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Sorting out Tennessee’s new liquor laws

By   /   July 25, 2016  /   News  /   No Comments

In a state where one of the world’s most famous distilleries resides in a dry county, it might be too much to expect logical liquor laws. In Tennessee, the home of sipping whiskey, that expectation is met in spades, and a recent attempt to address the issue might well have made things more complicated.

For the past hundred years, Tennessee barred the sale of wine in grocery stores. That prohibition ended July 1 – but the new law came with anti-competitive regulations that contradict the supposed intent:

  • You can’t buy wine on Sundays or holidays, so plan ahead.
  • Wine can be sold only between 8 a.m. and 11 p.m. the rest of the time.
  • Wine sold at a supermarket must have at least a 20 percent markup.
  • You can’t own more than two liquor stores, and you can only own a liquor store if you’re a resident.

Moreover, while the law opens up competition in its own contorted way, it also gives supermarkets an advantage over liquor stores because of how city taxes interact with a state law prohibiting liquor stores – but not grocers – from opening in unincorporated parts of a county.

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STOP WINING: It’s legal now to sell wine in grocery stores in Tennessee, but the state still has a strange mixture of protectionist laws.

“I know it’s in Knoxville, but it’s in almost every city in the state,” said Thad Cox Jr., president of the Tennessee Wine & Spirits Retailers Association. “We pay a 5 percent tax to the city on a case coming in the back door. In the county, though, there’s no 5 percent tax.”

“There’s a double effect: not only can [grocery stores] sell in the county, but they can sell at a lower rate,” Cox said.

From a consumer standpoint, the mandatory markup of 20 percent mitigates the tax advantage grocery stores in the county have over some city liquor stores. But it doesn’t negate the fact that a case costing a store $105 in Knoxville costs a store $100 in Knox County, lowering the profit margin for in-town supermarkets and liquor stores.

“I guess it’s the customer’s decision now to choose between convenience or selection and price,” Cox said. “I think it’s been as fair as it can probably get.”

All this in a state where 26 of 95 counties are still dry, including tiny Moore County in Middle Tennessee, the home of the Jack Daniels Distillery.

Legislation never sleeps

Despite opposition from the liquor store lobby and some legislators’ worries that convenient access to wine would increase alcohol abuse – especially drunk driving – Gov. Bill Haslam signed the bill in 2014 that allowed grocery stores to sell wine effective July 1, 2016.

But the bill allowed liquor stores to sell party items and beer with low alcohol content – called “low gravity” beer – like Budweiser or Coors right away. Before the legislation, “we couldn’t sell a corkscrew,” Cox said.

Then, amid worries that demand would keep grocery store shelves empty of wine for months, state Rep. Curry Todd introduced a bill in March that would allow grocery stores to stock – but not sell – wine before July 1.

The bill came with a huge asterisk, though – limiting individuals to ownership of two liquor stores in Tennessee (state law already required owners to be residents). The idea was to protect stores, now forced to deal with competition from grocery stores, from large, out-of-state chains like Total Wine.

“What we’re doing is we’re limiting competition,” House Majority Leader Gerald McCormick said in opposition to the bill in March. “We’re not keeping people from drinking. What we’re doing is we’re deciding who makes the money off of it.”

The legislature passed the bill 72-16 after a long debate, and the governor signed it into law in April.

Drinking to the future

The two-store restriction mostly affects those who drink hard liquor, spirits, and beer with high alcohol content – known as “high gravity” beer – because those drinks can be purchased only in liquor stores – with large chains effectively barred from the state, local stores are insulated from competitors offering lower price and wider selection, reducing consumer choice.

Come the New Year, a layer of competition will be added when grocery stores can begin selling high gravity beer.

Cox questioned whether the residency requirement for owning a liquor store would hold up in future legislative sessions or in court. In 2014, state Attorney General Robert Cooper called the residency requirement unconstitutional in an official opinion.

As for the fears that wine on supermarket shelves will cause an increase in alcohol-related troubles?

“We don’t expect the rate of adult alcohol abuse to be greatly affected by this new law,” Mary Linden Salter, executive director of the Tennessee Association of Alcohol, Drug & other Addiction Services, told Watchdog in an email.

“Typically, normalizing exposure to anything makes [it] less subject to abuse,” Salter added. “Exposure to wine in grocery stores is no more tempting than exposure to other liquor products anywhere.”

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Grant Broadhurst is a summer 2016 Journalism Intern for Watchdog.org.