Carlsberg and the Cartels Martin Jes Iversen
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Carlsberg and the Cartels Martin Jes Iversen Introduction and on the other the smaller and medium- sized provincial breweries. The price Nowadays, phrases like 'restrictions of agreement ensured that the metropolitan competition' and 'cartel formation' sound breweries gained access to the markets furtive, perhaps even illegal. However, in in the provinces, but on the understand- Denmark, free and uncontrolled competi- ing that their beer was priced at one øre tion was in the first half of the 20th century (øre - Danish coin worth 1/100 of a seen by some as unhealthy and danger- krone) more than the local brew. ous, particularly in major divisions of industry and even more so for large parts The interests of the authorities were also of the public sector. The interests of the served by the price agreements as they brewery industry were, of course, best ensured steady profit conditions - if the served by arranged market conditions as breweries could supply a stable tax not only did this guarantee stable prices, return to the state, then the Danish but it also prohibited alternative sales and authorities were prepared to let the distribution methods. industry handle the internal competition conditions by themselves. And to every- body's satisfaction this arrangement The early years of the cartel worked: from 1917 to 1929 the beer tax was constant at approximately 8 øre per In 1899 Denmark's leading brewers bottle while at the same time sales went founded the Bryggeriforeningen up from roughly 800,000 hectolitres in (Brewers' Association). This cartel intro- 1918 to 1,300,000 hectolitres in 1929.1 duced a nationwide price agreement although not without a great deal of The only fly in the ointment was the large negotiation. The most intense conflict at temperance movement which by 1916 this early stage of the industrial develop- had 200,000 members. The Brewers' ment of the Danish breweries was Association took this threat very serious- between the big metropolitan breweries, ly and they even engaged an opinion De forenede Bryggerier (The United former in an attempt to affect the public's Breweries) and Carlsberg on one side view on the alcohol question.2 To the Brewery History Number 131 63 great relief for the breweries membership The government was paid by a clearing of the temperance society decreased to account and immediately after the libera- approximately 50,000 by 1942. While the tion it brought a collaboration action Danish temperance declined, the com- against the breweries with a demand for parable associations in Sweden and a repayment of part of the profit (approx- especially Norway had a major impact - in imately 2 øre per sold bottle of beer). The Norway an actual prohibition was carried case was settled five years later, in through. September 1950, with the breweries evading paying collaboration compensa- tion to the Danish state.4 The war years During the German occupation during Post 1945 World War II the common interest of the authorities and the breweries for However, after the liberation the brew- regulated market conditions intensified. eries faced a far more serious challenge Eventually more than half of the selling from the state. On March 31st 1949 the price went to the state - the average cost Folketinget (Danish Parliament) appointed of beer was 42 øre in 1942 of which 23 a Trustkommissionen (Trust Commission) øre was tax. The revenue to the state which was assigned to inspect potential remained stable throughout the occupa- competition limitations and compliance to tion, the result of an annual volume of the 1937 legislation on price agreements. 1,500,000 hectolitres of beer being sold The very next year an investigation of despite the delivery and distribution the brewery industry was set in motion. difficulties caused by the war. These To some extent the brewery industry difficulties were ameliorated by a joint successfully influenced the Trust effort between the breweries and the Commission's work and when the results German occupying power. On one hand of its investigation were announced in the Nazis ensured the necessary malt 1960 the chairman of the Brewery and corn supply from Germany and on Association, manager of Carlsberg A.W. the other the breweries supplied beer for Nielsen, could declare with satisfaction the Wehrmacht's many canteens and that it had happened 'without any trou- other needs. A total of nearly 74 million ble'.5 In fact, during the 1960s and '70s bottles of beer or almost 250.000 hecto- the greatest threat to competition limita- liters were delivered to the occupying tion came from within the beer trade power - of which Carlsberg delivered 'a itself. On January 30th 1952 Harboe substantial part of' - as the manager of Bryggeri (Harboe Brewery) terminated all Carlsberg, Frederik Sander, stated at a price agreements, collegiate regulations meeting of the Brewers' Association in and advertising settlements and Faxe 1942.3 Bryggeri (Faxe Brewery) put pressure on 64 Journal of the Brewery History Society the other members by selling its gold- they believed only blurred the picture. In beer at lager prices. Equally, it was Faxe other words, the old 1903 profit-sharing which in 1976 went against their col- agreement had lapsed and a structural leagues and launced the Faxe Fad beer change in the brewery industry was in specific small podgy-type of bottle. To greatly needed. the chagrin of Carlsberg, while the small breweries were successful it experi- These changes followed the year after enced a decrease in sales of 65.5 million with the merger - sometimes called 'the bottles, equivalent to almost 230,000 beer-wedding' - of Carlsberg Breweries hectolitres.6 and The United Breweries (Tuborg) in May 1970. After this major national At Carlsberg's large brewery in Valby, amalgamation Carlsberg prepared both Copenhagen, they took the threats from to expand abroad and dominate the the smaller breweries with a certain profitable domestic marked. The degree of calmness. Industry wide beer Carlsberg Group's beer sales in the sales were going very well; between domestic market were remarkably con- 1957 and 1967 they increased approxi- stant the following years, about five mately 52% and, after a period of million hectolitres in the period from 1972 domination by Tuborg in the 1950s, to 1996, whereas the sales abroad Carlsberg Hof re-established itself as the increased from 2.5 million hectolitres in largest beer brand from the middle of the 1972 to 27.2 million hectolitres in 1996 1960s. Meanwhile, the authorities were (including total beer production of its own aware of the competition problems in the and associated companies). industry and in 1969 the Monopoltilsynet (Monopolies Commission) rejected an application from the Brewery Association The demise of the cartels applying for an increase in the beer prices in excise Class I.7 The reason for The price agreements in Denmark con- the rejection was that the Monopolies tinued throughout the 1970s and '80s, Commission thought that the cost but then two significant threats emerged. accountings were unclear. Of particular The first arose from the Monopolies concern was the Carlsberg/Tuborg Commission which in 1984 stated that agreement which began in 1903 concern- the contracting agreements of the indus- ing profit-sharing caused problems as try contained considerable competition Tuborg had substantially higher produc- limitations of a kind that contradicted the tion costs than Carlsberg. According to monopoly laws. The second threat tran- the Commission the increase in prices spired with fundamental changes in should be made on the basis of the cost Danish retailing during the 1970s and of the most efficient company and not '80s. On October 7th 1970 the first dis- from an average cost calculation which count shop opened in Denmark - Bilka in Brewery History Number 131 65 Tilst near Århus - and in 1981 and 1982 Falster Bryghus, Vestfyn and Maribo alone the number of discount shops Bryghus - left the Brewery Association, so increased by 68% and 65% respectively. freeing themselves from the collegial By the beginning of 1983 there were 299 agreements, and began concentrating on stores scattered all over the country and the discount beer market. The founda- as a consequence of this development tions of the collegial price agreement the supermarket chains and discount out- were thereby shaken and at the same lets gained a large proportion of Danish time the Monopolies Commission tight- the beer market. ened the net around the contracting agreement. In May 1987 the Commission Another development was the introduc- published an extensive statement about tion of so-called trade mark (retail brand) competition in the brewing industry.9 In a or discount beers which, unlike the estab- press release the Commission made it lished beer brands, were not included in clear that the widespread agreement of the price agreement. Nevertheless, the the brewery industry shackled prices and chairman of the Brewery Association and the structure of distribution. Rather, it Carlsberg, director Poul Svanholm, dis- should be regarded in connection with missed the idea. Instead he pointed out other competition limiting conditions in that it was risky for the small breweries to the beer market - namely the high degree be dependent on one customer - just like of concentration and the incorporated he emphasized that until now the price branded goods. After eight months of agreements had counteracted further negotiation on February 15th 1988 Poul concentration in the Danish brewery Svanholm could announce to the public industry, for which reason the small brew- that the contracting agreement between eries should respect the agreements.8 the breweries had been finally abolished. In March 1983 the Albani Brewery in At the ordinary general meeting in the Odense invited all the brewery directors Brewery Association the same year, to a last effort to come to a settlement Svanholm made it clear that the pressure about the price agreements.