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With wine in grocery stores and a new head of the ABC, Tennesseans are optimistic about the future of alcohol in the state

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Eight a.m., the first of July.

That's the moment everything changes for the alcohol industry in Tennessee.

At that very second, when the clock strikes 8 — well, depending on the time zone — that's when around 450 grocery stores and a handful of larger convenience stores across the state will be able to legally sell wine for the first time since Tennessee outlawed alcohol in 1909, 10 years prior to federal Prohibition. And more stores will be selling soon.

"We are the first state to change our liquor laws so significantly since Prohibition," says Rob Ikard, president of the Tennessee Grocers and Convenience Store Association.

"What is happening here has never happened in the country," adds Bard Quillman, the legislative chair of the Tennessee Wine and Spirits Retailers Association and the owner of Red Dog Wine and Spirits in Franklin. "The only other state to have changed to allow wine in grocery stores was Iowa in 1986, and that was because the state wanted out of the liquor business. It wasn't on this scale at all."

Quillman and Ikard were on opposing sides during the multi-year legislative battle to get wine in grocery stores, but now that it's here, there's no lack of acknowledging the historic moment, even if liquor store owners like Quillman are worried about their future.

"We're shooting in the dark," says Quillman. "We really don't know what happens next. But we're going to find out in a hurry."

But despite the expected loss of business — and even the rosiest outlooks predict dozens of liquor stores will be forced out of business — licenses for new liquor stores in Tennessee shot up last year and are on track for an increase this year too. The number of new liquor-by-the-drink licenses has gone up, year by year, since 2009, to a record last year, which 2016 is already on pace to match. There are more distilleries every year, more local wineries, more breweries and more breweries making high-gravity beer. There are more wholesalers too, which means more products in more places.

In short, if you are part of the 35 to 55 percent (statistics vary) of Tennesseans who drink, there's never been a better time to live here. And while the advent of wine in grocery stores might be the largest and most visible change to the state's liquor laws in recent years, it has not been the only one.

"We're really catching up to what's been law in other states for decades," says Greg Adkins, president of the Tennessee Hospitality and Tourism Association.

There are still many changes that some factions of the liquor industry want — and some changes others don't want. But with a new business-friendly head of the Tennessee Alcoholic Beverage Commission, everyone seems cautiously optimistic about the potential modernization of the state's liquor laws.

"I think as Tennessee continues to grow, especially Middle Tennessee, and you have more people moving here from places where they have more liberal alcohol laws, it just doesn't make sense to hold on to the archaic laws and that kind of approach," says state Sen. Bill Ketron (R-Murfreesboro), who led the legislative push for wine in grocery stores.

So what's next? That depends on whom you ask.

The state's liquor industry has varied competing interests, and sometimes agreement is hard to come by. But one thing almost anyone you ask will agree on is that Title 57, the chapter of the Tennessee code that spells out laws regarding alcohol, is outdated, cumbersome and confusing.

That doesn't mean everyone would be happy throwing it out and starting over, although many would. The original code was mostly written post-Prohibition, in the 1930s, when Tennessee was still the buckle of the Bible Belt, and the majority of the men who drank — because those who drank were mostly men — drank beer. And beer sales are mostly regulated at the local level.

Now, in 2016, hospitality is the second-largest industry in the state, behind agriculture. And that's just restaurants, bars and hotels we're talking about. If you add in the financial impact of the retail side and the wholesale side and the distillers — well, there's a lot of money at stake.

The amount of revenue the industry brings into Tennessee is sizable. In fiscal year 2015, alcohol and beer sales (retail and by the drink) brought in $161.2 million in state tax revenue — up $20 million from 2013 — along with $1.13 million in fines and around $7 million in fees.

That's why some more traditionally conservative legislators have been persuaded to vote for loosening up the laws in recent years. But according to industry insiders, the main obstacle to completely rewriting the code in a way that makes sense for our modern era is that it would need to start from the presumption that the entire state is wet — exactly the opposite of what the current law presumes.

"Really, until you fundamentally change the system in that way, it's all nibbling around the edges," says Matt Scanlan, a lawyer and lobbyist who specializes in the alcohol industries.

Not that Scanlan thinks that kind of change in the law is possible anytime soon, or maybe ever.

Twenty-six out of Tennessee's 95 counties are still dry. Many of those counties also have at least one location with "premier-type tourist resort" status or some other legislative exception allowing country clubs or hotels or restaurants in otherwise dry municipalities to sell liquor by the drink, so "dry" is somewhat relative. But when one-fourth of the state is completely "dry" and other counties continue to be partially dry — and the legislators representing those counties still remain opposed to liquor for moral and religious reasons — the likelihood of passing a law to make the entire state wet (and to allow counties to opt out and become dry) is still very low.

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"I think what you'll see is a lot like what happened with wine in grocery stores, where they will add provisions to the law that expand what you can do with alcohol," says Will Cheek, a lawyer who has been specializing in alcohol law in Tennessee since 1992. "I don't think there will be anything as big as wine in grocery stores. The next big one is alcohol in grocery stores — spirits. That's the natural next big push. And that's not going to happen any time soon."

For the record, no one else the Scene spoke with for this story even mentioned grocery store liquor sales, so it's unlikely to get that push for the next several years. The retail liquor association retains strong support in the legislature, and there are still sore feelings on many sides from the protracted seven-year WIGS battle.

"We were dealing with legislative changes as late as this spring," Quillman says, with more than a hint of anger. The original version of WIGS gave liquor stores within 500 feet of a grocery store the ability to prevent that store from selling wine until 2017. That provision was reversed during this past legislative session.

"They made that decision at the last minute," Quillman says. "So you had a lot of stores who had not been preparing for it, all of a sudden having to make changes."

One of the concessions in the WIGS battle was giving liquor stores the ability to sell beer, mixers, snacks and other non-alcohol-related products. But Quillman says that won't be enough to save many stores.

"A lot of owners are very scared," he says. "They have their life savings invested in this, and they can't just pick up and leave."

And Quillman says most of the liquor store owners he's talked to can't handle any more changes for a while.

"I'd love to have no legislative changes for 24 to 36 months, to just give us time to absorb the changes that have already happened and just see what's there, where the problems come up," Quillman says. "I wish we could just take time to digest it and not go rushing back to the legislature."

But according to Cheek and others, Quillman is unlikely to get his wish.

Up next? Sunday sales.

In one of the original versions of WIGS legislation, Sunday sales were a given. Why should a grocery store be permitted to sell beer until 3 a.m. on Sundays but have to cut off wine sales at 11 p.m. and refuse to sell on Sundays? But in a compromise with the liquor retail industry, the grocery lobby agreed to the different hours, at least for now.

Everyone knows the fix is temporary. The question is, how long before it changes?

"I think maybe a year or two — let's take a breather," Ketron says of when he might introduce legislation syncing the days and times that wine and beer can be sold. "But it's the next logical step that people want."

Ketron points out that many people are skirting Sunday sales already by going to a restaurant, ordering a bottle of wine, sipping maybe half a glass, and then taking the bottle home under corkage provisions. Besides, distilleries in the state can already sell their wares on Sundays, meaning there is currently a legal way to buy liquor on the Lord's Day.

Cheek thinks it will take a couple of tries to get Sunday sales through; Ketron estimates "up to five years." But Ikard thinks if enough consumers contact their legislators this fall — and enough grocery store owners point out what a pain the law is — the change could be sooner.

"I think we could possibly change that next session," Ikard says.

Even retailers seem resigned to the eventuality.

"As a group, we're not overly excited about it, but we expect it will happen sooner rather than later," Quillman says.

When asked if he's in favor of legislation that would allow local municipalities to vote to opt in to Sunday sales, as Georgia passed a few years back, Quillman says no.

"Me, individually, not speaking for the association — my preferred way is for everyone in the state to be allowed to open on Sundays, unless [your town] opts out," Quillman says. "Still, the reality is there aren't going to be any higher sales — people buy on Saturday to prepare for Sunday already."

Yet one provision that retailers will want for Sunday sales is one that many legislators will find hard to swallow — early morning sales. With groceries already operating on Sundays, liquor stores would be adding a day of labor costs, so they wouldn't want to be hamstrung by blue laws preventing sales before noon.

"If you're going to make me open on Sunday, I want to open at 8 a.m.," says Quillman. "If we're going to do this, let's go in whole-hog."

Liquor sales while people could hypothetically be in church? Prepare for all the pearls in Tennessee to be clutched.

The funny thing is, while WIGS drew all the attention, other huge changes have happened almost out of notice.

In 2015, the legislature legalized local delivery of alcohol, although it's taken almost a year to get going. Right now, you can go to the Drizly website and — in certain neighborhoods in Nashville (with more to come) — order a case of wine or a single bottle of bourbon, even mixers, at regular liquor-store prices and for a small fee have it delivered within the hour, or at a different set time.

Another law passed this session allows grocery stores to sell wine by the glass, without a separately enclosed restaurant. Wine bars inside Whole Foods and Kroger? They're coming.

But the biggest change in recent years happened in 2010, when legislation allowing limited-service liquor-by-the-drink licenses passed. Since then, the number of bars in Tennessee has exploded.

"There was a time in the legislature where you never would have expected a bar to exist. Senator [Doug] Henry was famous for saying, 'You need some food to sop up all that the alcohol,' " says Cheek. "That was a huge change. And what it did, it legalized an industry that for decades had been below the radar, because Tennessee didn't have bars. I see that as being an even bigger change than wine in grocery stores, and that one happened really quietly."

Prior to the change, anywhere with a liquor license had to sell an equivalent percentage of food and drinks. If you didn't want to deal with food, you were stuck with beer only. In the past, when the hospitality industry was smaller, the ABC had just looked the other way when it came to the handful of places that weren't quite meeting the requirements. But as the number grew, that was no longer possible. And once the license requirements changed, business boomed.

In 2009, the ABC issued 155 new liquor-by-the-drink licenses. In 2015, they issued 430, and to date in 2016, they've issued 215, on par to match last year, for a total of 3,452 liquor-by-the-drink licenses across the state as of late June. Tax revenue collected for liquor-by-the-drink sales alone (not including the additional sales taxes levied) is averaging close to $8 million a month for the state.

But according to many in the hospitality industry, the ABC has not kept up with that explosion in growth as well as it should have. Under the prior director, Keith Bell, enforcement actions were sometimes inconsistently applied. The penalty for a second offense of serving an underage drinker jumped from a two-day license suspension to almost two weeks — the second-harshest penalty in the country, according to Cheek.

Bell cracked down on bars serving infusions, which led to outrage and angry bartenders. That led to a new law, which then led Bell to proclaim bitters could only be sold in liquor stores, not grocery stores, even though the latter sell NyQuil or similar cough syrups (10 percent alcohol), Listerine (21.6 percent alcohol) and vanilla or other flavored extracts (35 percent or higher alcohol).

Bell resigned suddenly in March, and no one the Scene talked to seemed to have any idea why.

"Nobody knows," Cheek says. "Whatever it was, it was bad enough for them to cover up his picture outside the ABC with cardboard."

Bell's loss has not been mourned by the hospitality industry, even by those who got along with him.

"Our relationship with the ABC has always been really positive," says Ben Goldberg of the Strategic Hospitality restaurant group. "But I'm maybe an outlier."

Cheek is more blunt.

"It's like night and day, and you can quote me on that," Cheek says. "Night and day. It's not that [Bell] wasn't liked. But he was so unfriendly to business at a time when we have a very friendly climate to business in Tennessee."

PHOTO: ERIC ENGLAND
  • Photo: Eric England

The night-and-day comparison to which Cheek is referring is between Bell and the newly appointed ABC director Clay Byrd. The 31-year-old attorney just started at the agency June 8 after working as assistant general counsel in the comptroller's office and the office of legal services at the General Assembly. So far, Byrd has been swamped with WIGS applications and not much else, but he is hopeful he will be able to build strong working relationships with everyone he regulates, from wholesalers to retailers to bar owners.

"I knew, given my background and experience, I could be a good fit and help the agency in ushering in a new era with my enthusiasm and excitement about the position," Byrd says.

So far, the industry is enthusiastic about Byrd.

"I think he's going to do a great job," says Adkins.

Adkins, Cheek and others already have a laundry list of things they want Byrd to address, from fines to license suspensions to modernizing the agency, technologically speaking.

"I know the state has the capability to do so, because I'm also a lobbyist, and I don't have those kinds of issues with their website," Adkins says. "There also needs to be improvement with the turnaround time on applications. With current delays, it can take up to a month. And that's not just 20 or 30 days your business can't open, that's 20 or 30 days [the state's] not collecting tax revenue."

Bell said at the time of his appointment in 2013 that one of his main issues would be modernizing the ABC's website to allow for online permit applications, but three years later, it still isn't functional. That's about to change, says Byrd.

"That platform we intend to get off the ground and running as soon as possible," Byrd says.

But the biggest modernization Byrd attempts may be an overhaul of the agency's regulations.

"We are going to look at amending and updating rules and regulations that the commission promulgates," Byrd says. "The benefit you have ... is that you solicit input from various stakeholders, and I think that will be a unique opportunity to collaborate with people across the industry, to say, 'What does the industry understand this to mean?' and, 'What impact does the general law have here, and how can we craft the rule to reflect industry practices?' "

One of the things Byrd wants to look at is rules regarding retail package stores, a point with which Quillman agrees. Other rules that need tweaking involve grocery stores — if a store offers a discount on wines bought by the case or on closeout wines, can that discount cut into the required-by-law 20 percent markup from wholesale cost? Right now, that's not clear.

Byrd also says he's interested in exploring possible tweaks to what fines and suspensions are issued and how that process moves forward.

"It's my goal to provide the commission with the flexibility to be equitable in these determinations while at the same time operating within the bounds of the law," says Byrd. "We are an enforcement agency."

Another thing Byrd hopes to do is hire more staff. Currently the agency has 72 employees in four offices (one in each of the state's largest cities). Of those employees, 39 are assigned to enforcement duties. But this year's $7.98 million budget has funding for 86 employees — all of whose hypothetical salaries could be covered in just one month of liquor-by-the-drink taxes.

With such a complicated law governing such a complicated industry, there will be issues that arise every year, and there are already unforeseen ones popping up before a single bottle of wine has been sold in a grocery store.

Employee training certifications that allow cashiers to sell wine are tied to one store only, but some bigger chains shuffle employees between stores. Beer wholesalers can deliver beer to store shelves directly, but wine wholesalers must leave it at the door. It makes no sense, says Ikard.

Neither do many other laws. Why do you go to a local beer board for your beer license and the ABC for wine and liquor — why not have it all under the aegis of the state?

Why is an ostensibly business-friendly state with a Republican supermajority in both chambers telling retailers they must mark up their products from wholesale by a certain percent?

And why is the state Department of Agriculture, which regulates the creation of all of this alcohol, cracking down on adorable distillery cats? (Distilleries have a long-standing tradition of keeping cats around to nibble on rodents that would otherwise nibble on grains destined for whiskey, and both Corsair and Nelson's Green Brier have had feline companions that the agriculture department now says are unsanitary.)

But this weekend, it's time to put those questions aside and celebrate. You can buy wine in a grocery store. You can buy beer in a liquor store. You can buy a cocktail at a bar that doesn't have to pretend to pad its sales with unprofitable meals. You can buy really good craft beer and liquor, made here, in Nashville.

You've got freedom, Tennessee drinkers. Use it responsibly.


Wine in Grocery Stores: What You Need to Know

  • Wine will be sold 8 a.m. to 11 p.m., Monday through Saturday.

  • Wine will not be sold on Sundays or holidays, including the Fourth of July, Labor Day, Thanksgiving, Christmas and New Year's Day, so plan ahead. (This Saturday is the deadline to buy wine for Monday's July Fourth holiday.)

  • Wholesale distributors cannot limit sales of store-brand wines to grocery stores alone, so expect to see Kroger and Trader Joe's "exclusive" wines in liquor stores.

  • Wine must be sold at 20 percent markup over wholesale cost. However, ABC has yet to decide what this means for case discounts and closeout prices. Expect confusion from store to store regarding this for another month or two.

  • Starting Jan. 1, 2017, the definition of beer will expand so that beers with an alcohol content of up to 10 percent by volume will also be available in grocery stores and wherever else beer is sold, at the same hours as beer is currently sold. Higher-alcohol beer will continue to remain in liquor stores only.

    Email editor@nashvillescene.com

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