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VOL. 9 | NO. 26 | Saturday, June 25, 2016

Pop the Cork

More than a decade in the making, grocery stores are ready to start selling wine

By Madeline Faber

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On Nov. 4, 2014, voters in six of Shelby County’s seven municipalities approved wine sales in food stores effective July 1, 2016. The next day, Josh Hammond, president of Buster’s Liquors & Wines, put the gears in motion to acquire the restaurant adjacent to his Highland Street spirits store.

With the 6,000-square-foot addition, he expanded his warehouse, added a growler station and brought in enough cheese, crackers and gifts to stock a two-sided aisle.

Hammond sees the expansion as insulation against grocery-store competitors that will begin selling wine on July 1.

“I’ve been aggressive with prices, added more beer, done everything I can do,” Hammond said.

Buster’s has benefited from being the largest liquor store in Memphis and one of the largest in the state, but now it’s up against the purchasing power of national chains like Costco and Kroger.

Less than half a mile away on the west side of Highland Street, Kroger is stocking shelves at its newly built, 90,000-square-foot grocery store.

All of Kroger’s 35 Memphis-area stores are being prepped for wine sales, making the grocery chain the largest addition to the wine market. With only a week before the big day, many of Shelby County’s 170 liquor stores are padding their shelves and trimming prices in preparation.

More than 40 Shelby County grocery stores have applied for a license to sell wine. That includes all Kroger stores, six SuperLo stores, three Sam’s Club locations and five Wal-Marts. Costco and Whole Foods each have two locations where they want to sell wine, but as of press time, had not been licensed by the Tennessee Alcoholic Beverage Commission to begin stocking shelves with wine.

Choosing the right stock

On a May afternoon, Kroger temporarily removed a curtain that hides the pending wine aisle at its location at 540 S. Mendenhall Road.

“We want it to be a big surprise,” said Teresa Dickerson, community affairs and public relations manager for the Kroger Delta Division.

It’s stocking day for what will be one of the largest wine sections in Kroger’s Memphis footprint. Kroger has been stocking about five stores a week because there’s a lot of ground to cover in a 35-store footprint.

“When we found out that we were approved, we went ahead and added shelving,” Dickerson said.

By July 1, the shelves will hold wine ranging from Bota Boxes to chilled champagnes.

While Kroger is a national chain, it’s putting local boots on the ground by hiring wine managers who will keep up with customer demands at individual stores.

Until a wine customer base is built, Kroger is using data from its customer loyalty card system and insight from distributors to select products.

Kroger wine consultant Derek Stamper stocks bottles at the grocery store at 540 S. Mendenhall Road.

(Memphis News/Andrew J. Breig)

“In Germantown, we'll probably do a lot more higher-priced wines,” said Lauren Obermeier, adult beverage category manager at Kroger Delta Division. “Here (at the Mendenhall store), just because of the population, we're going to have an expanded Kosher wine section.”

Obermeier is a new hire at Kroger, and she believes her previous experience with a wine and spirits distributor makes her a good fit for Kroger’s big step into the wine market.

Kroger will sell what she calls “grocery store wines,” which are lower-priced bottles, but it will also have a fine wine section with bottles above $30. Kroger will also sell wines that won’t be available at other grocery stores.

Out of Kroger’s 22-state footprint, its stores in Tennessee, Mississippi and Colorado are the only ones without wine.

“We know what we’re doing,” Obermeier said. “We went 110 percent on this. We didn't just go small.”

Randy Stepherson is overseeing stocking at his SuperLo grocery store at 4744 Spottswood Ave., one of six Memphis stores. The locally owned chain, which also has a Southaven location that can’t sell wine, competes against Kroger.

“It’s just an added sale, something else we can make a little money on,” he said. “But I think the grocery stores that don’t get into it might get left behind.”

He’s betting that his location on Spottswood in East Memphis will generate the greatest amount of wine sales. That location has the largest selection of craft beer. Two sides of an aisle near the beer section will display low- to moderate-priced bottles of wine.

“This does not rival Buster's selection, but I would say this rivals the selection in a lot of liquor stores,” Stepherson said.

Each SuperLo store will have a wine manager. Joe Raffanti, the manager for the Spottswood store, came from Wolf Chase Wine & Spirits, an independently owned liquor store adjacent to Costco on North Germantown Parkway. With Costco preparing for wine sales, Raffanti saw the writing on the wall and moved to the grocery store sector.

“Costco holds our lease. We’re not even 500 feet away, and we can’t sell the same things,” Raffanti said.

Bob Holler, Costco Southeast Region alcohol buyer, said both Memphis-area Costco locations lease space to local liquor stores, and he doesn’t see that changing any time soon.

“We see them as competition, but we want to be respectful,” he said.

Wolf Chase Wine & Spirits could not be reached for comment.

Costco is the largest retailer of wine in the U.S., selling $1.7 billion of wine last year, Holler said.

Its membership-only model and wholesale buying power keeps prices low, and the wine section will be no exception.

“I want a member to walk in and say, ‘Wow, how can they keep prices this low?’” he said.

The Costco locations at 3775 Hacks Cross Road and 2431 N. Germantown Parkway will have similarly-sized wine sections with 60 different kinds of wine, along with a separate area of 75 bottles of higher-tier brands. The wines will rotate regularly.

Even though Costco is a wholesale store, there will be a ceiling to how much wine can be purchased at a time.

“Beyond that, I'll be bringing many wines into the Costco building that were not even in the market,” Holler said. “Many had to be registered, so they'll see many brands they'll recognize, and they'll be introduced to our Kirkland Signature brand.”

Costco’s in-house label will make up about 10 percent of wine inventory.

Like all wine to be sold in grocery and liquor stores, the Kirkland label will have to go through one of Memphis’ four wine distributors before it reaches Costco.

“There's no central buy-in and warehousing, so they can't buy one deal and spread it across 20 stores,” Hammond said. “That would be unfair because they would have a price advantage and buying-power advantage.”

The expansion of Buster's included a wall-length cold case of perishable food products.

(Memphis News/Andrew J. Breig)

Like liquor stores, grocery stores will be unable to sell wine on Sundays. Both the grocery and wholesale sectors had to go through a Responsible Vendor Training Program that certifies associates in wine sales regulation.

Leveling the playing field

Area liquor stores are counting on customer service, diverse options and neighborhood loyalty to stay afloat.

“Anyone who thinks they can compete with Kroger is a moron,” said Latham Oates, owner of Forest Hill Wine Merchants at 9087 Poplar Ave. “You have to separate yourself from what the grocery stores are selling.”

Of the nearly 170 liquor stores located in Shelby County, he estimates that some of smaller stores could lose 20 percent of their business virtually overnight.

He hasn’t changed the business model at his Germantown store in preparation for the big day, Oates said, because he is always focused on higher-end wines that are not widely distributed.

“I’ve got plenty of things that are less than $20 dollars, but it’s not Barefoot Sweet Red,” he said.

Marina Pakis, manager of Kimbrough Wine & Spirits in Midtown, said her “everyday wine” selection is going to take a hit.

“It's a competitive enough market as it is,” she said. “Nobody really knows what to expect totally. Do you not want to carry those wines anymore knowing that new Kroger down the street will? But that’s what people buy in our store, too.”

Kimbrough, at 1483 Union Ave., is a few miles west of the Union Avenue Kroger, which is now under construction. When the state-of-the-art store opens late this year, it will have a two-sided wine aisle, a growler fill station and a gourmet cheese shop.

“The No. 1 consumer of alcohol is driven by convenience, so proximity is a huge factor,” Hammond of Buster’s Liquors & Wines said. “But they can’t beat our knowledge of wines and our customer service.”

Law took years to pass

The effort to put wine in grocery stores in Tennessee has been going on for more than a decade. In 2007, the Tennessee Grocers & Convenience Store Association launched the “Red White and Food” campaign to drum up support for a bill that would allow communities in Tennessee to hold referendums on wine sales in grocery stores.

When Tennessee Gov. Bill Haslam signed the bill into law in March 2014, it set off a flurry of advertising and campaigning from both grocery and liquor stores.

Tennessee municipalities had to vote on the wine issue in their individual general elections. And to get the wine referendum on a ballot, at least 10 percent of a municipality’s eligible voters had to express their support to the Election Commission.

“One of our slogans was, ‘Can we sell you a wine with that steak?’” said Stepherson, one of the retail partners in the Red White and Food campaign.

The pro-wine efforts garnered 260,000 signatures state-wide in favor of adding the referendum to the ballot. Memphis voters brought in 13,372 signatures.

When November 2014 came along, six of Shelby County’s seven municipalities approved wine sales in grocery stores. Lakeland approved liquor by the drink as a precursor to a possible later referendum on wine in grocery stores. Unincorporated Shelby County didn’t garner enough signatures to add the issue to the ballot.

The effective date of the law was delayed until July 1, 2016 to give liquor stores a head start on the competition. Now that gap has come to a close.

An endcap display puts the sale of wine front and center inside the new Memphis Wal-Mart at 6727 Raleigh LaGrange Road just off of Interstate 40 near the Kirby-Whitten Road exit.

(Memphis News/Andrew J. Breig)

Over the past two years, the law has been through several tweaks and amendments.

One of the most highly contested changes was an amendment approved in May that allowed grocery stores to begin stocking shelves in advance of July 1.

According to the most recent figures from the state Alcoholic Beverage Commission, Tennessee had issued 398 conditional licenses to 499 grocery store applicants.

The conditional license allows grocery stores to place orders and begin stocking wine, before they receive their retail food store licenses, which will actually authorize the sale of wine starting July 1.

The provisional license seemed like a no-brainer to grocery stores and distributors. Without it, grocery stores would have to start the selection, ordering and stocking process on July 1, and customers would have to wait several weeks while distributors worked through an overflow of inventory requests.

However, the bill was highly contested. Tacked on to the bill was a controversial provision that would have instituted a two-store limit for liquor store owners.

Before the wine-in-grocery-stores bill passed in 2014, liquor store owners in Tennessee were limited to just one store. The law removed that ban, ostensibly as a concession to existing owners. Instead, it opened a window for major retailers.

Early this year, Maryland-based Total Wines & More expressed interest in a 10-store expansion across Tennessee’s major cities, including Memphis.

“Having out-of-state interests come in and develop wherever they wanted to would just have been horrendous for our sector,” Hammond said. “We haven’t even dealt with wine in grocery stores and seen the effects of it.”

So another tweak in the law established a two-store limit, meaning Total Wines will have to trim its rollout in Tennessee.

In February, Total Wines said that it had two leases lined up in the Nashville area, but the company could not be reached for an updated comment.

Oates is concerned that the two-store limit might be amended again.

“I’ll fight for the free market, but that doesn’t mean I think selling wine in grocery stores is the right idea,” Oates said. “They’ll keep changing the laws, and you’ll see that two-store limit go up to five or 10 stores. You’ll see. Selling wine in grocery stores will, in time, be just like selling a pair of tennis shoes.”

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