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Aspects of Corporate Finance: Inter-firm Lending

 | 
Michel Lescure
, 
Michael Moss

Liquid capital: An overview of inter‑firm credit between breweries and restaurants in Sweden

Anders Ögren

Texte intégral

Introduction

1This chapter is a first attempt to capture the phenomenon of inter-firm credit between breweries and bars and restaurants in Sweden. I ask three interrelated questions:

  1. Why do breweries in Sweden provide credit to bars and restaurants?

  2. How is this credit designed?

  3. What are the effects of this credit relationship?

Question 2 is about the design of this credit and focuses on the aspects of risk, cost collaterals and the size of the loan; i.e. the conditions posed by the provider of the credit. Question 3 concerns the effects of this credit relationship by looking at its consequences for the market for breweries as well as for bars and restaurants.

2An important caveat for this research is that material is even more scarce than usual for such studies. There may be several reasons for this, such as the wish to keep business practices secret for strategic reasons or that some agents do not wish to shed light on the use of asymmetric power in bargaining relationships. It could also be that the agents involved wish to ignore some existing regulations.

3The material employed for this study is thus constrained by what it has been possible to obtain. The sources consist of Official statistics, Legal documents (such as Laws and legal processes), Official inquiries, Interviews (representing the bars and restaurants’ trade association (Head of trade development Visita -Swedish Hospitality), Breweries annual reports, Statistics from the Swedish state-owned alcohol monopoly (Systembolaget), Journals and news channels, the Swedish brewery association (Svenska bryggeriföreningen) and the Swedish beer consumers association (Ölfrämjandet).

Stylized facts

Restaurants and bars in Sweden

  • 1It should be noted that the definition of “bars and restaurants” in this paper are bars and restau (...)

4Restaurants and bars are a booming sector in Sweden.1 In the fifteen years from 2000 to 2015 turn over in restaurant and bars more than doubled (Figure 1). Assets grew as well, but less rapidly, which may be a sign that profit margins decreased somewhat.

Figure 1. Total assets and turn over (excluding VAT) of restaurant and bars in Sweden, 2000‑2016 (In millions of SEK (MSEK), constant prices)

Figure 1. Total assets and turn over (excluding VAT) of restaurant and bars in Sweden, 2000‑2016 (In millions of SEK (MSEK), constant prices)

Sources: Statistics Sweden (SCB).

5In 2016 consumption in bars and restaurants had increased by more than 140 percent since 2000 (Figure 2). By far the most important part of the growth was the Swedish domestic population’s increasing propensity to eat and drink outside their homes.

Figure 2. Domestic and foreign consumption at restaurant and bars in Sweden, 2000‑2016 (In Millions of SEK (MSEK) constant prices)

Figure 2. Domestic and foreign consumption at restaurant and bars in Sweden, 2000‑2016 (In Millions of SEK (MSEK) constant prices)

Sources: Statistics Sweden (by Visita).

6Bars and restaurants did not increase their productivity or efficiency. This means that the expansion is almost all due to increasing the input of production factors. In the case of bars and restaurants, as it is a service sector, the expansion was fuelled by increased labour input. Looking at the number of persons employed at bars and restaurants illustrates this pattern well (Figure 3).

Figure 3. Number of persons employed at restaurants and bars in Sweden, 2007‑2015 (categorized by the size of the employer)

Figure 3. Number of persons employed at restaurants and bars in Sweden, 2007‑2015 (categorized by the size of the employer)

Sources: Statistics Sweden (SCB).

  • 2Clemens Wantschura, “Phone interview with Head of Trade Development at Visita-Swedish Hospitality (...)

7What Figure 3 above illustrates is that the number of persons employed increased rapidly between 2007 and 2015. This sector is, according to Visita (the Swedish Trade Organization for the Hospitality Industry), the fastest growing sector in terms of employment in Sweden.2 What also appears in Figure 3 above is that most of the employers are quite small in size.

8The main businesses in this sector are thus small, employing only a few persons (if any). Figure 4 below shows the number of bars and restaurants as registered companies in Sweden from 2008 until 2016 categorized by the numbers employed. The majority of these companies employ between zero and four persons, and about a third of all bars and restaurant businesses are run by the owner without any employees.

Figure 4. Number of restaurants, bars and pubs in Sweden, 2008‑2016 (by number of employed)

Figure 4. Number of restaurants, bars and pubs in Sweden, 2008‑2016 (by number of employed)

Sources: Statistics Sweden (SCB).

9The fact that most bar and restaurant businesses are small is important when analyzing them in relation to their funding opportunities.

The Swedish Brewery Market

  • 3Peter Sandberg, Kartellen som sprängdes: svensk bryggeriindustri under institutionell och struktur (...)

10The Swedish brewery market is distinguished by a history of cartelization and a market dominated by a few agents. The brewery association (Bryggeriidkareförbundet) until 1956 pursued an active cartelization policy that was encouraged by the state. In a way the foundation for cartelization disappeared in the late 1950s but the market concentration continued by mergers and acquisition.3

  • 4Carlsberg Annual Report 2016, p. 16.

11Although the number of breweries has increased rapidly in the last twenty years, most of these new breweries are small microbreweries. Some of the most commercially successful have been acquired by bigger breweries in much the same manner as before. This market concentration means that four breweries, and especially two of those, have a strong position and financial strength to retain and even increase their position (Figure 5). Carlsberg Sweden for instance had increased its market share to 35 percent by 2016.4

Figure 5. Breweries market share (sales) in Sweden 2015

Figure 5. Breweries market share (sales) in Sweden 2015

Sources: Breweries Annual reports 2015 and Systembolaget.

12Comparing the size of these breweries with the businesses that sell a large part of their produce, bars and restaurants, it is clearly a case of strongly asymmetric business relations. Losing the business of one bar or restaurant means almost nothing to the margin for the breweries, whereas the cost of the beer for the bar or restaurant may make all the difference between operating a profitable business and going bankrupt.

Brewery loans

13Brewery loans are important in size and they also include a special relationship between the producer and the retailer (the brewery and the bar or restaurant) that on the macrolevel affects competition and the market structure. In some cases, the breweries tap the formal credit market in order to arrange loans. Despite a commercial bank formally lending the money, it is still the brewery that takes on all the loan arrangements which in fact de juro makes it into the lender.

Loan Design

14Many different kinds of brewery loans exist, and the design is to a large extent dependent on the borrower’s situation. For some bars and restaurants brewery loans are a small complement to other sources of funds, for others it is the main capital besides borrowing capital on the informal credit market and investment by the owners. The lender’s ability to impose specific features in the loan contract is dependent on the borrower’s potential to find alternative funds. Demands made to the lender thus increase with the risk (if we assume that the access to alternative funds is a measure of riskiness of the business). This is amplified by the fact that the brewery market in Sweden is highly concentrated. Only a few breweries have the financial capacity to act as lenders, which further limits the competition among lenders.

Collaterals

15The risk carried by the lender can always be limited by the use of collaterals. These are of varying kinds, but usually they combine several different collaterals. Most common is the personal guarantee from the borrower (name security), which usually is coupled with some kind of promissory notes from the borrower and even more importantly the borrower’s lease (rental contract) of the premises of the restaurant/bar. Such leases in places where demand is high are valuable; although it is not possible to sell them on the formal open market and so it is difficult to value them in monetary terms.

16In case of bankruptcy the breweries (as lenders) usually roll over the debt from the bankrupt owner to the new tenant taking over the lease and thus the business. In this way the lenders can minimize their direct risk exposure, and also a provision which has been subject to cases in court, bypass other creditors with claims on the bankrupt debtor’s assets (Infotorg Juridik 2010). When bars or restaurants are parts of chains, the lender may also ask the franchise to stand as guarantor for the loan.

Loan size and instalment plan

17The size of the loan is directly tied to the amount of alcoholic beverages (most importantly beer) that the brewery estimates that the borrower can sell. The brewery offers what is known as a “cash in advance rebate” (Förskottsrabatt) or “cash in advance bonus” (Bonusförskott) to the bar or restaurant owner. Most commonly the borrower (the bar or restaurant owner) receives a discount paid in advance by the brewery for each litre of beer sold. In short, the borrower receives a loan that is paid off by selling the lender’s beer.

18Loan and supply contracts are thus combined. They specify the rebate (or bonus) that the business receives for each product they sell. As well as the estimated time for reimbursement of the loan – by selling the lender’s produce. The loan thus has a maturity date as an instalment plan is tied to the contract to repay the loan by selling beer bought from the brewery at the “standard price” (since the volume discount has already been paid out as a loan). Of course, this directly affects the margins of the business and therefore the time frame for repayment together with the size of the loan is crucial for the borrower’s ability to repay.

19Most loan contracts seem to stipulate two to three years for repayment. If the borrower (the bar or restaurant) fails to sell the quantities demanded by the contract there will normally be some kind of penalty, such as increased interest rates or damages for contract violations by adding a certain amount for each “unsold” litre of beer, in other words the difference between beers sold and what was stated in the contract, and so on.

20It is the lender who makes an estimation of how much beer the borrower should be able to sell each year. The greater the potential to sell beer the larger the amount the lender is willing to offer as credit. Since the selling of the producer’s beer is the main way to pay back the loan, the condition of the loan is also tied to the restaurateur’s license to serve alcohol. If the authorities revoke the license the lender forecloses the loan. Contracts usually also contain a paragraph defining damages to the lender for contract violation if the borrower (for any reason) loses the license. The same goes for the lease, as the possibility to sell beer is directly related to where the business is located.

Sales concentration, equipment and marketing

21Brewery loans are directly related to the borrower’s business. The lenders accordingly are directly involved in the borrower’s business. First and foremost, contracts stipulate to what extent the borrower can serve products from other suppliers than the lenders, the so called “supply share guarantee”. Normally the “supply share guarantee amounts” states that a minimum of 80 per cent of all drinks sold at the facility have to be supplied by the lender (a greater proportion is prohibited by EU-regulations).

22If the owner accepts the credit, he/she will be forced to sell the product of the brewery in question, not only because of what the contract stipulates but also to repay the loan. Thus, there are few incentives for diversity in supply for a bar or restaurant with a brewery loan.

Figure 6. Contract stating Volume and Supply share guarantee (at least 80%)

2. Volume-undertaking

2.1 The client [bar/restaurant] is undertaking to during the contract period annually purchase at least 80 percent of its total needs of brewery- and drink-products from the brewery

2.2 The client [bar/restaurant] is undertaking to during the contract period annually purchase the below listed minimum volume of the following products/product categories from the brewery

Products delivered by the brewery

Annual volume / litres

ring the contract agreement / litres

Beer class III

23 500

    117 500    

Strong Cider

2 000

10 000

Wine

3 500

17 500

Spirits

50

250

Lemonades

4 500

22 500

Carbonated water

1 000

5 000

23The lender may also supply equipment and be involved in the decoration of the bar or restaurant. In this way the loan provides an opportunity for marketing. This part may seem insignificant but bar and restaurant owners who have the ability to reject brewery loans have been quite explicit about the fact that the freedom to serve what beer they prefer and to decorate their premises according to their own preferences are important factors behind their decision to reject brewery loans. Being able to reject the loan from a brewery, however, obviously depends on the bar or restaurant owner’s ability to fund the business in other ways.

  • 5Göteborgs Posten (GP), 15 February 2013, Valeria Helander, “Tva öljâttar styr utbudet i Göteborg” (...)

24It is notable that in bars sponsored by one of the main breweries, the beer supplier’s logo is displayed everywhere. Moreover, in areas with a high density of bars and restaurants, the main breweries quickly approach new businesses to tie them up as sellers of their products. It is thus not always the owners of bars or restaurants that take the initiative to ask for this credit. In some places, as in central Gothenburg, entire streets are dominated by different breweries making the branding/marketing even more effective.5

Borrower

25For the borrower the brewery loans can be problematic as they are based on an asymmetric relationship between the creditor and the debtor. The creditor is a giant brewery and the borrower (bar or restaurant) is usually a business of one or a few persons. This means that the bargaining position of the borrower is limited. Even if the lender has few incentives to drive the borrower into bankruptcy by providing too expensive credit, the way the loans are provided by the lender tries to ensure as far as possible that he will not lose out in the case of an eventual bankruptcy.

26The actual costs of the loans are also difficult to calculate for the borrower. There is a lack of transparency as to how much the borrower actually pays for the credit. Moreover, estimating sales volumes, which is the basis of the loans, is difficult in itself. To quote a bar owner:

  • 6Göterborgsposten, 16 February 2013, V. Helander, “Det är ren maffiastil. “Jag ger dig pengar och s (...)

“It is like the mafia. ‘I give you money so you are my friend’. But in reality, it is a debt trap. They mix up a contract and then you as the bar owner have to sell the volume of their beer stated in the contract. If you can’t, you are done.”6

  • 7Swedish Public Radio (SR P1), 9 September 2013, originally broadcast “Bryggerier erbjuder krögare (...)

27This view, but less dramatically expressed, is also to some extent shared by Visita, the trade union for the hospitality industry in Sweden. They testify to the fact that problems have arisen for many borrowers when they are not able to properly calculate the cost of the loans, which by extension turns the credit into a debt trap.7

28In addition, the insecurity due to the changing nature of external market conditions makes these loans even more risky for the borrower. To repay a loan in two or three years by selling beer may become impossible if the summers are cold, or if the city decides to rebuild the building or the sidewalk where the business is situated. Not to mention if the general economy goes into a recession.

29Figure 7 shows that there has been an increase in the number of bars and restaurants (nöjesrestauranger) over the last ten years. More importantly, it underlines the fact that this development is highly cyclical in its nature. The summer months and December are the most important months for the business. This is why any external problems that may affect the business negatively during this time have a direct effect on the number of bars and restaurants open for business.

Figure 7. Number of bars and restaurants (nöjesrestauranger), January 2007-August 2017 (Monthly)

Figure 7. Number of bars and restaurants (nöjesrestauranger), January 2007-August 2017 (Monthly)

Sources: Statistics Sweden (by Visita).

30But if accepting a brewery loan may put the bar or restaurant owner under the thumb of the supplier, why is it so common? The reason is that brewery loans are a remedy for a lack of credit in a business which so far has not been able to tap more formal sources of funds such as bank loans.

31Thus, brewery loans occupy a credit void in a fast-growing business sector where formal loans are not available. In addition to the fact that banks are unwilling to lend to this sector in general we can add that persons who lack a credit history and/or do not hold traditional collaterals (such as equity or real estate) can get only access to credit by their potential to sell beer, and use less formal collaterals (as seen above) through these brewery loans.

  • 8Ahmet Önal & Farbod Rezania, “Kusinen eller banken: Finansieringsmöjligheter bland företagare med (...)

32This is most important for persons who are just about to start their business and/or who do not have the characteristics of the “standardized bank customer”. In a report from 2007 researchers showed that immigrants were less likely to receive formal credit and were forced to find alternative sources of funds. Such funds are drawn primarily from personal networks such as extended families. It turns out, however, that borrowing money from an extended family is both complicated and an expensive source of capital and that this is by no means preferable to bank loans for the borrower.8

33It is no coincidence that immigrants are overrepresented as entrepreneurs in Sweden as they are less demanded in the traditional labour market. Whether this has to do with lacking education or discriminatory biases among employers is beyond the scope of this paper, but it is probably because of a combination of the two. What is important for this study however is that persons with immigrant background are overrepresented as entrepreneurs within the bar and restaurant industry as well. This may be because the breweries actually offer them a possibility for funding which can serve as start-up capital for their business venture. The fact that breweries view the business as an outlet for their produce makes it possible for people to start up a business who otherwise would not be able to do so due to a lack of capital.

  • 9SR P1, 9 September 2013, op. cit.

34It is however not only people with immigrant background who are unable to raise capital from banks for bars or restaurant businesses. Banks are generally unwilling to provide credit to this sector. An example is a chef and restaurateur, the holder of an MBA from Stockholm School of Economics, who was denied loans by all the banks he approached, despite the fact that, according to him, they all agreed that his business plan was watertight.9 What this shows is that although banks officially state that they evaluate each business plan individually, there is a big problem for people in the business of bars and restaurants in accessing loans from banks. In short, as much as the credit from breweries may be problematic, there are few alternative sources of credit for bars and restaurants.

Lender

  • 10Dagens Nyheter (DN), 8 July 2008, “Bryggerier ger lån till krögare” [“Breweries lends to bars and (...)

35As has been seen, there are several incentives for the breweries to act as lenders to bars and restaurants. First, there is a higher margin (and thus more profit per litre of beer sold) for the breweries when they sell beer through bars and restaurants than when they sell through retailers.10 Second it provides an opportunity to control the market and gain market shares as it also works as a kind of vertical integration. Third it provides an important outlet for their produce. And this without having to take on the long-term commitment that would be the case if the breweries owned the bars and restaurants themselves. In this way the arrangement is more flexible as it ties up capital for shorter periods of time.

  • 11Kvällsposten (KVP), 10 December 2013, L-O. Strömberg, “Krögarna på båten krävs på 600 000 kronor” (...)

36It is however not easy to find out how much the breweries actually lend to bars and restaurants, but we do know that it is a significant amount and forms a large part of the breweries’ cash flows. We know this because breweries are regularly present in bars and restaurants’ bankruptcy processes as creditors. Breweries are also present in court cases concerning breaches of contract, such as a bar or restaurant which chooses to change it’s supplier during the validity of an ongoing brewery loan or if the bar/restaurant loses the license to sell alcohol. Through the practice of making the individual owner(-s) of the bars and restaurants personally liable as well, many such court cases also boil down to suing owners for payments as well.11 It is also clear that such loans may be of a significant size, up to several million euros each (in 2008 one of the main breweries lost several millions of euros in a single bankruptcy). The courts usually side with the breweries and naturally view them as creditors.

  • 12Info Torg Juridik, 3 November 2010, Mikael Kindblom, “Så blev bryggerierna krogarnas långivare”, [ (...)

37The view among the breweries on their role as lenders is multifaceted. Offcially they do not wish to be seen as any kind of financial institution. This issue is particularly sensitive as it could put them under the supervision of the Swedish Financial supervisory authority (Finansinspektionen), which some lawyers argue should be the case given how they provide credit to bars and restaurants. So far, the state and especially the Swedish Financial supervisory authority maintain that brewery loans do not fall within the scope of their responsibilities. The reason they claimed was that standing as guarantor for a loan does not fall under their supervision. Even so courts have ruled the breweries to be the actual lenders and not just a guarantor for a loan.12

  • 13Statens Offentliga Utredningar (SOU), Stockholm, 2009:22, p. 162, En ny alkohollag Slutbetänkande (...)
  • 14Brottsförebyggande rådet (Brå), Stockholm, Rapport 2015:22, pp. 76-77, Penningtvätt och annan penn (...)

38In 2009, parliamentary preparatory work concerning a new law on alcoholic beverages was launched. In it the issue of brewery loans was supposed to be investigated as it was deemed by authorities to encourage excessive alcohol consumption. The investigation, however, collected only information that the breweries provided and concluded that breweries mainly only acted as guarantees for bank loans to bars and restaurants (although it did concede that breweries gave cash in advance for a rebate).13 The same view of brewery loans was repeated in a report from the Swedish National Council for Crime Prevention (Brå-Brottförebyggande rådet) in 2015.14 Why the political authorities do not regard this “advance” as a trade credit in itself is not clear, but it illustrates well the incentives, and the success, in keeping informations about these brewery loans limited at least as far as the breweries are concerned.

39The opinion of brewery loans is however not consistent among the authorities. The Swedish Tax Authority (Skatteverket) views the cash in advance bonuses/rebates as a loan from the brewery to the bar or restaurant. This decision relates to how the VAT should be treated on such bonus/rebate in advance. The statement from the Tax Authority makes clear that:

  1. The way the bonus/rebate in advance is provided by the brewery to a bar or restaurant formally makes it a loan (contrary to what other Swedish authorities state).

    • 15Skatteverket, 21 March 2006, “Skatteverkets ställningstaganden Bonusförskott/förskottsrabatt Områd (...)

    There are tax reasons why these loans are provided without formal interest rates, because if they were it would be viewed as the brewery providing a service for compensation.15

  • 16SR P1, 2013, op. cit. “I grunden så är det här en finansiering som är att likställa med en bankfin (...)
  • 17SR P1, 2013, op. cit. “Vi pratar om finansiering av restaurangbranschen, och det innebär att vi li (...)

40When it comes to the question whether a bonus/rebate in advance is to be regarded as a loan, the representatives of the breweries themselves give different answers. In some interviews regarding this kind of inter-firm credit the breweries clearly view themselves as banks for the bar and restaurant business. In an interview on Swedish public radio the Head of Sales at Spendrups admitted that they act as a bank for bars and restaurants and that in a way that makes them banks: “Basically this is a kind of financing which is to be equated with that of a bank”16 and “We are talking about financing the restaurant business, and that means that we, like banks, do lend money to restaurants, yes. And then there is the added dimension that we are suppliers as well.”17

  • 18GP, 15 February 2013, op. cit.

41In other cases, the breweries deny this resemblance to banks. In an interview by the local journal Göteborgsposten in the same year a representative of Carlsberg Sweden stated that it is a misconception that they act as banks for bars and restaurants. He admitted however that they gave cash-in-advance bonuses after a credit check and that they would act as guarantors for bars and restaurants’ bank loans.18

The credit market

42Swedish commercial banks may claim that they are evaluating each business proposal and each credit demand individually but this is not the case. The fact that traditional banks are not present as providers of credit in an expanding business sector is problematic and the question is why ?

43The most cited reason is that bars and restaurants are active in a sector that has a reputation for illegal practices and black-market activities (such as withholding taxes). But this is far from the only reason for denying formal credit to more or less the whole sector. Most businesses in this sector are legitimate businesses making reasonable profits.

  • 19Info Torg Juridik, 2010, op. cit.

44When breweries are criticized for their dual relationship with bars and restaurants, as suppliers and lenders, the response from representatives of the main breweries is usually that they would prefer if banks took on the lending part as for other businesses. It is difficult to find any definite answer to whether the lack of formal bank loans is due to the banks or the breweries, but an educated guess is that it owes much to the risk mitigation profile of the banks. Going back to a court case when the brewery Spendrups was sued in relation to a bankruptcy, we can see how Spendrups had relied on one of the main commercial banks (Danske Bank) to provide the credit. The entire loan was nevertheless arranged and administered by Spendrups, to the extent that Spendrups was ruled by court to be the actual lender.19 We can assume that this extreme low risk threshold for the bank in question, making the brewery the actual lender, was in the interest of the bank. It adds no advantage to the breweries to go through the banking system if the brewery still has to take on all the costs, the risk and to manage the cash flows in relation to the loan.

  • 20C. Wantschura, 2017, op. cit. Banker är lata”.

45When interviewing the Head of Trade Development at Visita – The Trade Organization for the Swedish Hospitality Industry - it was clear that he saw the banks as letting the sector down. “Banks are lazy20 was his view. He pointed to several factors that explain why banks are not interested in lending to bars and restaurants. All of them points to the increased transaction costs that banks face when lending to businesses in the service sector rather than on existing and well known financial and physical assets.

46Swedish commercial banks have come very far in digitalization and standardization of their businesses to an extent that they resemble fintech companies. Costs are cut by standardization of collaterals and borrowers. For this to work they need easily valued collaterals, quite important loan sizes and borrowers with steady and secure cash flows.

47As a result, banks are less inclined to act as credit providers for businesses within the service sector in general. And this is especially the case for bars and restaurants. This business sector consists mostly of smaller firms in need of small amounts of credit. The collaterals are not easily standardized as they may consist of a lease at a more or less lucrative address, a personal guarantee or a named security. Besides location, one of the biggest values in the business is tied to the brand name, which in turn often is based on the competence of one or a few individuals as restaurateurs or chefs.

48Yet the breweries manage to make credit evaluations based on these items so we know that it is possible. In this way it is true that ‘banks are lazy’. What we also know is that Swedish commercial banks make huge profits by employing their business model of lending against low risk assets and borrowers. The fact that the banks can keep such a low risk business model and still make huge profits point to the fact that there is not sufficient competition in the Swedish credit market. Increasing competition should make it possible for bars and restaurants (like all businesses) to obtain bank loans.

Market effects

The Brewery Market

49The fact that the principal breweries use their financial strength to guarantee outlets for their products through bars and restaurants in a way resembling vertical integration has a direct effect on the brewery market. It makes it even more difficult for small breweries lacking the financial muscle necessary to compete to reach out to the customers with their products. The scope of such brewery loans from the main breweries explains the paradox that while there is a larger number of breweries than for some time – more than 300 professional breweries in 2017 compared with around 20 in the early 1990s - the main breweries continue to increase their market domination. In this way brewery loans seem as an effective way of limiting competition between breweries and to impeding the entry into the market of smaller breweries.

  • 21GP, 15 February 2013, op. cit.

50Again, the Swedish authorities are not really clear about how to view the interlinkage of brewery loans and supply contracts. In 2002 the Swedish Beer Consumer Association (Ölfrämjandet) sued the breweries Carlsberg, Spendrups and Åbro for their supply/loan contracts that they argued limited the possibility of smaller breweries to compete. But the Swedish Competition Authority (Konkurrensverket) sided with the breweries by referring to an exception the breweries have that gives them the right to sign such contracts.21

  • 22The Swedish Competition Authority Errand, 532/2001, “Förnyelse av beslut om undantag - standardavt (...)
  • 23KKV, Registrator Mail reply by Registrator at Konkurrensverket The Swedish Competition Authority, (...)

51The fact that such an exception has been granted by the Swedish Competition Authority means that the authorities as well as the breweries have been well aware of the negative effect these contracts have on competition between breweries. When following up the question with the Swedish Competition Authority it turns out that only two such exceptions exist. Both of them are renewals of such an exception from 1997 demanded by the brewery Spendrups.22 The most recent renewal ended on 27 November 2008. Since then no such exception exists. When asked the Swedish Competition Authority could not verify if the practice is still allowed. All the representive of the authority could answer was that “[I] do not think that it lies within our jurisdiction anymore.23 The conclusion here is that the issue concerning the negative effects on competition has been well known for a long time, but that the authorities overlook it.

The Market for bars and restaurants

52The main problem with the brewery loans for the market for bars and restaurants are that these, as small businesses, become dependent on the supplier. There is a possibility that the breweries as suppliers will be important components in the business strategies of the bars and restaurants to which the breweries provide credit. As such it may be that the business strategy comes more to reflect the interest of the brewery than of the bar and restaurant in question. Examples may be that the breweries push for a more rapid expansion of the bar or restaurants business and/or that bars and restaurants have a similar appearance making the marketing of the brewery more apparent than the specificity of the bar or restaurant.

53Another important market effect is that brewery loans provide funds for small businesses – where there otherwise are none. This means that it becomes possible to establish smaller bars or restaurants in a way that would not be possible without the brewery loans. By so doing it prevents the bar and restaurant sector becoming dominated by a few chains of bars and restaurants. For smaller businesses within the sector, as well as for the clients of bars and restaurants, this competition is a good thing.

Conclusion

54The existence of brewery loans is much criticized. Usually criticism focuses on the lack of transparency and the negative market effects that is a result of this vertical integration. It is commonly alleged that it favours less serious agents and gives room for frauds and illegal practices. Brewery loans are, however, important as they provide funding for many small businesses that otherwise would not be able to exist. It is thus not fair to focus too much on the problems in relation to brewery loans themselves.

55The problem lies instead in the refusal of formalized credit markets to fund bars and restaurants. As long as small businesses, and especially those within the service sector, are denied capital by the banking system, brewery loans will have to be provided. And for the breweries to engage in brewery loans it is logical that the loans will be designed in a way which provides the most incentives for the breweries to lend money to bars and restaurants.

56The authorities seem to be less interested in formalizing this credit relation as well which may be because:

  1. in a macro perspective it does not involve large quantities of capital (although it is not clear how much),

  2. it would be complicated (and perhaps costly) to push for greater formalization as it would (probably) transfer it to the jurisdiction of the Financial Supervisory Authority,

  3. it works – so why fix it?

Notes

1It should be noted that the definition of “bars and restaurants” in this paper are bars and restaurants for leisure consumption. Restaurants serving only lunches or lunch cantines are not included. This is also the case for the figures in the statistics when otherwise not mentioned.

2Clemens Wantschura, “Phone interview with Head of Trade Development at Visita-Swedish Hospitality (The Trade Oragnization for the Swedish Hospitality Industry)”, February 27, 2017.

3Peter Sandberg, Kartellen som sprängdes: svensk bryggeriindustri under institutionell och strukturell omvandling 1945-1975, Meddelanden från Ekonomisk-historiska institutionen, Handelshögskolan vid Göteborgs universitet, 98. Göteborg, 2006 [The cartel that blew up. Swedish brewery industry under institutional and structural change, 1945-1975, PhD Dissertation Gothenburg University, 2006].

4Carlsberg Annual Report 2016, p. 16.

5Göteborgs Posten (GP), 15 February 2013, Valeria Helander, “Tva öljâttar styr utbudet i Göteborg” [Two giant beer breweries control the supply in Gothenburg].

6Göterborgsposten, 16 February 2013, V. Helander, “Det är ren maffiastil. “Jag ger dig pengar och så är du min vän”. Men egentligen är det en skuldfälla. De mixtrar ihop ett avtal, sedan måste du som krögare sälja den volymen av deras öl som står i avtalet. Kan man inte så är det kört”, “Krogarna används som reklampelare” [Restaurants and bars are used as advertising space].

7Swedish Public Radio (SR P1), 9 September 2013, originally broadcast “Bryggerier erbjuder krögare lån” [“Breweries offers loans to bar/restaurant owners”],

8Ahmet Önal & Farbod Rezania, “Kusinen eller banken: Finansieringsmöjligheter bland företagare med invandrar bakgrund” Svenskt näringsliv, September 2007 [“The cousin or the bank: Financial possibilities among entrepreneurs with an immigrant background”, Confederation of Swedish Enterprises, September 2007].

9SR P1, 9 September 2013, op. cit.

10Dagens Nyheter (DN), 8 July 2008, “Bryggerier ger lån till krögare” [“Breweries lends to bars and restaurant owners”].

11Kvällsposten (KVP), 10 December 2013, L-O. Strömberg, “Krögarna på båten krävs på 600 000 kronor” [The bar/restaurant concessionnaires on the boat demanded payments of 600 000 SEK].

12Info Torg Juridik, 3 November 2010, Mikael Kindblom, “Så blev bryggerierna krogarnas långivare”, [How the breweries became lenders to bars and restaurants].

13Statens Offentliga Utredningar (SOU), Stockholm, 2009:22, p. 162, En ny alkohollag Slutbetänkande av Alkohollagsutredningen, [A new alcohol legislation. Final report from the special parliamentary committee on alcohol legislation. Official Inquiries of the Swedish State 2009:22.].

14Brottsförebyggande rådet (Brå), Stockholm, Rapport 2015:22, pp. 76-77, Penningtvätt och annan penninghantering. Kriminella, svarta och grumliga pengar i legal ekonoi [“Money laundering and other money management. Criminal money, black money and murky money in the legal economy”, Swedish National Council for Crime Prevention. Report 2015:22].

15Skatteverket, 21 March 2006, “Skatteverkets ställningstaganden Bonusförskott/förskottsrabatt Område: Mervärdesskatt. Dnr/målnr/löpnr: 131 522-06/111”. Arkiv för rättslig vägledning. Skatteverket [The Swedish Tax Authority’s decision. Bonus in advance/ Rebate in advance. Area: VAT. Errand no 131 522-06/111. Archive for legal advice. The Swedish Tax Authority],

16SR P1, 2013, op. cit. “I grunden så är det här en finansiering som är att likställa med en bankfinansiering.”

17SR P1, 2013, op. cit. “Vi pratar om finansiering av restaurangbranschen, och det innebär att vi liksom bankerna lånar ut pengar till restauranger, ja. Och så tillkommer dimensionen att vi är leverantörer också.”

18GP, 15 February 2013, op. cit.

19Info Torg Juridik, 2010, op. cit.

20C. Wantschura, 2017, op. cit. Banker är lata”.

21GP, 15 February 2013, op. cit.

22The Swedish Competition Authority Errand, 532/2001, “Förnyelse av beslut om undantag - standardavtal om dryckesleveranser till restauranger.” Konkurrensverket Dnr 532/2001. [“Renewal of the decision about exception – standard contract on brewery deliveries to restaurants.”, 532/2001]; KKV 909/2003. “Förnyelse av beslut om undantag-standardavtal om dryckesleveranser till restauranger.” Konkurrensverket Dnr 909/2003. [“Renewal of the decision about exception – standard contract on brewery deliveries to restaurants.”, no 909/2003].

23KKV, Registrator Mail reply by Registrator at Konkurrensverket The Swedish Competition Authority, 29 November 2017, “Tror inte att det ligger i vart uppdrag längre”.

Table des illustrations

Titre Figure 1. Total assets and turn over (excluding VAT) of restaurant and bars in Sweden, 2000‑2016 (In millions of SEK (MSEK), constant prices)
Crédits Sources: Statistics Sweden (SCB).
URL http://books.openedition.org/igpde/docannexe/image/6026/img-1.jpg
Fichier image/jpeg, 140k
Titre Figure 2. Domestic and foreign consumption at restaurant and bars in Sweden, 2000‑2016 (In Millions of SEK (MSEK) constant prices)
Crédits Sources: Statistics Sweden (by Visita).
URL http://books.openedition.org/igpde/docannexe/image/6026/img-2.jpg
Fichier image/jpeg, 120k
Titre Figure 3. Number of persons employed at restaurants and bars in Sweden, 2007‑2015 (categorized by the size of the employer)
Crédits Sources: Statistics Sweden (SCB).
URL http://books.openedition.org/igpde/docannexe/image/6026/img-3.jpg
Fichier image/jpeg, 116k
Titre Figure 4. Number of restaurants, bars and pubs in Sweden, 2008‑2016 (by number of employed)
Crédits Sources: Statistics Sweden (SCB).
URL http://books.openedition.org/igpde/docannexe/image/6026/img-4.jpg
Fichier image/jpeg, 96k
Titre Figure 5. Breweries market share (sales) in Sweden 2015
Crédits Sources: Breweries Annual reports 2015 and Systembolaget.
URL http://books.openedition.org/igpde/docannexe/image/6026/img-5.jpg
Fichier image/jpeg, 68k
Titre Figure 7. Number of bars and restaurants (nöjesrestauranger), January 2007-August 2017 (Monthly)
Crédits Sources: Statistics Sweden (by Visita).
URL http://books.openedition.org/igpde/docannexe/image/6026/img-6.jpg
Fichier image/jpeg, 99k

Auteur

Anders Ögren is an Associate Professor at the Department of Economic History, Lund University School of Economics and Management in Sweden. He specialises in Business and Financial History and History of Economic Thought in which he has many publications. His most recent publication is: “The political economy of banking regulation: interest groups and rational choice in the forming of the Swedish banking system, 1822-1921” in Business History (Open access on line 8 March 2019).

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