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Re: “Be careful what you wish for

In response to danga - Those are great questions, let me see if I can shed some light.

1. The 3-tier system was set up largely in response to organized crime and its involvement with alcohol during prohibition. The system requires that the production, distribution, and retail of alcohol not be controlled by a single entity. This was thought to give fair market access and has largely succeeded since prohibition. There is a good entry on Wikipedia on the subject at http://en.wikipedia.org/wiki/Three-tier_(a…). Colorado, along with many other states, has made exceptions to the system as necessary. For example, in Colorado, small brewers can distribute beer themselves as long as they hold a wholesalers license. The most common exception is the brewpub, which produces and retails without the need for a distributor. There are pros and cons to the 3-tier system which are beyond the scope of this post, but I hope that gives you an idea.

2. Initially, I don't see the 3-tier system at play much in this debate. Down the road it will come into play. The large grocery and big box stores don't like the distributor as a middle man. The more power we give to these large corporations the more likely it is they will try and dismantle the system to their benefit. The best example so far is Costco v. State of Washington - you should research the case if you are interested. Basically, Costco wanted to buy direct from the large brewers and bypass the distributor. This may seem like a more efficient system, but it opens up many questions about state control of alcohol, excise taxes, fair access to market, etc. Again, the analysis is beyond the scope of a post, but there is much written about it online.

3. I'm sure all liquor stores and craft brewers would try to adjust to the ramifications of HB1284 if it were to pass. These adjustments may include downsizing, closing altogether (primarily smaller liquor stores and breweries), raising prices, stopping production of specialty and seasonal beers, reducing in-kind and monetary support to the community, and sending beer out of state. The landscape of the industry will change significantly because the regulatory system we have built our businesses around will have changed in the middle of the game.
As to the "compelling evidence by supporters regarding other states" it's important to separate the spin from the facts. There really isn't a compelling example for comparison. For example, in other states such as California, the craft brewing industry evolved with grocery and convenience store beer sales already in place. The rules were set before the game began. If you look closely, the beer culture in other states is actually quite different than Colorado's—fewer breweries, higher prices, and much less diversity and selection. That's why Colorado—not California, not Oregon, not Texas—is known as "the Napa Valley of Beer."
Having said that, the only state in the last 25 years to authorize grocery/convenience store sales was Iowa (1986) and because it was a state-controlled market before, it isn't really applicable here. The closest comparison might be South Dakota. In 1987 SD increased the number of licenses per owner from 1 to 3 (with a sweetener for grocery stores - an additional 3 liquor store licenses for them). Remember, Colorado has a 1 license per owner system - anyone can own 1 liquor store license including grocery and convenience stores. The impact in South Dakota is as follows:

US Census 1985 - South Dakota - 383 independent liquor stores, 262 convenience stores/grocery stores
US Census 1990 - South Dakota - 159 independent liquor stores, 533 convenience stores/grocery stores
US Census 2005 - South Dakota - 116 independent liquor stores, 608 convenience stores/grocery stores

If this gives us any indication, the estimate of 900 liquor store closings in Colorado may be low. And while some may think of this as just the cost of making this transition, they're ignoring the fact that even liquor store owners have families to support, and their life savings are likely wrapped up in their businesses.

The other thing to remember is that this proposal doesn't create an even environment in which the liquor stores can compete. As originally written, HB1284 doesn't change any of the current requirements for liquor stores - they would still not be able to sell food, they could still only hold 1 license, they would still require approval by the local licensing authority. None of these requirements would apply to grocery/convenience stores. It's my understanding that there have been a couple of amendments proposed that would allow liquor stores to sell non-perishable food and have additional licenses as long as the stores were less than 5,000 square feet. I don't see how that helps them to compete - I'm not even sure what non-perishable food is and I don't know how a liquor store will compete with a big box store if they're limited to 5,000 square feet. It's clear from these amendments that the grocery store lobby is not interested in an even playing field.

I hope that helps.

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Posted by MBristol on 03/29/2011 at 10:03 AM

Re: “Be careful what you wish for

In response to afluffypinkcloud - thanks for taking the time to present a thoughtful post on the subject. In your post, you ask some questions that I would like to answer:

"Are all of your current distributors headquartered in Colorado?"

We only sell beer in Colorado - we distribute our beer ourselves in Southern Colorado and use a Denver-based distributor for the rest of Colorado. So in our case, the production, distribution, and retailing are all in Colorado.

"Is King Soopers headquartered in Denver?"

No - and this is really an important part of the issue. King Soopers is part of Kroger (along with City Market, Loaf'N'Jug and KwikStop, among others) and is headquartered in Cincinnati. None of the major grocery or convenience stores are headquartered in Colorado - not Safeway, King Soopers, WalMart, 7-eleven, or Whole Foods.

"… for 'sends our money out of state' - how much money are we talking about?"

Based on an economic analysis by the firm Summit Economics (link here: http://www.bristolbrewing.com/cp_upload/Ec…), the dollar sales shifted from Colorado liquor stores to out-of-state grocery and convenience stores would be $700 million annually. This would translate to roughly $140 million in retailer margin sent out of state annually (based on standard industry mark-up for beer).

"I would like to ask if, beer is sold in chain grocery stores, there is any research done that indicates the consumer price of the (microbrewery) beer will fall, remain constant, or rise?"

The study referenced above predicts that beer prices will fall temporarily as the chain stores drive liquor stores out of business. Beer prices will then increase back to existing levels. Interestingly, any temporary decrease in beer prices will be offset by increases for wine and spirits as liquor stores struggle to survive. Anyone who has bought beer in California knows that grocery stores are not the answer for low beer prices. My own opinion is that with fewer companies controlling beer sales, prices will actually rise (see competition below).

A few additional comments on some of your points:

"I think that the microbreweries in Colorado would be excited at the prospect of increased sales due to convenience"

For the reasons given in the original article, I am aware of no Colorado microbreweries that support this legislation and concept. Our beers are not likely to be the ones you're going to find on grocery and convenience store shelves.

"This comes back to competition and sales; the market."

After the estimated 900 liquor store closings, the number of companies selling beer will have actually decreased (remember, there are only a handful of grocery and convenience store chains), which will create less competition. Put another way, there may be more outlets to buy beer, but less companies selling it - the individual stores of a particular chain don't compete with each other. In the end we go from 1600+ businesses competing to less than 800 or so.

"Maybe I like microbrews from Utah, not Colorado"

You will have a much easier time getting your local liquor store to stock a particular favorite beer than you will with a grocery store. That's exactly why Colorado has the best selection of beer in the country - the store owners are competing to keep you happy. How would you even begin to request a particular beer to be stocked at Safeway?

Once again I appreciate the questions and point of view. It appears that we see some of these things differently and I respect that.

Representative Liston is certain that he and the legislature know what's good for my business - I beg to differ. It's a bit like the old saying regarding bacon and eggs for breakfast - the chicken has a contribution to make, but the pig is fully committed. I'm feeling a lot like that pig right now.

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Posted by MBristol on 03/29/2011 at 10:00 AM

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