose control over the marketing and B2B sales compared with a free market.

Question 27

What are the advantages of conglomerate (supplier) purchases of small brands to distributors?

Answer 27

Provide an attractive portfolio of products for a large distributor who now only needs to deal with one large company in order to gain access to a range of desirable brands that need limited hand selling.

Question 28

What are the advantages of conglomerate (supplier) purchases of small brands to retailers?

Answer 28

The multiple retailer can provide a range of products for their customers by only dealing with one or two large distributors.

Question 29

Define a control state.

Answer 29

A state in which the state itself holds monopoly over one or more tier where the state is generally the only licensed off-premises retailer.

Question 30

How many control states are there?

Answer 30

17

Question 31

Provide four examples of control states.

Answer 31

1) Idaho
2) Michigan
3) New Hampshire
4) Pennsylvania

Question 32

What is a franchise state?

Answer 32

A state such as Connecticut with laws that restrict the freedom of suppliers to change distributor arrangements designed to protect distributors against sudden and massive changes to their business.

Question 33

Why would a sudden and massive change to a distributor’s business be disadvantageous?

Answer 33

It could result in an immediate loss of revenue and the time and money the distributor invested in promoting the suppliers product would be lost.

Question 34

What can a supplier in a franchise state do if they are dissatisfied with their distributor?

Answer 34

Since it may be difficult to get the distributor to release the supplier, they may seek simultaneous distribution through another company.

Question 35

What are the main functions (4) of Connecticut’s legislation?

Answer 35

1) Restricts the number of off-premises licences that can be held by any one entity.
2) Restricts the number of licences available in each city and town according to population.
3) Prohibits quantity discounts from distributors thus keeps the playing field more even between small and large retailers.
4) Minimum bottle pricing.

Question 36

What other benefits (2) are there to retailers and suppliers in having the distributor tier (other than financial)?

Answer 36

1) They specialise in logistical efficiency.
2) They can provide a trained salesforce and marketing potential that would otherwise prove costly to the producer.

Question 37

Who benefits in the main in a franchise state?

Answer 37

Benefits the distributor by protecting their investment in a supplier.

Question 38

Why is Sweden’s Systembolaget advantageous to smaller producers?

Answer 38

Process based on quality alone giving smaller producers the same opportunities as larger ones.

Question 39

Give an example of a supplier (producer) within the three-tier model that is also an importer.

Answer 39

E&J Gallo

Question 40

What are the four Systembolaget assortment types?

Answer 40

1) Fixed assortment (the main one for WSET)
2) Temporary assortment
3) Temporary exclusive assortment
4) Order assortment

Question 41

Systembolaget regulates all sales over what ABV?

Answer 41

3.5%

Question 42

As a control state, explain how alcohol sales are regulated in Idaho.

Answer 42

A monopoly on off-prem sales of beverages above 16%.

Question 43

As a control state, explain how alcohol sales are regulated in Michigan.

Answer 43

Monopoly on wholesale sale of spirits only.

Question 44

As a control state, explain how alcohol sales are regulated in New Hampshire (3 points).

Answer 44

1) Beer and wine only in grocery stores.
2) State package shops for RTDs
3) Allows a small number of private off-prem to specialise in smaller brands.

Question 45

As a control state, explain how alcohol sales are regulated in Pennsylvania.

Answer 45

All spirits sold in state package shops; bars, restaurants must buy from these outlets too.

Question 46

What is a positive consequence of Systembolaget to producers?

Answer 46

Merit-based acceptance of products into the stores with nationwide distribution meaning even sales opportunities for producers both small and large.