Hartford Business Journal

28 Hartford Business Journal • September 5, 2016 www.HartfordBusiness.com OPINION & COMMENTARY EDITORIAL Liquor retailers right on policy, wrong on breaking law T wo liquor retailers in Connecticut tried to publicly violate state law in recent weeks by skirting the state's longtime minimum pricing rules, deciding instead to sell some of their alcoholic beverages at cost. The move was part of an all-out legal and public relations battle some liquor retail- ers are waging to overturn an archaic state law that legislators have been unwilling to modify in the face of tough lobbying from mom-and-pop liquor stores. We agree that Connecticut's minimum pricing laws must go. However, we can't support the willful breaking of laws to make a political point, at least not in this case. In a country where the rule of law reigns supreme, companies can't take it upon themselves to violate state or federal statutes simply because they feel those rules are unfair. Such actions create a dangerous precedent as well as an uneven playing field for those who abide by the rules. Maryland-based Total Wine & More touched off this controversy when it announced Aug. 23 that it was suing Con- necticut in federal court over the state's mandatory minimum pricing laws, alleg- ing they are anti-competitive and violate the federal Sherman Antitrust Act. Total Wine also decided to start selling certain liquors below cost. Days later, Stamford- based BevMax pledged to do the same. The law, which has been on the books in various forms for decades, artificially sets liquor prices by prohibiting retailers from selling a bottle of alcohol below cost. The cost is equal to the wholesale bottle price plus shipping and delivery charges. In the 21st century, it's tough to argue in favor of Connecticut's liquor laws. We've said before minimum pricing is anti-competitive and smacks in the face of free-market capitalism. It does little more than increase the cost of alcohol and protect small pack- age stores by ensuring they can keep their prices more competitive with larger retailers. Challenging the law in court is a smart move and a proper avenue to try to reverse wrong-minded public policy. Even if the legal argument doesn't hold up in court, it still pub- licly raises the issue's profile, potentially winning Total Wine & More and other like-minded retailers greater support. That, hopefully, translates into more pressure on legislators to eliminate minimum pricing laws, something Gov. Dannel P. Malloy — who has consistently sought to relax liquor laws with some success — encouraged last legislative session. But pushing the fight a step further by willfully violating the law was wrong and we applaud the Department of Consumer Protection (DCP) for stepping in. As of press time Sept. 1, Total Wine was forced to stop all illegal sales and was fined $37,500 by DCP. We'd be the first to admit that Connecticut's regulatory environment is overzealous in many respects, including when it comes to minimum pricing, but reforms must be enacted through the legal or legislative process, not vigilante disregard of the law. Many businesses don't like the high local property taxes they are forced to pay — would we be OK with some choosing to skirt their tax obligations in protest? That would create an unfair environment for companies that play by the rules. Over the last year or so — as the state's business climate has continued to lag in many national studies — the business community has ramped up its lobbying efforts at the state Capitol to play a more active role in shaping public policy. That is the proper response to reverse laws deemed unfair. n OTHER VOICES Hooray for Total Wine, hisses for legislature By Chris Powell C onnecticut's system of inflating the retail price of alcoholic beverages may not be unconstitutional and a violation of feder- al antitrust law, as the Total Wine & More bev- erage retailing chain recently charged in a law- suit brought in federal court. But this argu- ment against the sys- tem is not novel. Forty years ago a professor at the University of Connecticut School of Law, Leonard Orland, made the same argu- ment in support of the courageous effort of state Sen. Robert D. Houley (D-Vernon) to repeal the alcohol-pricing system. Unconstitutional or not, the system remains a prime example of the venality and corruption of government and politics in Connecticut. Now it is Gov. Malloy who courageously proposes repeal- ing the system. While Connecticut seems to be the only state operating this way, the General Assembly has let the system continue as legisla- tors cower before the "mom-and-pop" liquor store operators, of whom every legisla- tor's district has many. The law gives liquor wholesalers and retailers the power to set mini- mum prices for all alcoholic beverages, thereby preventing most serious price competition. The law also tightly restricts liquor-store permits, establishing what in economics is called a barrier to entry. As a result, though Connecticut is a densely pop- ulated state, it has hundreds of small liquor stores charging the highest prices in the country even while offering poor selection, and so state residents do a lot of shopping out of state for cheaper and greater variety of liquor, wine and beer. This costs the state a lot of tax revenue. Total Wine & More didn't just sue to over- throw the pricing system. The retailer actually defied it and began selling liquor, wine and beer below the minimum prices, before the Depart- ment of Consumer Protection stepped in to stop them. This may have captured the public's attention. Defending its exploitation of consumers, the Connecticut Package Stores Associa- tion, dominated by the mom-and-pop stores, complained to the state Consumer Protection Department's Liquor Control Division, seek- ing enforcement of the price-inflation system against Total Wine & More. Their argument worked, but the issue is likely to be fought in the courts for a while unless the legislature grows a backbone. The package stores association, led by vet- eran lobbyist Carroll Hughes, argues that Total Wine & More is engaging in predatory pricing and that if prices are deregulated, small liquor stores will go out of business, state tax revenue from alcoholic beverages will fall, and a few liquor supermarkets will control the business. But since the small stores survive only because of the state policy driving prices up and preventing competition, the small stores are actually the predators. Further, deregula- tion of prices will increase alcoholic beverage sales in the state by diminishing the benefit of shopping out of state. And if somehow sales and alcohol tax revenue decline under deregulation anyway, state government could increase the tax, and then revenue from pub- lic policy would flow where it should, to the government. The arguments of the package stores association are dis- proved by state gov- ernment's failure to establish a price-inflat- ing system for any other product except cigarettes. Such a system may create extra jobs in retailing but only at everyone else's expense. The bigger issue here is that Connecti- cut really needs no alcoholic beverage regulation at all besides its ban on sales to minors. Supermarkets, which are already allowed to sell beer, should be allowed to sell wine and liquor too, just as liquor stores should be allowed to sell groceries. Why should shoppers have to make separate stops? A few other states have figured this out. If price inflation for liquor is repealed and antitrust law is enforced, prices will fall, shop- ping will become more convenient, and the General Assembly will be less contemptible as a special-interest tool, though of course it could still pander to the teacher unions. n Chris Powell is managing editor of the Journal Inquirer in Manchester. HARTFORDBUSINESS.COM POLL Has CTfastrak been a good investment for the state? ● Yes ● No To vote, go online to HartfordBusiness.com. Last week's poll results: Should CT eliminate mandatory minimum pricing laws for alcohol? 89.1% Yes 11.1% No Chris Powell ▶ ▶ The arguments of the package stores association are disproved by state government's failure to establish a price-inflating system for any other product except cigarettes. Send Us Your Letters The Hartford Business Journal welcomes letters to the editor and guest commentaries for our opinion pages. Electronic submissions are preferred and welcome at: editor@HartfordBusiness.com. ▶ ▶ In the 21st century, it's tough to argue in favor of Connecticut's liquor laws. We've said before minimum pricing ... smacks in the face of free-market capitalism.

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