A Tale of Two Customers

October 17, 2011 by: The Urban Grape

When you get right down to it, the state’s recent decision to allow grocers to hold additional liquor licenses is really a tale of two customers.

The first customer is a regular client of The Urban Grape. This past Saturday he came to the store and bought a thousand dollars worth of wine.

The second is a woman from Vermont who was in town and stopped into our store because “the grocery stores down here don’t sell wine and I need a bottle for tonight.” She bought $15 worth of wine.

Which do you think is more valuable to us?

The answer is, they both are. We love and value our regular big spenders. They show us loyalty and Lord knows it’s a lot of fun to work with them on a weekly or monthly basis. But the reality is that they are just the icing on our cake. The cake itself is made $15 dollars at a time, day in, day out, over and over and over again.

You can imagine our dismay when we woke up on Sunday morning to the news that a “compromise” had been reached between the Massachusetts Food Association and the Retailers Association of Massachusetts that would allow grocery stores to increase the number of liquor licenses grocery stores can hold from three to nine (in a sliding scale from 2012 to 2020). The compromise means that this question will not make it to the ballot next year, as was expected, and the voters of Massachusetts will not have an opportunity to express THEIR opinion on this matter as they did in 2006.

What happened in 2006? The ballot measure that would have allowed grocers to sell beer and wine at more locations was soundly defeated. This time around both sides remarked that they wanted to avoid a “costly” battle meant to sway voters. Forgetting, of course, that the real cost of their back room deal is in the small boutique liquor stores that can be found in neighborhoods across Massachusetts. Forgetting, of course, that the real cost will be the Walmart-ization of our state’s wine, beer and spirit choices in the future. Meaning, of course, that it was cheaper for one side to pay a little money or political capital to the other in order to make this problem go away.

Here’s how it will hurt us and here’s how it will hurt you.

When a store decides to pick up a certain sku of wine, the price depends on how much of it they buy. One bottle costs more than a case, a case costs more than a palette, and so on. Let’s say The Urban Grape decides to buy a case of Kendall Jackson Chardonnay. Our price would be vastly different from Shaw’s, as they would be buying in bulk for all of their stores. We would have to compete on price, however, so it would be on our shelves for roughly the same price as theirs. But they will be making several times profit on it compared to very little profit for us. Multiply this by every wine over time and we will slowly go out of business.

How will this effect you? Wine buyers at supermarkets buy for the biggest common denominator. They also need wine that will sell itself so that they don’t have to staff the section and hand sell. Looking for that super-esoteric wine that you read about in the New York Times? Yeah, don’t bother. The supermarkets aren’t going to pick it up because they it won’t make sense to buy by the palette. They’ll buy recognizable brands and labels, and mostly likely will have nation-wide price deals for ones they buy in every state. Have you been to the food section at Target lately? Do you see a lot of cool, interesting food products there? Exactly my point. You could ask your cool local wine shop to get you that wine, but it won’t be in business any more. Even if it is still in business, the state’s distributors will have less reason to bring that wine into Massachusetts because they won’t have a lot of retail buyers for it…and down the drain it all goes.

Here’s the real kicker though and the piece of this deal that they are trying to frame in a super-positive light. The total number of liquor licenses available in the state will not increase! Hooray – this means that our children will not be surrounded by liquor stores! Not exactly. What this actually means is that when it comes time to buy a liquor license in Newton, or Cambridge or any other town where the licenses are all fulfilled, any license that becomes available will go to the highest bidder. Who do you think is going to win that bidding war? Hadley and TJ Douglas from Boston with their two kids and dwindling savings account, or Supervalu in California who owns chains of supermarkets in every region of the country? That means that new owner-operated stores will have a nearly impossible time getting a license and that established stores like UG, Central Bottle, Wine Bottega, Ball Square and all of the other stores that you love will be hard-pressed to expand their businesses.

So a back room deal between politically motivated associations was reached late last week, the story broken over the weekend, and the MA legislature voting “early this week” to ratify the new law. All of this done after months of being promised that a comprise would be reached through a ballot measure, not through a back room deal. All of this done expertly to keep us and more importantly, YOU, from having any sort of say. No ballot measure on this one, everybody. Let’s raise a glass of Yellowtail and cheers this short-sighted decision.

 

 

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13 Comments »

  1. Ignoring the process, about which I can understand there is very good reason for anger, I’ll admit to mixed feelings on the result. I understand the cause and effect that larger grocers selling wine/beer will have on smaller stores, but how is reducing cost for the largest group of wine consumers bad “policy”.

    The sale of licenses still being limited I can see as causing disruption in the short-term as well as there is a re-distribution of licenses largely to the grocers. Once again, though, if they are able to offer “name brand wines” at discounts doesn’t that help the consumer.

    What about the producers of such wine. Are they not going to see their margins shrunk because they will be wine at lesser prices per bottle?

    I think, just like many other retail industries that a bifurcated store structure will develop. The large store selling widely available wines and beer and the lowest prices. Small stores selling less available wines and beer at other prices.

    While I have never had the opportunity to visit your store or meet you, I do frequent my local wine store as well as mid-sized stores. I feel sympathy for you, them and others harmed by the walmartization of beer/wine sales, but ultimately only agree with you that this is something that should have come up on a ballot.

    Comment by Steve Simpon — October 17, 2011 @ 3:18 pm

  2. Coming from a small distributor, I cannot agree with this article more. Massachusetts is being set up to go the way of Florida with big box stores that sell wines with no soul. Consumers will never learn about what good wine tastes like if they buy it at a grocery store!

    Well written, thanks for posting and thank you for educating your customers on the issue.

    Comment by Arik Colbath — October 17, 2011 @ 3:35 pm

  3. Believe me, we’d like nothing more than to see the pricing structure from the distributors change. It creates friction between stores and between stores and customers. Its a total lose/lose with the end result being unfair pricing for the end consumer. This will just give the distributors more power over pricing and product. It’s already so hard to get interesting wines at fair prices into this state. Why make it harder?
    Like you said, in the end it just plain should have been a ballot issue. Thanks for your comment. Much appreciated!

    Comment by urbanadmin — October 17, 2011 @ 3:46 pm

  4. Thanks for your point of view Arik!

    Comment by urbanadmin — October 17, 2011 @ 3:52 pm

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  13. In the spirit of full disclosure, I am an employee of the Urban Grape, and so have a biased viewpoint in this case. However, I also have a business degree with a concentration in economics and have a decent understanding of the market forces at work here. In theory, the comments by Steve Simpon above are accurate – at least in the near term, the superstores will use their pricing power to bring wine prices down, much like Trader Joe’s has done, though likely with more common brands, not the private label producers that TJ’s utilizes in large part. However, the attrition amongst smaller retailers will result in more consolidation, and ultimately, pricing power will return to the best capitalized participants. As a strict free marketeer, I would normally support less regulation in this industry. But the fact is, the three tier system (producer – distributor – retailer) is, in and of itself, regulatory. And I don’t expect that system to go away anytime soon. And so, relaxing a portion of that regulation that benefits one group disproportionately, is patently unfair to the underrepresented group, in this case the small retailers. If the playing field were made equal for all participants, specialization would protect the small stores to some degree, and in some cases, allow them to amass market power in their own right. But allowing the deep pocketed big boxes further advantage than they already enjoy will only hasten market consolidation, and potentially, higher prices for everyone.

    Comment by Harry Silverstein — February 20, 2012 @ 3:12 pm

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