There is a common saying that “technology transformed the world!” In many walks of life that is true and we see it before our own very eyes. When I first entered the liquor world I heard the same refrain,”technology will transform the liquor world and will change how alcohol is sold and regulated.” Of course anyone making these statement caveated these statements by indicating that the change would be gradual and slow as molasses.
However, the liquor world has been shocked recently and its legal framework has been shaken to the core, not by technology but by a brick and mortar store.
Takeaways
Before you delve into reading further I want to provide you a summary of important takeaways.
1. Total Wine could transform the liquor state regulatory scheme more than any other player
2. Total Wine will continue fighting the states with no end in sight
3. Total Wine can’t stop winning and the states may not be able to stop them
4. Legal trends favor Total Wine in their fight against state regulatory schemes.
5. Total Wine could dictate the state regulatory scheme for years to come
Who is this disruptor?
Total Wine and More (Total Wine) is a chain liquor store with176 stores in 20 states. Its business model relies on a vast selection of wines and usually offers these wines at lower prices then their competitors. This practice has greatly effected the environment for independent retailers selling wine, with some admitting that the announcement of Total Wine entering into their marketplace caused them to close their business. For example, Turkey Creek Wine and Spirits from Tennessee publicly announced they would stop selling wine when Total Wine moved into its market.
But what really sets Total Wine apart from anyone else in the liquor industry, is its role as disruptor to the liquor legal landscape across the country.
Total Wine has no problem ruffling the feathers of state regulatory agencies and more problematically for the states, is often times successful.
Total Wine’s aggressive stances toward the states, has lead to the downfall of the states iron grip on their liquor regulatory scheme.
Total Wine has taken on the states on a myriad of legal issues and won, I will outline where they have won, and how their efforts to challenge the states could drastically change the legal landscape.
Pricing issues
Total Wine took on Massachusetts over pricing issues and beat the state in its own court system.
The Massachusetts Alcoholic Beverage Control Commission issued suspensions to two Total Wine stores, because they sold product below invoice cost which is prohibited by state law.
Total Wine sued Massachusetts claiming that the price to consumers was not below cost, because the price Total Wine paid for the product would be reduced by quantity discounts the company would receive from wholesalers. Total Wine argued that the state erroneously looked at the invoice as it basis for looking at this issue, and did not take into account the quantity discounts that would lower the price of the liquor.
The Court agreed with Total Wine and held that “there was clearly non-predatory pricing carried out in this case.” The Judge further stated that there was “only a salutary effort by a retailer to pass along savings derived from volume purchasing at the wholesale level to its customers. This is something the law should promote rather than punish.”
Massachusetts utilized its power to suspend Total Wines because in their view, Total Wine could utilize its purchasing power to go to market with prices lower than its competitors could afford. The state utilized its power to sanction Total Wine into conformity with the state’s view of how the market should run.
In the end, Total Wine could not be defeated and they and not the state ended up dictating how the market should run. The minimum pricing law, which is utilized to keep a large retailer from dominating because of its size, was weakened by Total Wine and the state lost another stick in which to use against big retailers.
Before going onto the next issue, I need to mention a roadblock in Total Wine’s legal challenges. It lost a case in Federal Court which challenged Connecticut’s minimum pricing laws. However, the case is on appeal to the 2nd Circuit of Appeals.
Store Limits
Total Wine set its sights on South Carolina and wanted to expand in the Palmetto State. Problematically, the state limited a retailer to three licensed locations, Total Wine already had three locations and wanted to expand to more locations. So it sued South Carolina to overturn this law as unconstitutional.It lost in the district court, but eventually it prevailed at the South Carolina Supreme Court. https://caselaw.findlaw.com/sc-supreme-court/1854623.html
The Supreme Court ruled that the law was protectionist and stated that “the licensing limits do not promote the health, safety, or morals of the state, but merely provide economic protectionism for existing retail liquor store owners.”
South Carolina which enacted this law to protect small mom and pop liquor stores from facing competition from big box or chain retailers was defeated in its agenda.
Again, Total Wine came to town and changed the legal landscape!
Residency requirements
Total Wine wanted to open locations in Tennessee, however based on a durational residency requirement, which requires a license holder to be a resident for 2 years before holding the license and 10 years after, Total Wine could not open the location.
As is the case in other states, Total Wine forced the issue and sued. It ended up winning in the 6th Circuit which ruled the durational residency requirement unconstitutional. http://www.scotusblog.com/wp-content/uploads/2018/08/18-96-opinion-below.pdf. The case is currently on appeal to the U.S. Supreme Court where it is on the Court’s docket. Tennessee Wine and Spirits Retailers Association v. Blair, U.S.Supreme Court Docket Number 18-96 (2018)
If the Supreme Court affirms the appeal, Total Wine will decimate another state law.
The Holy Grail
Total Wine with its excessive fighting against the states, may cause the crumbling of the state regulatory edifice. In the Tennessee Wine case,the 6th Circuit decided that the nondiscrimination principle in Granholm extended to retailers. If the Supreme Court upholds the 6th Circuit’s opinion on this issue, then Total Wine’s efforts in combating state regulations could lead to a national market, which may result in a few big players dominating the scene.
If the result of this case extends Granholm to retailers, Total Wine will have done more to change the alcohol market than any other player or any other technological development.
What can the states do to combat them
With Total Wine’s track record of challenging the states and winning, the states may be helpless in the end. The challenged state laws seem setup to protect local businesses, with requirements on the amount of retailers and residency requirements, or to protect small retailers from big box retailers,by way of minimum pricing and limits on locations.
Problematically for the states, the Courts have frowned upon protectionist laws that they view as not serving to protect the safety, health,and welfare of society, but merely as protecting economic interest.
The states know that every law with protectionist leanings is prime for a Total Wine challenge.
Total Wines has them in a hornet’s nest
If you talk to state regulators, they will tell you that Total Wine is a major concern for them.
Total Wine will go after state laws aggressively and especially those they deem weak. If they win the Tennessee Wine case,they have brought down the major edifice of the state regulatory liquor scheme.
Total Wine could transform the liquor world and shape it for years to come. It could be Total Wine that shapes the regulatory scheme and not the states themselves.
In the end, Total Wine can’t stop winning, and worse for the states, they can’t stop fighting either.
I noticed in the Tennessee Amicus Brief filed by Illinois and 34 states, that surprisingly to me, Maryland, (both home of Total Wine, and loser to Total in court), had failed to sign on to sign on, despite similarities with the other signatories.
I asked the Office of Maryland Attorney General, if this might be related to the fact that Total owner David Trone is now a Md congressman-elect having spent $30M+ of personal funds over two attempts. I received the following unhelpful reply. Perish the thought that an elected politician might engage in politics.
Dear Mr. Caffrey:
Thank you for your recent inquiries about Tennessee v. Byrd. The Office of the Attorney General receives many amicus requests encompassing a wide range of topics. Unfortunately, we cannot sign on to all of them, even when the position being taken is consistent with Maryland law. Our decision not to join, however, does not necessarily mean that we disagree with the position taken in a brief.
We appreciate your interest in the matter and hope that you find this response helpful.
Thanks Tony! Like a true Irishman you always tell a good story!