Tidal Wave of Change Threatens Craft Industry and Consumers

Mike Laur - April 27, 2016
The answer is simple: it's complicated.

The question is almost eternal: Why in the hell can't I buy real beer, wine and spirits at my favorite grocery store, just like people do in so many other states? Huh?

It all started over 80 years ago, when Colorado and 47 other states were cobbling together new laws and regulations after the national repeal of Prohibition.

Every state created different legislation, sometimes drastically different. They all adopted some form of the fed-proscribed three-tier system that separated the manufacturing, distribution and sale of alcohol products into three distinctly regulated activities. The theory was to inhibit the types of lawlessness that made the Roaring 20's so roaring, and the practice was to extract and collect as many taxes at every step in the transaction chain as possible. States were figuring out what bootleggers knew all along:

Demon rum could be a cash cow.

Some states recognized the full-on potential market opportunity, and decided to buy direct and sell direct by establishing state-controlled and state-owned stores to sell alcohol. Some still do. They effectively condense two tiers into one, and keep all the profits as well as the taxes on each sale. Thank you for your business, Citizen - hope you like our selection!

Colorado did what most states did in the mid-30's: develop regulations that would stimulate and encourage businesses, that would then bring in revenue from excise, transportation, use and sales taxes. Although some states' laws clearly discouraged and even outlawed alcohol production and sales, nobody wanted a return to Prohibition. Regulated alcohol sales meant real income for states and the Feds, and everyone was still learning how to drink legally again. Baby steps would be just fine, like allowing the sale of 3.2% ABW beer and wine many months before the legal sales of other alcohol products were permitted.

One key bit of regulation that Colorado lawmakers established early on was a one-per-customer restriction on all forms of alcohol licensing. If you're gonna buy, sell or trade alcohol in Colorado, one license is all you get. This reduced opportunities for one individual to control all three tiers, and encouraged more businesses to get involved and generate more taxes. That's still the law in Colorado today: one liquor license is all you get. (There's no shortage of liquor license types, either. There's dozens of them, and you can see them all for yourself right here)

Colorado lawmakers through the years have refined and re-written the state beer and liquor codes, often to the benefit of businesses and consumers - like eliminating the one-license, one-location rule for restaurant chains and stores that sell only 3.2 beer. More licenses meant more sales, and more taxes collected. And as manufacturing laws were relaxed by the Feds beginning in the late 70's, Colorado laws changed too. One re-write allowed all but the biggest beer producers in the state to self-distribute their products directly to retailers and consumers. It is one very big and significant reason why Colorado is The State of Craft Beer, and one regulation that many other states have copied to help grow and encourage their own local craft beverage businesses.

3.2 beer licenses are hold-overs from Prohibition (only five states still license 3.2 sales) and today seem oddly stigmatizing to those who own them, no matter how many they may have. California-based Safeway/Albertson's has about 115 separate state licenses to sell 3.2 beer; Ohio-based Kroger (aka King Soopers and City Markets) has around 130 Colorado 3.2 licenses; and Arkansas-based WalMart has about 85 Colorado 3.2 beer licenses. Of course, selling only 3.2 beer limits the choices these grocers can offer to customers, and nothing would make them happier than being able to sell "real" beer, wines and liquor to the masses who now must go elsewhere for their porters, pinot noirs and peach brandies...

Unless you're in the one store of each grocery store chain that IS permitted to sell alcohol, under a Liquor Licensed Drug Store license. Remember, one license is all you get. So back to the question: what's the big deal about allowing all grocery stores - not just one per chain - to sell "real" beer, wine and spirits? It works in Texas, California, Florida, and most other states. Why not here in Colorado?

That's what's been bothering grocery store chains in Colorado for a long time. Adding to their angst and bitterness is the free-market reality that exists next-door to nearly all of their stores: other businesses with full-on Liquor Store licenses who can sell all forms of alcohol, not just 3.2 beer. Liquor regulations helped create this environment and symbiosis that has allowed individually-owned liquor stores to survive next to many grocery stores. It's the way it's been for decades, and billions of business dollars are invested in this marketplace with the expectation that regulations won't be changed to suit special interests.

Safeway, Kroger and WalMart have tried four times in the past eight years to get the laws changed in their favor to allow them to sell beer, wine, spirits, or some combination of products other than 3.2 beer inside all of their stores. Various legislative efforts were mounted - SB 08-149, HB 09-1192, HB 10-1186, HB 10-1279 and other proposals written by and for grocery stores - all had their hearings and discussions, and all were voted down. Why? Because they were not right for Colorado, would hurt business, stifle competition, favored one interest over others, and our elected representatives had the good sense to realize all that.

Of the nearly 14,000 different liquor licenses currently granted in Colorado,1631 are for retail liquor stores. Each store is independently owned and operated. Many are truly mom-and-pop small businesses, like J & K Liquors in Colorado Springs. Some are large, almost grocery-store size, like Hazel's in Boulder. But the good ones thrive in the existing marketplace, and we consumers benefit from existing liquor regulations. Small brewers, too, benefit from their ability to sell directly to a large number of individual liquor store owners who make shelf space available for their products. What grocers want to do is turn the marketplace upside down.

(BTW, please forget any and all nonsense someone may spout about the "monopoly" liquor stores have on beer, wine and liquor sales. Liquor stores are not Standard Oil. They are 1631 totally separate, individual stores. How the hell you gonna even start a monopoly if all you can have is one store to sell in?)

Alcohol production and sales are highly regulated in Colorado, as well they should be for many good reasons. Colorado's existing liquor laws have benefited craft consumers by creating a business-friendly environment for craft producers and savvy retailers who cater to us. Grocery owners want "in" on the action, too, and under the cloak of "choice" and "fairness", they want to fundamentally change the way alcohol is sold in Colorado.

Voters Know Best.

If you don't like the law, you can always try to get it changed. The Statehouse Dome is one place to go, but Colorado law permits citizens to get their own legislation voted in by ballot initiatives. Grocery owners couldn't find enough Colorado legislators to fix the laws in their favor, so they cooked up an expensive PR campaign with strident PR people and a tired PR slogan and started the process last year to place ballot initiatives before Colorado voters this November.

They've got plenty of company on the ballot already. Colorado's November election ballot pages will likely stack up as the longest ballot in state history. And to make things really interesting, competing initiatives from various groups addressing a range of liquor-law regs could be before voters who will have a lot to consider and figure out

Proposed Initiative #104 is the product of the grocery lobby. If approved by voters, 104 would create a new type of liquor license - the Food Store license - expressly for grocers and convenience stores, and would allow them to swap their 3.2 beer licenses for permits to sell "real" beer and wine inside their grocery stores. They can have as many licenses as they want, and the store needs to earn only 20% of its income from food inside its minimum 3000 square feet of indoor space. Kroger, Walmart, Safeway, 7-11, Kum&Go, Walgreens - they'll all be rejoicing if voters say yes.

Initiatives 105 and 106 are variations on this theme, and include provisions to eliminate 3.2 licenses altogether and further define how income is calculated. Whichever of these ballot issues bubbles to the top, supporters have until August 8 to get over 98,000 valid signatures on their petition to make the ballot in November.

Initiative 115 would take a different tack and seeks to do away with 3.2 beer. As in: "A change to the Colorado Revised Statutes to repeal the alcohol content limitation in the definition of fermented malt beverage, commonly known as 3.2% beer, to allow businesses licensed under Colorado law to manufacture, distribute, or sell malt beverages that contain more than 3.2% alcohol by weight or 4% alcohol by volume, including products commonly known as full-strength beer." So this would allow "real" beer to be sold wherever 3.2 beer is now available.

Proposed Initiative #125 comes from the The Distilled Spirits Council of the U.S., who felt left out by the grocery stores who are pitching beer and wine sales only. The Spirit Council's first potential initiative would allow distilled spirits sales in grocery stores, as well as full-strength beer and wine. Yep. Beer, wine and spirits - together where 3.2 is now sold. DISCUS also is proposing Initiative #126: "Shall there be a change to the Colorado Revised Statutes permitting an owner of a licensed retail liquor store or liquor-licensed drugstore under the 'Colorado Liquor Code' to own a maximum of ten such licenses combined?" This would eliminate the one-license rule, and open the door for liquor chains and multiple-store licensing for well-funded operations.

Proposed Initiative 156 would stir up the pot , if not blow a hole in it: If voters approve this measure, then food stores will be prohibited from selling beer, wine, spirits, and for good measure no weed, either. Talk about no prisoners - take that, food stores! These initiatives, though, are still in the formative phases and all may not make it onto the ballot. Thankfully.

Next up for voter consideration could be Initiative 157, which aims to prohibit any store that sells any form of alcohol from employing persons under 21 years old. This could be problematic for food stores, who hire plenty of hard workers under legal drinking age. Liquor stores already are required to hire 21-year-old employees. And we really need to change this regulation because... ??

Vote Early, Vote Often

There are more than a few contradictions here, and more than a little confusion for voters. Obviously some of these proposals could not possible co-exist. Reassuringly, if two winning ballot issues contradict one another, then the one with the most number of "yes" votes prevails and becomes law.

Initiatives are relatively easy to launch and get on the ballot, sometimes easier than getting legislators moving in your direction, or any direction. Winning at the polls ... that's another matter entirely. But sometimes initiatives are just the prodding that lawmakers need to get moving, and that's just what happened last week as SB 197 was brought to life.

Senator Pat Steadman is not a shill for grocers, and he's watched the schism develop between grocery stores on one side, and liquor stores and craft producers on the other side, long enough to see that the intractable differences are too complicated to fix with single-issue initiatives. Colorado Senate Bill 16-197, introduced on April 22 with barely three weeks to go in the state's legislative session that ends May 11, is his attempt to bring legislative hope and change to the liquor-in-grocery-stores quagmire that has dogged Colorado lawmakers for years.

Hey - we said it was complicated. Check out the 24 pages of proposed legislation here. It covers a lot of ground and addresses a lot of issues - something initiatives cannot do, as they are legally limited to define and allow a vote on only one specific topic. But SB 197 makes a lot more sense than prior legislative efforts, and wants to satisfy as many stakeholders as possible.

It allows existing liquor licensed drugstore licensees (or each of the grocers full-on liquor-licensed stores) to have additional licenses, but requires them to buy these licenses from the owners of other current liquor licenses - no more than two, with special provisions for merger and consolidation of these licenses. Additionally, new licensees may not be permitted within 2500 feet of another existing liquor store, and those existing liquor store licenses could get to sell snacks, shirts - just about anything inside their stores as long as it's less than 20% of total sales.

SB 197 tries to throw everybody a bone and satisfy the many disparate objections of many warring parties, and has a sunset provision: in ten years, grocers would be able to obtain unlimited licenses, and the 2500 foot buffer goes away. If you're a liquor store owner with hundreds of thousands of invested dollars at stake, it's certainly better to have ten years to plan and make business changes than ten weeks.

People in each of the grocery, liquor store and craft-maker camps are universally wary and skeptical of SB 197, which may mean that SB 197 is a good thing. It's certainly a well-considered alternative to the proposed mish-mash of mushy initiatives that threaten to destroy Colorado's carefully-cultivated craft business environment in which we've become a world leader. The Colorado legislature has only two weeks to get SB 197 done, and if past results are any indication then this bill, too, may die on the vine.

We believe that local, small business is worth protecting, and that there are already plenty of good places to buy great Colorado craft beverages. Do we really need more coolers full of Colt 45 and Boones Farm? We ask, too: if 3.2 is such a crappy product, then why are grocers devoting so much expensive refrigerated shelf space to it already?

As for the employees of liquor stores and craft producers who will be affected by any change in liquor laws, Colorado Governor John Hickenlooper sums it up well: "Those are good jobs, and if we're going to change the law and recognize that we're going to lose a third of them or a half of them, we should do so very carefully,"

We're not California, we're not Texas, we're not Florida. No. We're Colorado, where craft beer in America was born, raised, flourished and prospered. Where local ownership and personal relationships mean more than low, low prices. You'll be hearing more about the battle for your beverage bucks from us and everyone else. Walmart is reported to have $20,000,000.00 set aside to get their way in this election cycle, but rest assured - ultimately, you have the final vote. It is indeed your choice: where you buy, who you support, and what you drink makes a difference. Think local, drink local, and tell your favorite liquor store owner and craft maker how much you love them.

Maybe it's not so complicated after all...

(From the everything-old-is-new-again department comes our story about 3.2 beer, grocery stores, and House Bill 1192. Still entertaining, informative, and freaking amazing how history repeats itself...)

(Also courtesy the Wayback machine, The Denver Post looked into its crystal ball in a February 2008 editorial and had some business advice for brewers and retailers, too:

"Liquor store owners, you've been warned. The fight to stock beer and wine on grocery store shelves will return - and you must rethink how you operate."

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