The Liberal Democratic Party is moving to tighten regulations against discount sale of alcohol as a measure to protect small-scale liquor stores, whose number has been declining rapidly since deregulation in the 1990s led to greater competition with supermarkets, convenience stores and other large retail chains. Unfair competition through unfair discounting needs to be regulated. But the party should think twice about cracking down on legitimate discounting as higher prices would hurt consumers.
Last month, LDP panels on financial issues agreed on submitting an amendment to the Liquor Tax Law and related laws in the current session of the Diet. The amendment sets legal standards on liquor production and sales, and imposes fines on businesses that violate the standards. Those that refuse to comply with correction orders could lose their liquor licenses.
According to the National Tax Agency, small-scale liquor stores accounted for 78.8 percent of the market in fiscal 1995, but their share plunged to 33.1 percent in fiscal 2012. Before the deregulation of liquor retail business that began in 1998, the issuing of liquor retail licenses was tightly regulated according to area population density and the distance between existing stores. But the deregulation paved the way for the entry of large-scale retailers such as supermarkets, discount stores and convenience store chains to the business, and the increased price competition with large retailers is reported to have nearly halved the nationwide number of small liquor stores in the past two decades. The LDP has reportedly been lobbied by the national association of liquor stores to tighten regulations on discount sales.
The tax agency in 2006 set voluntary guidelines on the reasonableness of prices that liquor businesses are urged to follow. But LDP lawmakers who are pushing the legislation say many mass retailers engage in excessive discounting that violates the guidelines, which are not legally binding. Large-scale retail chains have a pricing advantage because they purchase liquor on a mass scale and can get manufacturers to offer them lower pricing. An official of major retailer Aeon Co. denies that it’s offering discount prices below its cost.
A key question will be how the “fair” standards of transaction are to be set. No details are given in the LDP’s draft, which says that the standards will be determined by the finance minister with advice from the National Tax Council before the proposed amendments take effect. A vaguely defined standard may lead retailers to hesitate to offer discounts due to the risk of penalties, thereby pushing up the retail price of liquor.
Selling below cost — or dumping — to force competitors out of business needs to be stopped. But the Fair Trade Commission can already take action in such cases under the Antimonopoly Law. It may also be difficult to draw a clear line between dumping and price cuts through legitimate efforts. It will be problematic if the proposed measure discourages retailers from making efforts to give consumers lower prices.
The LDP’s move is also prompting people to wonder why liquor stores are being singled out for protection even though many other small-scale shops compete with mass-market retailers. Some say lawmakers are prioritizing the interests of liquor store owners because they traditionally are key figures in their respective communities and often are longtime LDP supporters who can serve the party as local organizers during elections. If the tightened regulations on discounts lead to higher liquor prices, it will be consumers who foot the bill. The party needs to think carefully about the proposal.
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