CT Liquor Business

Challenges Facing Connecticut’s Liquor Establishments

For this article, we turn our attention to a specific sector of small business in Connecticut: the retail liquor market.  This business sector has, for many years, had the luxury of generating profits without the need to put much effort into growing and developing their customer base.  Setting up a liquor store is not a complicated process, and the popularity of the product virtually guarantees a customer base, provided the location is not too far afield and prices are in line with the competition.  Regarding the latter, Connecticut law protects this business sector by allowing wholesalers to set a minimum price for alcohol products and then ensuring that retailers cannot sell the product for less than what it costs them to acquire it.  Shipper, wholesaler, and manufacturer permittees are also prohibited from selling to a wholesaler below cost.  Connecticut’s liquor laws has been on the books for 35 years, are have largely unchanged in that time.

Gary Koval was Connecticut’s liquor commissioner from 1995 to 2008, one of the longest tenures in the state’s history. Now in the private sector, Koval said recently that he never liked the state’s minimum pricing law (the only such law in the country) and fought vigorously to change it.  At the start of his tenure, he reviewed the state’s liquor laws and compared them to the laws of other states, in an effort to undo the Connecticut laws that weren’t working over time.  Not only did he find that lawmakers were unwilling to go along with his initiatives, he was also vigorously opposed by trade groups representing the state’s alcohol wholesalers and distributors as well the package store owners.

This state of affairs has the potential to change in the near future.  In August of 2016, the Maryland-based wine and spirits superstore chain Total Wine & More made a move to break that lock.  The company filed a lawsuit in U.S. District Court in Connecticut, charging that the minimum pricing law for the industry violates federal anti-trust laws. It also engaged in a brief period of defiance, selling multiple items at under the minimum price at its four Connecticut stores in Milford, Manchester, Norwalk and West Hartford, and heavily advertising the chain’s actions.

Opponents of the law, which prohibits wine and liquor retailers from selling alcohol below a level set by the state, say it violates the American ideal of a free market economy and cheats consumers out of getting the lowest possible prices.

Supporters of minimum pricing say eliminating it would result in the loss of thousands of jobs and reduction of consumer choice as large numbers of the state’s more than 1,100 package stores fall victim to the large-volume buying of larger chains. The minimum pricing backers, primarily trade groups for the state’s package stores and Connecticut wine and beer distributors, claim big-box retailers are being predatory, seeking to put the small stores out of business so the larger businesses can dominate the market and charge whatever they want.

We spoke with Jeff Drucker, who has worked in many facets of the liquor business in Connecticut for a number of years.  He pointed out the power and influence of the state's trade groups, such as the Connecticut Package Stores Association (representing retailers) and Wine & Spirits Wholesalers of Connecticut (representing distributors), with this observation: Connecticut’s population is half that of Massachusetts, yet both states have the same number of package stores.  The primary reason many of the stores in Connecticut manage to stay in business is the protections afforded them by the state’s price-fixing laws on the books.  These protections have fostered a degree of laziness on the part of package stores with regard to marketing and developing their businesses with a view to growth.  They are perfectly content to do the minimum amount necessary to keep their doors open and their shelves stocked, yet they continue to thrive and flourish as a result of the price-fixing laws on the books.

All this may change, however, if the efforts of Total Wine & More to change the longstanding price-fixing laws are successful.  According to Mr. Drucker, this is this trend in other states in the union, and as such it is only a matter of time before Connecticut finally strikes down its price-fixing laws.  John Lombardi, President and CEO of CentrePoint Industries, is an advocate of this change.  He sees significant opportunities for businesses in this sector that are willing to take advantage of greater competition this change will inevitably bring about.

The Total Wine & More lawsuit is just one threat to Connecticut’s liquor establishments.  While it winds its way through the legal system, another threat to the complacency of Connecticut’s liquor establishments is starting to make significant inroads into the market.  This threat has the potential to be much larger than the lawsuit, and is affecting other states as well.  The threat: the sale of liquor through the Internet.

Just as Amazon has leveraged the Internet to virtually take over sales of goods and commodities, sites selling alcohol by mail through the Internet are already taking a bite out of retail sales throughout the country.

As of January 2016, the majority of states have statutory provisions that allow for out-of-state manufacturers to ship alcoholic beverages directly to consumers. The majority of states restrict the direct shipments to wine.

Out of the 54 U.S. states, territories and commonwealths, three states – Alabama, Oklahoma and Utah – specifically prohibit the direct shipment of alcoholic beverages to consumers. Mississippi, Guam, Puerto Rico and the U.S. Virgin Islands do not have statutes that specify that direct shipments are allowed. Massachusetts and Pennsylvania have had statutes ruled unconstitutional by state courts in those states.

These trends in the state laws will impact the smaller Connecticut retail outlets in ways that, if they don't get strategies in place for dealing with them, could spell real trouble for their continued operation in the state.