Cheaper beer to the people, pronto!
If the Competition Authority had done its job, we would have had a pint of beer for less than NOK 20 in the supermarket.
It is said about the grocery industry that the margins are tiny. That you earn little money, or more precisely, that the ratio between the purchase price and the selling price is marginal. This is true for some products, like pork ribs and sauerkraut. In other areas, the margins are very high. Beer and mineral water are in this category.
The margins are so immense that there are reasonable grounds to believe that Coop, NorgesGruppen and Rema are conducting unlawful price cooperation with the Carlsberg Group of breweries (Ringnes, etc.) and Hansa / Borg.
The grocery industry and the breweries are most likely co-operating illegally regarding the pricing of beer. The fact that the Competition Authority does not stop the cooperation indicates that they are not doing their job.
The principle is simple. When there are hefty margins, when you earn extra on a product, you will always attract competitors who want to join in on the party and sell their product at a slightly lower price. It is one of the most important principles of the market mechanism for so called competition to occur.
When you can bottle water and sell it at NOK 50 per litre, it is clear there are many who want to be businessmen. If you should be lucky enough to make it into the store with a novel product, they decide both the price, the space and the amount you are allowed to sell. The shelves in the store are not an arena for free competition. It is not offer and demand that determines, but the shop owner. There are no agricultural products that have the greatest price difference between Norway and the rest of the OECD, but water!
Premium price, Premium quality?
Notice how beer and mineral water are placed in the store. There are pallets on the floor with 6-packs of half-litres – and the same in is found in the fridges. The reason is that they want six-pack to be the device and not single units. We, the consumers, choose one unit – six half-litres – instead of one, two or three units of 0.33. Thereby they obtain large volume sales in a market with high margins and profits.
On the shelves not far away, there are simple brown bottles in glass found at even more absurd prices. These bottles look like they are “premium”, which therefore appear more expensive, but the variety of quality is big and there is no reason they should be more expensive. Beer is very cheap to produce – we are after all not talking about milk.
It costs approx. NOK 5 per litre to produce beer. In your shop, a standard pilsner costs somewhere between NOK 60 and 75 soaring to NOK 150 for what appears to be premium.
So how much should beer cost? The cheapest beer is sold at approx. NOK 40 kr. per litre (aka NOK 20 for a pint). They are called Seidel, produced by CB, NorgesGruppens EMV (Own Brand), or Pokal Coops EMV. They never are put inside the fridge but are hidden on the lowest shelf, as if they are “shame-on you” goods. The packing is as ugly as possible and if they were going to sell a lot of the product, the quality to goes down and the packing made even uglier, as the point of producing the product is not to promote it, because the revenue on the branded beers is so much greater.
The tax on alcoholic beverages between 3.75 and 4.75 volume percentage is at NOK 20.30 per litre. It is therefore completely unproblematic to sell beer with a profit of NOK 40 per litre – in a well-functioning market. A pint of beer in the shop had cost between NOK 17 and 30 for a pint – for all types – if the market forces had worked.
Beer is one of the easiest products to sell in Norway. There is no waste. We drink copious amounts every weekend, and we will not turn every penny. We are willing to pay the price. You can therefore prioritize premium at an absurd price to splash around. When we go abroad, we know instinctivly that beer is expensive in Norway because of “Governmental fees”. But it is by all means the VAT that is the main culprit, calculated from the retail price which accounts for most of the taxes because the added cost is beyond belief.
The point of price cooperation in the oligopoly is, of course, to sabotage the competition, as to inform the consumers that beer is expensive. It is this method to avoid competition that allows NorgesGruppen to pay out more than 500 million every year in dividends to its shareholders.
It seems that the public is so unilaterally aware of state fees that it allows industry to define the perspective. Therefore consumers, industry and Trygve Hegnar can blame the state or the customers’ preference when someone complains. Shopping trips to Sweden is all about agricultural products – as if beer and mineral water is not equally important.
The grocery industry’s attitude towards consumers is remicient of the agricultural attitude towards consumers before the 80’s. At the time we were offered the products the agriculture wanted to sell, not what we wished for. We had to travel to Sweden to get low fat milk. Today, consumers travel to Sweden to get mineral water in bulk. 24 cans of soda cost NOK 90, which is less than a quarter of the price in Norway. It’s not exactly the subsidy of agriculture which is responsible for that.
If there had been elementary competition or if the Competition Authority had done its job, we would have had water for NOK 5 per half litre, a soda for 10 bob and beer for less than 20. All straight out of the fridge.
The Competition Act, which the Competition Authority is to administer, prohibits cooperation that limits competition. The purpose of the Act is “to promote competition in order to contribute to the efficient use of society’s resources. When applying this Act, particular attention shall be paid to the interests of consumers. ‘
Simply not doing their job
The fight against anti-competitive agreements between enterprises is according to Section 10 central. It “prohibits any agreement between undertakings, any decision taken by associations of undertakings and any concerted conduct which has as its object or effect to prevent, restrict or reverse competition in the internal market.”
To quote the website of the authority: “One or more enterprises (s) unlawful exploitation of dominant position is prohibited by Section 11 of the Competition Act.” The Competition Authority wishes to receive tips on unlawful cooperation or abuse of dominant position – both from individuals and from enterprises.” You may consider this as a tip.
It has been called for a separate Grocery Authority. And that is necessary, but only because we have a weak Competition Authority.
If the Competition Authority is unable to lower the price of average pint of beer in stores to a reasonable level by the end of the year, the authority ought to be shut down.
© Runar Døving, professor at Høyskolen Kristiania / Norway Today