ÁTVR: Not to make a profit, but to keep alcohol prices high
19.10.2022 - The state's alcohol and tobacco store has appealed the Reykjavík District Court's ruling that the margin system, which the agency uses to determine product selection in stores, is illegal, writes RUV.
These rules are designed to prevent suppliers from lowering prices and to prevent cheap brands from crowding out more expensive brands.
The district court ruled in favor of a supplier, who had sued ÁVTR after two types of beer he imported were withdrawn from sale. It was done because they had not achieved the "required sales results" according to the rules of the organization. They are based on the margin, i.e. difference between ÁTVR's purchase and sale price.
Given that ÁTVR's tax is a fixed rate, 18 percent, it means that the margin is higher on more expensive products than cheaper ones, even if they sell equally well. Therefore, the system favors a more expensive product at the expense of a cheaper one. The court came to the conclusion that, in light of ÁTVR's monopoly position on the retail market, a restriction like this would not be justified unless there were clear and unequivocal legal grounds for it.
ÁTVR appealed the verdict to the National Court. ÁTVR's report, written by the state attorney, rejects the district court's assertion that under the margin restrictions, ÁTVR's major focus is on the financial success of the organization itself.
In support of its case, ÁTVR publishes an overview of the income and profits of the last three years, which show insignificant profits. The agency breaks down income by alcohol and tobacco, but does not do so for expenses. That was never its intention. It has been argued that ÁTVR's retail sale of alcohol does not support itself, but is subsidized by the tobacco section.
According to the statement, if ÁTVR abandoned the margin system and concentrated more on sold liters when selecting products, as the district court ordered, it would considerably raise "the danger that suppliers will decrease prices [...] in order to enhance sales."
"If demand measured in liters sold were to be used as a benchmark, there is every chance that suppliers would respond with price reductions and gradually cheaper brands would crowd out other brands."
The agency also comments on the district court's wording that "cheaper products are more dangerous for consumers" and that "no data has been presented that lower alcohol prices lead to increased consumption".
ÁTVR refers to the World Health Organization's report on the harmful effects of alcohol consumption, as well as the link between low product prices and consumption. The correlation between low alcohol prices and consumption is undisputed.