CH 7 - Other Market Types Flashcards
Monopoly Markets
What is the goal of monopoly markets, where are they and what are 2 examples?
Goal - reduce alc consumption via govnt restricting supply chain and high prices via taxation
- privatization would inc accessibility and compet which would reduce P
Sweden - Systembolaget
Canada - Liquor Control Boards
Monopoly Markets
What is structure of Swedish sysyem?
Adv/disadv for producers?
Systembolaget state owned are only retail outlets, plus a few specialty distrib for small prod/regions
- bars/rest can only buy from sb or specialty distrib -> govn’t puts high tax to inc price
- no price promotion - retailer only advises, no promotion of ind prod
- producers have to register w/ approved importers, 4x/yr sb issues tender for new prod, prod submit sample for blind tasting, tasted/tested again before launch
Adv -
* once accepted, prod gets national distrib, ensuring consistent exposure
* smaller prod eval on quality vs marketing budget/volumes
Disadv
* lengthy process (7-8 mos) for prod acceptance
* High costs and hard to access retail distrib due to tender system and limited flexibility
Monopoly Markets
What is Canada’s structure, 2 examples?
All but 1 prov has strict retail controls
Ontario - Liquor Control Board of Ontario - state-owned shops w/ limited # approved agencies are only retailers
Alberta - private market, but heavily monitored by gaming and liquor commission
USA Three-tier system
What is USA 3-tier system and what are its goals?
Why did it come about?
○ A state-level system created after prohibition to separate producers, distributors and retailers
* Volstead act 1919-1933 to enforce 18th amendment prohibiting alc sales
○ Goals- prevent producer monopolies and inc prices, facilitate tax collection, inc tax rev from added dist tier regulate alc distribution
* Originally designed to prevent the return of “saloon days” before prohibition
* Highly complex to navigate state-by-state rules
USA Three-tier system
What is the structure of the 3-tier system?
- Suppliers - producers/importers
- Distributors - wholesalers/brokers
- Retailers - off-premises like supermarkets and on-premises rest/bars
- Laws prohibit cross-ownership between retailers and upper 2 tiers -> producers can’t sell direct to retail by bypassing distrib
- Separation bet prod/distrib developed later -> not universal (Gallo)
- Inc number of states allow wineries to sell w/in and outside their state to sell DTC on- and/or off-premises; others don’t allow sales across state lines
USA Three-tier system
What are state-specific variations and dynamics?
4 specific state examples?
-
Control states - 17 states - state itself holds monopoly over 1 or more of the tiers -> usually off-premises retail are state owned
§ Some states this is only for spirits, not wine
§ ID - monop on off-prem for all alc 16%abv+
§ MI - monop on wholesale sales of spirits
§ NH - beer and wine sold in grocery and conv stores only, state package shops, small number off-prem permits for smaller brands
§ PA - strict - all spirits sold in state shops, bars/rest must buy from state shops - Open states - minimal state participation -> suppliers and distrib free to enter and exit agreements to sell and distrib brands
-
Franchise states - strong laws protect distributors, often creating inflexible agreements -> major benefit to distributors
§ Goal - protect distributors from sudden/big changes to their business
§ Producers locked in, even if unhappy w/ distributor, can sometimes appoint 2nd distributor
USA Three-tier system
How does CT approach regulation?
Benefits and downside?
Very strict rules for alc sales
* Strong franch law - limited # off-prem lic can be held by any given bus
* Vol discounts not allowed by WS - reduces adv of large/well funded-retailers allowing small bus to succeed
* State sets min bottle pricing for all retailers
Has enabled many small businesses to thrive/avoid consolidation that’s happened in other states
Has also created border arbitrage - high Ps send cust across state lines
USA Three-tier system
What are adv of 3-tier system?
What are disadv?
from all perpectives
- Adv
§ Generates significant tax revenue from having 3 tiers
§ Having distrib tier creates logistical efficiency/expertise
§ Prod gain sales force/marketing resources from distribution tier that would otherwise be very costly - Disadv
§ Consolidation of wine market - reduces # of distrib creating competition for limited resources - major disadv for small prod
□ # of distrib ↓67% from 3,000-1,200 in last 20yrs while # wineries inc 5x
§ Prod lose marketing/sales control -> small prod struggle for visibility/support due to large distrib portfolios
§ Compliance with state -specific laws inc complexity and cost
USA Three-tier system
What are 3 key trends in US?
- Large companies benefit at all tiers
- inc size of companies in producer tier -> conglomerates acquire smaller wineries -> attract range of prod for
- large distrib who only needs to deal w/ 1 large producer for full array of prod
- Large retailers only work with a few large distrib who can provide full range - Smaller prod forced to work w/niche distrib but have more limited coverage
- Small prod lack dist flexbility -> dist contracts hard to break so und - Consolidation inc focus on DTC leading to gradual loosening of state-by-state rules
- Adds cost for producers - labor, advert, shipping, compliance cost and complexity
Other Market Types - summary card
What are overall strategic implications:
- for monoply markets?
- for 3-tier system?
- Monop
§ Focus on quality and compliance to succeed in tender based systems
§ Consider using specialist distrib for niche placements in bars/rest - 3-tier
§ Navigate distrib relationships carefully, esp in franchise states
§ DTC are increasingly impt to bypass complexity and limitations of 3-tier structure
