Pandemic has shone light onto the underlying issue of retail monopolies in the Nordic region. While the state-owned alcohol industry is able to have a tight grip on sales through pricing, limited selling hours and points of sale, amidst the closure of the borders following covid-19, drastic growth in spirits sales unveiled potential scope of cross-border trade in the region.
This report comes in PPT.
The pandemic led to a significant decline in sales of spirits globally; however, Nordic spirits markets that operate under state-owned enterprises saw record growth in 2020. This can be attributed to sudden border closures, which potentially indicates unaccounted for consumption via cross-border trade within these countries.
Government retail monopoly eliminates competition within a field, that would otherwise be inclined to boost the sales of products. Using various means such as controlling pricing, limiting selling hours and points of sale it can reduce consumption within the market. However, it does create an opportunity for increased sales through cross-border trade, that ultimately leads to lost tax flows.
While prices and distribution of alcohol are strictly regulated in selected Nordic markets, consumers are continually looking for a better deal elsewhere, which leads to a substantial proportion of sales being lost to cross-border trade. Consequently, high disposable incomes in the Nordic region compared to the rest of Europe create an environment where an alcohol monopoly system is only having an impact on “white” sales, although there is always the possibility of an illicit and counterfeit market emerging.
Governments operating state-run alcohol monopoly should re-evaluate the strategy of extremely high taxation regimes, since they are proving counterproductive in the long run. While price is an effective deterrent to consumption, alternative channels of purchase ultimately mitigate the desired effect.
Alcoholic drinks is the aggregation of beer, wine, spirits, cider/perry and RTDs.See All of Our Definitions
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