Liquor by the Big Box

The booze business is getting chained up in North Texas.
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Posted March 6, 2013 by ERIC GRIFFEY in News
Hensarling: “The days of the mom-and-pop liquor store are gone.” Lee ChastainHensarling: “The days of the mom-and-pop liquor store are gone.” Lee Chastain

Just a few weeks ago, empty shelves at the Majestic Liquor on Camp Bowie Boulevard gave the long-standing retailer the look of a sad, picked-apart grocery store just before a natural disaster. Now a design crew is hard at work breathing life into the space for its new tenant, Cheers Spirits & Liquor, based in Pilot Point.

While the building’s transition from one tenant to another may just seem like the American free market at work, it’s actually emblematic of a trend: The liquor distribution landscape in North Texas is changing fast.

Many observers believe the entrance of huge chains such as Spec’s, Total Wine, and others onto the local stage may presage the disappearance of small, independent liquor shops and lead to higher prices, bad service, and less choices for consumers. Even sizable companies like Centennial Liquor, which once operated 23 locations including the Big Daddy’s and Majestic outlets, couldn’t survive in the current climate.

Business insiders paint a picture of an industry that is plagued by the same kind of hardball tactics employed by Wal-Mart and other large retailers. The liquor business, they say, could follow in the footsteps of bookstores and coffeehouses, toward a future in which a few large companies have eliminated the competition.

“The days of the mom-and-pop liquor store are gone,” said Brad Hensarling, co-owner of three bars (The Chat Room Pub, The Usual, and The Gold Standard). “The landscape is changing quite drastically and really quickly. All of these out-of-towners have come in and dropped a [lot] of cash into the DFW area.”

Liquor is a multibillion-dollar business in Texas. And like many other industries, it is governed by arcane regulations that are easily circumvented.

According to data from the Texas Alcoholic Beverage Commission, independently owned liquor retailers still far outnumber chain operations in this state. However, TABC data also showed that companies like Spec’s Wine, Spirits, and Finer Foods are growing fast.

Last summer, the Houston-based Spec’s purchased Two Bucks Beverage Center in South Fort Worth, which was the largest liquor distributor in Tarrant County for restaurants and bars. According to one former employee, the change in ownership has meant worse service for customers.

“They didn’t really give a shit if we took care of customers or not,” the former employee said. “A lot of our customers were used to being able to call us and say ‘Hey, this is what I want. Can you have it at this time?’ and Two Bucks would do everything we could to meet that time window.”

Now, the former employee said, the chain, which has more than 140 locations, has alienated many of its long-standing customers, raised prices, and reduced its inventory.

At one time Two Bucks had more than 600 restaurant and bar clients — but those numbers are diminishing quickly, the ex-employee said.

One of those former clients is Hensarling, who described the company as unresponsive to the needs of his bars.

“There was a bunch of turmoil in the beginning,” he said. “We would order stuff, and they wouldn’t ship it.”

Spec’s officials did not return phone calls from Fort Worth Weekly.

Jack Labovitz is the owner of Kings Liquor, which has operated for 59 years and now has three locations. He said he was worried when Spec’s, Total Wine & More, and other chains moved into town. But he said he’s seen a decline at only one of his locations, on Berry Street, which he attributes more to the construction on that street than to competition.

“My business is holding up good,” he said. “Before they opened I was concerned how it was going to affect me, but it’s been fine.”

He speculated that the closure of Majestic’s three locations in Fort Worth might have increased his business, offsetting any sales lost to the larger chains.

Labovitz said he’s picked up some bar and restaurant business from Spec’s, because “Two Bucks really took care of those clubs, and Specs doesn’t take care of them like Two Bucks did.”

Ironically, Texas state law is designed to prevent companies such as Spec’s and others from expanding as they have. The law states that no one person can own or have an interest in more than five locations.

However, an often-exploited loophole allows multiple members of the same family to get licenses and then consolidate their businesses, which is how Spec’s and others have been able to expand so rapidly.

“If I own two or more package stores and my sister goes out and buys one or already owns up to five, hers can be consolidated into my legal entity, and I can end up with five more,” explained Carolyn Beck, a spokeswoman for the TABC. “If she ends up getting 10 outlets or more through the consolidation, I can consolidate her locations into mine. And you can end up with an unlimited number of stores.”

Once a company is licensed in Texas, it can operate anywhere in the state. In many other states, companies must obtain permits from each county or city where they do business.

Texas is unique in that state law mandates a middleman in the liquor distribution process: Restaurants and bars have to buy their booze from liquor stores. In other states, restaurants and bars buy either from the state itself or from liquor wholesalers.

Glen Garey, general counsel of the Texas Restaurant Association, has written a bill, supported by the Wine and Liquor Wholesalers Association, that would allow liquor wholesalers to sell directly to bars and restaurants. He has no sponsor for it yet. But, he explained, the bill wouldn’t take package retailers out of the picture altogether.

“We prefer to keep them in the loop, because they bring some good service that wholesalers may not be able to match,” he said. “And they can sell single bottles.”

“The package stores have some anxiety over that, because some [sales] volume would go to the wholesaler,” Garey said. “But frankly, [bars and restaurants] are only 30 percent of their total volume. So I don’t believe that a change in this law would [affect] the volume they sell and the prices they get. They should still be able to be competitive with the wholesalers, even though they purchase from them.”

Between the proposed legislation and growing number of out-of-town “big-box” liquor companies popping up in North Texas, some observers say the outlook is bleak for small businesses. But Labovitz said he isn’t worried.

“I don’t feel threatened,” he said. “They’ve been open long enough now, and I’ve seen what’s happened. I was sure worried before they all opened.”


2 Comments


  1.  
    Tom Roelke

    They call Section 22.05 of the Texas Alcoholic Beverage Code, “The loophole that ate the law”. And so the TABC allows the big chains to build brand new buildings where no store ever operated and then they allow them to “consolidate”. Clearly against the intent fo the law and that is why they keep trying to get secs 22.04 and 22.05 repealed. But the legislature refuses to remove it and instead keeps it on the books even though it is clearly ignored. I would like the Federal Department of Justice to look into it, since no one in the Texas government cares.

    The real goal of course is to change the liquor laws to allow grocery stores and drug stores to sell liquor and allow the liquor distributors to sell directly to restaurants. The removal of the Sunday liquor laws is one big step.




    •  

      Tom,

      I personally think the liquor law for Sunday will pass. Do you think it will be good or bad for your liquor business?

      However, I can’t see Twins or Spec’s allowing grocery stores to sell liquor in Texas. That would surly eat their oligopoly?

      Thoughts?





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