The border between Norway and Sweden stretches for 1,630 km, so it offers easy access to Sweden for a large part of the Norwegian population. The two countries both have state-controlled retail monopolies that are responsible for the distribution of wines, spirits and beer with an alcoholic strength of over 4.7%.
Crossover
Cross-border shopping is a popular pastime for Norwegians. Research shows that at least half of them travel at least once a year to Sweden for this reason, compared to just 10% of the residents of other nearby EU countries. Enterprising Swedes have made shopping easy for Norwegians by opening several large shopping malls close to the border.
In the years between 2008 and 2011, cross-border shopping increased by 29%, and Norwegians spent 11.5bn NOK ($1.4bn) in Swedish border shops. More recent statistics show 2014 sales having hit 14.1bn NOK ($1.73bn), which represents a significant loss of tax and income for the Norwegian government and businesses involved in alcohol distribution.
Norway and Sweden have the same VAT (MVA) rates: 25% on general goods and 15% on food. So a difference in sales taxes cannot be held responsible for encouraging cross-border shopping.
Excise duty, however, clearly does have a role to play. Norway’s duty rates are NOK 4.64 ($0.57) per alcoholic degree, per litre for wine, and NOK 7.13 ($0.87) for spirits. In Sweden alcohol is subject to roughly half those duty levels. Yet while this influences the size of the gap between the final prices in the two countries, it does not completely explain it. The Norwegian television company TV 2 did a survey of the 20 most popular beers in Norwegian and Swedish monopoly stores. The difference in price was up to 60%, and even when duty was eliminated, most were still up to 25% cheaper in Sweden.
So why the difference? Unlike Norway, Sweden is a member of the EU, and this has driven down the prices of Swedish household items like food, drinks and clothing. Norway has more regulations to protect its own agricultural sector and moderate meat imports, for example. The same kinds of regulation apply to wine. As an example, a three-litre bag-in-box of J.P. Chenet Cabernet Syrah costs around NOK 360 ($43.90) on one side of the border and SEK 170 ($20.60) on the other, making it 53% less expensive in Sweden. After removing the duty, the wine is still 45% more expensive in Norway.
The best explanation for these substantial differences probably lies in a combination of higher prices being charged by Vinmonopolet and higher costs being incured by importers. Sweden’s bigger sales volumes inevitably influence the cost of factors such as shipping, logistics and stockholding.
Exchange rates have been relevant, too. In recent years, the Swedish krona has, for quite lengthy periods, been up to 20% weaker than Norway’s krone. This made Sweden an even more interesting destination for bargain hunters. Since May 2015, however, it has been the Norwegian currency whose value has dropped against both the Euro and the krona, so the difference is now marginal.
In 2012, the Norwegian Institute for Agriculture Research (NILF) published an in-depth report – based on Systembolaget, Vinmonopolet, Statistics Norway and other sources – on what cross-border shoppers were buying and why, and the total value it might represent. It turns out that when Norwegians cross the frontier, alcohol is not their main target. Nearly half of the money they spend in Sweden goes on food items, half of it meat; around 6% of all Sweden’s meat production is bought by Norwegians.
Alchoholic beverages count for about 15% of the purchases, followed by tobacco at 13%. Most of the alcohol is beer which can be bought both in supermarkets and Systembolaget stores. If correct, the NILF figures suggest that last year, as much as 2bn NOK that might have been spent in Norway went through Swedish tills.
Systembolaget did its own research in 2011 and found that some 20m L of alcohol were bought by Norwegians in shops close to the border, 63% of whose sales were directly attributable to these visiting shoppers. When one considers that, in the same year, Vinmonopolet only sold 78.4m L in Norway, it looks as though the potential loss to the monopoly was as much as 20%.
Assuming that consumption figures were not affected by the lower prices in Sweden – always an important factor when considering cross-border shopping – the loss of income would also have affected Norwegian importers, local breweries and other members of the industry.
One of the consequences of the level of cross-border shopping between Norway and Sweden is that it may not always be helpful to think of these countries as separate markets. Producers who are listed by the monopoly in Norway need to be sure of having listings with the same products in Sweden to satisfy the demand of channel-hopping Norwegians. The same three-litre bag-in-box offerings sell well on either side of the frontier, and Swedes and Norwegians have sufficiently similar tastes for Italy to be the biggest-selling producing country in both markets. But there are differences: Sweden’s wine drinkers are more receptive to New World wines, and brands that are popular in Sweden do not automatically do as well in Norway.
The size of the two markets varies too. Sweden’s 9.5m inhabitants (plus visiting Norwegians) bought 470m L of alcohol in 2014. Norway’s population of 5m might have been expected to have picked up at least 230m L, taking into account their purchases in Sweden. In fact their total alcohol purchases only added up to 81.1m L. The gap between the two countries is less wide when one separates wine from other beverages. Only 42% of the Swedes’ alcohol came in the form of wine, while for the Norwegians the equivalent figure was 82%. Even so, Sweden’s 197.8m L of wine dwarfs Norway’s 66.8m L.
The travel market
Norwegians are great travellers. Norway’s 50 airports saw 55m passengers pass through their doors last year, nearly half of them landing at the capital’s Oslo Gardermoen. Inevitably, duty-free shopping is a dynamic sector. The leading company in this sector is Travel Retail Norge (TRN) which is present at the five biggest airports and which has a 50% partnership with Hamburg-based German duty-free specialist Heinemann The range – selected by the Heinemann buying team – is focused on well-known brands because much of the shopping is done by freshly arrived passengers while they wait for their luggage to arrive. But TRN also offers wine from categories not yet sold at Vinmonopolet.
If the time devoted to selecting their duty-free alcohol is limited, so are the amounts they can buy. In July 2014, the allowance was increased by 50% to four litres, provided no duty-free tobacco has been bought as well. The relaxation was obviously appreciated by wine drinkers because sales rose by 13% over the following 12 months. Unsurprisingly, at the other end of the seesaw, Vinmonopolet saw a sudden drop in the number of bottles it sold. Recent TRN reports, however, show that during 2015, duty-free sales are dropping back and the period from January to August is only 6.7% above the corresponding period in 2014.
The falling duty-free sales in 2015 may be explained by different factors. Travellers may have partly lost interest in buying and carrying home their full allowance as the novelty of the more generous allowances has worn off. More significantly, though, duty-free prices have increased since spring as the value of the krone has fallen against the euro.
Duty-free shoppers spend more or less the same amount on wine as they normally do in Vinmonopolet stores, and buy similar styles of wine. The lion’s share goes to red, followed by white, Champagne, other sparkling and rosé. TRN reports that most of its sales fall into from the NOK 100 to 149 ($12.00 $18.00) price bracket, followed by the more premium NOK 150 to 249 ($18.00 to $30.00) segment. As at Vinmonopolet, the slowest sellers are in the cheapest price range of NOK 49 to 99 ($6.00 to $12.00).
The conclusion to be drawn from these figures, given the lower TRN prices, is that the majority of duty-free shoppers hope to get better quality wines for the same price as they would normally have to pay at the monopoly.
TRN reports also that only 10% of its sales volume comes from bag-In–box, compared to 60% in Vinmonopolet. But when the duty-free allowance is only four litres, it is understandable that few people want three of those to come in a box with a tap on the side.
Several ferry companies, like Color Line, DFDS and Stena Line, also offer services from Norway to ports in Denmark, Sweden and Germany. On shorter crossings, like Kristiansand-to-Hirtshals, day trips are possible, but any Norwegian who wants to carry home duty-free goods has to be out of the country for 24 hours.
Color Line is the biggest Norwegian company, carrying around 4m passengers in 2014; of these, 600,000 were foreign tourists. Unlike the airport duty-free operators, Color Line buys from importers in both Denmark and Norway.
In conclusion, then, those producers who are interested in building a relationship with Norwegian consumers should consider the Swedish market, and the travel retail market.
