Direct shipping, private labels and dealing with trouble licensees and tainted products were among panel topics at the 2019 National Alcohol Beverage Control Association legal symposium. NABCA’s annual conference took place in March in Arlington, Virginia. The event provides control state regulators and other alcohol professionals with education and discussions on legal issues facing the industry.
Granholm v. Heald was again a much-discussed topic. The 2005 Supreme Court decision found unconstitutional several state laws against direct-to-consumer out-of-state wine shipments, due to discrimination through economic protectionism. The ruling continues to pressure states that block these shipments through strict residency laws for wine retailers.
Residency laws are also potentially at odds with the Dormant Commerce Clause, which maintains that state regulators cannot economically discriminate against other states.
Which is all coming together in Byrd v. Tennessee. Total Wine & More is appealing the residency law that requires company owners to live in Tennessee for two years before opening a store. “This will be a really important decision,” said Jake Hegeman, WSWA VP of legal and regulatory affairs. “There’s a chance it will adjust the regulatory scope states have in regards to alcohol.”
Further complicating matters, in the age of e-commerce and cellular transactions, consumers already expect products they order to arrive quickly and easily.
“I checked and 11,000 beer and wine products now ship in Ohio,” says Cassandra Hicks, deputy superintendent for the Ohio Division of Liquor Control. “As time goes on, there will be more pressure on state legislature to make sure products can get to consumers without barriers.”
Between 2012-14, the Pennsylvania Liquor Control Board sold $10.5 million worth of its own private labels, moving 1.1 million units across 17 brands. But public pressure against the state competing with private businesses ended that program.
Private businesses, however, recognized the opportunity.
In 2018 the PLCB received a request from a large grocer that wanted approval for a private label, says Rod Diaz, PLCB chief counsel. The grocer’s plan was to position the wine as a loss-leading value brand at $6 a bottle. They got around the PLCB price markup and the state’s 18% tax, Diaz explains, by making the wine available at the same price for one other licensee. In that loophole, the wine is no longer exclusive to the grocer.
“As far as we know, the state police have not taken any action,” Diaz says.
Private labels have also evolved beyond just value brands.
“Any stigma towards private label products have gone away,” says John Guadola, executive director of the Association of Washington Spirits & Wine Distributors. “Many private label products are being priced as premium products. They have the look and feel of national brand products, and their margins are much higher.”
Handling Problematic Licensees
Tom King, chief of State College Police in Pennsylvania, spoke on working with the PLCB on dealing with a problematic bar. After a 2009 stabbing at the location, police did not want the bar’s license renewed. But the business successfully appealed, and instead the parties compromised on a conditional license.
Among the 12-14 conditions placed on the renewed license were installing metal detectors and ID scanners, that the bar must close by 1 a.m., not offer drinks specials past 9 p.m., and that the old owner could no longer own the business.
Before such drastic outcomes, “watch out for early-warning signs,” King says. “Usually when something really bad happens, it’s not the first time something happened there. You could try having a mechanism that recognizes early-warning signs, putting all those calls together so you know you have to intervene.”
Stan Wolowski, partner at Flaherty & O’Hara, recommended that regulators keep an eye on the ratio of food to alcohol. “The proof is in the data,” he explains. “In establishments were food is in the 85% range of the overall menu, police departments get fewer calls.” He also reiterates the importance of requiring responsible server training.
When regulators learn that tainted product — whether glass in bottles, or other dangerous errors — is in their jurisdiction, Elizabeth Deconti of Gray Robinson recommends that they contact the press.
Why? “If your goal is to protect public safety and minimize injury to consumers, you want to make sure you put everyone on notice that this exists,” Deconti says. “And if the recall ends up in litigation, what you knew and when you knew it becomes important.”
Be very specific about what lot numbers of product are affected, Deconti adds, and what actions are underway to address the problem.
“Also, scripting the messaging is important,” she says, “so that everyone is on the same page about what’s being done.