Finns are spending less in Estonia, while at the same time fewer Finns are importing alcohol into Finland. Imports seem to have gone down even further from the beginning of 2018. With the growth of international e-commerce and the price difference in commodities shrinking, Estonia’s tourism can develop to be even more service-driven. Services’ share of travel budgets has started to grow within the past couple of years.

In 2014, 81 per cent of travellers to Estonia brought home alcohol; last year the number had gone down to 69 per cent. The reduced level of alcohol purchases is also visible in the total consumption of commodities and services measured in euros. As those planning to buy alcohol have travel budgets that are clearly larger than the average, the decreased imports have also impacted Finns’ consumption in Estonia. Last year, Finns spent approximately EUR 625 million on commodities and services in Estonia, while in 2014 total consumption was EUR 716 million.

The renewal of the Alcohol Act was assumed to have an impact on alcohol purchases from Estonia. It’s still too early to draw conclusions on its effects, but according to the border interviews ordered by the Finnish Commerce Federation, there were even fewer Finns purchasing alcohol from Estonia in early 2018.

A lighter shopping basket

Alcohol has been a lure for tourism to Estonia. As its appeal is disappearing, the effects can be seen in other purchases.

“Purchases of food stuffs, sweets and cigarettes have practically collapsed when compared to a couple of years ago as these products have generally been bought together with alcohol. Of course, the price competition in Finland has had its own effect specifically on food shopping,” says Jaana Kurjenoja, Chief Economist at the Finnish Commerce Federation, describing the changes in the contents of Finnish shopping baskets.

Despite everything, shopping is still one of the biggest attractions for Finns travelling to Estonia. Estonia’s relative price advantage has started to diminish, however, and clothing and shoes are already very close to the Finnish price level, for example. At the same time, international e-commerce is challenging Estonia as an affordable shopping destination for Finns, which can be seen especially within fashion.

“It’s fashion that Finns mostly buy from international online stores. As the prices of clothing and shoes in Estonia have already risen above the European average, it’s no wonder that people are buying less in Estonia,” Kurjenoja states.

Will Estonia’s tourism become more service-driven?

In 2014, less than a third of the average travel budget of Finns was spent on services in Estonia and on the boat. Last year, services had a 38 per cent share.

“This development has been expected as Estonia’s relative price advantage compared to Finland is clearly greater in consumer services than commodities. Also, when compared to the European price level, consumer services in Estonia are clearly more affordable than commodities,” Kurjenoja explains.

Kurjenoja sees it as likely that travelling to Estonia will in future become more service-driven for Finns.

“The relative price or availability of alcohol back home is not the main appeal for travellers such as families with children or pensioners. The price and speed of the trip as well as the service supply and their price level in Estonia may well be attractive for Finnish spa and culture visitors even in the future,” Kurjenoja estimates.

The results from the border interviews back this up, as within the past couple of years more and more travellers to Estonia have purchased café and restaurant services or used spa, recreational or other type of leisure services.

The Finnish tax system guarantees a price advantage for services in Estonia

In Finland, we have gotten used to looking at tourism in Estonia as a means to get cheap alcohol—which it of course has been. This is why alcohol taxation or the renewal of the Alcohol Act has also been considered from the point of view of alcohol imports. The decision-makers should, however, look further into the future—past alcohol—and consider whether the only way a regular Finn can enjoy good services is in Estonia.

“The hard labour taxation cuts the purchasing power of the Finnish consumer and, simultaneously, grows the tax wedge of service work and the price of services. As VAT is higher in Finland than it is in Estonia, it’s clear that services in Estonia are attractive to Finns. Fortunately, Estonia is close,” says Kurjenoja with a smile.

Additional information: Jaana Kurjenoja, Chief Economist of the Finnish Commerce Federation, tel. +358 (0)40 820 5378.

The Finnish Commerce Federation represents commerce—the largest sector of economic life. Commerce employs around 300,000 people in Finland. The Federation has around 7,000 member companies and represents both retail and wholesale commerce in industry policy and labour market lobbying.