His budget might induce drink, but Malloy wants lower prices
Unable to lower taxes and certain to cut services, it looks like Gov. Dannel P. Malloy will try to lighten next week’s austerity budget message with at least the possibility of cheaper booze.
Malloy chose an appearance on WPLR-FM’s irreverent Chaz and AJ radio show Friday to say he is going to take another crack at loosening Connecticut’s controls on alcoholic beverage pricing, plus the hours and ownership of package stores.
The Democratic governor succeeded in lifting the Sunday ban on retail alcohol sales in 2012, but failed to convince the General Assembly to overhaul laws that he says stifle competition and inflate prices.
“It’s time to take it to the next level,” Malloy said.
His hosts, who obviously knew what was coming, literally toasted the announcement, taking a shot of tequila brought by the governor. Malloy declined to join them, saying he hadn’t worked out yet. He sipped water.
His new effort will be part of the proposed budget Malloy is to present Wednesday to the General Assembly for the fiscal biennium that begins July 1. Its inclusion in the budget is an indication his administration is going to claim that longer hours and cheaper prices will mean higher sales and more tax revenue.
The governor wants to allow the retail sale of beer, wine and spirits until 10 p.m., except for 8 p.m. on Sundays. Closing times are now 9 p.m., except for 5 p.m. on Sundays.
More significantly for the industry, Malloy is trying once again to allow a degree of chain ownership of package stores by raising from three to six the number of store permits one owner can hold.
Three years ago, Malloy tried to raise the limit from two to nine, then revised his proposal to six. The legislature consented to three.
The governor is not proposing to lift another control on the number of package stores: a municipal cap that pegs the number of package store licenses in any community to its population — one license for every 2,500 residents.
The laws setting terms for the sale of beer, wine and spirits date to the repeal of Prohibition in 1933 and have proven resistant to change, as the strong-willed governor discovered in 2012.
This year, Malloy is proposing to revise, not repeal, the rules for pricing. He says he would maintain minimum bottle pricing, but allow steeper discounts than are now allowed by law, namely by letting retailers charge consumers as little as the wholesale price.
“People who don’t support this support Connecticut consumers being gouged. OK? I want to be very clear,” Malloy told reporters later Friday at the Capitol, a shot at legislators. “Those folks are going to have to own it in that context, because that’s what this is about, giving the lowest possible price to our consumers.”
The pricing and hours of sale for booze are heavily regulated and heavily lobbied in Connecticut, where a well-organized mom-and-pop package store industry managed to stave off Sunday sales longer than in nearly every other state.
“Nobody in any other line of retail would get away with this stuff,” Malloy told his radio audience of the laws limiting the hours of operation. “We’re not making you work. If you don’t want to open, don’t open.”
The closing hours proposed by Malloy this year are no later than in any surrounding state. Closing times are 10 p.m. in Rhode Island and 11 p.m. in Massachusetts every night but Sunday. In New York, beer can be sold 24 hours a day, while wine and spirit sales are permitted until midnight.
Malloy said he anticipates a tough sales job at the legislature.
“People who benefit from higher prices, they want to keep higher prices,” he said.
The lobbying already is under way
Lobbyists for Total Wine & More, a national retailer that wants add stores in Connecticut and compete on price, are facing off against other elements of the industry, including a well-organized association of small package store owners that long has demonstrated political clout.
The pushback began on the air.
Mike, a caller who identified himself as a driver for a liquor distributor, complained that Malloy’s proposal would benefit big retailers and push some mom-and-pops out of business, costing jobs for drivers and others in the supply chain.
Carroll Hughes, the long-time lobbyist for the package stores, told The Mirror the changes in pricing and permitting would radically transform a retail segment now controlled by small business owners.
“It’s like a one, two punch,” Hughes said.
He estimated that more than half the state’s 1,100 package stores would close in the face of big-box competition like Total Wine, which opened a 35,000-square foot super store in Norwalk two years ago and is about to max out under existing law with new stores in Manchester and Milford.
“It’s all designed for Total’s business,” Hughes said.
Total Wine has its own lobbyist, Peter Smith of Rome, Smith and Lutz Government Relations. David Trone, the president of Total Wine, said his company would expand to six stores if allowed by law.
“The proposal is a great step forward for Connecticut,” Trone said. “Get into the 21st Century and leave Prohibition behind.”
Already operating 113 stores in 16 states, Total Wine is about to open its first store in Massachusetts, which recently changed its laws to eventually allow common ownership of up to nine stores.
Trone said the liquor industry is regulated everywhere, but Connecticut’s controls on pricing are the most restrictive. Minimum bottle pricing, known as “min bottle” in the trade, is unique to the state, he said.
“The min bottle is an atrocious, anti-consumer abomination that doesn’t exist anywhere in America but Connecticut,” Trone said. “It’s there to protect the existing businesses at the expense of consumers 52 weeks a year.”
The law should allow stores to compete on price, convenience and selection, he said. And to Trone, convenience means longer hours of operation
Another beneficiary of longer hours would be supermarkets that sell beer, since many already are open until 10 p.m. and could continue sales without any increase in cost, Hughes said.
“Sunday sales transferred business from the little stores to the food stores,” Hughes said. “Unfortunately, the governor thinks bigger is better, and we don’t agree with that.”
The foundation of the liquor market in every state is a simple three-tier system of producers, distributors and retailers, but the rules dictating the relationships between those tiers are complex.
Connecticut is one of 18 states with post-and-hold pricing laws that effective control prices at the wholesale level.
Every month, each producer, wholesaler, distributor and out-of-state shipper must post their prices with the Department of Consumer Protection. Once the prices are posted, a distributor has four days to lower his price to meet but not beat a lower price offered by another wholesaler.
Liquor and wine distributors also must post a “bottle price” for each product that is the actual cost charged to a retailer, plus a mark up. Distributors must file a schedule of suggested consumer retail prices.
Malloy says no other market has such controls on competition and price.
“It is conceivable that announcing wholesale prices before the period of final sale may reduce competition by discouraging distributors from undercutting (e.g., by offering discounts to certain retailers) each other,” according to a 2012 study of liquor pricing in Connecticut.
Hughes said taxes also contribute to higher prices in Connecticut, which subjects retail alcohol to the sales tax in addition to excise taxes. Massachusetts, Rhode and New Hampshire do not charge a sales tax on alcoholic beverages, he said.
The state also is unusual for its large number of small package stores, who have been afforded a degree of protection against market forces. Massachusetts, a much larger state, has roughly the same number of stores, Hughes said.
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