Days into the new year, the owner of Morgans Liquor in Denver sat down with his financial books. The pandemic gave him a small boost in 2020 sales, but a troubling slide continued: His customer count continued to decline.
“My dollars were up, the rings (on the register) were bigger, but my customers were still trending down,” owner Jim Archibald said. He added: “I’ve been on a big downward trend ever since January 2018.”
In his mind, the trajectory is easy to explain: A pair of laws that took effect in the past five years that expanded sales of full-strength beer to grocery stores and allowed bigger liquor retailers to dominate a market once reserved for mom and pop owners.
No relief is in sight. The liberalization of alcohol regulations prompted by the pandemic – such as delivery and to-go cocktails – may become permanent if new legislation is approved, and existing laws will allow some retailers to add even more affiliated liquor stores starting in 2022.
“I had this dream of passing my store on to my kids because it’s provided our good living,” Archibald said. “I love my job, but I would never encourage anybody to get into the retail side any more because the big box stores and the chains and the grocery stores are taking it over.”
The new laws – one approved in 2016 to expand who can hold liquor licenses and another in 2018 to expand beer sales at grocery stores, gas stations and big-box retailers – represented the most significant changes to the state’s alcohol laws since Prohibition.
The shift in the retail landscape created distinct winners and losers, a reality the governor and lawmakers noted at the time of the legislation’s passage, and now sets the table for more potential changes in the 2021 legislative session.
“I don’t worry about 2022, I worry about next month and the month after that, and who’s going to open the next store. It’s just a matter of time,” Archibald said. “The ink on that (new law) is barely starting to dry and they are changing it.”
At least two major liquor bills are expected at the state Capitol when lawmakers return for the session in February.
One is directly related to the coronavirus pandemic. When public health restrictions shut down or curtailed capacity at restaurants and bars last summer, lawmakers approved legislation to relax the law and allow them to sell and deliver alcoholic beverages, such as mixed drinks, wine bottles and growlers of beer.
The law expires July 1, but its sponsor, state Sen. Jeff Bridges, said he plans to introduce legislation to keep the new system. Liquor store owners and other retailers worry it will cut into their business.
“We know the economic recovery for restaurants and taverns is going to be years ... and we want to make sure they have all the tools that they need to restore Colorado’s food and beverage scene,” Bridges explained.
The Greenwood Village Democrat also plans to reintroduce legislation that failed in the 2020 session to allow liquor stores to add more locations.
The legislation is controversial because it reopened the much-disputed compromise that led to the changes five years ago.
Bridges sees it as leveling the playing field and allowing liquor chains to compete with bigger national chain retailers.
“The idea is parity,” Bridges said. “For those that want to compete, we should let them compete.”
Liquor stores look to expand, or just hold groundOne of those that wants to expand is Applejack Wine and Spirits, which started in 1961. CEO Jim Shpall said the law has “an enormous impact on us in a negative sense that we are still addressing to this day.” The pandemic kept liquor sales afloat, but he said “there are no winners in a pandemic.”
Applejack added a second location in 2020 and Shpall said he needs to keep expanding to compete. The law permits two more locations in 2022 for a total of four, but grocery stores and other retailers, like Walmart, can add three more for a total of eight, he said.
“If we don’t grow we definitely fail,” he said.
The smaller liquor stores like Morgans may not be able to grow. The association that represents these retailers is eyeing the expected legislation warily. “Everybody wants to fiddle with the grand compromise,” said Jeanne McEvoy, the former director of the Colorado Licensed Beverage Association, which represents independent liquor store owners.
Morgans Liquor, locally owned and operated in Denver since 1931, is uniquely positioned to feel the full pinch of the new competition.
In 2018, Total Wine and More, a large liquor retailer, opened its first Colorado store just 2 miles to the east down Evans Avenue. The Maryland-based company’s executives said the store was a result of the passage of Senate Bill 197 in 2016 that allows retailers to operate multiple stores.
And Archibald’s store shares a parking lot with a Safeway grocery store that began selling beer at midnight on Jan. 1, 2019.
His business dropped as soon as Total Wine opened. And Archibald attributes a 15% loss in sales to Safeway’s ability to sell beer in 2019. The major beverage makers offer exclusive discount prices to big-box liquor stores and national grocery chains that he can’t match. Even though the lockdowns from the pandemic meant higher sales as more people were drinking at home, 2020 can’t erase the overall downward trend he’s seeing.
In 2021, “I’ll continue the downward trend,” he predicted. “I’m just wondering where the bottom is going to be. ... I think the mom and pop store is going to be gone in the next 10 years.”
For craft brewers, new marketplace also fuels disparitiesThe disparate effects of the new laws on retailers are akin to what craft brewers in Colorado are experiencing in the marketplace.
In 2019, the first year of full-strength beer being stocked by retailers previously selling 3.2 beer, most of the state’s 400-some breweries didn’t expand their sales to these new locations, according to a study by Colorado State University. A quarter of craft brewers sold in grocery stores in 2019 – a 5% increase from the prior year – and only a few in convenience stores. Both spaces are dominated by national brands, in particular those from mega-brewers like Anheuser-Busch, which brews north of Fort Collins.
The ones that benefited the most were regional breweries – such as New Belgium, Oskar Blues and Great Divide – that saw sales volume jump to nearly 20% in grocery stores.
The smaller breweries had trouble accessing the new marketplace for a variety of reasons. Some didn’t make enough beer to keep the shelves stocked. Others didn’t have contracts with distributors the grocers favored. And still others found that grocery store customers preferred major big brands with the massive marketing budgets necessary to drive awareness.
“We did find that all (craft) brewers did report substantial barriers to entry,” Nathan Palardy, a CSU research and study author, said at a recent virtual craft brewers conference.
How it materializes in 2020 or into the future remains uncertain. Shawnee Adelson, the executive director of the Colorado Brewers Guild, which represents craft brewers, said some retailers, like Whole Foods, are prioritizing independent local brands.
“Regional-sized craft breweries were definitely in the best position to take advantage of full-strength beer in grocery stores, and I would imagine as the market matures that may change,” she said.
The craft brewing industry still sees liquor stores as the place to sell the most exclusive beers and unique styles because it offers more one-on-one sales opportunities, she said.
The study offered a glimpse of the sales shift from liquor stores to grocery aisles. For just the craft beer market – and not brands like Budweiser or Coors – 10% of sales volume shifted to grocery from liquor stores.
It may seem like a small change, but McEvoy at the association that represents liquor stores explained that beer sales are what keeps liquor stores open. “Beer is what we call the bread-and-butter product,” she said. “It turns over very quickly, it gets out the door pretty quickly. It is the cash cow that enables liquor stores to invest in more employees and more products.”
For grocery stores like Safeway, it’s just a matter of meeting customer demand for convenience, said Kris Staaf, a Colorado spokesperson for the grocery store chain. This proved particularly true during the initial coronavirus lockdowns, and she said she hoped beer sales helped keep local breweries afloat in the tough time.
Even though she can’t cite sales numbers for competitive reasons, Staaf said the change “was very, very well received by customers, as we knew it would be.”