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Faced with commercial pressures created by EU enlargement and EU-led reform, the days of the Scandinavian alcohol monopolies are numbered, according to a new report on the Scandinavian wine market by Vertumne International. Chris Brook-Carter reports.

Despite the vested interests of government, retailers, consumers and producers, Scandinavia's state-run alcohol retail monopolies will fall, according to the author of new research published on the region's wine market.

Frederic Julia, general manager of Vertumne International, which was commissioned by the London International Wine & Spirits Fair to investigate the Scandinavian market, believes Sweden's Systembolaget, Norway's Vinmonopolet and Alko in Finland will have all lost their status as the sole retailers in alcohol within 10 years.

"Forced by the entrance of the Baltic States into the EEC and by the recent Danish decision to lower taxes on alcohol, Sweden, Norway and Finland might consider, despite government and public support for the current system, speeding up the dissolution of their alcohol monopolies," Julia says in the report, which is entitled 'A detailed study of probably the most dynamic market in the world".

He goes on: "With increased competition from their Baltic neighbours, it could be even more difficult for Alko (the Finnish monopoly) to remain profitable and still achieve their strategic goals in terms of controlling alcohol consumption. Should this result in the dissolution of Alko it would seem likely, in time, the Swedish and Norwegian monopolies could follow suit." In a presentation last week he referred to this toppling by stages as the "domino effect".

That said he warned that the process would not be a speedy one. The domestic Scandinavian wine market (Denmark, Finland, Norway and Sweden) represents around 489m litres in sales. And with a 62.6% increase in market size since 1996, Scandinavia is the most dynamic wine market in the world, easily surpassing the UK, China and the US, which have demonstrated growth rates of 45%, 23% and 19% respectively.

Given the revenue sales of alcohol currently generate for the state coffers, the monopolies' protected position within this market of vast potential is not one that is going to be given up easily. "This won't happen fast," says Julia. "It would appear that Alko is under the greatest threat from the Baltic inclusion in the EEC and it is logical that with increased competition it is difficult for the government to control consumption and for the monopoly to remain profitable.

"This has important implications for the monopolies in Sweden and Norway but their strengths should not be underestimated. In Norway and Sweden there is still strong governmental support for the monopolies based on access for all consumers to an increasingly diverse and large number of products and brands. The likely result of an open market would be a drastic reduction of choice of wines and spirits for those consumers in remote areas."

Indeed, in both Norway and Sweden the ruling political parties are in favour of keeping the monopoly system. And a poll of the Norwegian public found that 53% are in favour of all wine, spirits and strong beer sales being conducted by Vinmonopolet.

Surprisingly, there is also little pressure for change from the obvious beneficiaries of a free market, the private supermarket retailers, who are still uneasy with the concept of taking responsibility for alcohol sales in markets highly sensitive to the health effects of excess drinking.

"Whatever happens to the monopoly system in Scandinavia," says Julia, "it should be kept in mind that, according to a recent poll, the supermarket chains are very much in favour of taking over distribution of wine and beer but, afraid of being accused of not controlling the spread of alcoholism, quite reluctant to distribute spirits."

But pressure to dismantle the monopolies is growing nonetheless, and has been boosted in the last 12 months by the bribery scandals that have ripped through Systembolaget, chipping away at consumer confidence in the system. The pro-monopoly supporters are beginning to lose the moral high ground in other ways too. The argument for a state-controlled system has long rested on the assumption that the government can best control alcohol abuse this way. However, despite the strict controls, in Sweden for one, problems associated with alcohol are on the increase.

There has of course been political pressure from within the EU for Sweden and Finland to reform its monopolistic structures but Julia believes the key pressure will be commercial.

The Scandinavian market has a very disparate excise tax system that ranges from as low as €1.06 per litre in Denmark to €5.01 per litre in Norway for wine with 12% alcohol. As a result, consumers are crossing borders to buy their wine, or buying cheap fake wine in order to avoid paying high duties.

In May this year, when the Baltic States join the European Union there will be a significant increase in cross-border shopping by Swedes and Finns in Latvia.

"Finland is sure to suffer from this competition since Latvia is a favourite, very affordable weekend tourist destination," says Julia. "In addition, the excise tax on wine is very limited in the Baltic States."

As cross-border sales increase, so sales and the profitability of the various monopolies will be damaged. The Finnish market is at most risk, according to the report. "Alko is under big pressure following the integration of Estonia into the EEC, and rumours are growing about its possible disappearance. These rumours are based on the assumption that the monopoly will have trouble resisting the big tax difference between the two countries," says Julia.

In Sweden, steps are already being taken to modify the tax system to help improve Systembolaget's profitability, with the current tax of 17% plus SEK4 being changed to 23% plus SEK3.5, changes due to come into effect in May 2004. These modifications are not only aimed at boosting profitability but are also intended to benefit lower-priced wines.

"It is an indication that the government is concerned by the profit generated by the monopoly. In such a context, and in order to avoid an increasing number of consumers going to Denmark to buy alcoholic beverages, the decision was also taken to align its regulations with neighbouring EEC countries: as of January 1st 2004, the maximum limit of wine that travellers may bring back was increased from the existing 52 litres to the 90 litres prevailing in all EEC countries," the report says.

However, the regime is still one of the strictest in Scandinavia and Swedes travelling to the Baltic States will "increase pressure on the monopoly," says Julia, "and will force it to take its reforms even further."

Norway, of all the monopolies is in the strongest position, according to the report. First, as Norway is not in the EU it is not subject to the same political pressures as Sweden and Finland. In addition, Vinmonopolet is recording healthy growth. The monopoly predicts that per capita consumption of wine in the country should reach 13 litres by 2004.

"In such a context," says the report, "it is uncertain if the possible dismantling of the state retail monopoly should be seen as an advantage for the market: with more than 6,500 different wines and spirits offered by the monopoly in its 189 shops, a lot of suppliers could suffer from a more competitive environment.

"Privatisation could result in limited product choice for consumers in more rural areas and would require a major shift in public opinion prior to being accepted. The general consensus is that, should the monopolies ever dissolve, Vinmonopolet would be the last to do so, due to general pubic acceptance and the lack of impact from the Baltic states."

Expert Analysis

The Market for Alcoholic Drinks in Sweden

Euromonitor's Market Direction series provides invaluable standardised-format analysis for 52 established and emerging markets. Like-for-like comparability ensures consistent, usable data between product sectors and countries, while our analysts working in the field add true 'local flavour' market information to each report.

Each Market Direction title investigates new product developments, distribution trends and demand factors in addition to providing company and brand share data, retail sales statistics and sector performance analysis. To find out more about this report, download your sample or to order your copy, please follow this link

The Market for Alcoholic Drinks in Norway

Euromonitor's Market Direction series provides invaluable standardised-format analysis for 52 established and emerging markets. Like-for-like comparability ensures consistent, usable data between product sectors and countries, while our analysts working in the field add true 'local flavour' market information to each report.

Each Market Direction title investigates new product developments, distribution trends and demand factors in addition to providing company and brand share data, retail sales statistics and sector performance analysis. To find out more about this report, download your sample or to order your copy, please follow this link

 

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