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Booze Monopolies: On The Rocks (Int'l Edition)


International -- European Business: SCANDINAVIA

BOOZE MONOPOLIES: ON THE ROCKS (int'l edition)

The EU court wants to open up Nordic liquor sales

Tony Turonen, a Finnish hospital worker, is shopping for booze so he can party with his girlfriend before he leaves on a trip to Britain. But in the lakeside city of Jyvaskyla, only one store sells liquor--the state retail monopoly Alko Group--and its hours are severely limited. "We should be able to buy a bottle of wine in a supermarket, like anywhere else in Europe," Turonen complains.

He and other Finns soon may get their wish, as may Swedes and Norwegians, who are also fed up with the state monopolies that now control retail sales of beer, wine, and liquor. In a recent preliminary ruling, the European Court of Justice declared that the Nordic monopolies represent an illegal barrier to free competition. A final judgment is expected by summer. If the decision is upheld, alcohol monopolies in all three countries will face competition for the first time. As food stores and other outlets pile into the market, they're likely to drive down prices.

The alcohol issue stirs deep emotions in Europe's far north. The monopolies were created in the wake of temperance movements early this century, after prohibition and rationing failed. "We're not a wine culture; we're a vodka culture, and people here drink to become drunk," explains Tom Anthoni-Koivuluhta, director of Finland's Friends of Temperance Society. The monopolies operate a limited number of outlets, which close as early as 2 p.m. on Saturday and all day Sunday. In addition, taxes account for about 70% of the price of a bottle of hard liquor in Finland, Sweden, and Norway--almost five times more than in Southern Europe. A bottle of Finlandia vodka goes for about $28 in Helsinki, compared with about $10 in Lisbon.

But change is coming fast. Finland's and Sweden's entry into the European Union in 1995 forced open the wholesale and import markets for alcohol and allowed travelers to import more duty-free booze. The state monopolies have responded by becoming leaner and exporting more. At home, the end of monopolies on export, import, production, and wholesale distribution of alcohol has spurred some 460 independent importers and producers in Finland and Sweden to plunge into the business.

Importers have seen their sales soar. Sweden's Philipson & Suderberg's sales have jumped fifteenfold, to $130 million, for example. Says President Frederik Siustiin: "Before, we had only one client, the state monopoly. Now we can import and sell ourselves." Meanwhile, local liquors such as Lignell Piispanen, a vodka abandoned when Finland imposed prohibition in 1919, have been relaunched.

Although Norway is not yet an EU member, its free-trade agreements with the community have required a similar deregulation. Norway has also had to drop its import monopoly, although it has managed to keep taxes higher than in Sweden and Finland. Even so, restaurants in all three Nordic countries are offering more varied wine and beer lists. At the Alvari restaurant in downtown Jyvaskyla, more than a dozen imported beers are on sale.

More liquor is flowing into Nordic countries from the former Soviet Union, too, where vodka is cheap and plentiful. And Swedes and Finns returning from other EU countries can now bring back seven bottles of wine and 45 cans of beer duty-free--three times more than before. Sweden's National Alcohol Board estimates that as much as 30% of alcohol consumed in the country is carried by individuals or trucked illegally across the border.

The competitive heat is hurting sales of Nordic retail monopolies. Alko Group saw its domestic sales decline by 6% in 1996 to $383 million, while profits slumped 14.6% to $62 million. The results would have been worse without a strong showing of the group's Finlandia vodka, which has increased sales by 70% in the last two years. To lift foreign sales, the company is developing new vodkas for the nearby Baltic market.

In Sweden, state-owned Vin & Sprit's market share is down to 50% for hard liquor and 37% for wine since 1994. The only bright spot has been the growth of its vodka brand, Absolut, which rose 17% last year, thanks partly to a distribution agreement with Seagrams.

Whatever the European Court decides, the Nordic governments may put up a fight. Only Finland seems resigned to lowering its alcohol taxes and allowing competition. In contrast, both the Swedish and Norwegian governments continue to insist that their alcohol policies protect their citizens' health. All three governments benefit financially from retail booze monopolies: Alcohol taxes contribute about 2% of government revenues in all three countries.

But like the production and import monopolies before them, retail booze monopolies seem on their way out. Nordic drinkers will likely soon be stirring more varied cocktails--for lower prices.By William Echikson in Jyvaskyla, Finland


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