Pamela S. Erickson, President Public Action Management, PLCNCSLA Presentation, June 2009

Why can’t we sell alcohol like tires and

mayonnaise?

Why do we need marketplace regulation?

Does regulation really work or are these just “antiquated rules”?

Just what are marketplace rules and what do they do?

What are the current threats to marketplace regulation?

The simple answer:

…because some normal business practices — quite legitimate for other commodities — may produce social harm when alcohol is sold

Why do we need specialregulations for businessesthat sell alcohol?

Illustration: Floral business

Your business plan would include:

1. Efforts to retain and increase customers who are “frequent buyers”

2. Discounts and promotions to gain new customers

3. Advertising to young people to build a future customer base

Imagine you own a floral business

Your business plan calls for:1. Marketing to heavy

drinkers and alcoholics2. Use of volume discounts

and other incentives to encourage heavy use

3. Marketing to youth to encourage present and future alcohol use

Estimates indicate that alcohol market includes:

17.5% underage drinkers 20.1% adult

abusive/dependent drinkers

(Archives of Pediatrics and Adolescent Medicine, 2006)

Alcohol must be sold and promoted with care and restraint

Higher prices reduce consumption; lower prices increase it

Research shows that prices effect all categories of drinkers (light, moderate, heavy)

Regulatory balance: * not too low to increase

consumption; * not too high to

encourage bootlegging, counterfeit alcohol

“A key feature of many of these practices and provisions is the attempt through indirect means to moderate the prices of alcoholic beverages. These price moderating devices are not aimed so much at price swings as they are at price wars and the steep price reductions that follow.” Affidavit of Murphy J. Painter, Manuel v. Louisiana

The United Kingdom did just that! They have high taxes, little regulation, poor enforcement and cheap alcohol.

And, they 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

Thirteen “Booze Buses” used for 2009 New Year’s Celebration to take revelers to the hospital

“Predrinking” at home increases bar intoxication

Large increase in public disorder crimes around bars (vomiting, urination, fights, vandalism)

Serving practices promote rapid intoxication

Four large chains control 75% of the market

Most use alcohol as a “loss leader”

Drinking at home has increased

The UK has no laws against volume discounts, promotions that induce heavy consumption or minimum prices

The large chains are locked in price wars

“The Competition Commission have found that five leading grocery retailers sold 38.6 million pounds worth of alcohol at below-cost during the 2006 World cup.” Institute of Alcohol Studies, 2008.

Source: 2003 European School Survey Project and 2003 Monitoring the Future Survey

U.S . c ompared with E urope

61

46

35

23

19

18

Denmark

United K ing dom

G ermany

S pain

Italy

US

The US Regulation System Works

Designed to prevent marketplace domination by maintaining three separate business sectors: retailers, wholesalers and manufacturers

Prohibits ownership and financial “deals” or inducements between sectors (Tied House and Financial Assistance laws)

Designed to prevent vertical integration, where one company owns or controls all three sectors. History—and the United Kingdom example--show this often leads to business practices that create social problems.

Distributors/Wholesalers

ManufacturersRetailers

Should include several methods of price control such as:

Minimum mark-up Prohibition against selling below cost Wholesalers sell at same price to all Prohibition against volume discounts and central

warehouse Ban on instant coupons

Price recordkeeping facilitates enforcement Single measures—such as just a tax increase—can’t

guarantee increased prices.

Prohibitions against marketing which encourages youth consumption

Prohibitions against promotions that encourage excessive consumption

Marketing/advertising restrictions

Pressure for uniform nationwide regulations with federal enforcement

Impact of alcohol problems invariably is local

Must have a responsive enforcement mechanism (local or state)

Imagine calling a federal agency for a local alcohol problem?

Importance ofstate/local regulation

US has a comprehensive alcohol regulatory system with multiple measures to control price, availability, promotions and products

US has enforcement mechanisms to address underage drinking: age restriction laws, enforcement programs, public support mechanisms.

States usually enforce practices against serving to intoxicated individuals.

Each state has a system that separates retail, wholesale, and manufacture sectors. Prevents the “mass merchandising model” from complete implementation. The “model” could bring price wars, major discounts and other means of achieving very low prices.

The system also provides tracking of all alcohol products to prevent problems with counterfeit and tainted alcohol.

Lawsuits could invalidate regulations.

Retailers are poised to continue lawsuits.

Few policy-makers understand and value marketplace regulations.

During bad economic times, policy-makers are vulnerable to arguments that deregulation can save jobs.

The court found no “persuasive evidence that the purpose of any of the challenged restrains was to promote temperance by raising average beer and wine prices.” And, the state “could readily achieve that goal in a manner that does not run afoul of the Sherman Act. Most obviously the State could adopt higher excise taxes.”

US District Court, Costco v. Hoen

“Top US Supermarket and Grocery Chains” (By 2007 Grocery Sales)

Wal-Mart/Sam’s $138.2 m26.4%

Kroger $ 65.6 m12.6%

Safeway $42.3 m 8.1% Costco $35.3 m 6.8% Others $241.2 m

46.1% Source: Food Marketing Institute

“Low markup to stimulate high volume is the fundamental principle of mass merchandising…” Food Marketing Institute

Net profit for food retailers is less than two pennies on each dollar of food sales

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.” Food Marketing Institute

Mass marketing pushes prices lower

Freedom from monopoly or domination by vertical integration

Fair and ethical business practices Responsible advertising and promotions targeted to

adults Pricing is high enough to discourage over-

consumption, but not so high as to encourage bootlegging

A system that ensures safe products An efficient tax collection system A responsive enforcement system that effectively

deals with problems Other regulatory system elements must address

underage drinking, drunk driving and on-premise practices

Education is needed for policy makers, regulators, attorneys general, prevention/public health and enforcement.

Educational tools: Quarterly newsletter, educational pieces (coming soon: “The Dangers of Alcohol Deregulation: the United Kingdom Experience”), PowerPoint presentations at conferences, to groups in individual states and to local coalitions.

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

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

“What are the most effective and cost- effective interventions in alcohol control?” World Health Organization, February 2004

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

“The Dangers of Alcohol Deregulation: The United Kingdom Experience,” by Pamela S. Erickson, to be released soon by the Center for Alcohol Policy

Affidavit of Murphy J. Painter, Manuel v. Louisiana (one of the best explanations of three-tiered system regulations)