Grocers, liquor stores slug it out

A month into the biggest change in liquor laws that Colorado has seen since the end of Prohibition, retailers and craft brewers still are trying to sort out what it all means.

Legislation that was passed in 2016 and took effect Jan. 1 allowed grocery and convenience stores across the state to sell full-strength beer for the first time, repealing their 3.2 percent alcohol requirement for beer sales.

Proponents argued the change would mean more convenience for shoppers and would bring Colorado in line with many other states, while opponents predicted peril for the small, low-margin “mom and pop” liquor retailers that have located near supermarkets as well as craft brewers who could lose shelf space for their products if those stores were forced to close.

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So far, the marketplace still seems to be sorting itself out in terms of pricing and customer preference, but that doesn’t mean the impact isn’t being felt.

“Everything is so new, it’s hard to measure what the true effect is,” said Matt Dinsmore, managing partner at Wilbur’s Total Beverage in Fort Collins, “but the only people this is good for are the major chains. There’s not a single owner it’s not affecting.”

Colorado’s booming craft-brewing industry also still is assessing the impact.

“From my conversations with brewers, they have mixed feelings based on their size, market position, and their ability to earn grocery-store chain placements,” said Bart Watson, chief economist at the Boulder-based Brewers Association.

Liquor stores worried that grocery chains might undercut them on price on both major brands and local brews, but Watson said “I haven’t seen any aggregated price data yet comparing the two channels.”

Reports of below-cost selling by grocers when the new law took effect prompted BizWest to survey supermarkets and larger liquor retailers in mid-January in several cities in the Boulder Valley and Northern Colorado. However, the survey found little if any difference between what supermarkets and liquor stores were charging for several popular beers produced in the region: Fat Tire from Fort Collins-based New Belgium Brewing Co.; Dale’s Pale Ale from Longmont-based Oskar Blues Brewery; 90 Shilling Ale from Odell Brewing Co. in Fort Collins; Milk Stout Nitro from Longmont-based Left Hand Brewing; Buffalo Gold from Boulder Beer; and Boulder-based Upslope Brewing Co.’s India Pale Ale.

That’s why most liquor retailers are more concerned with shopper habits based on convenience than on price competition.

“Lots of people don’t drink, but everybody eats,” said Jim Dean, a co-owner of Hazel’s Beverage World in Boulder. Even though a grocer might have fewer beers on the shelves than a liquor store has, he added, that might not matter.

“If you’ve got that lady going to the grocery store and she’s standing there and looking at the beer and her significant other says, ‘I want Crooked Stave’ but she doesn’t see it, she just sees Shock Top, then guess what? That guy’s getting Shock Top.”

Still, liquor retailers say they will compete by touting the number and variety of beers they sell — measured in “stock keeping units” or SKUs — and the expertise of their staffs.

“Their selection is fairly limited compared to us” at Hazel’s, Dean said. “We have 66 (cooler) doors and approximately 1,500 SKUs.

“I’ve been out and looked at what they’re doing,” he said. “I think their execution is pretty poor. Most of the time their shelves are empty. Grocery stores really count on the suppliers to do their stocking for them; they don’t do any. Even if they have the product in the back, they don’t stock it.

“We have nine people in our beer department. They all are beer aficionados – or geeks. If you might have a question about beer in a grocery store, you might as well ask the guy stocking eggs.”

Major grocers, however, contend that they are being responsive to consumers’ desires.

“We’ve gotten great feedback from our customers. They really like the convenience of one-stop shopping,” said Kris Staaf, director of public relations for Safeway and Albertson’s in the Denver district. “And we try to support the local brewer and be hyper local. Craft beers in our Fort Collins stores might be different than beers in our Colorado Springs stores.

“All of our decision making and buying are done here in Colorado, so we’ve got a lot of flexibility,” she said. “If there’s a craft beer our customers are asking for, we can make that decision and get it in.”

“The big question,” Dinsmore countered, “is how many SKUs can a brewer like New Belgium or Odell or Avery get into the chains?”

Dinsmore and Dean noted that smaller package stores, where beer sales account for 50 to 80 percent of their business, are being impacted much more than larger retailers such as Wilbur’s or Hazel’s.

“Of our product mix, only 20 percent are beer, and craft is six to one over the bigger domestics” such as national brands from such breweries as Anheuser Busch or MillerCoors. “We’re dealing with a higher-end beer drinker than most folks.”

Dean agreed, estimating that beer makes up only about 30 percent of Hazel’s sales.

For the smaller, “mom and pop” outlets that opened near most grocery stores in the state, however, Dinsmore said the new law means “death by a thousand cuts.”

“Our sales have dropped down 10 or 15 percent,” said Phanna Thann, owner of Centennial Square Liquor, two doors down from a Safeway in northwest Longmont. Beer makes up about 60 percent of his sales, he said.

“This month, I kind of keep an eye on it,” he said. “If it’s still slow, I’ll think of how to improve — maybe push more hard liquor and wine and drop those prices down to get people in the store. But it’s hard to compete with them.”

“It’s going to be tough,” Dean said. “Before the new law, Colorado had 1,600 liquor stores. Now we’ve added 1,600 grocery stores — not just the Safeways and King Soopers, but the Targets, Trader Joes, Walmarts, 7-Elevens. We’ve doubled the number of places selling beer, but we didn’t double our population.”

For both supermarkets and liquor stores, it seems the biggest decisions will involve marketing.

King Soopers is touting large in-store signage advertising that “real beer” has replaced the 3.2 beer grocers had been restricted to selling. In its beer coolers, King Soopers stores also have added shelf tags to indicate that a SKU was produced by a local brewery.

It’s an “ongoing process” at Safeway as well, Staaf said. “There was a lot of buzz around the initial launch on Jan. 1,” she said, “and at point of sale we’re letting our customers know full-strength beer is here.”

For the liquor stores, the message is likely to be all about being local.

“Why should they shop at Wilbur’s? Local people, local products, and the charities we support,” Dinsmore said.

“It’s simple,” added Dean. “Do you want convenience or do you want to support your kids’ schools or your hospice? Liquor stores are a last bastion of family business.”

At Hazel’s, “We’ll evaluate where our sales are,” Dean said. “We’ll put an emphasis on beer, but it won’t be on price. Service, selection, knowledge. We’ll have the out-of-the-way craft brewers, the smaller crafts that didn’t find their way to the shelves in the supermarkets.”

How will pricing and inventory shake out?

“I think it’s way too early to tell,” Dean said. “Let’s look at it in six months to a year. It takes a while for people to change their shopping patterns. Probably a lot of people still don’t realize grocery stores are selling beer.”

But they are.

“That horse has left the barn,” Dean said, “so now we get to compete.”