Norway: Sales fizzle at the liquor monopoly

Source: News In English

December 23, 2015

Revenues have declined once again at Norway’s state liquor and wine monopoly, Vinmonopolet, even during the usually busy pre-Christmas season. Sales were also down at Vinmonopolet’s biggest rival, the tax-free stores at Norwegian airports, indicating that Norwegians are now spending less on alcoholic beverages in the midst of the country’s economic downturn. The fate of both institutions, however, is now up for grabs in the midst of political debate.

Newspaper Aftenposten reported on Wednesday that Vinmonopolet’s sales through November, which includes important pre-Christmas sales, fell by 2 percent compared to the first 10 months of 2014. Sales were dipping then, too, and this year, sales in the usually busy month of November alone were down 2.5 percent.

Sales may fall further after January 1, because that’s when Vinmonopolet’s already-high prices are set to rise. The state will charge around an extra NOK 1.50 per bottle because of another increase in Norway’s punitive taxes on alcoholic beverages, but the biggest rise (around NOK 3.50 per bottle) will be a result of Norway’s much weaker currency. Vinmonopolet’s imported products are all becoming more expensive since the krone’s value against most other foreign currencies began to dive.

Importers struggling

Sales are also down at the airport tax-free stores run by Travel Retail Norge, after booming for years. “In November, we sold 10,000 fewer bottles of wine than in November last year,” Haakon Dagestad, communications chief for Travel Retail Norge, told Aftenposten. Dagestad said that resulted in a 1.7 percent decline in revenues. Overall sales for the first 10 months of the year were up slightly, by 0.8 percent, but there was a sharp decline in liquor sales (brennevin), down 10.6 percent compared to the same 10-month period in 2014, when state research institute Sirus said sales amounted to 3.7 million liters. Earlier studies have shown that Norwegians have been drinking far less liquor and much more wine in recent years. That’s also reflected in consumption at bars and restaurants around Norway. Sales of liquor and beer have fallen, while wine sales last year were double those in 2006.

Companies importing wine and liquor to Norway are also reporting declines, of as much as 10 percent, and wholesalers worry that the vast inventory now on offer in Norway is bigger than the market. Vinmonopolet currently carries a product line of 18,000 items, with a selection so great that wine connoisseurs from abroad have been known to come shop in Norway. Selection is likely to decline along with sales, though, if inventory needs to be cut in line with demand.

Political paradox

Vinmonopolet was set up back in the early 1900s to curb consumption of alcoholic beverages by controlling access to products sold at punitively high prices. An ongoing decline in sales should thus be hailed by the politicians backing it, but many have suspected actual consumption isn’t declining, rather that Norwegians have simply been buying much more of their wine and liquor at places other than Vinmonopolet. The biggest competition for Vinmonopolet has become the airport tax-free shops that ironically enough are also state-sanctioned, because their sales contribute mightily to the funding of the airports themselves.

The sales decline at Vinmonopolet thus presents a paradox that’s now posing a political dilemma. It would be wildly unpopular to phase out tax-free sales to protect Vinmonopolet, but calls have been going out to do just that, on both ends of the political spectrum. All the parties in Parliament voted last spring to demand a full evaluation of tax-free sales by 2017. The left-leaning Greens party wants to disband tax-free to discourage airline travel on environmental grounds. Other parties such as the conservative Christian Democrats oppose alcohol in general.

Elimination of tax-free operations would also eliminate a major source of funding that the state itself has come to rely on, to finance airport operations and expansion. That doesn’t bother the Greens at all, whose leader Rasmus Hansson wrote in newspaper Dagens Næringlsiv (DN) this week that not only do the tax-free sales subsidize environmentally unfriendly air transport but that they undermine Norway’s alcohol policy. Being able to buy wine at much lower prices than at Vinmonopolet only encourages more air travel, Hansson argues, by being an extra incentive to pass through an airport.

Competition from Sweden, too

Vinmonopolet also faces tough competition, though, from a similar wine and liquor monopoly (Systembolaget) in neighbouring Sweden, where alcohol taxes and prices in general are much lower than in Norway. Calls have also gone out to better “harmonize” Norway’s tax levels with Sweden’s, by lowering them, to discourage sales leakage across the border.

The sales decline reported by the tax-free operations, meanwhile, may weaken calls to eliminate tax-free. Kai Henriksen, head of Vinmonopolet, had (also ironically, perhaps) nonetheless hoped for an increase in Vinmonopolet’s own Christmas sales after telling DN earlier this month than his sales were “historically” down 2.3 percent while sales at 40 Systembolaget outlets across the border in Sweden rose 4.3 percent. The Swedish monopoly’s sales overall were stagnant, Henriksen claimed, “so it was the Norwegians who were behind the (border stores’) increase.”

Asked whether Norway’s restrictive alcohol policy simply wasn’t working anymore, Henriksen seemed unsure. “If less than half of the country’s alcohol consumption results from transactions through Vinmonopolet, you can question whether there really is a monopoly on wine and liquor in Norway,” Henriksen told DN. He’s fighting back, though, with many fancy new Vinmonopolet outlets and even some planned wine-tasting and wine courses next year, with the tasting held after Vinmonopolet’s opening hours and outside the retail outlets themselves, to conform to strict regulations.