The penultimate part of this month's management briefing, looking at the retail landscape for drinks companies, considers the differences - and varied opportunities - between controlled and freer markets around the world.

All over the world, when, where and what kind of alcohol consumers can purchase varies between each country’s national - and, occasionally, regional - laws. One would understand if alcoholic beverage manufacturers would prefer operating in markets where retailers are free to sell alcohol, versus those were a limited number of agents can make sales. Sadly, however, it is not that simple, nor will it ever be.

That said, Martin Jones, president of alcoholic beverage consulting firm Artisan Source, believes that manufacturers do not have to take vastly different marketing approaches between the two market types. “(In the US), you’re still marketing to the consumer at the end of the day, whether it’s a controlled market like in Pennsylvania or Ontario or an open one like in California or Texas,” he said. “You still have to start with the consumer and appeal to his or her interests.”

In states or countries with controlled alcohol laws however, Jones says that there is often less selection of brands, simply because there are less points of sale. With free markets, he says, there are many more opportunities to provide a greater selection of products. 

Even with less opportunities for variety in controlled markets, Jones maintains that “brands still meet the demands of consumers,” and that living in a region where the market for alcohol is controlled does not necessarily mean that foreign brands will be blocked out. “For example, in Quebec in Canada, the market is very import-oriented, even though the market is controlled, while California is very domestic-oriented, even though their market is open,” he says. “It all comes down to consumer demand, no matter what the market looks like.”

However, Charlie Quinn, VP at US-based consulting firm Power Brands, believes that, when there is state involvement, fewer brands tend to exist on the market. “Smaller brands often just can’t break through the noise, and won’t ever get into controlled markets,” he counters.

In the US, according to Quinn, the fact that it varies from state to state whether their alcohol market is open or controlled can cause a real headache for brands. For example, there have been various court cases filed in the country in recent years by wineries and local consumers, challenging those states that do not allow wineries to ship wine directly to consumers.

Tom Pirko, president of US-based international food and beverage advisory firm Bevmark, is of the opinion that free markets offer more time to grow sales: “The controlled market has a filter that a lot of smaller brands often fall through," he says. "If you don’t have a certain level of sales within 60 days, you’re dropped.”

Pirko claims that large suppliers in controlled markets have the advantage, since one is more or less guaranteed certain volumes and a certain level of sales. “That stability doesn’t always exist in the free market,” he says. For some smaller or new brands, however, Pirko feels that controlled markets can help: “Controlled markets still know that consumers want variety and vitality," he says, "so they often set aside a certain amount of shelf space for smaller brands.”

Rosemary Gallagher communications manager at the Scotch Whisky Association, notes that even though markets like Canada, Scandinavia, Norway, Sweden and Finland are controlled, they are still important markets for Scotch. “Companies work very hard in controlled markets to ensure Scotch whisky doesn't face discrimination,” she says.

Rebecka Blomberg, spokeswoman for Sweden’s state alcohol retailer Systembolaget (the only Swedish retailer selling beverages with more than 3.5% abv), says that Systembolaget's policy is to ensure product ranges are “wide and multifaceted, are adjusted according to demand and changes in the outside world, are quality-secured and contribute to profitability.” She says that Systembolaget tries to marry security and continuity with renewal and seasonal variations. “This is provided through a fixed range and a temporary range,” she says, adding that the retailer is brand neutral, and purchases products based on price and quality. 

In India’s federal structure, policies around alcohol manufacturing, distribution and retail are governed by sub-national states. Pramod Krishna, director general of the Confederation of Indian Alcoholic Beverages Companies (CIABC), says that the system involves “doing business with 28 states … very complex and difficult”. Alcohol production is in private hands in India but distribution and retail is partially or completely controlled by state governments, and it is a highly regulated market when it comes to pricing. Heavy taxation - excise duty, octroi (local taxes) and licence fees for alcohol stores - escalates the retail price sometimes up to six times that of the manufacturer’s price in the country.

In China, meanwhile, the alcoholic beverages market is easy to access, as the country’s federal government has yet to impose any strict restrictions on the market. Consumers can purchase beer, wine, and Chinese spirits at local supermarkets and convenient stores without showing ID cards, even though retailers “should not” sell alcoholic beverages to minors under the age of 18, according to the Ministry of Commerce. “Government control is not a large issue in the drinks sector,” says James Roy, analyst at Shanghai-based research firm China Market Research Group. While most local stores only sell Chinese-made drinks, consumers head to pubs, high-end restaurants and online retailers for imported beverages, he notes. Retailers selling imported drinks, including wine, brandy and Tequila, are required to show the certificates from the local Entry-Exit Inspection and Quarantine Bureau.

Turning to Europe, in July 2010, a policy report entitled ‘Effective Alcohol Marketing Regulations’ was published by the Dutch Institute for Alcohol Policy (STAP), summarising the findings of a European Union-funded project assessing alcohol marketing regulations in 23 European countries. The results showed that, because of increasing concerns from governments over binge and underage drinking, tighter legislation on alcohol marketing has come into place all over Europe, creating an inevitable challenge for alcohol manufacturers, regardless of whether their country’s alcohol market is free or controlled.

In Norway, for example, where the alcohol market is very controlled, alcohol marketing is not permitted. There are some loopholes, however: TV channels transmitting from outside Norway abroad can still run commercials targetting  the Norwegian market, even in the Norwegian language. Furthermore, it is difficult for the government to prove whether a website is directed at the Norwegian public, so online marketing is something that brands can focus on for their advertising. 

It is not only controlled markets that have restrictions on alcohol advertising however – even free private markets such as Poland often make things tough for brand advertising: there is an advertising ban for wine and spirits, and only the promotion of beer is allowed on TV, radio and other media platforms.

The final part of this four-part briefing, containing a wealth of data, will be available later today. Part II, meanwhile, can be found here.