With sales of wine in grocery and big box stores becoming legal in Tennessee on July 1st, 2016, leading independent retailers are hoping state legislators will take a breath before considering additional bills that could alter their business models going forward. Small shop owners are feeling the pinch and hoping for a reprieve from further changes. “Give us some time,” says David Purvis, owner of Farragut Wine & Spirits near Knoxville and a member of the board of directors at the Tennessee Wine & Spirits Retailers Association (TWSRA). “Don’t change things so quickly.” He notes that the impact of wine sales in supermarkets has been worse than expected. “We don’t know what’s going to happen,” Purvis explains. “We don’t know how the purchasing patterns will shift. We need some time to let this thing settle.”
It appears that these retailers may not get their wish. Less than a year after wine sales in supermarkets became legal in Tennessee, the state legislature was poised at press time to consider a new bill that would allow Sunday sales of wine and spirits. The law would also permit sales on five holidays a year—days when package stores are currently required to be closed.
In February, Tennessee state representative Gerald McCormick introduced a bill that would allow Sunday sales of wine and spirits, and companion legislation sponsored by state senator Bill Ketron is working its way through that chamber. Currently, only low-gravity beer (below 10.1-percent abv) can be sold on Sundays. The bill would apply both to grocery stores and package stores, so independent retailers could opt to open on Sundays and holidays to compete with the grocery and big box stores. “Our position is that we want to hold just where we are,” says Thad Cox, president of Ashe’s Wine & Spirits in Knoxville and president of the TWSRA.
Regarding Sunday sales, Cox says most, but certainly not all, of TWSRA members oppose it. “To us, it just adds an extra day of turning on the lights and paying employees, and we don’t think it will bring in enough revenue,” he says. But Rob Ikard, president and CEO of the Tennessee Grocers & Convenience Store Association, isn’t inclined to abandon the idea. “Our No.-1 legislative priority for 2017 is seven-day sales of wine in retail food stores,” he says, noting that Sundays and certain holidays are huge shopping days for grocery customers. “Consumers don’t understand why they can’t buy wine when they buy their food.”
A separate bill would allow sales of higher-alcohol beers in grocery stores as well. Under legislation sponsored by Representative Cameron Sexton and Senator Brian Kelsey, beer containing up to 18-percent abv could be sold in both package stores and grocery stores. Currently, the limit is 10.1-percent abv. Anything over that number is considered “high gravity” and must be sold only in package stores.
While grocers are enjoying the expansion of their offerings to include wine sales, several Tennessee package store licensees are scrambling to figure out a solution to the wine sales they’ve lost. A voter referendum on wine sales in grocery stores passed overwhelmingly three years ago, and independent retailers then had two years to alter their businesses in preparation for the change. During that time and continuing today, package store licensees—previously limited to selling spirits, wine and high-gravity beer—were able to expand their offerings to sell all beer, including kegs and growlers, as well as food products, party supplies, tobacco products and other items. For many, however, those concessions weren’t enough.
Robert Gilbertson, owner of Bob’s Liquor & Wine in Knoxville, says he’s been hard-hit. “Last year’s July 4th was probably the slowest we’ve had in 20 years,” he says. Wine sales were off significantly. “Our sales split was almost 60-percent wine, but now we’re more spirits than wine, which is a big turnaround,” Gilbertson adds.
Gilbertson hasn’t changed his wine assortment much. “The most popular part of our store was our jug aisle,” he says. “We’re still selling it, but not like we used to. Instead of doing $5,000 a day in wine, we’re at $3,000. That’s a big difference. And it all comes off the bottom line because overhead is about the same as it always was.” Gilbertson expanded his selection of beer, mixers and other items. “But that increase amounts to about $100 a day, so it really doesn’t make a difference,” he explains.
Memphis-based Buster’s Liquors & Wines took a more aggressive approach. “We embraced the changes,” says co-owner Josh Hammond. “It was a catalyst for us to finally expand and renovate the store.” Buster’s added 6,000 square feet to the store for a total of 16,000 square feet. The store installed a growler station, significantly expanded the floor for beer sales, and added a food product refrigerator, as well as wine accessories, coolers, tumblers and other items.
Even the aggressive changes haven’t fully stemmed the losses from the new law. “We’ve made up some, but overall it’s more of a loss,” Hammond says. “We were pretty much stagnant until we got the expansion completed. Then we grew at about 10 percent each month for the next seven months until wine sales in grocery stores began. Once that happened, we were losing 6 percent monthly. Effectively, it has cut into our business by about 16 percent. We’re losing roughly 25 percent of our wines sales. We’re making up some of that loss with the beer and accessories, but not enough to account for the decline in wine sales.” Destination outlet Frugal MacDoogal’s in Nashville has also seen a negative impact, according to owner Charles Sonnenberg.
The store previously had a separate venue for beer and peripherals, in keeping with the previous law. “We pioneered the concept of meeting the legal requirements while at the same time having a contiguous unit—physically adjoining the liquor store with a separate entrance and separate management,” Sonnenberg says. “That entire situation has changed. When the law passed, we did a major renovation at extensive cost so that we could be contemporary and bring things all under one room.” Renovations included changing the traffic flow, layout and aesthetics of the building; expanding beer while deemphasizing the large, domestic brands; and building a large growler station and bar area. “We used this remodel as an opportunity to differentiate ourselves from the grocers and the competition by carrying an extremely extensive selection of bottled beer, keg beer and growlers,” Sonnenberg explains. “The growler station is staffed with knowledgeable people to provide this burgeoning aspect of the retail business.”
Sonnenberg says the investment helped once wine sales in grocery stores were initiated, noting that wine sales losses have been mostly offset by increases in beer and other items. But the retailer believes that adding competitive Sundays to the mix would further tax already beleaguered independent store owners. “The numbers being floated are anywhere from a 30-percent to 50-percent decline in wine business,” he says, noting that no one has a true handle on it yet.
Farragut’s Purvis garnered more precise figures on the impact of wine sales competition from supermarkets by polling five distributors in Eastern Tennessee. According to the survey, distributor sales of wine to package stores were up throughout the first half of 2016, but declined dramatically in the latter half of last year. “All of them had significant declines. Three of the five distributors—which are the largest distributors in Eastern Tennessee and carry most of the major brands—showed declines higher than 30 percent,” he says.
One unintended consequence of wine sales in grocery stores has been the negative impact on spirits sales. Rules regarding spirits sales haven’t changed, but some retailers say they’ve seen a marked slowdown in foot traffic in their stores, which has translated into lower sales for spirits and wine. “It’s changing shopping habits,” Sonnenberg explains. “Because wine, beer and all alternative mixers are available in the grocery stores and big boxes, the consumer is just choosing wine. It really is a situation of access convenience that has affected the traffic going through the traditional spirits and wine retail stores.”
In fact, several independent retailers say their prices are lower than those of grocery stores, yet they’re still losing sales to the latter group. Under the law, each individual grocery store purchases from distributors as a single entity, not as a chain, so volume discounts aren’t applicable. “The grocers did a great job in championing the word ‘convenient,’” Cox says.
The number of package store licenses a single individual in the state can hold has also been a controversial issue. The original 2014 agreement that permitted wine sales in supermarkets also allowed for an individual to hold an unlimited number of package store licenses, a change from the previous one-license rule. The TWSRA initially supported the idea, but quickly reversed its stance. Hammond of Buster’s says the legislature made adjustments after retailers realized they had opened the door for chain stores like Total Wine & More to enter the market.
“That license change was a big concern for retailers,” Hammond says. “Chains have the ability to leverage their staying power against small companies that can’t afford to sell product at or below cost. I think it would be extremely damaging.” The legislature’s second action on licenses brought the limit back down to two, and it remains there for now.
On the license issue and the Sunday sales push, independent retailers say they simply need more time. “I hope the legislature will just hit pause on any more alcohol bills until the retailers can absorb the impact of wine in grocery stores,” Hammond says. Indeed, Purvis predicts that some retailers will fail under the new rules. “We used to have 650 stores in this state, but we’ll have even fewer when all is said and done,” he says. For his part, Ikard of the Tennessee Grocers & Convenience Store Association isn’t willing to back down. “It’s understandable that package store owners would like to preserve the system that’s been in place for seven decades,” he says. “But it’s now been three years, and we’re just responding to our customers.”