By Pamela S. Erickson, President/CEO of Public Action Management, PLC

NCSLA Central /Western Regional ConferenceSanta Fe, NM , October 11, 2010

Competitive markets bring us lower prices.

Since the recession began, people expect and value low prices.

But, alcohol is different: Highly competitive, “free

markets,” bring more outlets and heavy promotion.

Lower prices increase consumption.

Lower prices often require high volume purchase.

Continued low prices will eventually lead to serious social problems.

Alexander C. Wagenaar, PhD, professor of health outcomes and policy at University of Florida College of Medicine.

“Our meta-analysis cumulated information from all the published scientific research on this topic over the past half century, and results clearly show increasing the price of alcohol will result in significant reductions in many of the undesirable outcomes associated with drinking."

The United Kingdom is an example. Today all forms of alcohol are available in bars, clubs and grocery stores 24 hours a day, 7 days a week.

They have high taxes, little regulation, poor enforcement and lots of cheap alcohol.

The also have an alcohol epidemic on their hands.

Hospital Admissions have doubled for liver disease and acute intoxication.

Drinking and intoxication of youth 15-16 are at very high rates, according to the European School Survey.

0102030405060708090

100

Use in past 12 months

Use in past 30 days

Drunk in past 12 months

Drunk in past 30 days

UK

US

No business regulation: alcohol sold with few restrictions

High homicide rate (27 per 100,000 pop. v. 5.7 for US)

Estimated 50% alcohol involvement in traffic fatalities v. 32% for US

Liver cirrhosis rate is 11.31

v. 7.47 for US

Price comparisons

Milk = 60 cents (1 liter) Mineral water = 40

cents (1 liter) Big Mac = $1.30 Beer = 25 cents (1 can) Cachaca (sugar cane

liquor) = 50 cents (1 liter)

Finland cut tax on alcohol by 30% and loosened regulations. Alcohol became the leading cause of death for men. Regulations were then strengthened and taxes increased.

In Russia, alcohol is a primary cause for drastically reduced life expectancy for men (currently 63 v 74 for Russian women). Recently, they introduced minimum prices in addition to taxes and other measures.

New Zealand loosened regulations in 1989 and are now considering stronger measures in the face of problems.

Markets typically evolve toward domination of a few, large players. (Most commodities have dominant national or international companies, e.g. Intel, Home Depot, etc.)

Competition becomes fierce with price wars, loss leaders, discounts for volume consumption. Smaller operators are undercut and many go out of business.

National or foreign corporations are rarely constrained by community norms;

Regulations can be hard to defend against large corporations with major legal resources.

Large corporations use large lobbying budgets to advocate for deregulation.

How can supermarkets survive?

“To earn a dollar, supermarkets would rather sell a $1 item 100 times, making a penny on each sale, than 10 times with a dime markup.”

Net profit for food retailers is less than two pennies on each dollar of food sales. Source: Food Marketing

Institute

Large chain with many “big box” stores

Warehouses Distribution system Ability to buy directly

from manufacturer Ability to buy at

discount, sell high volume at discount, freely advertise, and offer promotional incentives.

UNITED KINGDOM TREND

Four large supermarket corporations have 75% market share.

Price of alcohol is 70% more affordable.

Cheap prices drove increase in drinking at home/pre-loading.

Regulation reduced over a 40 year period to a point where there are few restrictions.

UNITED STATES TREND

Top 10 supermarket chains have 68% of revenue.

US alcohol prices also reduced. Sale prices can reduce price to less than $.25-50 per drink.

US recession and supermarket prices drive drinking and entertaining at home.

Increase in off-premise outlets.

Reduction in regulation; increase in hours and days of sale.

Availability. Allows alcohol to be sold by the bottle and the drink, but limits the number, location, types of alcohol products, and hours of outlets.

No “Bargain Booze”. Regulations balance prices, control price competition, and restrict dangerous marketing and promotional practices.

Children and Teens. Age restrictions protect young people from the serious problems of underage drinking.

Drunk driving. Creates and enforces strict measures against drinking and driving—sobriety checks, blood alcohol limits, driver’s license suspension.

Education and Enforcement. Uses the carrot of education (alcohol awareness programs, “schools” for offenders) and the stick of enforcement (fines, community service and jail) when education fails. Source: Adapted from World Health Organization recommendations.

WE’VE FORGOTTEN WHY WE HAVE ALCOHOL REGULATION

“FREE MARKET” ADVOCATES CRY FOR DEREGULATION

Our regulatory systems were well designed after careful study and consideration.

Design work was supported by a prominent businessman, John D. Rockefeller, and the Institute for Public Administration.

Other systems around the world were extensively studied.

The systems were designed to avoid problems with the “free market” environment before Prohibition and lawlessness during Prohibition. Many problems with selling alcohol in “free markets” are inherent ; not “antiquated”.

THE ALCOHOL SCENE:

All forms of alcohol sold primarily in “Tied House” saloons owned by out of state manufacturers.

Most common drink was beer, sold in glasses, kegs and buckets.

Unchecked profit motives of manufacturers drove aggressive sales to promote high volume drinking.

Results included public disorder around saloons, intoxication and addiction, family wages squandered on alcohol, prostitution/gambling used to bring in drinkers.

SALOON SYSTEM: MANUFACTURERS OWN LARGE NUMBER OF RETAIL OUTLETS

Speakeasy replaced the Saloon.

Distilled spirits became the most common drink due to its ease of smuggling.

Criminal syndicates ran an illegal, unregulated market of on-premise establishments.

Prohibition laws were widely disregarded.

OBJECTIVES:

Reduce economic and political influence of large alcohol companies.

Reduce public disorder, violence and other social problems.

Promote moderation for those that drink.

Gain public acceptance; eliminate lawlessness.

METHODS:

Prevent monopolistic practices such as vertical integration by separating manufacturer from retailer. Wholesaler is a “buffer.”

Eliminate sales tactics that promote intoxication, violence and other problems.

Promote “lighter beverages”, i.e. lower alcohol content (usually 3.2% beer); sell beer in single-serving containers v. kegs or buckets.

Allow for modification of regulations to meet changing conditions.

Financial Independence prevents business practices which promote increased and high volume consumption through price reductions. (Ownership prohibited between sectors)

Functional Independence protects the integrity of the three-tiered system by prohibiting ways to circumvent it. (One sector can’t perform function of another)

Price Regulations prevent increased consumption that would occur by selling large quantities of very cheap product. (Uniform pricing, ban on volume discounts)

Promotion and Advertising Regulations prevent business practices that target high drinking groups and promote volume consumption.

Tax Collection provides for an efficient tax collection system.

Product Tracking prevents sale of tainted and counterfeit product.

Age Restrictions prevent sales to underage youth. Availability Limits reduce consumption, social

problems and burden on law enforcement.

supplier

wholesaler

retailer

THREATS

1. Support Congressional efforts to reaffirms state’s primary authority to regulate alcohol such as the CARE Act.

2. Educate policy makers about the effectiveness of regulation. Understand the difference between education and lobbying.

3. Reach out to public health, prevention advocates and others to work together on these issues.

ACTIONS

Lawsuits--Retailers and manufacturers challenge marketplace regulations. Since 2005, over half the states have been sued in federal court.

Legislation--Retailers challenge retail regulations. (Proposals to sell more forms of alcohol in more locations and extension of hours and days of sale are common.)

Ballot measures--Large corporations finance ballot measure signature gathering and campaigns.

Budget reductions--prevent regular enforcement.

A deregulated “free market” fosters social problems with alcohol as many examples have shown.

A balanced alcohol marketplace which meets science-based criteria protects the public by keeping prices in balance, outlets limited and prevents aggressive sales practices.

The US three-tiered system fosters fair and even handed business dealing with a resulting vibrant business environment where large and small operators can succeed.

Outlets should be limited by appropriate factors such as population, location, and local enforcement resources.

Marketplace regulations and liquor laws must be adequately enforced to be effective.

Could beer and wine license definitions be changed to eliminate problem products such as those that appeal to street drinkers? (Washington and Oregon can restrict such licenses, but process is cumbersome.)

Could additional controls be placed on beer or wine products with higher alcohol content if they are sold under a beer or wine license? (E.g. Sell behind counter; other controls)

How could a state keep outlets limited, yet improve customer’s desire for convenience? What about the Minnesota model where each grocery company can have one liquor store if it’s separate (next door, across the parking lot, etc.)?

What groups could be approached to form a partnership to educate legislators?

What kinds of local controls are best for alcohol regulation?

“Alcohol Policy Research & Alcoholic Beverage Control Systems: An Annotated Bibliography & Review,” NABCA, National Alcohol Beverage Control Association, 2008

Campbell CA, Hahn RA, Elder R, et al. “The effectiveness of limiting alcohol outlet density as a means of reducing excessive alcohol consumption and alcohol-related harms.” American Journal of Preventive Medicine. 2009

“Competition and Profit,” Food Marketing Institute Website (PDF about grocery business today)

Marin Institute, ”Alcohol Outlet Density and Public Health,” website PDF. “What are the most effective and cost- effective interventions in alcohol

control?” World Health Organization, February 2004 “The Dangers of Alcohol Deregulation: The United Kingdom Experience,”

by Pamela S. Erickson, available on-line at healthyalcoholmarket.com. Wagenaar, A, et al, “Effects of alcohol tax and price policies on morbidity

and mortality: a systematic review,” American Journal of Public Health 2010.

 

www.healthyalcoholmarket.com for Healthy Alcohol Marketplace newsletter and resource material