FMI WINE STUDY - FMI | Food Marketing Institute | Food Marketing

FMI WINE STUDY

The Economic Impact of Allowing Shoppers to

Purchase Wine in Food Stores

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Patrick A. Davis, V.P. State Government Relations, Food Marketing Institute

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T. 202-220-0637

Vickie Brown, Manager, Research, Food Marketing Institute

[email protected]

T. 202-220-0729

Food Marketing Institute (FMI) is the national trade association that conducts programs in public affairs,

food safety, research, education, and industry relations on behalf of its 1,500 member companies—food retailers and wholesalers—in the United States and around the world. FMI‘s members in the United States operate approximately 26,000 retail food stores and 15,000 pharmacies. Their combined annual sales

volume of $680 billion represents three-quarters of all retail food store sales in the United States. FMI‘s retail membership is composed of large multi-store chains, regional firms, and independent supermarkets.

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FMI Wine Study The Economic Impact of Allowing Shoppers to Purchase Wine in Food Stores ! Page 2 of 23

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Executive SummaryThe 21st Amendment to the Constitution, which repealed Prohibition in 1933, authorized each of the states

to make its own rules for the sale of alcoholic beverages. In most states, some version of a “three-tier” system was created. Tier one is composed of producers, tier two is comprised of distributors (also known as wholesalers), and tier three is made up of retailers/restaurants/bars. Each is licensed by the individual

states, with producers and distributors also licensed by Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of the Treasury. In 18 states 1 (and Montgomery County, Maryland), that came to be

called “control states,” the state also directly assumes aspects of the distribution and/or retailing roles, for some or all beverage alcohol products. Distributors also became the tax collectors for the state, collecting liquor excise taxes and occasionally other taxes, as well as providing state governments with detailed

reports to track the movement of alcoholic beverages.

The vast majority of U.S. states -- 33 states and the District of Columbia -- permit food stores to sell wine,

as listed in Table 12. The table also notes some of the sales restrictions adopted by these states.

Table 1: States Allowing Wine Sales in Food Stores

State Related RegulationsAlabama Local option

Sunday blue lawsArizona n.a.

California n.a.

D.C. Only beer and wine allowed in groceries, not spirits

Florida Only beer and wine allowed in groceries, not spirits

Georgia Sunday blue laws*

Hawaii n.a.

Idaho Spirits may only be sold in state stores.

Illinois n.a.

Indiana No cold beer may be sold in food stores.

Iowa A Class AA High Alcohol Content Beer Permit (BAA) allows the manufacture and sale of high proof beer at wholesale to licensed retailer.

Louisiana n.a.

Maine Beverages with ABV greater than 15.5% may only be sold in state- contracted stores.


1 Alabama, Idaho, Iowa, Maine, Michigan, Mississippi, Montana, New Hampshire, North Carolina, Ohio, Oregon, Pennsylvania, Utah, Virginia, Vermont, Washington, West Virginia, Wyoming and Montgomery County, Maryland.

2 “Local option” allows local communities (counties, townships, etc) to determine, by vote or local government action, aspects of liquor licensing for their region. “Sunday blue laws” are the traditional term for restrictions on beverage alcohol sales on Sundays. “n.a.” in the Related Regulations column indicate no relevant regulations apply.

Maryland Counties may choose alcohol sales arrangements, including Sunday blue laws. The wholesale distribution of beer, wine, and spirits in Montgomery, Somerset, Wicomico, and Worcester counties is conducted by the county, which also operates wine and liquor stores.

Michigan Local option on Sunday sales

Missouri n.a.

Montana Beverages with ABV greater than 16% sold only in state-contracted stores

Nebraska n.a.

Nevada n.a.

New Hampshire

The state licenses wine and liquor outlets to third parties and operates 76 stores itself selling wine and spirits, along with two wholesale warehouses.1,300 grocery stores sell wine and beer

New Mexico Local option on Sunday sales

North Carolina

Beer and wine may be sold in food stores, but liquor may be sold only in state stores.

North Dakota

n.a.

Ohio Beverages with ABV greater than 21% sold only in state agent stores

Oregon Liquor stores are sales agents for state

South Carolina

Beverages with ABV greater than 16% are sold only in package stores; local option on wine in food storesSunday blue laws

South Dakota

Groceries may apply for additional “off-sale” liquor licenses with the exception of towns where there are municipal liquor stores.

Texas Food stores need an additional license to sell beverages with ABV greater than 15.5%.City/county option 22 dry counties Sunday blue laws

Vermont State distributes beverages exceeding 15% ABV

Virginia Beverages with ABV greater than 14% may be sold only in state stores.

Local optionWashington Spirits sold only in state stores**

West Virginia State wholesales spirits

Wisconsin n.a.

Wyoming n.a.

Source: State Alcohol Control Boards laws and regulations. *The Georgia Legislature enacted a local-option statute in the spring of 2011, allowing cities and counties to hold referendums on Sunday Blue Laws restricting alcohol sales. In November 2011, 105 of 127 cities and counties overwhelmingly approved referendums allowing alcohol sales on Sundays. **In the wake of the passage of Initiative 1183 (which faces various legal challenges) all wine distribution and retail sales in the state of Washington will be done through private wholesale and retail systems. Wineries may continue to either sell through a wholesaler, or with the proper endorsement to their operating certificates, directly to retail accounts. Grocery store chains will be able to utilize centralized warehousing procedures under the new system, allowing a winery or wholesaler to deliver to one central point for distribution throughout the chain’s stores. All state-operated retail outlets and warehousing operations will cease operations on June 1, 2012 barring any actions by the courts.


Several states prohibit the sale of all alcoholic beverages in food stores, giving a monopoly on such sales to single-purpose stores, known as “package stores.” Over the years, however, several of these states

have opened their markets, at least to wine, or beer, or wine and beer, but 17 states, listed in Table 2 below, still prohibit or severely limit, the sale of wine in food stores.

Table 2: States Limiting Wine Sales in Food Stores

State Additional Special CharacteristicsAlaska Only package stores may sell any beverage alcohol.Arkansas Food stores only allowed to sell wine from producers making less than 250,000

gallons of wineColorado Food stores restricted from selling wine; Package stores limited to single location

Connecticut Food stores restricted from selling wine; Sunday blue laws

Delaware Food stores restricted from selling wine

Kansas Food stores restricted from selling wine; Local option for on-premise and Sunday sales; only 17 counties allow general on-premises sales

Kentucky Food stores restricted from selling wine; Local option for all alcohol sales, including Sunday sales, with multiple “dry” counties; Local communities may allow package-store sales of liquor by the drink or sales at wineries.

Massachusetts* Food stores are allowed three outlets per license to sell wine. Licenses are limited to local individuals. All other alcoholic beverages are sold through package stores.

Minnesota Food stores restricted from selling wine; Sunday blue laws

Mississippi Food stores are restricted from selling wine. Beverages with ABV greater than 5% must be sold in state-contracted stores. Sunday blue laws; local option

New Jersey Food stores are allowed only two outlets per license to sell wine; food stores otherwise restricted from selling wine; package stores are allowed only a single outlet license.

New York Food stores may sell beer but are restricted from selling wine. Package stores allowed only a single outlet license to sell wine and spirits, not beer

Oklahoma Food stores restricted from selling wine; Sunday blue laws

Pennsylvania All alcoholic beverages sold only through state package stores Rhode Island Food stores restricted from selling wine

Tennessee Food stores restricted from selling wine; package stores limited to single outlet licenses, with licensee required to be local resident

Utah Food stores restricted from selling wine; Sunday blue laws

Source: State Alcohol Control Board laws and regulations *The Massachusetts House passed S.2033, legislation that increases the number of liquor licenses an entity can hold for off-premise consumption. An agreement to increase the license limit staggered over an eight year period was called for. The legislation would allow an entity to apply for two more licenses to sell alcohol for off premise consumption, upon local approval in 2012 for a total of five, two more in 2016 for a total of seven and two more in 2020 for a total of nine licenses.

The objective of these laws and regulations was to constrain and monitor the availability of alcoholic beverages so as to discourage alcohol consumption. Unfortunately, these regulations have had several

unintended consequences:

• Reduced consumer choice and convenience, as reflected in Table 3 below, requiring consumers to search out a limited number of specialized stores and make additional shopping trips to buy wine;


Table 3: Retail Outlets for Wine

Total Number of Retail Outlets for Wine Total Adult Population Adult Population per

Retail Outlet for WineOpen States 155,327 155,733,379 1,003

Closed States 16,387 67,039,711 4,091

Source: Adams Wine Handbook 2010 and state agencies

• Created alcohol-retailing monopolies, with limited business opportunities and artificially constrained business strategies3 dependent on state protection;

• Deprives states of significant revenues from additional license fees, from sales taxes on potential incremental wine sales, and revenue generated by increased employment and business profitability, as summarized in Table 4 below and discussed on pages 16 and 17;

Table 4: Projected Tax Revenues Generated by Reducing Restrictions on Wine Sales in Food Stores

Federal Tax State & Local Tax

Total Federal Tax Revenues $1,941,341,576 Total State and Local Taxes $3,316,681,377

Total Projected Increase in Tax Collections Total Projected Increase in Tax Collections $5,258,022,953.00$5,258,022,953.00

Source: Stonebridge Research Group LLC, U.S. Economic Census and IMPLAN

• Reduced employment opportunities that would be generated in food stores (and in other businesses) when they add these products to their offerings, as summarized in Table 5 and discussed on pages 12 to 16;

Table 5: Projected Impact on U.S. Employment of Allowing Shoppers to Purchase Wine in Food Stores

Jobs CreatedDirect Employment 37,352

Indirect Employment Impact 59,682

Induced Employment Impact 71,211

Total Employment Impact 168,245

Source: U.S. Economic Census, Industry Interviews, IMPLAN, Stonebridge Research Group LLC

• Reduced sales and profitability of food retailers, for whom wines sales may directly represent between 2% and 12% of total sales revenue, while also generating significant additional sales per shopping trip, as shown in Table 12;

• By separating the sale of wine from the sale of other foods, healthier consumption of wine with meals is discouraged in favor of consumption of wine merely for its alcoholic components.


3 Most states that limit beverage alcohol sales to package stores also limit the other products these stores may sell, in some cases eliminating all other products, as well as restricting other business practices, whether offering chilled beverages or carrying products to customer cars.

The next section of this report examines these issues in detail. The conclusions of this analysis include:

Impact on Package Stores

The calculations in the study consider the impact of partially reducing the sizable gap in retail access to

wine in restricted states by the issuance of 5% increase in new off-premise4 wine sales licenses. This expansion in licenses would reduce total package store sales by only 2.52%, as explained on page 12.

Analysis of store counts across the states, in which food stores and package stores both sell wine,

demonstrates that package stores can and do successfully continue in business and to even increase in number in those states in which wine is sold in the food channel, as shown in Appendix 1. This analysis

found that, in 22 of the 34 states and the District of Columbia, the number of package stores increased and, in one other, the number was stable. In 12 states, the number of package stores declined, but in most of those cases the number of food stores also declined, indicating broader economic factors (than

competition for wine sales) were likely involved.

In addition, in several states in which opening of the wine market is under consideration, food retailers have

proposed a variety of compensating measures for existing license holders, ranging from protected geographic zones around existing smaller stores, to transfer surcharges shared by existing license holders and/or allowing the existing license holders to expand their product offerings or to obtain multiple licenses

themselves to grow their businesses.

These compensating measures should protect many of the existing package store businesses. In many

cases, these measures would add value to existing liquor licenses, by increasing demand and thus their transfer value, should the license holder choose to sell his license.

Altogether, opening the market for wine sales will have minimal impact on existing package stores.

Methodology

In conducting this study, Stonebridge Research Group reviewed data on wine sales and store counts in multiple states, wine consumption, alcohol abuse data, and U.S. Government data and interviewed state-

level contacts and multiple parties in the beverage alcohol and food marketing industries, drawing as well on Stonebridge’s extensive prior research on the business of wine. The findings from the research were then entered into the IMPLAN model, described below, to determine the overall employment, revenue, and

tax impacts of the actions being examined.

Direct, Indirect and Induced Effects (IMPLAN)

Much like dropping a pebble into a pond, changes in any one industry, or sector of the U.S. economy, has

ripple effects across the entire economy. Economic impact studies estimate the impact of an industry in a defined geographical area by identifying and measuring specific concrete economic “events.”

The impact of events tracked in this report are changes in food store and package store sales. The

geographic area in this study is the total U.S.


4 “Off-premise” refers to the sale of beverage alcohol in closed packages for consumption in another location, as contrasted with “on-premise,” where beverage alcohol is sold at the location where it is consumed.

IMPLAN is the acronym for “IMpact analysis for PLANing.” IMPLAN is a well established and widely used economic model that uses input-output analyses and tables for over 500 industries to estimate regional

and industry-specific economic impacts of changes in a specific industry.

The IMPLAN model and its structure are updated annually to reflect changes in the U.S. economy, in

wages, in productivity assumptions, and in regional economic structures.

The IMPLAN model grew out of work initially developed by the U.S. Forest Service working with the University of Minnesota in 1983. It is the standard model for analyzing regional economic activity and

impacts, used by hundreds of organizations in federal, state and local governments, universities and the private sector, including the Federal Reserve, the U.S. Department of Defense, and the National Agricultural

Statistics Service of U.S.D.A.

Conclusion

The study concludes that the benefits of allowing wine sales in food stores in terms of job creation, government revenues, and consumer choice, far outweigh any potential negative impacts.

Enabling wine to be sold in 8,489 food stores in states that currently restrict such sales is estimated to produce a total economic impact of $14.3 billion, including a net increase of more than 168,000 jobs

across the U.S. and incremental tax collections of more than $3.3 billion at the state and local level and of more than $1.9 billion at the federal level.

Table 6: Total Projected Economic Impact of Allowing Shoppers to Purchase Wine in Food Stores

ImpactTotal Wage Impact $7,242,595,248

Total Revenue Impact $1,827,548,986

Total State and Local Tax $3,316,881,377Total Federal Tax $1,941,341,578

Total Economic Impact $14,328,367,189

Source: Stonebridge Research Group LLC, IMPLAN, Industry Interviews. U.S. Economic Census, 2007 and U.S. B.L.S. data.


This market expansion in licenses is projected to reduce total package store sales by only 2.52%. Most package stores are likely to sustain their businesses, as they have in most states with open markets, or

take advantage of the mitigations offered through market reform to redeem the increased value of their licenses.

While adapting to a changing economic environment is often difficult, those states that have made the

change found their fears of a dramatic decline in sales were unjustified.

Allowing food stores to sell wine will return wine to its appropriate and traditional role as part of a meal,

encouraging healthy consumption while increasing consumer choice and convenience.


Table of Contents

.........................................................................................................The Analysis 11

...................................................................................Consumer Access and Consumer Choice 11..............................................................................................................Table 7: Retail Outlets for Wine 11

....................................Reducing Restrictions to Open Markets and Increase Consumer Access 12......................................................................Table 8: Potential Increase in U.S. Retail Outlets for Wine 12

.....................................................................................................................Food Store Impacts 12...........................................................................................Table 9: Direct Impact on Food Store Sales 12

..................................................................................................Implications for Package Stores 13.................................................................................Table 10: Package Stores Sales and Employment 14

...............................................................Competitive Implications for Existing Package Stores 14.............Table 11: Store Count Overview, 2001 to 2009, for States Allowing Wine Sales in Food Stores 14

.............................................................................................................Other Economic Impacts 15

.............................................................................................Impact on Wine Sales in the U.S. 15...........................................................................................Table 12: Direct Impact on U.S. Wine Sales 15

.................................................................................................Table 13: Impact on U.S. Wine Industry 16

........................................................................................Impact on Wine Distribution Industry 16.........................................................................................Table 14: Direct Impact on Wine Distribution 16

......................................................................................................Overall Employment Impact 16Table 15: Projected Impact on U.S. Employment of Allowing Shoppers to Purchase Wine in Food Stores 16

............................................................................................Impact on Government Revenues 17.Table 16: Projected Tax Revenues Generated by Allowing Shoppers to Purchase Wine in Food Stores 17

..............................................................................................................Total Economic Impacts 18.....Table 17: Total Projected Economic Impact of Allowing Shoppers to Purchase Wine in Food Stores 18

...............................................................................Appendix 1: Food and Package Store Count 19

.................................................................Appendix 2: Wine Consumption by State, 2008-2009 19

..................................Appendix 3: Density of Retail Outlets for Wine, Open Market States, 2010 21

................................................Appendix 4: Density of Retail Outlets for Wine, Restricted States 22

.....................................................................................About Stonebridge Research Group LLC 23


The AnalysisConsumer Access and Consumer Choice

The economic impact of differential wine retailing regulation among states varies by culture, local industrial

structure, and demographics, as well as other factors. For example, wine consumption tends to be higher in tourism-driven economies, whether Las Vegas or Branson, Missouri. Moreover, the demographics of

wine consumers are well documented; wine consumers tend to be college educated, from households with incomes greater than $75,000. Ethnicity may also influence wine consumption; the wine industry in many states was founded in the 19th and early 20th centuries by European immigrants, bringing from home a

culture of wine making and consumption.

The interplay of geography and public policy can influence wine consumption as well; higher tax states

often drive sales into adjacent states, whatever the regulatory environment. Thus, Connecticut and New Jersey may gain overflow sales from higher-taxed New York, and Missouri may gain sales from higher-taxed Tennessee.

Consequently, as Appendix 1 shows, wine consumption patterns vary significantly among states, reflecting all of these variables.

Nevertheless, it is clear that the restrictions on wine sales channels have distorted the structure of wine markets in several states. As summarized in Table 7, closed states allow consumers far less choice in retail access to wine than do states with more open markets. If food stores in closed states were allowed to offer

wine, it is reasonable to assume that the density of outlets per adult would move closer to the average found among open states. The actual number of new licenses issued would, of course, vary widely among

states.

As detailed in Appendices 3 and 4, the density of retail outlets among nearly all of the closed states is significantly higher than among most of the open states 5, despite the wide variations in both wine

consumption among the states and in their beverage alcohol regulations. The density of outlets, and thus opportunities for consumer choice, in the closed states also diverges significantly from that of the U.S. as a

whole.

Table 7: Retail Outlets for Wine

Total Number of Retail Outlets for Wine Total Adult Population Adult Population per

Retail Outlet for WineOpen States 155,327 155,733,379 1,003

Closed States 16,387 67,039,711 4,091

Total U.S. 171,714 222,773,090 1,297

Source: U.S. Bureau of Labor Statistics, U.S. Census Bureau


5 A few states appear as outliers. Several New England states have quite high density of small package stores.

Reducing Restrictions to Open Markets and Increase Consumer Access

In Table 8 below, we show the impact of increasing the number of retail outlets per adult to bring the density of outlets in currently closed states to just half of that currently found in the U.S. as a whole, i.e., to

grow the number of outlets from one per 4,091 adults to one outlet per 2,695 adults. Such a license expansion would represent only a 5% increase in total U.S. off-premise licenses to sell wine, while creating 8,489 new off-premise wine sales outlets and licenses.

We have assumed that these new licenses would be awarded by auction, or similar open process, to food stores to enhance consumer convenience and generate the other benefits described in this study.

Table 8: Potential Increase in U.S. Retail Outlets for Wine

Number of OutletsCurrent U.S. Retail Outlets for Wine 171,587Estimated Incremental Retail Outlets for Wine 8,489

Increase in U.S. Retail Outlets for Wine 4.95%

Source: Stonebridge Research Group and Adams Wine Handbook

Food Store Impacts

Currently, across the U.S., sales of wine represent between 2% and 12% of total food store sales revenue, depending on region, based on Stonebridge’s survey of the food store industry.

Several years of food store Infoscan6 data have shown that consumers tend to buy a more expensive basket of goods per shopping trip when they shop for wine at food stores, producing an incremental sale of about $20, beyond the cost of the wine purchased. Thus, allowing food stores in restricted states to sell

wine would not only increase their sales by the volume and value of the wine sold, but would likely increase overall store sales due to this “basket effect” of shopping for wine.

Table 9: Direct Impact on Food Store Sales

Average Revenue per Store 5,388,893

6% Sales Increase per Average Store 323,334Total U.S. Food Store Sales Increase, for 8,489

stores receiving licenses to sell wine 2,744,782,326

Total U.S. Food Store Employment 2,462,730

Increased U.S. Food Store Employment 7,973

Total U.S. Food Store Payroll $54,666,290,000

Increase in U.S. Food Store Payroll $176,983,904

Source: U.S. Census Bureau and Stonebridge Research Group LLC


6 “Infoscan” data is collected from the price scanner machines at check out of most food and drug stores, especially chain stores, and analyzed by Information Resources Inc. and The Nielsen Company, to track and report sales patterns by dollar, volume, and region.

The Economic Census of the United States estimates average sales per outlet of food retailers at $5.4 million. Assuming only a 6% average increase in food store sales from adding wine to their offerings, the

average food store would see a $323,334 increase in sales. Thus, adding wine to 8,489 food retail outlets, as defined in Table 9, would increase total food store revenue across the U.S. by $2.7 billion.

Employment in the stores would likely increase by some proportion of this increase in sales. Assuming a 3.3% increase in employment per store, total food store employment in the U.S. would increase by 7,973, with an increase in total wages of almost $177 million. This number does not include the impact of the

“basket effect” on store revenues and employment, as well as the many suppliers to these stores, and thus understates the full impact of grocery store expansion.

Implications for Package Stores

When analyzing the impact of this expansion on employment and revenues in existing package stores, some key facts about the U.S. wine market need to be considered:

• Competition for wine sales would significantly impact a relatively small segment of package stores

and jobs.

• Wine sales are highly concentrated in a relatively small segment of the U.S. population. Two-thirds

of all wine sales in the U.S. are purchased by about 26%7 of all wine consumers. Moreover, while more than 40% of American adults consume wine at some point, only about 14% of U.S. adults consume wine weekly.

• Nationally, more than 50% of wine is purchased by women8, who traditionally are uncomfortable in conventional package stores. Women thus tend to buy wine in food stores, or not buy it at all.

Sales to these customers would, therefore, be incremental to those currently occurring in package stores.

• Wine represents between 10% and 60% of total package store sales9, depending on the

demographics of the particular store.

If we assume that as much as one-third of the incremental wine sales at food stores would be shifted from

package stores, representing about $914 million in sales, this shift, based on U.S. Economic Census data, would equal about 2.52% of total U.S. package store sales. In the unlikely case that all of this decline in

sales would be translated into job loss, a total of 3,560 jobs in package stores might be at risk across the U.S. However, as noted earlier, the proponents of reform have proposed several mitigations designed to moderate this job impact, including ensuring protected zones around existing stores, expanding product

offerings in package stores, and allowing package stores to hold multiple licenses to expand their regional footprints and grow their brands. Introducing food stores into the market for wine sale licenses will increase


7 “Understanding and Enhancing the Market for California Wine in the U.S.,” a study conducted by Yankelovich Partners for the Wine Institute, 2005. Also The Nielsen Company and various studies conducted by Stonebridge Research Group LLC, 2008-2011.

8 Ibid

9 Stonebridge Research Group LLC industry surveys

the value of these licenses, providing compensation to existing license holders and increased demand for their experienced employees.

Table 10: Package Stores Sales and Employment

Total Current Package Store Sales in U.S. $36,300,000,000

Loss of Package Store Sales, Assuming One-Third of Sales Shifted from Package Stores

$914,000,000

Resulting Percentage Loss of Sales in Package Stores

2.52%

Total Package Store Employment in U.S. 141,255

Implied package stores jobs at risk 3,560

Total Package Store Payroll in U.S. $2,600,000,000

Implied Package Store Payroll at risk $65,465,565

Source: U.S. Economic Census and Stonebridge Research Group LLC

Competitive Implications for Existing Package Stores

The data indicates that package stores have successfully competed with food stores selling wine in most

states with open markets. Package stores may even benefit from greater wine awareness stimulated by new visibility in food stores.

Appendix 1, summarized in Table 11, shows the changes in the number of food stores and package stores

that have occurred over the past decade in the states allowing wine sales in food stores. The table indicates that, contrary to expressed concerns by the liquor store sector, the number of such stores

continues to increase in most states. Specifically, in 22 of the 34 states and the District of Columbia, the number of package stores increased and in one, the number remained stable. Moreover, in most states in which package store counts declined, the food store count also declined, suggesting more general

economic factors at work.

Table 11: Store Count Overview, 2001 to 2009, for States Allowing Wine Sales in Food Stores

Number of States %Number of Package Stores Increased 22 63%

Number of Package Stores Declined 12 34%

Package Store Count Constant 1 3%

Total (including Washington D.C.) 35 100%

Source: Appendix 1, Adams Wine Handbook 2010, Economic Census of the U.S., U.S. Bureau of Labor Statistics and Stonebridge Research Group LLC.

Understanding of the wine business partly explains package stores’ resilience:

• Having wine in the food stores that consumers regularly visit increases awareness of the product,

raising the overall interest in the sector, ultimately benefiting the more specialized retailer.


• Few food stores provide specialized wine sales staff or offer more expensive wines. The average grocery store shelf set for wine is about 470 SKUs 10, while specialty wine and liquor retailers tend

to carry a much wider and more varied selection. Consumers seeking specialized assistance and a broader selection thus tend to search out specialized retailers. These retailers then can sell more and higher margin products, enabling such stores to thrive alongside food stores selling wine.

• Extensive consumer research indicates that wine consumers typically buy wine in several price segments11 and thus, these two retail channels are complementary.

In addition, the food retailing industry in various states has offered mitigations to package stores in order to soften the impact of allowing food stores to sell wine. These mitigations have focused on reducing negative impacts on smaller, so-called “mom and pop” stores, and increasing the value of existing liquor

retailing licenses. Such mitigations include location restrictions on new stores, allowing existing stores to share in fees generated by new licenses or in transfer fees for existing licenses, permitting package stores

to expand product offerings (snack foods and similar foods, beer, ancillary products) and allowing current licensees to have multiple licenses to grow their businesses.

Other Economic Impacts

This retail expansion will impact numerous sectors, a few of which are highlighted below.

Impact on Wine Sales in the U.S.

The estimated net increase in total wine sales in the U.S. of $1.8 billion is equivalent to a more than 6% increase in total 2010 U.S. wine sales.

Table 12: Direct Impact on U.S. Wine Sales

Total U.S. Food Sales Increase, for 9,668 stores receiving licenses to sell wine

$2,741,548,986

Sales Shift from Package Stores $914,000,000

Net Increase in U.S. Wine Sales $1,827,548,986

Total U.S. Wine Sales, 2010 $30,000,000,000

Increased Wine Sales as % of Total U.S. Wine Sales

6.09%

Increased U.S. Sales of American Wine $1,414,522,915

Source: Gomberg-Fredrikson, Wine Institute and Stonebridge Research Group LLC

As 77.4% of U.S. wine sales are wines produced in the U.S., this market expansion would represent a more than $1.4 billion increase in sales of wine from American producers, with substantial indirect

impacts on related industries, from distributors and restaurants to grape growers, farm equipment suppliers, and barrel, bottle and tank makers.


10 Stonebridge Research industry research and studies by The Nielsen Company.

11 “Understanding and Enhancing the Market for California Wine in the U.S.,” a study conducted by Yankelovich Partners for the Wine Institute, 2005 and various surveys conducted by Stonebridge Research Group, 2008-2011.

Table 13: Impact on U.S. Wine Industry

Increased Wine Industry and Related Employment

31,290

Increased Wine Industry and Related Wages

$602,192,050

Source: “The Impact of Wine, Grapes and Grape Products on the American Economy, 2007,” MKF Research LLC for The National Wine and grape Initiative.

Impact on Wine Distribution Industry

A 6% increase in U.S. wine sales would require comparable expansion in the U.S. wine distribution industry, as indicated in Table 13 below.

Table 14: Direct Impact on Wine Distribution

Increased Wine Distributor Revenue $274,154,899

Increased Wine Distributor Employment 1,659

Increased Distributor Wages $114.501.208

Source: U.S. Economic Census and Stonebridge Research Group LLC

Overall Employment Impact

Allowing food stores to sell wine in those states in which such sales are now restricted, would generate more than 168,000 new jobs across the U.S. and more than $7.2 billion in additional wages in food

retailing, wine production, and distribution and allied industries, after allowing for the 3,560 package store jobs possibly at risk, including indirect and induced employment as calculated by the IMPLAN model. For

example, increased wine sales will necessitate expansion by wine wholesalers/distributors in the affected states, along with expanded production and employment by wine producers, importers, and the varied suppliers to all of these businesses.

Table 15: Projected Impact on U.S. Employment of Allowing Shoppers to Purchase Wine in Food Stores

Jobs Created Wages GeneratedDirect Employment 37,352 $827,975,345

of which Food Store Job Growth 7,963 $176,747,652

Package Store Job Loss (3,560) ($65,465,565)

Wine Wholesale/ Distribution 1,659 $114,501,208

Winemaking and Related Industries 31,290 $602,192,050

Indirect Employment 59,682 $3,156,945,213Induced Employment 71,211 $3,257,674,690Total Employment Impact 168,245 $7,242,595,248

Source: Stonebridge Research Group LLC, IMPLAN, U.S. Economic Census and Industry Interviews


Impact on Government Revenues

In addition to employment, sales, income, and business taxes generated by the additional retail sales and new job creation, these legislative changes would generate nearly $48 million in incremental federal excise

taxes and $13.4 million incremental state excise taxes on wine, assuming an average state excise tax rate of only $.30 per gallon. This is the lowest such rate prevailing among the states with restrictions and thus the real revenue would likely be much larger.

State and local governments also would receive new fee income from issuance and sale of wine sale licenses and the emergence of a secondary market for such licenses in these states. Research has found

that jurisdictions will allow (supervised) resale of existing licenses, rather than returning licenses to the state for re-issue, or have auctioned off licenses which have been returned to the state have generated substantial funds for state (and often local) governments. Private sales of licenses have generated as much

as $250,000 in auctions in New Jersey and $500,000 in smaller communities in Florida while license sales in California each may raise $25,000 or more12.

For this analysis, we have assumed licenses are issued by public auction with an average state license fee of up to $2,500 and a local government license fee of $200,000, substantially below recent license auctions in some states 13. This analysis assumes such fees are generated in one period when, in fact, such

transactions may develop over several years. States also generally charge annual or biennial renewal fees for such licenses.

Altogether, reducing restrictions on wine sales in food stores will generate incremental Federal tax revenues of more than $1.9 billion and incremental state and local tax revenues of more than $3.3

billion.

Table 16: Projected Tax Revenues Generated by Allowing Shoppers to Purchase Wine in Food Stores

Federal Tax State & Local Tax

Social Insurance $835,103,968$835,103,968 Payroll Taxes $20,084,896

Proprietor Income $113,479,544$113,479,544 New License Fees* $1,719,022,500

Indirect Business Taxes $253,854,688$253,854,688 Indirect Business Taxes $1,308,922,675

Income Taxes $584,916,416$584,916,416 Income Taxes $135,751,094

Corporate Profits Tax $153,986,960$153,986,960 Corporate Taxes $133,100,212

Total Federal Tax Revenues $1,941,341,576$1,941,341,576 Total State and Local Taxes $3,316,881,377

Total Projected Increase in Tax Collections Total Projected Increase in Tax Collections $5,258,222,953$5,258,222,953$5,258,222,953

Source: Stonebridge Research Group LLC, IMPLAN, Industry Interviews and U.S. Economic Census

To allocate these potential impacts by state requires assumptions about patterns of state-by-state license transfers and issuance.

Fees for new licenses vary widely among states and localities, as do regulations for transfers of existing


12 The Florida sales were private party sales but proposed arrangements for licenses would recommend that food stores acquiring these licenses share part of the proceeds of these sales with the relevant jurisdictions.

13 In some regions, auctions for new retail liquor licenses have generated more than $500,000 per license.

licenses. Several states retain population limits on the number of licenses issued. Where such licenses are already fully subscribed, allowing food stores to sell wine will increase the value of existing licenses by

increasing demand for license transfers. Some states have no charge for license transfers, which are entirely private transactions. Other states do not permit license transfer, but require licenses to be surrendered to the jurisdiction for reissue. This table therefore is for illustration only; the market and policy

situation, as well as the fees and issuance process for licenses, within each state are unique and thus license issuance patterns could vary significantly.

Total Economic Impacts

Enabling wine to be sold in 8,489 food stores in states that today restrict such sales is estimated to produce a total economic impact of $14.3 billion, including a net increase of more than 168,000 jobs

across the U.S. and incremental tax collections of more than $3.3 billion at the state and local levels and of more than $1.9 billion at the federal level.

Table 17: Total Projected Economic Impact of Allowing Shoppers to Purchase Wine in Food Stores

Total Wage Impact $7,242,595,248Total Revenue Impact $1,827,548,986Total State and Local Tax $3,316,881,377Total Federal Tax $1,941,341,576Total Economic Impact $14,328,367,187

Source: Stonebridge Research Group LLC, IMPLAN, Industry Interviews. U.S. Economic Census, 2007 and U.S. BLS data.

Conclusions

Allowing food stores to acquire wine sale licenses would increase consumer choice, reduce artificial barriers to wine consumption, and expand the market for wine in multiple states, creating both public

revenues and jobs.

The study concludes that the benefits (in terms of job creation, government revenues, and consumer choice) of allowing wine sales in food stores, far outweigh any potential negative impact.

Enabling wine to be sold in 8,489 food stores in states that today restrict such sales will produce a total economic impact of $14.3 billion across the U.S., including a net increase of more than 168,000 jobs

and incremental tax collections of more than $3.3 billion at the state and local levels and of more than $1.9 billion at the federal level.

This market expansion in licenses would reduce total package store sales by only 2.52%. Most package stores are likely to sustain their businesses, as they have in most states with open markets, or take advantage of the mitigations offered by market reform, to redeem the increased value of their licenses.

While adapting to a changing economic environment is often difficult, states that have made the change have found their fears preceding the change were unjustified.

Allowing food stores to sell wine will return wine to its appropriate and traditional role as part of a meal, encouraging healthy consumption, while increasing consumer choice and convenience.


AppendicesAppendix 1: Food and Package Store Count

AlabamaAlabamaAlabama ArizonaArizonaArizona ArkansasArkansasArkansas CaliforniaCaliforniaCalifornia District of ColumbiaDistrict of ColumbiaDistrict of Columbia

Food Store Count

Pkg CountPkg Count

Food Store Count

Pkg CountPkg Count

Food Store Count

Pkg CountPkg Count

Food Store

Pkg CountPkg Count

Food Store Count

Pkg CountPkg Count

2001 1,035 138138 988 150150 721 334334 9,170 2,7982,798 267 178178

2009 878 163163 1,163 171171 586 306306 9,575 2,9542,954 321 167167

FloridaFloridaFlorida GeorgiaGeorgiaGeorgia HawaiiHawaiiHawaii IdahoIdahoIdaho IllinoisIllinoisIllinois

2001 4,748 801801 2,252 689689 357 5959 387 2323 3,509 1,0911,091

2009 6,044 1,2891,289 2,135 830830 411 4949 352 2828 3,593 1,2671,267

IndianaIndianaIndiana Iowa Iowa Iowa LouisianaLouisianaLouisiana MaineMaineMaine MarylandMarylandMaryland

2001 1,300 685685 728 103103 1,873 156156 695 2727 1,441 963963

2009 5,641 723723 641 114114 1,615 159159 595 3636 2,033 1,1091,109MichiganMichiganMichigan MissouriMissouriMissouri MontanaMontanaMontana NebraskaNebraskaNebraska NevadaNevadaNevada

2001 3,245 1,7261,726 1,316 403403 317 4444 513 174174 460 5151

2009 2,942 1,4991,499 1,244 372372 251 6363 463 137137 566 9898

New MexicoNew MexicoNew Mexico North CarolinaNorth CarolinaNorth Carolina North DakotaNorth DakotaNorth Dakota OhioOhioOhio OregonOregonOregon

2001 327 8787 2,614 7171 213 6969 3,795 1,2201,220 1,260 1711712009 301 8080 2,325 8787 187 6969 3,347 1,0331,033 1,382 212212

South CarolinaSouth CarolinaSouth Carolina South DakotaSouth DakotaSouth Dakota TexasTexasTexas VermontVermontVermont VirginiaVirginiaVirginia

2001 1,4211,421 400 257257 49 5,6015,601 1,128 354354 52 1,9321,932 682009 1,1291,129 328 214214 52 5,6415,641 1,285 1,2851,285 387 2,0482,048 102

WashingtonWashingtonWashington West VirginiaWest VirginiaWest Virginia WisconsinWisconsinWisconsin WyomingWyomingWyoming

2001 1,9051,905 135 731731 51 1,1561,156 436 118118 982009 1,8721,872 154 568568 52 999999 388 9999 62

Source: Source: Adams Wine Handbook 2010, Economic Census of the U.S., U.S. Bureau of Labor Statistics and Stonebridge Research Group LLC.

Appendix 2: Wine Consumption by State, 2008-2009

Total Wine Consumption(Gallons)

Total Wine Consumption(Gallons)

Adult Population Adult Population Annual Per Capita Adult Consumption (Gallons)!

Annual Per Capita Adult Consumption (Gallons)!

2008 2009 2008 2009 2008 2009U.S. TOTAL 700,568 705,844 218,137 220,562 3.21 3.20

LICENSE STATES TOTAL

541,921 545,723 158,070 159,924 3.43 3.41

Alaska 1,907 1,932 450 457 4.24 4.23


Arizona 14,969 15,238 4,182 4,235 3.58 3.60

Arkansas 3,039 3,043 2,072 2,095 1.47 1.45

California 126,319 127,316 26,818 27,339 4.71 4.66

Colorado 11,827 11,574 3,484 3,555 3.39 3.26

Connecticut 12,489 12,536 2,714 2,764 4.60 4.54

Delaware 3,233 3,210 576 570 5.62 5.63

District of Columbia 3,928 3,965 501 515 7.84 7.70

Florida 57,882 58,237 13,079 13,115 4.43 4.44

Georgia 14,919 14,833 6,526 6,591 2.29 2.25

Hawaii 4,341 4,400 969 980 4.48 4.49

Illinois 30,885 31,303 9,095 9,126 3.40 3.43

Indiana 9,601 9,702 4,570 4,607 2.10 2.11

Kansas 2,506 2,452 1,953 1,962 1.28 1.25

Kentucky 4,422 4,403 3,143 3,164 1.41 1.39

Louisiana 7,161 7,036 3,177 3,235 2.25 2.18

Maryland 12,612 12,724 4,052 4,087 3.11 3.11

Massachusetts 26,400 26,843 5,131 5,216 5.15 5.15

Minnesota 10,668 10,820 3,681 3,697 2.90 2.93

Missouri 10,657 10,660 4,278 4,308 2.49 2.47

Nebraska 2,285 2,294 1,322 1,344 1.73 1.71

Nevada 9,954 9,982 1,765 1,785 5.64 5.59

New Jersey 31,066 31,588 6,525 6,596 4.76 4.79

New Mexico 3,392 3,442 1,323 1,330 2.56 2.59

New York 56,448 56,886 14,641 14,790 3.86 3.85

North Dakota 848 865 494 503 1.72 1.72

Oklahoma 4,033 4,131 2,793 2,851 1.44 1.45

Rhode Island 3,649 3,623 823 826 4.43 4.39

South Carolina 6,902 6,966 3,244 3,296 2.13 2.11

South Dakota 957 979 574 582 1.67 1.68

Tennessee 8,026 8,220 4,454 4,498 1.80 1.83

Texas 32,555 32,204 15,604 15,820 2.09 2.04

Wisconsin 12,043 12,316 4,058 4,084 2.97 3.02

CONTROL STATES TOTAL

158,647 160,122 60,067 60,638 2.64 2.64

Alabama 6,535 6,684 3,469 3,516 1.88 1.90

Idaho 3,133 3,144 1,009 1,020 3.11 3.08

Iowa 3,298 3,378 2,273 2,299 1.45 1.47

Maine 3,636 3,603 1,008 1,010 3.61 3.57

Michigan 19,065 19,136 7,428 7,453 2.57 2.57

Mississippi 2,138 2,100 2,095 2,111 1.02 1.00

Montana 2,168 2,166 703 710 3.08 3.05

New Hampshire 6,289 6,319 957 960 6.57 6.58


North Carolina 15,718 15,760 6,268 6,343 2.51 2.48

Ohio 18,949 19,359 8,382 8,415 2.26 2.30

Oregon 11,825 11,842 2,859 2,914 4.14 4.06

Pennsylvania 18,787 18,386 9,127 9,135 2.06 2.01Utah 2,270 2,282 1,675 1,707 1.36 1.34

Vermont 2,522 2,578 487 492 5.18 5.24

Virginia 19,415 20,018 5,572 5,638 3.48 3.55

Washington 20,939 21,427 4,918 5,047 4.26 4.25

West Virginia 1,194 1,173 1,448 1,467 0.82 0.80

Wyoming 766 766 389 400 1.97 1.92

Source: Adams Wine Handbook, 2010. Note this table refers to total wine consumption, whereas Table 1 refers to Ethanol Consumption from Wine, ethanol alcohol being one component of wine

Appendix 3: Density of Retail Outlets for Wine, Open Market States, 2010

State Retail Outlets Adult Population Average Adult Population Per Outlet

Total 155,327 155,733,379 1003Alabama 3,364 3,580,000 1,064

Arizona 2,786 4,205,000 1,509

California 16,056 27,186,000 1,693

D.C. 532 517,000 972

Florida 17,685 13,376,000 756

Georgia 8,632 6,572,000 761

Hawaii 931 1,015,000 1090

Idaho 1,391 1,051,000 756

Indiana 2,667 4,647,000 1742

Illinois 6,320 8,970,000 1419

Iowa 2,254 2,306,000 1023

Louisiana 6,390 3,341,000 523

Maine 1,700 1,012,000 595

Maryland 1,591 4,140,000 2602

Michigan 8,028 7,326,000 913

Missouri 4,770 4,343,000 910

Montana 884 738,379 835

Nebraska 993 1,355,000 1365

Nevada 1,180 1,865,000 1581

New Hampshire 1,397 954,000 683

New Mexico 887 1,360,000 1533

North Carolina 10,392 6,551,000 630

North Dakota N.A. 501,000 N.A.

Ohio 8,410 8,397,000 998

Oregon 4,278 2,924,000 683

South Carolina 4,723 3,404,000 721


South Dakota 619 591,000 955

Texas 16,723 16,137,000 965

Vermont 1,063 492,000 463

Virginia 7,582 5,749,000 758

Washington 5,294 5,118,000 967

West Virginia 1,266 1,476,000 1166

Wisconsin 3,801 4,117,000 1083

Wyoming 738 417,000 565

Source: Adams Wine Handbook and U.S. Census

Appendix 4: Density of Retail Outlets for Wine, Restricted States Retail Outlets for Wine

Adult Population Adult Population per Retail Outlet for Wine

Total 16,387 67,039,711 4,091Alaska 369 470,000 1,274

Arkansas 430 2,122,000 4,935Colorado 1,615 3,599,000 2,228Connecticut 1,224 2,781,000 2,272Delaware 369 583,000 1,580Kansas 762 1,977,000 2,594Kentucky 827 3,200,000 3,869Montgomery County, Maryland

164 690,711 4,212

Massachusetts (Max 3 locations per license)*

2,555 5,216,000 2,041

Minnesota 1,065 3,723,000 3,496Mississippi 510 2,155,000 4,225New Jersey (Max 2 locations per license)

1,784 6,554,000 3,674

New York 2,511 14,666,000 5,841Oklahoma 646 2,901,000 4,491Pennsylvania 601 9,229,000 15,356Rhode Island 259 812,000 3,135Tennessee 552 4,608,000 8,348Utah 144 1,753,000 12,174

Source: Adams Wine Handbook 2010, Stonebridge Research Group LLC and state agencies * Recent legislative changes in Massachusetts will allow licensees to increase the number of their retail locations per license from three currently to five as of 2012, seven as of 2016, and nine as of 2020.


About Stonebridge Research Group LLC

Stonebridge Research Group LLC is a leading and authoritative source of research, data and insight into the business of wine and the key trends and forces driving the industry. Stonebridge Research’s services

include market and consumer research, basic industry research, litigation research, financial and operational benchmarking, economic impact studies, and business and strategic planning for all segments of the wine industry.

Stonebridge Research Group LLC has conducted major market and consumer studies for the Wine Institute, Wines of Chile, Wines from Spain, French Trade Ministry/UBIFRANCE, Bodegas de Argentina,

Napa Valley Vintners, the Office of Champagne, several U.S. states and regional wine organizations, major producers, industry investors, and suppliers in the U.S., Europe and Latin America, among others. Stonebridge’s Fine Wine Trade Monitor is considered a definitive assessment of the state of the U.S.

independent wine trade. Stonebridge provides the litigation research for the U.S. Coalition for Free Trade, and has been a cited reference in U.S. Federal Trade Commission and Court findings.

Barbara Insel is President and Chief Executive of Stonebridge Research Group LLC. Prior to creating Stonebridge Research LLC in 2008 with a group of industry investors, Ms. Insel was the Managing Director for MKF Research LLC for four years, leading all research and advisory activities for this leading

wine business consulting firm, including the first study of the Impact of Wine, Grapes and Related Products on the American Economy and managing the Wine Institute’s first market research project in twenty years,

which culminated in its California First promotion strategy.

Ms. Insel teaches in the Wine Business program at the Culinary Institute of America, speaks widely on the business of wine and the U.S. wine market, has been quoted in publications ranging from The Wall Street

Journal and Bloomberg to many leading wine media, where her research has also been widely published.

Prior to joining the wine industry, Ms. Insel spent more than twenty years in senior positions in international

investment and investment banking with organizations including Salomon Brothers, Morgan Stanley Asset Management, Kleinwort Benson, the European Bank for Reconstruction, and Development and the World Bank.


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