7. Other Types Of Markets Flashcards
What are the different types of markets
- Free market
- Monopoly market
- Three-tier system
What is the monopoly system
When the government runs a monopoly for retail sale of alcohol, to limit alcohol consumption
In which way is alcohol consumption limited by a monopoly sytem
- High taxes = higher prices
- Less competition = higher prices
- No promotion or price reductions
Give examples of monopoly markets
- Systembolaget in Sweden, only retail outlet allowed to sell alcohol (restaurants and bars also buy from the monopoly)
- Liquor Control Board of Ontario in Canada, controls LCBO shops and some approved agencies
What is the American Three-tier system
A law prohibiting cross ownership between supplier, distributor and retailer.
In 1933, after the prohibition, this system was introduced to prevent Tied Houses and producer monopolies, with crime, gambling, prostitution and drunkenness.
What is the Volstead Act
A law brohibiting the production, sale and consumption of alcohol between 1919 and 1933
What are the advantages of the Three-tier system
- Better control over taxes
- Distributors have massive portfolios (disadvantage for smaller producers)
- Distributors specialise in logistical efficiency
- Distributors have trained sales forces
- Distributors provide producer exposure
- Retailers don’t need several distributors to offer a large range
What are the disadvantages of the Three-tier system
- Some states do not allow wines purchased off-premise
- Need for compliance officers to understand complicated laws of different states
- Border wars (cheaper, other hours etc)
- Bottleneck due to consolidation (distributors decreased by 2/3 while domestic wineries increased by 5)
- Limited small specialist distributors for smaller wineries
- Distribution contracts can be hard to break
Give examples of control states
- Idaho: monopoly on sale for >16%
- Michigan: monopoly on wholesale for spirits
- New Hampshire: beer/wine in grocery and convenience shops, state package shops, small off-premise permits selling small brands
- Pennsylvania: state package shops (restaurants and bars also buy from these)
Give an example of a situation a franchise law protects against
Distributor signs contract with supplier, and needs to comply to:
- Drop other brands
- Invest in marketing
- Make investment in staff
- Make investment in infrastructure
Supplier changes distributor, and leaves the previous one with catastrophic loss of revenue
Give an example of a state with strict laws
Connecticut:
- Franchise law
- Restrict number of licenses
- Prohibits quantity discounts by distributors
- Minimum bottle pricing
- Until recently: no off-premise sale on Sunday
Define “consolidation”
Conglomerates getting bigger and expanding their market share, usually by acquiring smaller companies
What are the advantages of Systembolaget
- No promotion, staff advises customers individually
- Wines are blind tasted by a panel to ensure quality, and even chemically analysed
- Give smaller producers acces to the market
- Sell large volumes over the whole country
What are the disadvantages of Symbolaget
- Independent distributors are expensive due to taxes
- Higher prices due to no competition
- Bureaucracy for producers
Explain how a producer gets his wine onto the market with Systembolaget
- Systembolaget issues tender request for specific styles 4x/year
- Producer registers with approved supplier
- Supplier submits sample
- Samples are blind tasted
- After selection, they are chemically analysed
