Monday, 12 June 2017

Why is wine often cheaper in Sweden than elsewhere?

In spite of considerable complaining by certain Swedes, a lot of wines are cheaper in Sweden than elsewhere in the European Union (EU), particularly European wines. Furthermore, Australian wines are sometimes cheaper in Sweden than they are in Australia; and occasionally even US wines can be cheaper than in the USA. This happens as a direct result of wine retail economics, and the fact that Sweden has a single government-owned retail chain for alcohol sales.

Not all wine is cheaper in Sweden, of course, but the ones I am interested in usually are cheaper; and so I thought that I would write about it.


The bottle shop / liquor store / off-licence (depending on your English idiom) is called Systembolaget (which translates as The System Company), and is wholly owned by and operated on behalf of the Swedish government. It has a monopoly on retail sales in Sweden, but not trade sales (for which there are several hundred importers), nor private imports from elsewhere within the EU.

Since I live in Sweden, I principally get my wine from Systembolaget, but I also get wine sent to me from elsewhere in the EU. I often read reviews written by people in the USA, and check up on their recommendations; and I am interested in Australian wine, since that is what I learned first. It is for these reasons that I am familiar with the prices of wines both inside and outside Sweden, and I can thus make direct comparisons of the prices of the same wine in several countries.

I therefore make the categorical statement that fine wine is cheaper in Sweden than most other places into which it is imported (see the example at the end of the post). But not cheap wine — that is often less expensive elsewhere.

Wine economics

Several people have looked at the economics of wine retail in the United Kingdom, but not so many in the USA. The latter is possibly because bottle prices can vary from state to state, due to differences in taxes, plus the economics of the three-tier distribution system. Economics in the USA is not always a simple thing!

So, as my example of the economics of wine retail sales, I will use the UK, because the situation is simpler. As far as I can tell, the basic economics are no different in most other places, although the actual percentages will vary somewhat. [Note: The UK government has recently announced an increase in excise duty on alcohol; and the Average price of bottle of wine in UK has reached a new high thanks to Brexit. Neither of these facts affects my analysis.]

The economic breakdown of the price of a bottle of wine in the UK has been dissected independently on several blogs:
The Bibendum analysis has been updated yearly, and so I will use their data for March 2017:
Their analysis breaks down the bottle cost into these components: retailer margin, excise duty, value added tax (VAT), packaging, logistics, and the wine itself. They do this for bottles with four different retail prices.

In the first graph I have plotted the percentage of the UK final bottle price that goes to the retailer and to the winery. For comparison, £10 ≈ $12 ≈ 110 kronor.

Retailer and manufacturer margins for a bottle of wine in the UK

As you can see, the margins for the retailer and manufacturer increase as the bottle price increases — neither of them makes as much money on a cheap bottle of wine as they do on an expensive wine, both in straight money terms and as a percentage profit. Furthermore, the retailer is the one making the most money on wines less than about £15 ($20).

This same economics may not directly apply to large supermarket chains, which frequently market their own-label wines. In these cases, the relationship between the manufacturer and the retailer is blurred. This also applies in the USA, where it has been noted (Reverse Wine Snob, by Jon Thorsen. 2015):
Costco's average margin (per their financial filings) is about 12 percent. Costco has stated that the highest margin they will take on a non-Costco brand is 13 percent and they strive to keep it closer to 10 percent. On private label items (Kirkland Signature) they will go up to 15 percent margin, but of course the price is still lower than other brands because they cut out the middleman.
Sweden

We can now compare the UK economic model to that used by Systembolaget in Sweden. Their model has been a fixed price per bottle, which differs for different products (beer/cider, wine, spirits), plus a fixed percentage. Up to 1 March 2017, the fixed price for wine was 3.5 kr (£0.3) + 19%; from that date it has been 5.2 kr (£0.45) + 17.5%. I have plotted both of these models onto the next graph.

Retailer and manufacturer margins for a bottle of wine in the UK and Sweden

It is now easy to see why wine is cheaper in Sweden, except for the most inexpensive wines. If we define "good wine" as anything above £10 ($12), then Swedes are doing very well, indeed; and the more expensive the wine, the better off they are. The reason for this is quite straightforward — Systembolaget's stated goal is: "To minimize alcohol-related problems by selling alcohol in a responsible way, without profit motive." Needless to say, I am quite pleased with this situation, as a buyer of fine wines.

However, it is also easy to see why a lot of Swedes might complain. They are no different to wine drinkers anywhere else, and therefore a lot of wine purchases are at the inexpensive end of the market. For example, according to Systembolaget, in the first 3 months of this year 35% of wine sales were less than 80 kr (£7, $9) per bottle. At this price, wine in Sweden is not as cheap as elsewhere, and Swedes know it; and as you can see in the graph, it recently got noticeably more expensive, as well.

Systembolaget addresses this issue by virtue of being one of the largest alcohol retail chains in the world (reportedly third, behind Tesco, in the UK, and the Liquor Control Board of Ontario, in Canada). This position gives it a lot of bargaining power with the manufacturers and importers. In fact, Systembolaget puts a lot of the most inexpensive wines directly out to tender (as do their equivalents, ALKO, in Finland, and Vinmonopolet, in Norway) — you can see the current list of tenders here.

Finally, it is worth noting that most of the other bottle costs are similar in Sweden and the UK. For example, the excise duty that is imposed on alcohol in the UK is currently a fixed £2.16 per bottle of wine, while the Swedish alcohol tax is currently 26 kr (£2.30). However, the UK goods and services tax (VAT) is 20%, compared to the Swedish (moms) of 25% — this government tax significantly offsets the reduced retailer margin in Sweden. Sigh.

Note: The excise rates for alcohol in Sweden and the UK are among the highest in the EU, along with Ireland and Finland (see AAWE). On the other hand, EU goods and services taxes generally vary between 20 and 25%.

Example

The next graph shows the advertized price (on April 14, 2017) of a single bottle of Seghesio Family Vineyards Cortina Zinfandel 2013 (from California), for eight US stores, three UK stores, and Systembolaget. The Swedish price includes delivery to the nearest service point in Sweden (438 shops plus c. 500 drop-off locations), but the others exclude delivery.


The US price depends on the store location, with the highest price being 25% greater than the lowest price. The Swedish price is equal to the maximum US price, while being 5-10% less than the UK prices.

2 comments:

  1. To this American not involved in the California wine export trade, I find it surprising that a bottle of our Zinfandel can sell in Sweden at a retail price comparable to a bottle sold here.

    (I assumed that transportation costs would raise Swedish retail selling prices.)

    Can you offer a link to Systembolaget's website so I can review what California wine brands and varieties are offered?

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    Replies
    1. https://www.systembolaget.se/

      The search box is at the top of the page. On the search results page, the tab you want is "I hela sortiment" rather than "Butik/ombud". It is also possible to download the whole database as an Excel spreadsheet:
      https://www.systembolaget.se/api/assortment/products/xls

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