Sunday, June 17, 2012

The Sunday Edition - It's a Good Start

Connecticut State Governor Dan Malloy recently signed a bill that has changed the face of the Connecticut wine and spirits business. The new bill allows those operating under a "package store" permit to do the following:
  • Connecticut General Statutes Section 30-68m, as amended by Public Act 12-17, allows the holder of a package store permit, grocery store beer permit, or druggist liquor permit to sell one beer item or one item of alcoholic liquor below cost each month, provided that item is not discounted more than 10%. 
  • With the signing of Public Act 12-17 by Governor Malloy, certain sections of the new law take effect immediately. Package stores may now be open on Sundays from 10:00am to 5:00pm. It also allows for package stores to now be open on Memorial Day, Independence Day, and Labor Day from 8:00am to 9:00pm. It also allows package stores to be open on the Mondays following any Independence Day, Christmas, or New Year’s Day which falls on a Sunday.
  • With the enactment of Public Act 12-17, the following commodities may also be offered for sale, in addition to what was previously allowed to be sold in package stores, effective July 1, 2012: o Complementary fresh fruits used in the preparation of mixed alcoholic beverages; o Cheese or crackers, or both; o Olives o Common examples of complementary fresh fruits used in the preparation of mixed alcoholic beverages include, but are not limited to, lemons and limes.  
  • Effective July 1, 2012, Sec. 30-20, Connecticut General Statutes, as amended by Public Act 12-17, also provides that package stores may conduct fee-based wine education and tasting classes at the store during the days and hours they are allowed to be open to sell alcoholic liquor.
The bill is a very good first step at improving the wine consumer’s experience, but Connecticut consumers are still slighted by the higher prices relative to our neighboring states. Higher taxation, lack of volume discounting and floor prices all keep Connecticut from being a competitive wine market.  The financial position of the State of Connecticut will negate any lowering of the excise tax. That would be a fiscally smart decision by Connecticut Governor Dan Malloy.  But the Governor has every intention of fighting for a change in legislation.  The Connecticut Package Store Association (of which I am not a member) will raise their dukes and fight back. The CPSA's position is that the removal of minimum price standards and allowance of volume discount pricing would force the closure of many smaller package stores thus leading to higher unemployment and loss of revenue for the State of Connecticut.  

The CPSA is right.  Changing the legislation will cause the closure of many smaller package stores unable to compete with the mega stores in the state.  But what the organization fails to recognize is positive effect such legislation would have on the quality wine and spirits stores across the State.  The legislation would rid the state of pretenders, fence riders and packies. Using those terms requires definition. WARNING: Some may find this offensive but if you think I'm speaking less than the truth, please feel free to comment.  

Internet based retailers whose shelves are stocked with loss leaders and name brand high ticket items in the hopes of attracting high profile email addresses. Their websites list everything available in the State of Connecticut at an average 15% margin but rarely have access to the wine or knowledge to sell it.  

Fence Riders
Retailers that are brick and mortar based with solid business models but can't decide if they are a discount store or a serious wine shop. The majority of their inventory is big market brands but will occasionally risk a stack of obscure wines to test the waters. They offer little to no innovation and often ride the coat tails of the innovative quality wine shops.

Retailers whose primary business is pints, half pints, 30 packs and kegs.

Clearly, my desire to see the riddance of many of these retailers is swayed by the fact that, yes, I am a retailer. However, the CPSA should also take a close look at our neighboring states whose laws allow volume discounting and no price minimums. There seem to be plenty of "mom and pop" stores. There are also plenty of pretenders, fence riders and packies as well. Certainly smaller stores survive under these laws. 

A word of warning to consumers: be careful what you wish for.  Volume discounting and the repeal of minimum price standard might have the opposite of the intended effect on esoteric wines.  Furthermore, you will be hard pressed to find esoteric wines without visiting a more specialized wine store. Typically in Connecticut, wholesale wine prices are set at the 5 case volume discount price of the surrounding states. This allows Connecticut retailers to competitively price all wines in their portfolio with surrounding markets. Should Governor Malloy succeed in the fight to allow volume discounting, consumers are likely to see a price increase in esoteric wine selections. Esoteric wines are generally not purchased in five case quantities. These products are more likely to be ordered in 3 case quantities or more so, one case quantities. Ordering product at these levels increases the cost to the retailer ultimately increasing the cost to the consumer. To grasp the concept a bit more clearly, think about shopping for quality cheese. You can certainly find edible cheeses for everyday use at the grocery store and be somewhat satisfied with what you purchase. But to find the really good stuff you have to go to your local cheese monger. You know you pay a premium for their cheese but you also know you can't get that cheese, level of service or knowledge at the grocery store (yes, even if you try Whole Foods). Eliminating the ban on volume discounts and minimum prices increases the likelihood that prices on esoteric and premium wines will rise.

But wait, there's more.  The State of Connecticut can push forward and become innovative in its liquor laws if it could find a way to get the following done (please note these are concepts I've created and not actually on the table) :
  • Allow retailers and restaurateurs to purchase private collections for resale. 
  • Allow retailers and restaurateurs to purchase small amounts of wine directly from wineries   
There are a host of difficulties in trying in writing and passing such groundbreaking legislation. Epic battles will have to be waged with high powered and well financed lobby groups for the big suppliers in Connecticut.  I understand the fears of the big suppliers. They are threatened by the loss of business if stores can stock their shelves with private collections and purchase small amounts of wine direct from wineries.  However, allowing these conditions increases competition and forces big suppliers to actually service accounts large and small. It would hold suppliers accountable for their actions simply by offering retailers and restaurateurs a choice to move in a different direction. In fact, one can surmise that much of the liquor code in Connecticut is unconstitutional, supports monopolies, protects only the supplier and is more crooked than ever due to its archaic laws. Furthermore, it would provide a better environment for the consumer by forcing a more competitive market, increasing choice, and increasing quality. The Connecticut Department of Liquor Control is a division of Connecticut Department of Consumer Protection (DCP).  The purpose of the DCP is to, well, protect the customer and create fair and competitive markets. This type of legislation would do just that.  But the devil is in the details. The legislation needs to be written so that all parties are protected and can support the bill. Here are some things to consider.  

Allow the Purchase of Private Collections for Resale
Currently, Connecticut retailers and restaurants can only purchase goods for resale from Connecticut licensed wholesalers whose inventories are rife with young wines. Allowing the purchase of private collections would improve restaurant wine lists and store portfolios bringing more business to Connecticut. Obviously this takes revenue out of suppliers’ pockets and the Department of Revenue Services is going to wonder how it collects. So let's limit the amount that can be purchased per year and put the onus of tax payment on the buyer.
  • Cap purchases at $500,000 per permit per calendar year.
  • Purchaser needs to register the purchase details with the State and have it approved before any money changes hands. 
  • Purchaser pays excise tax on purchase. 
  • Fee to the State associated with approval of sale is $500. 
  • Stipulations of approval: 
    • The wines being purchased are not currently available through a wholesaler within 2 vintages.   
Allow the Purchase of Small Lots Directly From Wineries
Connecticut is stuck in a sticky place. It's smack in the middle of two vibrant wine markets, Boston and New York City.  One might think its location would make it a hotbed for small production wine sales given that many who work and dine in these cities actually live and shop in Connecticut. However, high registration fees and lack of supplier vision keep many wineries from entering the State.  Why bother when they can easily sell their wine in surrounding markets and be more profitable. Enter the small wine store and new legislation. Allow retailers and restaurateurs to purchase small lots of wines directly from the winery. This may sound as if I'm advocating the abolishment of the three tier system but, as I've stated before, nothing could be further from the truth. I'll be perfectly clear; the three tier system is a necessary economic conditioner for the success of the wine industry as a whole. That's not to say we can't tweak it a little bit. Here are the stipulations:
  • The winery is not currently represented by a wholesaler in the State.
  • The winery's total production is less than 5,000 cases. 
  • No terms are extended. All sales are C.O.D. 
  • The sale must be registered and approved by the State prior to shipment.
  • The retailer or restaurateur is responsible for the excise tax payable within 15 days after approval of the sale.
  •  The retailer or restaurateur is limited to 20 registrations in a calendar year.   
These two pieces of legislation, coupled with the allowance of volume discounting and the riddance of price minimums, could greatly improve the landscape of the Connecticut wine market for the consumer, retailer and restaurateur.  It would bring jobs to Connecticut, increase sales tax revenues, increase excise tax revenues and registration fees. It can accomplish these tasks if the right people are behind it and others have the courage to stand up for it. But there seems to be a lack of courage in this industry.  Too many fear the suppliers and their power.  Too many fear failure.  So who will stand up for the consumer? I know a few. Revolutions are started in such ways, a revolution for the consumer and for those passionate about wine and spirits. A revolution that could pass a piece of legislation so ground breaking that could lead the way for sweeping liquor law reform across the nation. Okay, maybe that's a bit grandiose but it's a good start.

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