The grocers may have lost their bid to change state law to allow wine sales in grocery stores, but the fight won’t end.
“We’re here and we’re going to do it again,” said Dan Haskell, lobbyist for the Tennessee Grocers and Convenience Store Association. “This is something that is inevitable. I personally believe the laws relative to alcohol are going to change dramatically in the next 10 years.”
Chip Christianson, owner of J. Barleycorn in Antioch and currently president of the Tennessee Wine and Spirits Retailers Association, said he doesn’t see any changes as inevitable.
“This is not a groundswell of support from consumers,” he said.
But wine and spirits distributors and retailers will continue to put up a major fight to maintain a system that has been in place since Prohibition was repealed. Tennessee’s laws and regulations for the liquor industry don’t just keep wine out of grocery stories, they also keep firmly in place a tiered system of distribution where wholesalers appear to be at the top of the food chain.
A Perfect World
The wine debate ranges from points about protecting small retail business owners to more engendering more competition and can include discussion of whether the consumer understands the macroeconomic impact of microeconomic purchasing decisions. When the ideas to deregulate come up, the distributors say the system helps prevent minors from having access wine and liquor and the state continue to collect alcohol taxes efficiently.
Tommy Bernard, chief executive officer of Horizon Wine & Spirits and president of the Wine & Spirits Wholesalers of Tennessee, didn’t return telephone calls for this story, but retailers say maintaining the current status quo of the state’s liquor laws is about money for wholesalers as well as the distributors.
“For them to say it’s not self-serving … absolutely it is,” said Christianson, noting that the retail business has been his livelihood for a long time. “Our wholesalers live in a perfect world. When I die I want to come back as a wholesaler.”
That perfect world is Tennessee being one of the few “franchise” states. Americans for Tax Reform in Washington, D.C. calls franchise laws “monopoly protection laws.” With the franchise laws, distributors have exclusive rights to brands. That means there’s one distributor of Ketel One vodka.
The state’s liquor distributors have maintained that this arrangement makes them a partner in helping build the brands, especially if it’s a new brand. Industry insiders say, too, a distributor can kill a brand as well with the exclusive rights because it’s difficult to end one.
Distributors and retailers have to meet residency requirements to be licensed, which keeps the national wholesalers out of Tennessee such as Southern Wine & Spirits.
Tennessee operates a three-tier system like most states. Producers sell to distributors who sell to retailers. Neither of them can be in the others’ business.
Costco challenged the system in federal court three years ago. It won an initial round with the argument that the system was anti-competitive. A higher court reversed much of the lower court decision, giving the distributors a victory.
The argument against Costco focused on temperance and maintaining orderly markets. That’s similar to views here.
“When you change drastically, there are unintended consequences,” said Bart Quillman, owner of Red Dog Wine & Spirits in Franklin.
Quillman said it would be much easier for underage drinkers to have access to harder alcohol and create more opportunities for legal-age drinkers to abuse alcohol. The system as it’s structured now allows for a more orderly collection of taxes.
“I don’t think anyone has thought the process through entirely,” he said. “I think you have to regulate that on an ongoing basis.”
Dependent on Each Other
In terms of any monopolistic situation enjoyed by distributors, Quillman, a former banker, said he’s never experienced it in the seven years he’s been in business.
“We’re both dependent on each to succeed,” he said.
Christianson said there is some truth to the notion that the current system inhibits competition, and he said not all of the rules are great.
“But does the system work pretty well? Yes,” he said, adding that changes could merely create different problems.
Retailers can’t own more than one location. Family members can own more than one, but they have to be operating separately down to the ordering, checking accounts, management and staffing.
That issue came up with the Alcoholic Beverage Commission when Bud’s Liquor and Wine Shop in Green Hills challenged the license Ed Fryer obtained to open YN in the Hill Center. Fryer is married to the owner of The Wine Shoppe at Green Hills and had been the manager there.
Commission member Harlan Matthews said at the time it was nearly impossible for a husband and wife to keep everything separate.
“There’s no way a husband and wife can operate two stores and not talk about it,” Matthews said. “They split everything up but under the sheets.”
The commission acknowledged there was a major issue with it, but left it up to state Legislature to make changes or clarify the law. That didn’t come up this session, but discussion over wine in grocery stores did, as did the ability of consumers to order direct from wineries.