Monthly Archives: January 2014
January 28, 2014 was an historic day for wine in groceries in Tennessee. As we blogged earlier today, a revamped wine in grocery bill was introduced in a key House Committee. It cleared the committee – a major step forward for passage of the law.
It is a time-honored tradition to kill legislation in committee. Failing to be approved by committees has been the final resting ground for wine in groceries in years past.
Calls to mind a classic Johnny Cash song:But Gabriel, don’t you blow your trumpet Until you hear from me There ain’t no grave Can hold my body down
The amendment is choked full of huge changes for the liquor industry. Pharmacies and convenience stores will not qualify for licenses because of the 20% food requirement. Existing retail liquor stores will be able to sell beer and lots of other items. Groceries will not be able to sell wine until July 1, 2016.
Industry insiders expected many of these terms. But the Golden Goose won today’s battle, in our humble opinion.
Tennessee wholesalers’ biggest objection with wine in groceries was that industry giants like Wal-Mart, Kroger and Costco could negotiate volume discounts that would dramatically reduce profit margins. Kroger could say, we will carry Yellow Tail in all Kroger stores, but only if the wholesaler sold it at a very favorable price. If the wholesaler failed to cut profit margins to meet the demands of the giant, the giant could easily not stock Yellow Tail.
Currently, wholesalers only have to negotiate with one individual liquor store. Tennessee liquor stores cannot combine orders among multiple stores.
Tennessee liquor laws that favor wholesalers make wholesalers very valuable locally-owned “small businesses.” Although sales prices are not disclosed in ABC approvals of sales of wholesalers, we have heard that a successful wholesaler can fetch a price in excess of 100 million dollars. If retail giants could reduce profit margins, the value of a wholesaler could be reduced by tens of millions of dollars.
The wine bill introduced today specifically provides that groceries cannot get discounts based on the purchasing power of all of the stores in Tennessee. Each grocery can only get the same volume discount that is offered to liquor stores. Meaning that although Kroger may buy thousands of cases of Yellow Tail among all its stores in Tennessee, it can only get a discount based on per store purchases.
Wholesalers offer discounts for large orders, but with the one grocery store limitation, Kroger and other giants will only qualify for volume discounts enjoyed by liquor superstores like Frugal McDougal in Nashville, Buster’s in Memphis, Bob’s Package Store in Knoxville and Jax Liquors in Chattanooga.
For longer than most folks can remember, the lobbyist for the Tennessee wholesaler association has been Tom Hensley, who earned the nickname The Golden Goose. Veteran reporter Tom Humphrey has a terrific story about The Golden Goose here.
Today, we crown The Golden Goose the victor of the wine in grocery battle. After staunchly opposing wine in groceries for years, he managed to give the wholesalers almost unimaginable bargaining power with the giants they feared. The Goose certainly earned his fee and reaffirmed his reputation.
Inside sources say that Wine in Groceries may be moving forward through a key House Committee this afternoon, January 28, 2014. This morning, the House State Government Committee held a hearing on the newly introduced wine bill.
You can download a copy of the new bill here. HB 0047
Those that are handsomely rewarded to count votes at the Legislature (aka lobbyists) tell us that hospitality lobbyists Dan Haskell and Matt Scanlan have the votes to pass the legislation this afternoon. The Committee meets at 4:30 today. Haskell and Scanlan have certainly earned their fee if they get it passed.
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This Friday, January 24, 2014, we confirmed that the Tennessee Alcoholic Beverage Commission finds many popular distillery marketing campaigns prohibited under Tennessee law. Distilleries are marketing directly to consumers at bars and package stores in ways that violate state law.
Sammy Hagar’s 1999 tune captures the problem:I say, one shot! Hey! Mas Tequila Two shots! Hey! Hey! Que veneno Three shots! Hey! Arriba! Hey! Hey! Hey! Mas Tequila!
Distillery marketing in Tennessee has not seen scrutiny from the ABC for as long as we can remember. A few high-profile abuses of the system have focused ABC attention on the industry.
The ABC and local police have investigated a few parties where promoters did not have liquor licenses and distilleries provided free product. These were clearly illegal.
Having found some flagrant violations, the ABC is taking a closer look at distillery marketing practices in general. What flies in most states is illegal in Tennessee.
In Tennessee, a distillery or winery can educate consumers about a product, but cannot give away samples or pour drinks. Technically, a licensed wholesaler may be required to accompany a distillery or winery representative visiting a restaurant or liquor store, although this point is the subject of debate among industry and the ABC.
Based on what we know, manufacturers and wineries are violating the law.
Wine in groceries will definitely hurt Tennessee retail liquor stores. We expect many stores to go out of business and the survivors will have to make drastic changes.
But the wine in grocery legislation is a golden opportunity for retail liquor stores to make major changes to the law. Currently, retail liquor stores can only sell liquor, lottery tickets and cash checks. Liquor store owners can only own one store in the state, cannot bundle purchases with other stores and must abide by a host of restrictive laws.
Gerry Rafferty’s 1978 hit Baker Street comes to mind:Winding your way down on Baker Street Lite in your head, and dead on your feet Well another crazy day, you drink the night away And forget about everything.
Last year’s legislation proposed a number of changes to help retail liquor stores be more competitive. Here is a list:
Retailer can operate more than (1) licensed retail business in Tennessee.
Retailers can sell:a. Bar supplies used in preparation for consumption of alcoholic beverages and in the consumption of alcoholic beverages b. Wine glasses and racks c. Devices to re-cork bottles d. Cork extraction devices e. Water, soda, or any other soda mixed with intoxicating beverages f. Printed materials g. Publication and videos to educate on wine intoxicating beverages h. Fresh fruits used in mixed alcoholic beverages i. Ice j. Cheese and Crackers k. Multi-used bags to carry purchased items l. Devices used to ensure safe storage and monitoring of alcoholic beverages in the home, to prevent access by underage drinkers; m. Clothing and apparel marked with the name, brand or identifying logo of the store of the licensee engaged in selling intoxicating liquor at retail.
Retailers can sell between 8:00 a.m. and 11:00 p.m. on Monday – Saturday; 12:00 p.m. and 11:00 p.m. on Sundays.
We think retail liquor stores should have the same rights as groceries: no limitations on what they can sell, no limit on the number of stores an individual can own, the ability to transfer inventory between stores, and the same hours for sales as grocery stores.
The list of items that a retail liquor store can sell is good, but why have any limit? There are no limits on what a grocery store or big box retailer can sell.
This is a one time opportunity for retail liquor stores to determine their destiny. We encourage retail liquor stores to shoot for the moon.
Last night, January 21, 2014, the Metro Nashville City Council passed a new law that allows grocery stores, gas stations, drug stores and other off-premise beer permit holders to sell beer beginning at 10 am on Sundays. Noon had been the kick-off time for beer sales for as long as anyone could remember.
We were shocked.
Brings to mind a classic 1969 duet with Johnny Cash and Kris Kristofferson, Sunday Morning Coming Down:On the Sunday morning sidewalk, Wishing, Lord, that I was stoned. ‘Cos there’s something in a Sunday, Makes a body feel alone.
The change allows off-premise permit holders to compete more fairly with restaurants and bars that can start selling booze at 10 am. Several years ago, state law was changed to allow restaurants and bars to start selling alcohol at 10 am, largely because of lost revenue before Tennessee Titan football games. That change was so controversial that the state law does not even mention the word Sunday.
My how things have changed. We applaud Nashville for leveling the playing field between on and off-premise businesses on Sunday mornings.
For Tennessee liquor stores, grocers, big box retailers and convenience stores, the 2014 Winter Olympics is a side show compared to the games playing out in the Tennessee General Assembly for wine in grocery stores.
After years of staunch opposition, David McMahan, the lobbyist for Tennessee retail liquor stores, was quoted in morning media as saying:“The two sides are ‘very, very close’ on a deal that would allow cities and counties to vote on whether to allow wine sales in supermarkets. But the measure would maintain the ban at convenience stores and big-box retailers like Wal-Mart or Target.”
Chas Sisk at the Tennessean covered the news here. In our humble opinion, this is a huge step toward being able to buy wine in groceries.
A later story from Sisk suggests that there is no deal. At least no deal the Tennessee Grocers and Convenience Store Association and the Tennessee Fuel & Convenience Store Association want to publicly talk about.
We suspect today’s media coverage was part of posturing for this year’s debate on wine in grocery stores. For a summary of where things stand on the debate, check out our post here.
For years, we have speculated that when wine in grocery stores is ready to pass, the debate will turn to what kind of store can sell wine. Selling flavored fortified wines like MD 20/20 and Ripple at convenience stores is going to be more controversial than selling Yellow Tail at Kroger.
Public marketing has targeted wine in grocery stores, but we understand that convenience stores have paid for a lot of the lobbying and marketing to pass the legislation.
1970s rocker Peter Frampton weighs in on the debate:
Woke up this morning with a wine glass in my hand
Whose wine, what wine, where the hell did I dine?
We see today’s news as being the first of many steps toward negotiating a wine in grocery store law that works best for liquor stores, groceries, convenience stores, big box retailers and wholesalers.
We often say that compromise means that no one gets what they wanted. Wine in groceries will undoubtedly be a law that offends all parties.
Last week, the Tennessee Attorney General released an opinion that says Tennessee cities cannot hold licenses to sell beer or alcoholic beverages. The AG found that a municipality – fancy word for city – “is not a ‘person, firm, corporation, partnership, or association’ capable of obtaining a license under [the liquor laws].” You can read the decision here.
Reasonable minds can differ, but we think the AG got it wrong.
A city is a “municipal corporation” under state law. Clearly a corporation qualifies for a liquor license. Not sure why addition of the term “municipal” disqualifies a municipal corporation. A “nonprofit” corporation qualifies for a liquor license.
Although an LLC is not listed as a form of entity that qualifies for a liquor license, hundreds if not thousands of LLCs hold liquor licenses in Tennessee. If you strictly construe the liquor laws, like the AG did, LLCs would not qualify for liquor licenses.
There are a number of municipalities that hold liquor licenses. According to a Tennessean story about Metro Nashville Parks, many of the Metro Parks golf courses have held liquor licenses since the 1970’s. The AG says this is illegal.
Perhaps the most significant impact of the AG opinion is whether municipal-owned convention centers and sports centers may share in the profit of liquor sales by private vendors that provide food and beverage service. This is a common element of the economic relationship between private food and beverage vendors at multi-million dollar facilities constructed by cities. The city receives a percentage of liquor sales.
The AG opinion did not address this issue. Based on recent experience with the ABC, taking a percentage of liquor sales is definitely in question.
We learned about another new Tennessee Alcoholic Beverage Commission rule that may lead landlords to change deal terms in leases to restaurants, bars, liquor stores and distilleries in Tennessee. The TABC is requiring personal questionnaires on officers of landlord companies that take percent rent of 5% or more from a liquor licensee.
Previously, the TABC required a relatively unobtrusive questionnaire from the leasing company. Providing an EIN, date of formation and other basic information from the leasing company is not controversial.
Providing personal information from officers of the leasing company is not going to be received as well.
Rockwell’s 1984 hit with Michael Jackson naively captures the fear of identity theft:
Who’s watching me?
I don’t know anymore . . . are the neighbors watching
Well, it’s the mailman watching me: and I don’t feel safe anymore.
Tell me who’s watching.
Oh, what a mess. I wonder who’s watching me now,
(WHO?) the I.R.S.?
A handful of corporate officers of large companies that hold liquor licenses have had their identities stolen. This is a huge issue among licensing professionals.
Although corporate officers of companies that hold liquor licenses expect to provide personal information in connection with liquor licenses, landlords do not. We expect opposition to the new Tennessee ABC rule that will lead to problems with licenses for new stores.
We have one client that has already had to try to modify two leases – on the eve of their grand openings. As if there is not enough stress trying to finalize open issues to obtain liquor licenses.
Going forward, to avoid disclosure, we encourage landlords to exclude liquor sales from percent rent or reduce percent rent to less than 5%.
The Tennessee Supreme Court has made it easier to sue a business in Tennessee for harm caused by a drunk patron. This applies to businesses that do not serve liquor. We encourage businesses to review all policies that might involve intoxicated patrons.
In the case, a Wal-Mart customer became belligerent after Wal-Mart pharmacy employees refused to fill her prescriptions, because they believed she was intoxicated. The customer did not purchase or consume any alcohol from Wal-Mart.
After leaving the store, the customer backed her car into another shopper that was placing her groceries in her trunk.
The Court reasoned that the injured shopper’s allegations established a duty of care on the part of Wal-Mart. Translation: the Wal-Mart pharmacy staff or other Wal-Mart employees should have done something to prevent the unruly intoxicated customer from hurting someone.
As in most states, a private citizen in Tennessee, like a Wal-Mart clerk, can face criminal prosecution for wrongfully detaining a person. So what should the pharmacist have done?
Inexplicably, Alice Cooper’s Damned if You Do comes to mind:‘Cause you are damned if you do Damned if you don’t Damned if you will Damned if you won’t
Practically speaking, can you imagine a Wal-Mart clerk behind the pharmacy counter trying to stop a belligerent drunk from leaving the store? Neither can we.
Lesson learned: call the cops. Calling the cops gives a business a defense against a lawsuit.