In the Texas Legislature, a Fight Between Grocery and Liquor Stores Over Who Can Sell Booze

Texas' liquor laws, if not the most confusing in the country (thank you, Utah), are confusing enough. So the battle in the Legislature, pitting Walmart, Costco and Kroger against some of the state's best-known liquor chains, fits perfectly.

It's not necessarily a fight between big companies out to get the little guy, since a variety of little guys support the big companies through a lobbying group called Texans for Consumer Freedom. And it's not necessarily about saving local jobs in the face of voracious multinationals, since the local jobs are being created by companies that aren't especially local unless you live in Dallas, Houston or Austin.

Rather, it's about a set of state laws that prohibit most publicly traded companies like Walmart from owning package stores -- retail outlets that sell wine, beer and spirits -- and would limit those companies to just five stores even if they could.

Confused yet? Don't worry -- it gets worse.

See also: Spec's and Total Wine Are Battling for Wine Supremacy, and You're Drinking the Benefits

On the other hand, privately owned companies can own as many package stores as they want, so long as the licenses for the stores are held by different members of the same family. Not coincidentally, the state's biggest chains have taken full advantage of what Austin attorney Lou Bright calls the "just us kinfolks exception." That's how Houston's Spec's has more than 160 stores, Austin's Twin Liquors has 70 stores and Dallas' Goody Goody has almost 20 stores.

The legislation, versions of which are in Senate and House committees, would not let grocery stores sell spirits; under current law, they can only sell beer and wine. Rather, it would repeal the publicly held company ban and the kinfolks exception, so that Walmart and its allies could open more than five package stores. In other words, there would be a Walmart liquor store located next to the Walmart, with separate entrances and different hours than the main store.

And why a separate store instead of letting supermarkets sell scotch and vodka? Because supporters don't think Texas, despite a decade of liquor law reform that saw Lubbock and North Dallas go wet, is ready for grocery stores to sell gin. Plus, that change would require the Legislature to revise other parts of the the state's liquor code, since spirits can't always be sold when beer and wine are sold.

"If this is the free-market Legislature, then this is a litmus test for that Legislature," says Travis Thomas, a spokesman for Texans for Consumer Freedom, whose members include most of the state's biggest grocers, the Texas Association of Business, the Texas Consumer Association and the Texas Retailers Association. "This law is clearly anti-competitive, and it's clearly a free-market issue."

In addition, Walmart filed suit in Feburary, asking a federal judge to overturn the package store limitations.

Opposing the legislation is the Texas Association of Package Stores, whose members helped pass the public-company and kinfolks exception laws almost four decades ago, is traditionally one of the most powerful forces in the Legislature. It regularly beats back attempts to repeal the law that requires package stores to close on Sunday, and it bested Texas' alcohol wholesalers in a bloody and expensive fight several years ago over legislation to change the way restaurants buy wine, beer and spirits (which are even more confusing than Utah's laws).

The rationale for the kinfolk exception, then as now, was to prevent out-of-state retailers from opening in Texas while giving in-state companies an opportunity to expand. And it has worked. Since then, the only non-Texas based retailer to make any dent here is Total Wine, with six stores, and it has been sued twice in the process, once by the package store association.

Lance Lively, the executive director of the package store association, declined to comment for this story. But other retailers said their group will fight the legislation, and few people who follow the issue expect it to pass. The Austin American-Statesman reported that the package store group has the support of the chairman of the House committee where the bill was introduced.

So don't expect Kroger liquor stores anytime soon. Still, that Walmart and its allies are spending the time and the money to try to repeal the law in the face of such strong opposition means they think chances are better than ever that they can win.

Rob McMillan of Silicon Valley Bank in California, who follows the wine and spirits business, says the big box retailers have reason to be optimistic: a favorable political climate, especially in Texas; consumer desire for more shopping choices; and increased profits from selling spirits, thanks to better marketing and production methods, help to offset the expense of fighting these kinds of laws.

And even some who support the kinfolks exception, seeing it as part of a system that helped retailers delivery quality products at a fair price, think the 21st century will eventually be too much for the package store lobby to overcome.

"They may not want to change, but they're not going to have a choice," says Bert Erpillo of Beverage Markets Associates, whose family has been in the liquor business in Texas since the end of Prohibition. "We buy everything else at Walmart, so why not liquor? My son is 22, and he isn't going to work in the same marketplace that I did. The world has just changed too much."

But not yet, at least not in Texas. That's the one thing that isn't confusing.

Jeff Siegel writes The Wine Curmudgeon blog, where he offers practical, consumer-oriented wine advice instead of the gobbeldy-gook that passes for most wine writing. He is the author of The Wine Curmudgeon's Guide to Cheap Wine.

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