Monopoly vs competition

There are plenty of people who strongly support competition and, equally, plenty of dedicated supporters of continuing the monopoly. But most West Aucklanders don’t have an opinion either way and many don’t really understand what licensing trusts are and how they work.

People will be swayed into making their choice by their view of two key things:

  • What’s better for me
  • What’s better for West Auckland

It can be quite difficult amongst the heated arguments to tease out the key issues. Here are some of the main talking points along with the usual counter-arguments.

In support of competition:

  • Competition is better for consumers
  • People are leaving West Auckland to eat/drink/shop because of The Trusts
  • Competition is better for our town centres / West Auckland’s economy

In support of the monopoly:

  • Without the monopoly, The Trusts won’t be able to ‘give back’
  • The supermarkets (bottle store owners) won’t give back
  • Without the monopoly, there’ll be a bottle store on every corner / the monopoly protects us from unscrupulous private operators / the monopoly reduces alcohol related harms
  • I don’t want alcohol in supermarkets / alcohol shouldn’t be normalised

In support of competition:

Competition is better for consumers

Almost everyone agrees that competition delivers better consumer experiences than a monopoly. Competition is effectively a survival of the fittest death-match. There’s no incentive for a business person to continue operating a store or a venue that doesn’t provide a decent return on their investment. They’ve got to be offering something that people want, or customers will go elsewhere. It could be range, convenience, sharp pricing or something else. But they’ve got to have something compelling for them to win enough business to turn a decent profit.

About 80% of Aucklanders enjoy a drink at least occasionally, so improving shopping and hospitality experiences impacts most of us. But it isn’t just about alcohol. Suburban bars are generally eateries as well so, even for non-drinkers, competition would deliver more options for eating out. Similarly, allowing specialist grocers to sell wine and beer makes it more likely that they’ll be able to carve out a successful niche which benefits everyone who shops there – not just the drinkers.

The counter argument:

The main counter-argument is that the monopoly doesn’t have much impact and therefore introducing competition will not lead to any substantial improvements. Specifically that:
• Bottle stores are located very close to supermarkets, therefore the convenience impact of beer/wine in supermarkets is minimal
• West Liquor’s bottle stores are just as good as elsewhere in NZ and their prices aren’t any higher (or only slightly higher)
• Suburban bars can operate freely on a restaurant on-license and therefore the monopoly doesn’t really impact the hospitality sector. Any perceived dearth of local options simply reflects a lack of consumer demand
• The Trusts’ venues are just as good as venues in other suburbs of Auckland

What does the data say?

Council data on the number of licensed premises shows that West Auckland has substantially fewer taverns than elsewhere in Auckland. The Trusts operate just 4 taverns per 100,000 residents, whereas other suburban areas have many more:

  • Franklin = 21
  • Papakura = 22
  • Manukau = 20
  • North Shore = 29
  • Rodney = 38

Whilst West Aucklanders may be a bit different to our neighbours, it is difficult to argue that we’re THAT different. West Auckland doesn’t have a higher number of clubs or licensed restaurants to compensate for the lack of taverns either. And Auckland Council have made it very clear that a restaurant (even if it is licensed as a Class 1 restaurant) can not operate in the same fashion as a tavern.

In terms of prices, whilst we don’t have access to comprehensive data, we’ve been comparing prices between West Liquor’s specials and the same products at Countdown. Over the past 4 months, there have been 74 products on special at both retailers at the same time. Five products were cheaper at West Liquor, seven products were the same price and 62 products were cheaper at Countdown. Across all 74 products, the average difference in price was 10% (cheaper at the supermarket).

The data is far from perfect and I don’t think there’s any underlying ‘truth’ to be found on this point. Everybody’s preferences are different and their views of the monopoly are shaped by their own circumstances. Some people love what the Trusts have to offer and can’t imagine competition delivering anything better. Others hate what The Trusts offer but love what’s going on elsewhere in Auckland.

People are leaving West Auckland to eat/drink/shop because of The Trusts

We think that plenty of West Aucklanders head out to Kumeu, Albany, Pt Chev, Lynfield etc to do their shopping. They also drive out of the district for much of their evening entertainment. This means that West Auckland is missing out on its fair share of the retail and hospitality markets. In particular, West Auckland has an under-developed evening economy.

Access to the lower prices and the range available through Countdown’s online shopping also encourages West Aucklanders to shop online. Countdown’s online deliveries are shipped from stores outside West Auckland because their West Auckland stores can’t sell alcohol.

The counter argument:

The counter argument is basically that this migration doesn’t happen in West Auckland more than any other parts of Auckland (e.g. South Aucklanders usually head to the city for a night out too).

What does the data say?

There is anecdotal evidence of the migration but there isn’t any hard evidence that West Aucklanders leave the district any more than other areas of Auckland.

Competition is better for our town centres / West Auckland’s economy

This argument depends on how much you accept the two arguments above. Basically, if you believe that:

  1. The Trusts’ offering is less compelling for consumers than what’s on offer in other parts of Auckland, and
  2. West Aucklanders consequently leave the district, then
  3. our town centres are missing out. They’re missing out on the income from all the people who leave the district.

It means fewer people spending their money in their local shops. Fewer businesses that want to lease a premise. More empty shops and laundromats which provide few (if any) local jobs. It means less investment in our town centres – fewer shops getting renovated and fewer new shops getting built.

The counter argument:

As with the points above, the counter argument is basically that the monopoly has minimal impact and allowing competition won’t make any difference.

What does the data say?

The low number of taverns in West Auckland gives some indication that our town centres are missing something because of the monopoly. But there isn’t any convincing data to predict what would happen with competition. People will decide for themselves whether competition would deliver better retail/hospitality options for West Auckland that might convince more people to keep it local when they shop/eat/drink.

In support of the monopoly:

Without the monopoly, The Trusts won’t be able to ‘give back’

Giving back is the main thrust of The Trusts identity. Giving back is at the core of all their corporate marketing and seems to be the main reason that supporters prefer to keep the monopoly.
And the critical argument is that giving back would shrink without the monopoly.

Some people might argue that we can still do this without the profits we generate through our retail and hospitality businesses. But we know our books and we know that our ability to keep giving back will be greatly reduced without that income stream. It’s like your own savings – to really succeed long-term you need to keep adding to it, year on year – Trusts CEO Simon Wickham The Spinoff

Even the Law Commission stated in their assessment of licensing trusts that

The amount of money available for distribution to these communities would likely reduce if the monopoly rights were removed. NZ Law Commission Issues paper 15

The counter argument:

The opinion of Simon Wickham (and of the Law Commission) would be correct if the licensing trusts were delivering super-profits from their alcohol retail and hospitality business. Competition would drive a significant drop in their market share / revenues and therefore profitability.

But our licensing trusts are not delivering super-profits and they are not limited to running an alcohol business. Every dollar they have invested in their alcohol business has an opportunity cost – it could be invested in something else (which would also provide a financial or social return). Their monopoly on alcohol licenses would only be valuable to the community IF the return from their alcohol business is greater than the other options. And it is not.

On top of this, much of the public have an inflated perception of the scale / value of giving back. This stems from a number of factors:

  • Substantial spending on advertising and public relations to promote grants given by The Trusts (e.g. $200,000 spent promoting Million Dollar Mission [link])
  • A giving back programme which is skewed towards activities that promote The Trusts (e.g. commercial sponsorships)
  • Grants from gaming machines are distributed by The Trusts Community Foundation Ltd (TTCF Ltd) and are often promoted by elected licensing trust members. The public do not distinguish between the “The Trusts” and “The Trusts Community Foundation” and therefore mistakenly attribute millions of grants to the licensing trusts (TTCF distributed about $12 million in grants last year)
What does the data say?

There isn’t a detailed independent analysis of The Trusts financial performance. Nor is there likely to be one because The Trusts do not disclose sufficient detail to assess the different parts of their business.

In broad terms however, it is clear that the profit returned by The Trusts alcohol-related businesses are not higher than a managed fund investment. Our analysis indicates that their alcohol business isn’t profitable at all without the rents from the pokie machines.

The supermarkets (bottle store owners) won’t give back

This argument is (more or less) a variant of the previous argument about giving back being dependent on the monopoly. Supermarkets and independent retailers will take the profits that currently flow to the community via The Trusts, thereby leaving the community with less profit and therefore the funding available to West Auckland will shrink.

The counter argument:

There are examples of supermarkets supporting local groups and causes (and independent licensees too), but it is undeniable that profits from privately owned businesses flow to the owners/shareholders.

There are a few people who object to private operators profiting from the sale of alcohol, perhaps they think individuals benefiting from selling a harmful substance such as alcohol is immoral. Others deeply dislike the supermarkets as they have too much market power / are overseas owned / owned by rich pricks etc. The counter-argument for those views is simply that, whilst they are welcome to those opinions, their views shouldn’t be imposed on all of West Auckland and with competition we are all free to choose where we shop. At the moment, our choices are restricted.

For most people though, the argument is just that the community would receive less funding. Again, this is based on the incorrect assumption that the licensing trusts alcohol business is some sort of golden goose. In reality, if we allow competition and private operators take a big chunk of the (alcohol) pie from The Trusts, The Trusts can simply take a bite from some different pies.

Without the monopoly, there’ll be a bottle store on every corner / the monopoly protects us from unscrupulous private operators / the monopoly reduces alcohol related harms

Concerns that lifting the monopoly will result in a proliferation of bottle stores are fairly widely held. They’re sometimes coupled with the risk that there will be unscrupulous private operators. Underpinning these views is the understanding that these things would lead to greater rates of alcohol related harm.

They also argue there would be a massive growth in bottlestores, and Wickham says “not all of them would meet the standards of responsible retailing” Stuff

The link between the density of off-licenses and alcohol related harms is fairly well established and The Trusts generally have a reputation as a responsible licensee (though certainly not perfect).

The counter argument:

There’s no denying that competition would mean a greater number of off-licenses than we have under the monopoly. The key argument is whether the increase in off-licenses would lead to adverse outcomes. There are few elements to consider:

  1. How many new off-licenses would West Auckland get?
  2. Would they lead to an increase in crime or other alcohol related harm?
  3. Would they reduce the amenity of our neighbourhoods?

No one can provide answers to these questions with any certainty.

There was new legislation introduced in 2012 which has tightened licensing rules across NZ. Auckland’s local alcohol policy (still under appeal) is particularly strong with provisions to close all off-licenses at 9pm, and to freeze the number of off-licenses in suburbs deemed to be at greater risk of alcohol related problems. The local alcohol policy also restricts off-licenses to town centres and keeps them out of ‘corner shops’ in residential zones. Local alcohol policies are regularly reviewed and updated, so it will evolve as our understanding of alcohol related harms improves and Auckland’s needs change.

So the key point of contention is whether this system of control is enough to avoid adverse outcomes. And our argument is that whilst it may not be a perfect system, it is good enough that the additional layer of the licensing trust monopoly adds very little (probably zero) useful additional control.

What does the data say?

Firstly, a link between off-license density and alcohol related harms is fairly well-established. But it is only a correlation and that doesn’t necessarily mean that one thing causes the other. The relationship is also not universal (e.g. the correlation is found in some areas but not others).

In simpler terms: where there are more bottle stores, we generally observe more harm – but only in some places. And we can’t say whether the harm is caused by having more bottle stores or if it is because of other factors (e.g. are there more stores because there are more drinkers? Or are there more drinkers because there are more stores?).

Secondly, does West Auckland currently enjoy lower rates of harm because of the Trusts monopoly? I can’t find any evidence. Others have also failed to find any evidence, such as the Law Commission:

neither public nor private control of liquor sales could claim greater success in the struggle against alcohol abuse NZ Law Commission

And this more recently from Bernard Teahan (who was the CEO for the Masterton licensing trust for 30 years):

There are no objective statistics that ‘prove’ licensing trusts have more caringly managed the sale of alcohol in their communities than private enterprise has. Licensing Trusts in New Zealand

The absence of evidence is further demonstrated by The Trusts’ misleading use of crash statistics – claiming a lower incidence of alcohol related crashes where in reality West Auckland had the worst record of Auckland’s urban areas.

Important to note that the lack of objective evidence doesn’t prove that the monopoly doesn’t have a positive impact. The data available is far from perfect. But it does clearly indicate that any positive effect (if it exists) is small – too small to be measured.

It’s not unreasonable to believe that the monopoly reduces alcohol related harms, but it is a belief that requires some faith – because there’s not really any convincing evidence.

I don’t want alcohol in supermarkets / alcohol shouldn’t be normalised

There are plenty of New Zealanders who would prefer to see alcohol kept out of supermarkets and to be generally less visible in our communities. That’s based on the view that alcohol is harmful, should not be normalised and society should be discouraging drinking. In particular, there is a desire to minimise the exposure of kids to alcohol advertising.

Underpinning this argument is often a public health perspective (e.g. alcohol causes cancer therefore we should act to reduce consumption) and sometimes a moral perspective (drinking alcohol is against my principles).

The counter argument:

In today’s New Zealand, drinking alcohol is relatively normal. About 80% of us enjoy a drink at least occasionally but about 20% of us that agree with the statement “Drinking is against my principles”. Those who object to drinking on moral grounds do not speak for the majority of us.

There is much wider support for the public health perspective and the counter-argument is simply one of balance. It is almost universally accepted that there needs to be controls on alcohol, it is the nature and extent of the controls which generate debate.

For any proposed control, there is a trade-off between the benefits (reducing alcohol related harms) and the costs to the community (less choice, less convenience, higher taxes/prices). Everybody makes those trade-offs from their own unique perspective. Some people support tobacco style excise taxes to drive down consumption as well as strict controls on advertising and availability. Others emphasise personal responsibility – that a few irresponsible drinkers should not be used as a reason to restrict responsible drinking.

Regarding alcohol in supermarkets, a significant majority of New Zealanders don’t think that removing alcohol would do enough good to warrant giving up the convenience or pricing that the supermarkets offer. It is possible, but seems unlikely, that West Auckland holds a different opinion to the rest of NZ on this.

Summing up

There are rational positions on both sides of the debate.

The data doesn’t provide a slam-dunk for either side. Whether competition will deliver better/stronger hospitality and retail options is a personal judgement. Would independent licensees offer something better than The Trusts? What they offer would certainly be different from today, but whether it is better depends on what you like. And the extent to which competition will improve the local economy and support our town centres? The size of the impact would be very difficult to estimate.

But I think one of the main arguments for keeping the monopoly is based on a falsehood; it is patently untrue that The Trusts can’t ‘give back’ without a monopoly. In fact, there is a strong argument that The Trusts would return more to the community if the constraints of the monopoly were lifted. However, giving back was the foundation of The Trusts successful campaign in 2003 and they clearly believe that the same strategy will work again. Hopefully, West Aucklanders will not be fooled twice.

The other key argument regarding control of alcohol is a matter of personal judgement. Whilst there is no direct evidence that the monopoly reduces harms, the monopoly does reduce the number of off-licenses and it also keeps alcohol out of our supermarkets. There is evidence that these measures may help to reduce harms and, for some people, that possibility is enough to outweigh the benefits of competition.

For a proportion of West Aucklanders though unfortunately, there is little rational thought on the topic. They either ‘love the trusts’ (and will vote to keep the monopoly) or ‘hate the trusts’ (and will vote for competition). These zealots have particularly loud voices in social media to the detriment of the debate. Here’s hoping that most of West Auckland bring an open mind to the debate, consider the information available and make their choice based on their own perspective.

One thing is certain, it doesn’t help anyone to have Simon Wickham scaremongering in the media about ‘massive increases’ in the number of bottle stores and a ‘greatly reduced’ ability to give back.