Background and functioning of alcohol monopoly, 07.11.10

1. Background and functioning of alcohol monopoly, 07.11.10

2. The State Alcohol and Tobacco Company of Iceland (ATVR) • ATVR is a monopoly in sales of alcohol to consumers in Iceland. • ATVR is a state-owned company that acts under the Ministry of Finance. • ATVR operations are regulated with; • Regulation No 883/2005 on the State Alcohol and Tobacco Monopoly • Act No 63/1969 on the Icelandic State trade in alcoholic beverages and tobacco.

3. ATVR, organisation chart

4. ATVR, activity • 49 outlets. • The outlets offers between 100-1000 brands/products of alcoholic beverages. • Total of 20 million litres sold in 2009. • Operating margin 2009: 5%. • Return on Equity 2009: 43% • Dividend paid to the state 2009: 960 million ISK

5. Range of products, ATVR • Regulation No 883/2005 about ATVR • In article 8 it is stated that ATVR should create regulations that should ensure a range of products that reflects the demand from the consumers and also insure that producers and suppliers of alcohol will have a possibility to sell their products in the ATVRs outlets. The regulation must be confirmed by the minister of finance and published in the legal gazette.

6. Range of products, ATVR • The main objects of ATVR are stipulatied in the regulations and are as followed: • ATVR shall ensure a product range in the outlets taking into account demand and costumer expectations in each case. • ATVR shall ensure variety and quality with a forward looking product range that covers the main categories of alcoholic beverages and the world´s production areas. • ATVR shall see to maintain equal treatment of the suppliers of alcoholic beverages in the choice of products, decisions as to sales and distribution. • ATVR shall try, in selecting products, to support responsible use of alcoholic beverages and the handling of alcohol.

7. Range of products, importers/suppliers • ATVR buys its products from locally listed suppliers. • The suppliers must have a permit to sell alcoholic beverages wholesale. • Small fee for permit, first year trial permit. If permit is renewed the it will be valid for unlimited time. • Those permits are only given to supplier companies, not individuals. • The permit allows the suppliers to sell the beverages to; ATVR, restaurants and bars (etc), other suppliers, foreign embassies, producers of alcoholic beverages and duty free shops.

8. Application for sale of alcoholic beverages.

9. Range of products, trial range • The trial range is intended for products that the suppliers offer for trial sales in the outlets. A product which reaches a certain sales result in the trial range is moved to the basic range. • The trial range period is 12 moths. Generally the trial product is sold in two main outlets. • Should the brand in trial range reach the criterion margin it shall be transferred to the basic range. The criterion margin is a certain fixed amount or 75% of the margin of the six hundreth brand on the margin list. The lower criterion shall be used. (ATVR publish monthly on its supply web the gross margins of sales of brands). • A product that is not transferred into the basic range from the trial range at the end of the 12 month trial period shall be removed from the trial range category. It is possible to apply for the same product after a period of 12 months.

10. Range of products, basic range • The basic range is the main sales category of ATVR. • The basic range is intended to ensure a supply of products which enjoy the greatest costumer demand. • The basic range is re-assessed at four month intervals along with a review of product choice in the outlets. • A product is removed from the basic range if the gross margin for a 12 month period does not reach a specified amount (the margin for the basic range is significantly higher than the margin for the trial range). • A product that has been transferred out of the basic range may go on trila sales after supplies held by ATVR are sold out.

11. Range of products, month´s specialities • The month´s specialities category is intended for seasonal products. • In order to be considered valid to be included in the month´s specialities the product must be associated with a specific season and/or traditional sales associated with the relevant season. • Other specialities are chosen and sold by ATVR in order to include products that increase the variety and quality of the product selection offered in the basic range. • The specialities category is also intended to ensure a supply of products that meet the wishes and needs of costumers and offer products that are sold for a short time.

12. Range of products, month´s specialities • The month´s specialities category is intended for seasonal products. • In order to be considered valid to be included in the month´s specialities the product must be associated with a specific season and/or traditional sales associated with the relevant season. • Other specialities are chosen and sold by ATVR in order to include products that increase the variety and quality of the product selection offered in the basic range. • The specialities category is also intended to ensure a supply of products that meet the wishes and needs of costumers and offer products that are sold for a short time.

13. Alcohol advertising • The advertising of alcohol and various types of alcohol is prohibited. • It is forbidden to display use or any other treatment of alcohol in advertisements or information about other products or services. • Exempt from the prohibition: • Advertising in foreign languages in foreign print publications brought into the country, unless the main purpose of the publication is or importation is to advertise alcohol. • Identification with the firm name and/or logo of the usual equipment to serve alcoholic beverages in restaurants where alcholic beverages are permitted. • Identification with firm name and/or logo on transport equipments of the manufacturer, product packaging, etc.

14. Imports for private consumption • Private imports are allowed for private consumption. • The importer must pay the applicable taxes. • There is no limit for the quantity of imports for private consumption.