Why Allowing More Massachusetts Grocery Stores to Sell Wine is More Impactful Than You'd Think

Tuesday, October 18, 2011

Map of Massachusetts

Some interesting news on the Massachusetts wine legislation front: It looks like a bill and threatened ballot initiative to bump the number of retail alcohol licenses a corporation can hold from 3 to 20 has been withdrawn in favor of a compromise that would gradually increase the limit over the next decade.

People are often confused why some grocery stores in Massachusetts sell wine while others do not. It's complicated. Some towns don't allow alcohol sales at all so that explains some of it. But beyond that, current laws permit a maximum of 3 liquor licenses per corporation in the state. This explains why big retailers like Costco, Whole Foods, and Trader Joe's only sell wine at 3 of their locations.

Here's a list of the grocery stores in Massachusetts that currently sell wine

The gradual schedule slated to be ratified should the compromise go through looks like this:
  • 2011 (now) 3 licenses per corporation
  • 2012: 5 licenses
  • 2016: 7 licenses
  • 2020: 9 licenses
My first thought upon hearing the news was: Which grocery stores are most interested in expanding liquor sales?  Ironically perhaps, natural and organic grocer Whole Foods was one of the first that came to mind. When they chose to sell alcohol at their recently opened flagship store in Dedham they had to relinquish their license in Wayland. It wouldn't be surprising at all if they brought alcohol back to the Wayland location. Or perhaps their Fresh Pond (Cambridge) and Derby Street (Hingham) locations are even more desirable for the first wave?

The challenge any grocer (or retailer) will face is that this change won't increase the number of licenses available at the state or local level. In Massachusetts, licensing decisions are largely delegated to the city/town level and is determined by population. As a result many towns have doled out all of their licenses and in order for a new grocer to pick up a license they'd need to demonstrate the need for an additional license -or- buy one from an existing licensee.

One of the things you'll notice if you visit a place like Massachusetts is the current laws have created a situation where liquor stores are placed conspicuously alongside grocery stores. What changes would this change bring about over the next ten years?

It's hard to say. On one hand, you've got to believe stores like Whole Foods, Trader Joe's, Costco and conventional grocery stores would love to sell alcohol at all their locations. But at the same time many of these have liquor stores right next to them and they'd have to convince each town there's a need for an additional license and that the nearby retailer isn't meeting the demand. That's going to be a hard sell in the most desirable towns where licenses are already sold out.

And what about those retailers? Doesn't this give them an opportunity to expand and meet the demand as well?

When I think of big retailers in the state that aren't grocery stores, I think of local operations like Kappy's, Blanchard's, and Gordon's, many of which are already near, at, or above the 3 license limit (thanks to existing stores being grandfather in before the 3-store limit was in place). They're a formidable presence in the area but it's hard to imagine this change benefiting their model substantially. They're already able to purchase in adequate quantities to achieve maximum discounts from wholesalers - what leverage would opening additional stores give them? Not much as far as I can see.

The retailers this change would most benefit? The big guys with a track record of success in other markets: retailers like Costco, Total Wine (not here yet but Wine Nation is), and Wegman's (just arriving and eyeing to expand). The only question I'd have is whether they can stomach the other restrictions in place in Massachusetts which limit their ability to drive prices low and control a sufficient portion of importing business for private label wines.

This is an interesting change. On the plus side this creates more competition at the retail level which could be good for consumers. On the minus side, good independent retailers who currently make some of their money selling commodity wines may suffer.

I'm thinking I like the California model: Make wine available everywhere and let specialty retailers differentiate on selection, service, and business model. With fine retailers like K&L, The Jug Shop, JJ Buckley (WWP Advertiser), BP Wine, and The San Diego Wine Company (to name a random few off the top of my head) doing well alongside stiff competition from Costco, BevMo, Whole Foods, Trader Joe's and virtually every grocery store and drugstore in the state, it's hard to imagine this change being a bad thing for wine enthusiasts.

I think boutique stores like The Wine Bottega, The Urban Grape, and VinoDivino will do fine with these changes because they differentiate on service and selection. Discounters like The Wine ConneXtion, Bin Ends Wine and The Wine Cellar of Stoneham will continue to differentiate with their unique assortment of wines at rock bottom prices. Fine wine guys like The Hingham Wine Merchant, The Spirit Shoppe (WWP Advertiser) and Vintages will do fine too because people trust their editorial selection. All of these retailers have business models people like.

The retailers that might suffer from a change like this? The run down Massachusetts package store. You know the type: The few windows letting light in are covered with tacky signs. You're greeted by the stench of stale beer coming from the bottle deposit machines located near the entrance (why do we still do that?). Half the fluorescent lights are burnt out while the other half are buzzing. The wine assortment looks like it was done completely by one or two distributors. They only interact with you when asking you to move out of the way so they can restock the dusty shelves. As you make your way towards the register WEEI crackles on the radio and you're met with a dazzling display of impulse buys: Nips, smokes and scratch lottery tickets.

Would you rather go to a place like this to buy your wine and beer or pick it up while you're grocery shopping? I think the answer is obvious and that's why run down liquor stores could be threatened by this change. But it's also the type of store most likely to benefit from selling their license to a large chain at a premium. Every liquor license in the state suddenly becomes more valuable.

I'd like to see other changes along with this. Let's open up the state for direct shipment from out of state wineries and retailers. Everyone in the Commonwealth would benefit from improved access and increased excise tax revenue from incoming shipments. Massachusetts House Bill 1029 would finally permit out of state wineries to ship to Massachusetts. I haven't heard a peep about it since attending hearings on it and other alcohol-related bills last May. Let's push that through so we can work next year on out of state retailer shipment.

Let's allow Massachusetts retailers to ship out of state. This would provide innovative retailers leverage to tell their stories and sell their wines to a broader audience without increasing overhead. Massachusetts is the only state I know of that disallows their retailers from shipping out of state. Massachusetts House Bill 1030 would change this - its passage is long overdue.

And let's open up competition at the wholesaler level. Massachusetts wholesalers sell some wines to Massachusetts retailers for more than consumers in other states can buy them from retailers. That's got to change to give retailers here a fighting chance to compete at the national level.

Let's Free the Grapes.

Drinking moderately and responsibly makes certain that you will not need alcohol abuse rehab in the near future.

Further Reading:
Question of the Day: What do you think about these changes? More competition is better for the consumer? Or are specialty wine retailers going to be hurt by these changes and that's a bad thing for consumers?

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