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However, the Act of Union in 1707 that combined England, Wales, and Scotland into the United Kingdom had a profound effect on the production of Scotch Whiskey (Beverage Testing Institute, 2007). The English government levied heavy taxes on Scottish whiskey, while lowering taxes on English gin (Beverage Testing Institute, 2007). This resulted in a boom in illegal stills across the country. Many present-day producers have their origins in these illegal operations. In 1823, the Excise Act reduced taxes on Scotch Whiskey to a level where it was once again a viable legal industry (Beverage Testing Institute, 2007).
Scotch whiskey was ingrained in the culture of Scotland. Whether they are malted, blended, or single grain concoctions, they are a part of Scottish history that is slowly becoming adopted by others around the globe. The whiskey market experiences periods of boom followed by periods of bust. The market has not been one of the most historically stable. The Scotch whiskey market is one of the most volatile in the world. Events such as high excise taxes and prohibition result in dramatic fluctuations in the market. Distilleries come and go quickly in this business. This atmosphere makes it imperative for the Olde Distillerie to find a way to improve the stagnant market conditions that it is currently facing.
Several markets have been proposed as potential points of expansion for the Olde Distillerie lines. All of these are possibilities for the future. However, due to capital funding issues, the distillery will concentrate on entry into only one new market at a time. Several aspects will determine the likelihood of success in each of the potential countries chosen. For instance, excise taxes and cultural aspects surrounding alcohol consumption will play a role in the success or failure of the endeavor. Candidates have been narrowed down to four contenders. They are Sweden, Italy, Czech Republic, and Eire. The merits and disadvantages of entry into each of these countries will be discussed.
One key factor that places the attention of Scotch Whiskey producers on Sweden is that in 2003, Denmark halved its duty on Scotch (Lyons, 2003). This made whiskey cheaper to buy in Copenhagen that is was in Edinburgh (Lyons, 2003). Danes import 9.3 million pound sterling of Scotch a year. The Danes cut the tax by nearly 3.25 pound sterling (35 kroner)(Lyons, 2003). One of the key reasons for this move was an attempt to recover lost revenue due to cross-border shopping in Germany. This move made tax on a bottle of Scotch 4.11 pound sterling in Sweden, as compared to 5.48 pound sterling in the UK (Lyons).
One of the key points to consider regarding this tax cut by Sweden is the effect that it will have on various price levels of whiskey. This tax cut would have the greatest impact on the lower priced bottles. It could not be expected to have the same impact on higher priced brands. The Olde Distillerie is placed among the higher priced brands. Their customers are not as price sensitive as lower priced whiskies. They do not compete based on price, but rather on the quality and distinctiveness of their product. This lowering of the Swedish tax rate will be more likely to spark higher market entry by lower priced brands. It will not have the same impact on medium to higher-priced brands.
In January of 2004, Denmark and Sweden were required to remove its import restrictions for personal consumption (Lyons, 2003). This is another boost that removes a key barrier that prevented entry into the market in the past. Requirements lowering import restrictions across the EU offer opportunities to expand to a number of countries in the EU. This will create a more even market across the EU and presents many attractive opportunities for expansion into the EU. Sweden may be a good jumping off point for the rest of the EU market in the future.
Sweden ahs a total estimated population of approximately 9 million people (FedEx, 2007, "Sweden"). As a member of the EU, bilateral agreements exist, but products still require paperwork documenting the country of origin. Sweden does not have a preferential duty agreement with Scotland, which means that no special duty discounts apply (FedEx, 2007, "Sweden"). Products from Scotland are subject to the same tariffs as a majority of the countries with which Sweden conducts business. The key rules and regulations regarding imports to Sweden are the rules and regulations that govern imports from other EU nations. Sweden has a simplified customs procedure that uses one piece of paper to cover all of the customs requirements (FedEx, 2007, "Sweden"). Sweden is an easy country into which to import based on bureaucratic simplicity.
Whiskey would be under few agricultural or food safety laws, other than those governing general production techniques. However, import duties for products entering Sweden are based on the final value of the product. If no value is given, the customs value is based on cost, insurance, and freight (FedEx, 2007, "Sweden"). The usual tax rate is 25% of the final value of the product (FedEx, 2007, "Sweden"). In the case of Olde Distillerie whiskeys, they are at the upper end of final sales price. This means that they would be subject to a higher tax rate under a value-based tax scheme.
Excise taxes only apply to imports from non-EU countries, therefore they would not apply to Olde Distillerie Whiskey. In addition to the value-added tax, Sweden also has a "watch tax" which is bawd on the time the item entered the country. This tax could be avoided if special shipping arrangements are made. This may help to offset high value-based taxes in Sweden, but the taxes levied could still be high. The value added tax rate in Sweden makes it an unattractive prospect for a first market expansion.
Scotch whiskey is a Scottish cultural icon. One of the key components of a successful marketing campaign will involve introducing a portion of Scottish culture into Swedish culture without making it appear to be a cultural anomaly. It might help that in 2002 a Swedish whiskey distiller, Mackmyra, released a single malt whiskey onto the market (Barrow, 2006). This whiskey will have a decidedly Swedish feel, as the casks will be made from Swedish Oaks (Barrow, 2006). This distillery opening indicates that there is a market for whiskey in Sweden. It is also a good indication that there are few cultural barriers that will get in the way of introducing Scotch Whiskey onto the Swedish market.
Italy is traditionally associated with wine production and consumption. Italians are proud of their wines, often producing types that will only be sold exclusively in Italy (McKean, 2006). However, that is not to say that this is the only drink in Italy. Campari recently entered a deal to purchase a whiskey distillery in Morayshire, Scotland that produces Glen Grant (KcKean, 2006). This move demonstrates that whiskey may soon take its place in Italian culture. One the most difficult aspects of entrance into the Italian culture is the ability to break the Italian wine mindset.
Breaking into the Italian market is not that difficult from a cultural standpoint. Italy was the sixth largest consumer of Scotch Malt Whiskey in 2004 and the fifth largest consumer of Scotch whiskey in 2005 (Ludo, 2006). This at least means that the Italian market is open to the idea of Scotch Whiskey. Italians welcome discriminating tastes and typically do not base buying decisions on price. This is exactly the market that the Olde Distillerie depends on for its sales. All of the Olde Distillerie products are in the pricier end of the market. They would fit well into the luxury end of the Italian market.
Glen Grant is the major competitor in the Italian market. Although Italy is among the top whiskey markets in the world, it has never been a priority for producers ("Pssst...Wanna buy Glen Grant?"). This is largely because of the unrivaled popularity of Italian wines in the country. It is difficult to compete with a cultural icon. This may represent a major barrier to establishing a market for Olde Distillerie Scotch whiskeys in Italy.
The European Union allows for movement of goods between Italy and the United Kingdom under their general rules and restrictions. Under General Preferential Tariff (GPT), duty-free entry is allowed for direct importation of goods from member states on eligible goods (FedEx, 2007, "Italy"). The dutiable value of products entering Italy is based on the final sales value of the product. Alcohol is subject to an excise tax based on value. The value added tax rate in Italy is 20%.
Italy also has countervailing taxes that are added to goods that may offer competition to Italian goods. This tax is meant to prevent lower-priced foreign goods from entering into a price competition with locally produced goods. Italian goods…[continue]
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The rules and regulations are designed to level the competition and to disrupt advantages of a country based on price and favored tax status. All of the countries in the union must abide by these tax and trade regulations. In January of 2004, Denmark and Sweden were forced to remove import restrictions on alcohol purchased for personal consumption (EPHA, 2007). A recent decision by the European Court of Justice (ECJ)
156). Not surprisingly, wine is far and away the most popular alcoholic beverage in Italy: "Italy is a country where people do not drink pure alcohol. Rather, Italians consume wine and, to a minor extent, other alcoholic beverages. Among alcoholic beverages, wine pervades most private and public spheres of life. It constitutes a basic ingredient of the Italian material culture as much as grapevines are an omnipresent component of