Transcript The high price of cheap alcohol

By Pamela S. Erickson, President/CEO of Public Action Management, PLC
NCSLA Central /Western Regional Conference
Santa 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."

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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.
100
90
80
70
60
50
UK
40
US
30
20
10
0
Use in past 12
months
Use in past 30
days
Drunk in past 12
months
Drunk in past 30
days

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)
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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.
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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.
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
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.”
Source: Food Marketing Institute
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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 STATES TREND
UNITED KINGDOM TREND
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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.
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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.
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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
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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:
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.
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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.
Three Tiered
System
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supplier
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wholesaler
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retailer
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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 threetiered 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.
THREATS
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.
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ACTIONS
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.
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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.
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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?
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“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