RETAILERS SOBER ABOUT LICENSING LAWS

JULIE GALLAGHER

BOSTON - Massachusetts voters this November will have the chance to uncork a ballot question proposing the creation of a "wine at food store" license. If passed, approximately 1,000 of the state's 1,200 grocery stores could be allowed to sell wine.

The initiative, "An Act to Increase Consumer Convenience and Choice by Permitting Food Stores to Sell Wine," was developed by the Boston-based Massachusetts Food Association at the request of its retailer members.

"We've been trying to get changes made for years but to no avail," said Chris Flynn, MFA's president. "The liquor lobby has successfully opposed it so we wanted to bring this question right to the voters."

Right now, a 72-year-old law prevents any supermarket chain from selling wine in more than three stores.

Incited by the lucrative opportunity that wine sales present, Stop & Shop, Hannaford Bros., Price Chopper, Big Y Foods, Demoulas Super Markets, Roche Bros., Trader Joe's, Whole Foods Market, Bozzuto's and the Food Marketing Institute have shelled out a collective $2.8 million for the campaign. Stop & Shop is the single-greatest contributor, donating $1 million.

Gus Valen, president and chief executive officer of The Valen Group, Cincinnati, Ohio, deems it a worthy investment.

"It's been hard to get good use out of Center Store real estate, but wine can be both a traffic driver and differentiator," he said. "It's also one of the higher margin items."

Wine sales were up 9.3% in supermarkets to $4.6 billion for the 52 weeks ending May 21, 2006, according to Information Research Inc., Chicago.

The category perfectly complements the channel, Valen said.

"Females make the majority of purchasing decisions and wine at the supermarket not only offers convenience, but women feel more comfortable shopping here than in a liquor store," he said.

Although Massachusetts is the only state that will present this type of ballot question to consumers this November, alcoholic beverage licensing and distribution rules have been the subject of recent scrutiny.

In the case of Granholm vs. Heald, Michigan and New York laws barring out-of-state wineries from selling directly to consumers were struck down because they limited consumers' access to wine.

"Although that case didn't pertain specifically to supermarkets selling wine or liquor, it opened state liquor statutes across the country," FMI spokesman Bill Greer said.

Earlier this year, Costco Wholesale Corp., Issaquah, Wash., successfully challenged that state's alcohol distribution regulations, contending they conflicted with antitrust laws. As a result, Washington can no longer ban high-volume discounts to retailers on beer and wine or force producers and distributors to mark up their prices by 10%, among other things.

"Licensing has been an issue that our members have cared about probably forever, but during the past five or six years it's become more and more important to them," said Bill Manteria, FMI's vice president, state government relations. "The state laws are so fractioned that no two are alike."

Maryland supermarkets, for instance, are not allowed to sell any alcoholic beverages, while New York food retailers can only sell beer. Laws governing alcoholic beverage sales in states on the West Coast are more relaxed than those on the East Coast, Manteria said.

"We've let all of our members know that this issue is important and if they'd like to increase their sales they should take a look at what's happening in Massachusetts," he said.

Retailers participating in the Massachusetts ballot initiative will campaign for shoppers' "yes" vote by distributing bag stuffers in their respective stores.

They plan to let their customers know that the anti-competitive effects of current state law increase costs to consumers by $26 million to $36 million a year and that passage of the ballot initiative could cut wine prices by 5% to 7%, Flynn said.

"Public support for wine in a grocery store is very, very strong," Manteria said. "Its connection with food is a lot stronger than that of beer or liquor. In states where supermarkets are allowed to sell wine, they've cross-merchandised it really well, pairing it with different varieties of meat and fish."

Rochester, N.Y.-based Wegmans Food Markets cross-merchandises seasonal wine picks like Dievole Chianti Classico with ingredients for recipes like pan-seared pork tenderloin in tomato sauce. However, such merchandising schemes are limited to those stores where wine sales are permitted. The chain is among operators lobbying for more lenient licensing laws.

As part of a move that industry analysts suggest is a step toward changing New York's licensing laws, Nicole Wegman, vice president of the retailer's restaurant operations, acquired Rochester's Century Liquors & Wines, according to published reports. The venture will remain separate from the grocery chain.

Beverage Watch

A nationwide heat wave may have spurred the dramatic jump in bottled water sales vs. the same four-week period last year, with convenience sizes selling the fastest. Consumers also treated themselves to greater quantities of higher- priced wine. Table wine contributed most substantially to the growth. Dollar sales in the subcategory were up 11%.

CATEGORY: $ SALES*; % CHANGE VS. YEAR-AGO; UNIT SALES*; % CHANGE VS. YEAR-AGO

CSD: $1.0B; -1.9%; 542.8M; -5.5%

Milk: $807.8M; -3.0%; 332.7M; -2.2%

Beer: $768.9M; 3.4%; 43.9M; -0.2%

Bottled Water: $441.0M; 15.1%; 219.2M; 8.4%

Wine: $355.5M; 10.2%; 43.7M; 6.7%

Source: Information Resources Inc.

*Sales in food, drug and mass outlets (excluding Wal-Mart) for the four weeks that ended Aug. 13.