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Selling of wine at grocery stories in Arkansas' wet counties put to judge

2 sides state their case on new law

Wine drinkers across Arkansas' 40 "wet" counties will be able to buy their favorite wine in grocery stores or convenience stores as early as Thursday, if a federal judge decides today to reject a request from area liquor store proprietors.

But if Chief U.S. District Judge Brian Miller sides with the liquor stores and decides to block the state Alcoholic Beverage Control board from issuing permits to grocery retailers until a new state law can be more closely examined, the grocery retailers won't know for months if they can someday expand their offerings beyond small-farm wines.

"I'd like to hit pause and weigh out these issues," John Crow, part-owner of 107 Liquor Inc. in Sherwood, testified at a three-hour preliminary-injunction hearing in Miller's court Monday.

Crow said there are several large chain grocery retailers, including Wal-Mart and Kroger, very near his business, which he bought into in 2005, and if the board issues grocery-store wine permits to them, "There's no doubt I will lose money."

He predicted that in the area surrounding his family's liquor store, "The number of outlets selling wine, except for small-farm wine, will more than double." He asked Miller to halt the issuance of permits long enough for attorneys to explore the impact of the new law and present those findings at a trial, "before I take a major hit to my margins in the busiest time of the year."

If the permits are issued, "Can you point to any other harm you would suffer, other than increased competition?" asked Assistant Attorney General Jennifer Merritt.

"No," Crow replied, echoing the answers of other liquor-store owners who testified about the financial impact they expect to suffer if grocery retailers are allowed to sell the same type of wines -- from average $10 bottles to more expensive high-end varieties -- as the liquor stores now sell exclusively.

Attorney Paul James of Little Rock, an attorney who challenged the new law, Act 508 of 2017, on behalf of Crow and other liquor store owners in Pulaski and Saline counties, argued that the law violates the Equal Protection Clause of the Arkansas and U.S. constitutions by imposing more restrictions on liquor stores than it does on grocery retailers who want to expand their wine selections.

Merritt argued that the additional restrictions that apply to liquor stores are because the liquor stores are also allowed to sell hard liquor -- which grocery stores may not sell.

Merritt asked Miller to reject the injunction request on the grounds that the liquor stores have no likelihood of succeeding on the merits of their claim.

The liquor store owners say they are unfairly restricted by other state laws that weren't repealed with the enactment of Act 508 and that don't apply to the grocery retailer applicants, thereby giving the grocery sellers an unfair advantage. They cite restrictions on the number of liquor stores allowed in any given area, according to the population, and prohibitions against liquor stores being located near churches and schools, for example.

John Akins, owner of Legacy Wine & Spirits on Chenal Parkway, complained that he and other liquor store owners may apply for only one permit in any designated population area, yet Kroger and Wal-Mart are free to operate multiple locations and now will be allowed to sell the "identical product" he sells, but likely at a lower cost negotiated on behalf of multiple locations. He said that since grocery stores have been allowed to sell beer, "We don't make money off beer anymore, because of the profit margins. They mark theirs up just 2 percent."

But under cross-examination by Deputy Attorney General Monty Baugh, Akins acknowledged that he took revenue from 14 existing liquor stores in the area when he moved his store from Interstate 30 to Chenal Parkway in 2015, over two of the existing stores' opposition. He also acknowledged that when he moved into the neighborhood, a Kroger in the area was already selling small-farm wines.

Are you entitled to a certain amount of profit?" Baugh asked. Akins replied that he wasn't.

Mary Robin Casteel, director of the state Alcoholic Beverage Control Commission, testified that Act 508 requires each grocery location to obtain its own permit, and it prohibits chain grocery retailers from using "cumulative buying power" to buy wine from wholesalers at a discount.

"So Wal-Mart would pay the same price for a case of Kendall Jackson Chardonnay as a liquor store?" Merritt asked.

"Yes," Casteel replied, adding that legislators specifically included the restriction "to prohibit competitive buying and level the playing field."

While quantitative discounts are allowed, she said, "wholesalers have to offer the same deal to all retailers," and each grocery store may purchase wine only "for that location."

Casteel also testified that grocery retailers have to pay a fee of $1,000 to $5,000, depending on the amount of square footage they plan to devote to selling wine, to obtain a grocery-store wine permit, with the fees supporting the state's wine fund and state wineries. In addition, she said, grocery retailers seeking a grocery-store wine permit "cannot have more than 20 percent of their sales coming from alcoholic beverages," which was the Legislature's way of forcing them to focus on groceries and small consumables.

The only exception applies to two grocery retailers who receive more than 20 percent of their sales from alcoholic beverages because they were grandfathered in before Jan. 31, she said.

Act 508 allows grocery stores to sell all wines with an alcohol content of less than 21 percent, Casteel said.

She testified that as of Monday, the agency has received 238 applications for grocery-store wine permits, but that only 217 of the applicants are eligible for consideration when the board meets Wednesday, because she requires an application to be turned in 30 days before it is considered.

Casteel acknowledged that some grocery retailers have already begun to stock their shelves with more than small-farm wines, but she said they are required to "lock down" the expanded selection until a permit is issued.

James argued that in enacting Act 508, legislators didn't simultaneously "change public policy," which in 1935 set restrictions to limit the number of liquor stores according to population. But Merritt argued that the people of Arkansas, "through their elected representatives, have changed the policy of the state by allowing grocery stores to sell wine."

On behalf of Kroger, Wal-Mart and a small Helena-West Helena grocery store chain, Hays Food Town Inc., which have asked to intervene in the case, attorney Joseph Price urged Miller to consider that the liquor stores aren't the only ones worried about Act 508's effect on their finances.

If an injunction is issued prohibiting the issuing of permits, he said, "Wal-Mart is going to be out close to $1.5 million," the amount of money spent preparing for the expanded wine sales.

Miller said he believes the state has a right to set its own economic regulations and asked if the state also doesn't have the right to permit large retailers to get into the wine business.

He promised to issue a written ruling as early as he can today.

A Section on 11/14/2017



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