Sunday, April 26, 2015

Colorado alcohol sales: Keep local or go grocery?

Keep Colorado Local (KCL) is opposing the push to expand Colorado liquor laws that will allow full strength beer and wine sales in grocery and convenience stores.  KCL has stiff competition from large corporations, and has done a good job emphasizing a negative consequences upon local businesses. Selection and variety would decrease, privately owned stores would close, and thousands of jobs would be lost.

However, it has not explained how these consequences would come about. Let's take closer look at how an expanded liquor law will most likely play out (taking lessons from local florists, bakeries, delis, book stores, butchers and corner markets):
1.      It's all about the wine: Wine has the highest profit margin and is the financial foundation of most liquor stores. Grocery stores want it.  But, if grocery stores sold ONLY the best selling 30-50 SKUs of wine, which is equivalent to one small shelf at many liquor stores, then it takes those sales away from liquor stores (see #2).  This would be enough of a blow to the liquor stores that they must close their doors or adjust their prices on other products (i.e. raise prices on beer, liquor and mixers)…and this would just hurt them more
2.      It won't take much:  The sheer number of liquor stores helps keep the price of beer/wine/liquor down, while promising small margins. When grocery chains slash prices (see #3) by $10 per bottle of wine, or $4 per six pack of beer, even on only 30 products, liquor stores cannot compete and the margins evaporate.  Liquor stores losing just 30 products means customers losing hundreds or even thousands of choices
3.      Cheap prices now, gouging later:  Grocery stores have "loss leaders". This means that they buy a product from the manufacturer, say milk, at X cost, but sell it for less than X, thus losing money.  To make up this loss, other products are marked up way above their X cost.  Since grocery stores have tens of thousands of products, they can afford more "loss leaders".  Initially, wine prices at grocery stores will be "loss leaders" in order to undercut the competition (liquor stores).  This sounds great: Cheaper wine and beer. But when the competition closes its doors, grocery stores will have free rein to raise wine and beer prices to whatever they want (not to mention the number of competitors goes from hundreds to 10 or lower)
4.      Convenience is inconvenient: If you just want a 6 pack of beer, or a bottle of wine for a dinner party, do you really want to wade through the grocery store? While in Boston, I had to hunt for beer. Boston! I hated going to a grocery store just to pick up a 6 pack of Sam Adams or Harpoon. Does the grocery-store-system work in other states? A bit, but from my experience in Boston, San Diego, Portland OR, and Seattle, not as well as Colorado's system
5.      Nothing Personal: Not all liquor stores offer personal customer service, but many do. What's a good wine to pair with duck confit? Which beer would counter the stickiness of brie? The wine and beer worlds are complex, and to match your needs with a product requires knowledge of both. It is doubtful that grocery stores, much less convenience stores, will populate their stores with knowledgeable staff
6.      Integrity of product: Grocery stores wield awesome financial power and they can buy products en masse. Selling in bulk, distributors can decrease the number of stops their trucks make, which saves them time and money. But wine and beer are fragile products. An IPA has a shelf life of about 3 months if stored in a cooler. If stored warm, cut that time in half…at least.  Warm wine fairs a little better, but it still has a shelf life not comforted by backroom storage. Once products start to suffer to age, as we all do, their quality diminishes. Brewers and vintners know what their products should taste like and customers expect it
7.      Distribution crunch: The loss of multiple outlets might sound intriguing to the big distributors—fewer number of stops while selling the same amount of product to the bigger stores.  The trickle-down effect, however, is that the bigger stores buy in bulk (see #6) at cheaper rates, thus affecting the margin the distributor makes. Of course, by then they will have released several drivers and warehouse workers to cut the loss. They would also run into stiffer clients: Kroger, Wal Mart, Target and Safeway can battle them with their own distribution networks, political/financial capital and “other” influences.

Prediction: If this law passes, the beer scene in Colorado might suffer, or it might not. Given my experiences in Portland, Boston, San Diego and Eugene, I think chances of the former coming true is greater, but of course not certain. California and Oregon beer scenes are good, but not great—or at least not to their potential.

The important aspect is this: If this proposal becomes law, and if smaller stores close, then there is no going back. For better or worse, we would be stuck with the new system. No one in their right mind would open smaller stores after seeing small stores close, and grocery conglomerates would fight to keep it that way. The old saying comes into play here, “If it ain’t broke, don’t fix it”.  Is Colorado’s system really broken?

Personal story:
I did some snooping around Portland, OR the other week to check out the scene there.  I went to several Whole Foods, Belmont Station and a place called BEER.
Warm IPAs at Whole Foods
·        The Whole Foods selection was good, but not great. The storage was horrible: warm IPAs stacked everywhere and some bottles expose to heat, not to mention fluorescent lighting. The wine selection was equivalent to a small to medium sized store in Colorado. Traffic (car and human) was a headache
·        Belmont Station had better selection, but still had many beers warm. It was also a trek to get to
·        BEER was better with cold storage, but smaller selection than Belmont. Closer to downtown
·        Places like Belmont Station, BEER and BeerMongers also serve on-premise beer/cider. That is, they are part pub. I think without this feature, these places would fold. Not sure if Whole Foods allows on-premise sales…who would go there to have a beer anyway?
·        Plaid Pantry is a convenience store chain (private) with some beer selection. Was not a beer destination spot for me. It seems like these are default spots to find some craft beer when other places are too far away
·        Could not find MillerCoors and AB-InBev products at these locations. I was told that the distribution laws in Oregon are “quirky” and there’s a battle between AB-InBev and a smaller distributor over territories. This could affect sales of both AB-InBev and local beers.  Didn’t find a Fred Meyer (Kroger). I suppose living there I’d know more about where things are
·        Only saw one wine shop, and it was closed
·        Most selections of Oregon beer is in the bomber packaging. Few six pack offerings and I was told this is because the packaging options for breweries are limited

My conclusion from my trip (2nd time in Portland) is that the Oregon…or Portland at least…beer scene is good, but not great.  It “works”, but I think is restricted.  Bottle shops are the preferred outlet, but even they are not as good as many Colorado stores in terms of selection and storage. It was certainly easier just to hit the breweries/tap rooms instead of bottle shops and Whole Foods. 

Cheers and Beers

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