Connecticut: Liquor Law Shakeup: Plan To Alter Minimum Pricing Worries Some Package Store Owners

By Brian Dowling February 23, 2013
The Hartford Courant
The brisk wind of competition could be ripping through Connecticut package stores again this spring.

That competition could result from a change in the state's minimum bottle pricing system, which now sets the lowest price that can be charged for a single bottle of alcohol, whether it's bought by itself or a case.

The law protects small stores, which often buy single bottles, from the purchasing power of larger stores that buy in bulk. But state officials and some experts say it hampers competition.

"Connecticut has a minimum pricing system unlike any in the country," said Brian Durand, the governor's deputy chief of staff.

The new law would alter the minimum pricing system, allowing lower prices. "We're doing this to benefit consumers," Durand said.

The critics say it could mean fewer small mom-and-pop shops, who would see their profit margins shrink, and less choice among the shops that survive. Those shops may limit inventory, or try to distinguish themselves with personalized service or events, such as wine tastings, that woo customers.

Carroll Hughes, head of the Connecticut Package Store Association, said it's commonplace for stores in this state to carry seven different labels of Polish vodka, for instance, or 13 types of Irish whiskey. "In many [other] states you might find three, maybe four," he said.

"Stores like me will not be able to compete in that market," said Greg Nemergut, owner of West Side Wine & Spirits on Raymond Road in West Hartford. "It's going to impact selection."

Overall, the package store owners association is skeptical about the governor's proposal, especially given the results of another liquor-store measure last year.

The march to a more liberal, less-regulated business environment for beer, wine and spirits began in May 2012, when Connecticut finally eliminated the ban on Sunday and holiday sales. There were expectations that it would increase revenue and sales, but, so far, the increases have been small.

If the measure to alter minimum pricing is passed, the new competition could attract big-box stores to the state that have a higher tolerance for low prices because they can sell more to offset losses from selling lower, said Mike Bradley, manager of Crazy Bruce's Liquors in West Hartford.

"They'll be like the Home Depots and the CVS's," Bradley said, adding that they could edge out smaller operations.

Bradley said expects that Malloy's proposed change will result in lower prices for core brands but that higher-end labels could go up in price. "You have to make your money somewhere," he said. William Rubenstein, commissioner of the state Department of Consumer Protection, which regulates alcohol sales in Connecticut, said the new measure would be plus for consumers overall.

"It's one small piece that's needed, but it's a very significant one, freeing up retailers to decide how they want to compete with each other," Rubenstein said.

As an example of a possible change under the new proposal, a case of Maker's Mark bourbon - with six bottles - cost $293.46 in February, said Jim Ransford, owner of CT Beverage Mart on Hartford Road in New Britain. At the case price, each bottle costs $48.91, but the state's minimum bottle pricing law dictates that Ransford can't sell it for lower than what it costs to buy a single bottle, which is $51.99.

The proposed law would change all that. The floor for pricing on wine and spirits would no longer be the bottle price - it would be simply the bottle's cost, plus delivery, regardless of whether the store owner acquired it as a single bottle or in a case. Beer is already sold this way.

For Ransford, it means he - and all his competitors - could sell the Maker's Mark for closer to $48.91 a bottle. "The guy down the street will definitely lower his prices," Ransford said, "and I will have to lower mine."

That means lower margins for big stores like his, Ransford said, which is already stressed after Sunday sales failed to raise profits.

But for the hundreds of smaller package stores that purchase more often by the bottle, the impacts will be deeper.

Those smaller stores that now buy single bottles of Maker's Mark for $51.99 - because they don't sell enough to buy the bourbon by the case - will have to compete with larger stores that buy cases and can sell for a significantly lower price.

"The big stores are interested in the large volume items," said Gary Dunn, who owns Spiritus Wine Store in Hartford. "They have the deep pockets to purchase in large volumes and sell on very low margins to squeeze out some of the competition."

Malloy's battle to capture sales from Connecticut residents who drive north for cheaper alcohol is an uphill one, said Hughes of the state's package store association. Massachusetts lacks a sales tax on alcohol, immediately putting Connecticut 6.35 percent higher, retail prices aside. For all types of alcohol, Massachusetts has lower excise taxes as well.

But the conversation that circles around prices, case and bottle purchasing, and product offerings seems to ignore things customers value other than price: service and convenience.

Some retailers might be able to maintain their customer base, selling a diverse supply of wine and spirits that are still bought by the bottle. These stores might be able to sell the value of tasting events and employees that can offer personal help. In short, the box store across town might sell for a dollar or two less, but that's not the deciding factor.

"That will keep a few medium or larger sized stores in business," said Patrick Monteleone, owner of Harry's Wine & Liquor on Post Road in Fairfield. "You may keep a few bodegas in business because they're hyper-local and people are passing by them."