Should NY Grocery Stores Sell Wine?

New York, like most every state, is faced with a massive budget gap for fiscal year 2009/10. State spending will be cut, existing taxes will rise in some cases, and there will be new programs for raising revenue. According to the Rochester Democrat and Chronicle, one of the revenue raising proposals put forth by New York Governor David Paterson is legislation that would allow supermarkets and grocery stores to sell wine.

The Governor claims this move will raise revenue because grocery stores that choose to sell wine will first be required to pay a "Franchise Fee," a fancy name for a license. It is estimated that under the new law, Franchise Fees would net $100 million for New York State in the next fiscal year. Paterson's office also claims that this move would lead to an increase in wine sales, generating further tax revenue.

Should New York State allow wine sales in grocery stores? This is a complicated issue, even without all of the various lobbying nonsense cluttering up the thought process.

Grocery stores and their representatives like to frame this as a customer service issue. As if it's concern for the customer, and not the significant new revenue stream that motivates the grocers. Just look at this quote from Jeanne Colleluori, a spokeswoman for Wegmans, a huge chain of grocery stores based in Rochester, NY:

We don't know the details of what he is proposing, but we love the idea. This is something we have been encouraging for decades now because we feel it would be a great service to the consumer.

Local wine shops and their lobbyists also seem to be willing to say anything to advance their argument. They like to threaten moral chaos, claiming that grocery stores could not reliably prevent minors from purchasing wine. Grocery stores already sell beer, and I assume that the typical minor would opt for beer over wine as the illegal alcoholic beverage of choice. And these are the same local wine and liquor stores that "unknowingly" sell booze to minors and knowingly sell booze to people whose rampant alcoholism forces their entire body to shake as they fork over $2.69 for a half-pint of Rotgut Vodka. Now, though, they are concerned about morals.

Maybe the best bit of nonsense is the actual revenue predictions themselves. Why would wine sales go up 20% if wine were sold in grocery stores? That argument assumes that demand for wine will be created as a result of this legislation, and the market already seems to show that wine sales are down. Perhaps grocery stores would see an increase in wine sales (where they currently have zero sales), but that surely would be balanced by a decrease in sales at local wine and liquor shops. Perhaps the Governor means that grocery stores would lower wine prices, thereby stimulating demand for wine, and resulting in a net increase in wine sales. Unless grocers can get discounts by buying in bulk from distributors, lower prices are unlikely. And even if they do get discounts, the Governor has quietly proposed an increase in the excise tax on wine from .18 cents to .51 cents per gallon. So before you get excited about paying $9 instead of $10 for Gallo Chardonnay, understand that you'll pay $9.33.

Let's cut through all the nonsense and take a real look at the issue. Maybe we can begin by listing a few things that I think of as basic truths:

1. The Governor needs to create revenue, and this is one way of doing so.

2. Wine and liquor store owners feel threatened by this proposal, as they fear it would take wine sales away, ultimately forcing them out of business.

3. Grocery stores love the proposal because it would allow them to open up a new and profitable business.

I think that the local wine and liquor shop owners have a legitimate argument. Local shops would lose sales to grocery stores, mostly in the low price, high volume, low profit margin wine category. There are people who entered the market as a wine shop owner with the understanding that they would not have to compete with large grocery stores. It's not fair to pull the rug out from under them now.

But I also think that separating the sale of food and wine is an artificial conceit. Why should a grocery store be allowed to sell chips, dip, and beer, but not wine or Gin? Why should a wine and liquor store be allowed to sell wine and Scotch, but not beer, cheese, or cured meats? Why should government ever enact laws that protect one type of business from healthy competition with other businesses? Well, there are times when protectionism might make sense, but American consumers are happier when those protections come in the form of tariffs against foreign producers of, say, steel, so that our own steel industry is advantaged. It's easy to understand why our government would try to protect American industries. Why would we favor one set of our businesses over another?

If New York decides to change the rules regarding wine sales, they should do so in a manner that removes all of the artificial barriers that currently govern grocery stores and small wine shops. Allow grocery stores to sell beer, wine, food, and spirits. Allow wine and liquor shops to sell beer, wine, food, beer, and spirits. If we're going to open the market, then let's really open it.

Local wine and liquor shops might have trouble competing with grocery stores under a truly open system, the way mom and pop coffee shops have trouble competing with Starbucks. But maybe that's not a bad thing. In fact, I think it is this competition that will in the end benefit consumers.

The only good thing in my mind about Starbucks is that it forces independent shops to compete, to provide better coffee, better bathrooms, innovative programs such as music recitals or other entertainment. Mom and pop coffee shops cannot compete with Starbucks on the cup of coffee alone. In the end, consumers have higher quality coffee shops to choose from.

Perhaps if Governor Paterson's legislation passes, the same thing would happen with wine shops in New York. There certainly are a lot of terrible wine shops offering crumby and poorly stored products sold by ignorant and/or indifferent sales staff. Under a truly open system, some of these stores would improve their products and service, others would not and would eventually close.

I think it's time to stop asking for artificial protections, time for everyone to step up their game. What do you think?