Big Box Stores Pushing Hard on Alcohol Sales Nationwide

Big Box Stores Pushing Hard on Alcohol Sales Nationwide

The successful push by big grocers like Wal-Mart and Kroger to expand the selection of wine they sell in Arkansas wasn’t the first such effort and it won’t be the last.

It doesn’t bode well for package liquor stores in Arkansas, and liquor store owners — naturally — say that ultimately it won’t bode well for the consumer.

In the past few years in states like Colorado, Oklahoma, Pennsylvania and Tennessee, grocery stores have won battles to expand their sales of wine. In Kansas, the effort is just beginning.

In Florida, where sales of beer and wine in grocery stores are already legal, the battle has been over the sale of liquor — distilled spirits like vodka, rum and whiskey.

And in Texas, which restricts liquor sales by publicly traded companies, Wal-Mart is embroiled in a years-long effort, including a federal lawsuit, to sell distilled spirits.

In Colorado, Wal-Mart and other big-box retailers sought to follow the grocery wine victory in 2016 with a move in that state’s legislature this year to let them sell spirits. The bill failed by one vote after a contentious campaign.

Some Arkansas liquor store owners think it’s just a matter of time before the big retailers start enviously eyeing their sale of spirits.

Around the country, the big-box chains like Wal-Mart, Target, Kroger and Safeway, responding to ever-increasing competition both off-line and online, are working to break down the decades-old — and arcane and idiosyncratic — barriers that states erected to restrict alcohol sales after the repeal of Prohibition.

And while Wal-Mart Stores, based in Bentonville, isn’t alone in the drive to compete head-to-head with package liquor stores, its status as the largest retailer in the world gives it unrivaled clout.

Cameron Smith, whose executive recruiting firm Cameron Smith & Associates of Rogers is the top provider of executive talent to many of the 1,000-plus vendors doing business with Wal-Mart, told Arkansas Business the number of alcohol manufacturers setting up shop in northwest Arkansas has doubled in the last five years.

“Several of them are our clients right now,” he said. “Beam Suntory opened up a big office here.”

Smaller liquor stores are fearful.

“As people get accustomed to shopping for their beverage of choice, whether wine or beer, in the grocery stores that foot traffic is taken out of the package stores, those mom-and-pops particularly,” said Dale Szyndrowski, vice president of the Distilled Spirits Council of Washington, which represents makers and marketers of distilled spirits.

“The bigger stores in the cities are going to do all right and learn how to survive, package store-wise, but it’s the smaller mom-and-pops that are going to lose a third to two-thirds of their foot traffic that are really going to suffer and be on the bubble of whether they go out of business or not. And that hurts the consumer because then you have limited choices.”

In Tennessee, where grocery stores began selling wine in mid-2016 after a political battle that lasted years, package store sales in February 2017 were 20 percent lower than a year earlier, according to the Distilled Spirits Council (see graphic).

Wine in Tennessee Grocery Stores
Package Stores See Sales Declines
The sale of wine in grocery stores in Tennessee, which became legal July 1, has coincided with a decline in sales at package stores, according to the Distilled Spirits Council, a trade association that represents producers and marketers of distilled spirits in the United States.

“Package store sales have been declining at an increasing rate since October” and by February 2017 were down over 20 percent when compared with the previous year, the council said.

In Florida, however, independent liquor store owners won a victory Wednesday when Gov. Rick Scott vetoed a measure — dubbed the “Whiskey & Wheaties Bill” — to allow grocery stores and other retailers to sell liquor in the same space as other products. The veto means that Florida’s “liquor wall,” requiring hard liquor to be sold in separate facilities, stands.

Wal-Mart and Target lobbied the Florida Legislature heavily to tear down the liquor wall; Michael Corcoran, a Wal-Mart lobbyist, is the brother of Florida House Speaker Richard Corcoran. But Scott said that removing the liquor wall would affect too many small businesses.

In Arkansas, the argument that expanding the wine selection in grocery stores would hurt liquor stores failed to fly. Act 508 allows grocery stores in “wet” counties to sell wines from any winery. They previously had been limited to wine from small wineries that produce fewer than 250,000 gallons per year.

As in other states, the effort to ease restrictions on alcohol sales in Arkansas prompted fierce opposition from independent package stores. They cited the purchasing power of big chains like Wal-Mart and Kroger, pointing to Arkansas law forbidding liquor store owners from holding more than one store permit.

But supporters of the effort appeared to have marshaled their forces early. A Grocers Coalition that included Wal-Mart, Harps, Kroger, Edwards Food Giant and Brookshire’s promised that the coalition wouldn’t support local option elections in the next eight years to make “dry” counties “wet.”

That was a promise appealing to county-line liquor stores, which benefit from residents from dry counties coming to wet counties to buy their alcohol, and they signed on to back the effort. The Arkansas Beverage Retailers Association, which has traditionally represented liquor stores, supported Senate Bill 284 by state Sen. Bart Hester, R-Cave Springs (see Liquor Stores: Grocery Wine Bill a Death Knell.)

That resulted in a split, with some liquor store owners breaking away to form the United Beverage Retailers of Arkansas, led by John Akins, owner of Legacy Wine & Spirits of Little Rock.

Even members of the Post family, famed Arkansas vintners, wound up on opposite sides of the issue.

Mary Jane Cains, a member of the Post family who owns the Mount Bethel Winery, told legislators she backed the bill, saying, “To me, this bill is consumer-driven. I have been in a lot of Walmarts stocking wine and there are a lot of people that complained because they want more choices, and that’s the way the world is moving.”

But during the same legislative hearing, in February, Andrew Post of Post Familie Vineyards said, “Senate Bill 284 has put me in a position worse than being in between a rock and a hard spot.” He forecast less choice for the consumer and layoffs. “I predict up to half our employees will be lost and we will be pulling vineyards. This is big business wanting to do business with big business at the cost of leaving the little guys out.”

Wal-Mart averred that it just wanted to serve the public, with spokesman Anne Hatfield saying, “Our customers want to select from a full range of wine when they shop for groceries.”

Legislative efforts led by the United Beverage Retailers to help level the playing field between big-box retailers and smaller package stores mostly failed during the recent legislative session.

Among them was SB378 by state Sen. Jeremy Hutchinson. Described as “an act to modernize the law regarding the business operations of retail liquor stores,” it would have allowed liquor stores to ship and deliver alcoholic beverages, pay liquor distributors with a credit card (now prohibited) and form groups of four permit-holders to pool their purchasing power. The measure died in committee.

Grocery sales of the expanded wine selections start Oct. 1.

Roger Gildehaus owns Macadoodles, a chain of liquor stores based in Jane, Missouri. It has a store in Springdale. Gildehaus worked 26 years at Wal-Mart, and he’s faced competition from the retailer before. In 2007, Wal-Mart opened a liquor store attached to a Sam’s Club in Fayetteville.

The highest-margin category in a liquor store is wine “and they started selling best-selling wines for pennies over cost,” Gildehaus said. “Now, you think about when they do that in small-town Arkansas — those little liquor stores can’t keep up with that.” Those small liquor stores will close, he predicted.

“When there’s competition, Wal-Mart will carry the broader assortment, because they have to, to compete,” Gildehaus said. “But as soon as they put that little guy out of business, that assortment dwindles, real quick like. That’s when the consumer loses. … The consumer always loses when competition gets put out of business.”

Akins, president of the United Beverage Retailers, told Arkansas Business last week that the association was still working on finalizing its board membership, but once that’s done, members will “start discussing how we’ll weather the storm, basically.”

He thinks big-box retailers will next come after spirits, though “I don’t think they’ll come after it any time soon — especially after all the promises that they made to legislators that they wouldn’t be coming after spirits, that they had, quote unquote, no interest in spirits, which we all know is not the truth because they’re going after it in different states.”

As a liquor store owner, Akins will seek to set his business apart by continuing excellent service, stocking a larger selection and employing trained staff. “There’s still going to be a lot more that we can offer that they can’t,” he said. “And we’re just kind of depending on that to keep our heads above water.”

John Smykla, owner of the Little Brown Jug liquor store in Pine Bluff, in an anguished conversation during the legislative session, called the situation “frustrating, when you wake up every day and you know everybody’s working against you and you just don’t know what’s going to come next.

“We don’t have the money or the influence that big boxes do.”

In an email later, Smykla summed up his frustration: “They create a separate set of rules favoring retail giants, keep the same restrictions on liquor stores, and then have the arrogance to tell us, if you do your job right you’ll be fine. If you fail, it is your fault.”