Monday, October 17, 2011

Rant: Chains Able To Sell More Wine

It had long been Massachusetts law that no entity could possess more than three liquor licenses, but that will soon change and the ramifications could be quite interesting.

Previously, a business like Trader Joe's or Costco, with multiple stores in Massachusetts, could only sell spirits, wine and beer at three of their stores. In part, this helped limit their competition with independent liquor and wine stores. But the Boston Globe has reported a significant change to the law, and independent stores may have to up their game because of increased competition.

The new legislation, a compromise between industry groups, will increase the amount of liquor licenses that a chain can possess. Next year, the limit will increase from three to five and then increase to seven in 2016. Finally, in 2020, the limit will increase to nine. It should be noted that this new law does not increase the number of licenses which can be issued, and any license must still be approved by the city or town. So, if a chain wants more than three liquor licenses, it must find a city or town which has some available and then petition for approval.

How will this affect small, independent wine stores? I think there is potential for some of them to face much more competition, especially price wise. Though the increase in the limit of licenses seems fairly small, only two more next year and it will be four more years before that limit increases by another two, the cumulative effect can be more significant. For example, three chains in a single city could technically seek liquor licenses, and that could be a threat to any small, independent shops.

A wine shop that already has three locations could increase that to five, giving them a greater buying power, and allowing them to purchase wine at lower prices due to the amount they can purchase. That would be competition to small shops that cannot lower their prices as much because they lack the larger buying power.

The greatest barrier to these scenarios is that the number of total liquor licenses permitted to each city or town has not been raised. Not all cities and towns have available licenses so chains may have to be very selective where they choose to expand. In addition, these chains will still have to seek approval to obtain any available license, and such approval can be very difficult. Local liquor and wine stores might very well oppose the granting of a license to a large chain. So it is not a given that a chain store will be able to obtain a new license in any particular community. But if they do, a potential threat exists.

Independent wine stores already have to face some price competition, and with the potential for even more competition in the near future, they probably should up their game. They need to stress the benefits to shopping at their stores, to emphasize the customer service that might not be available at the larger chains. They need to make themselves more unique, to show that price alone is an insufficient reason to shop elsewhere. That might not be easy, but they need to find ways if they hope to compete.

We need small, independent wine shops so let us hope they are up for the challenge. Such shops deserve our support, but they still must earn that support.

1 comment:

Hadley@TheUrbanGrape said...

Thanks for helping to make people aware of this Rich. I hope that those looking for the perspective of the small independently owned liquor store will also read my blog on the subject -

Setting our stores apart from chains is one thing - and a challenging that we already face and succeed at. But the long term ramifications of the distributor pricing system and the skyrocketing cost of liquor licenses could ultimately prove fatal to the small stores.