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CT TASK FORCE UDPATE: “Nothing is Clear” as Deadline Looms

By November 4, 2012Connecticut, Top News, Legal Matters

By Lauren Daley

The Competitive Liquor Pricing Task Force heard testimony from members of the alcoholic beverage industry sectors that are not represented on the Task Force to share their thoughts on how state alcohol law should be changed. Ten people spoke at the September 12 meeting, and one common refrain the Task Force heard was, “Lower excise taxes in Connecticut.”

The Task Force heard testimony from: David Ozgo and Jay Hibbard representing the Distilled Spirits Council of the U.S. (DISCUS); Cathy Barber representing the New England Convenience Store Association of Connecticut; Curt Cameron representing the Connecticut Beer Guild; Dominic Alaimo of Freshwater Package Store; George Motel of Meadow Vineyards; Kevin Pimental of Xtra Mart; Michael Cimini, former Owner Yankee Spirits; Stan Sorkin of the Connecticut Food Association and Peter Berdon of the Wine and Spirit Wholesalers of Connecticut.

The 15-member Competitive Alcohol Liquor Pricing Task Force must submit research and recommendations on revamping the state’s liquor laws by January 1, 2013. Connecticut Gov. Dannel P. Malloy (D) assigned them with a massive undertaking: to examine, review, and analyze Connecticut alcoholic liquor taxes, quantity and volume discounts, existing liquor permit restrictions, minimum pricing and price posting; they must also look at alcohol law in other states and note the impact on consumers and industry stakeholders.

“The Task Force still doesn’t have the primary information that comes from the top—namely, from the manufacturers. DISCUS seems to be stonewalling on the issue. They’re blockers and screeners, doing the talking so that their members won’t provide information,” said Carroll J. Hughes, longtime package store lobbyist and head of the Connecticut Package Store Association who did not testify at the meeting.

Hughes said that he believes the Task Force’s recommendations will “absolutely” have some influence in determining law changes, but was frustrated that “various parts of the industry have not provided adequate information that is essential for the Task Force to understand everything.”

Task Force Member Rep. Sandy Nafis said, “Everything is as clear as mud. The one thing I learned from (the Sept. 12 meeting) is that nothing is clear. I was disappointed. I was looking for more clarity. I came away realizing that nothing is clear at all.”

Pricing, she said, is an especially complicated issue. “In my naiveté, I thought the manufacturers were charging the same price for each state. But, each state, it appears, is charged a different price. So how can you compare us to Massachusetts when we’re being charged a different price than them? The bottom line is that pricing is all over the place.”

Nafis said that subcommittees have been disbanded. When the Task Force created the four task forces—which then merged to three—they said they would only meet until Oct. 1. From now until their Dec. 31 deadline, the Task Force— co-chaired by Edward Berthiaume, who co-owns Mr. B’s Discount Wine & Spirits in Brooklyn, Conn. and by Deputy Majority Leader State Rep. Kathy Tallarita (D) from the 58th District in Enfield— will only meet as a whole.

TESTIMONIES

Jay Hibbard, vice president of the DISCUS and David Ozgo, DISCUS economist, were the first to present testimony at the September 12 meeting. Hibbard spoke for the reduction of excise taxes in Connecticut. Ozgo said that quantity discounts and minimum pricing laws limit competition and that “post and hold” builds rigidity into the market, according to meeting minutes. He also argued that Connecticut should repeal the 2011 tax increase and/or match Rhode Island’s excise tax rates.

Ozgo told The Task Force that taxes should be based upon alcohol content, referencing a study conducted by Congressional Research Service, according to meeting minutes. He said the process used to distill bourbon is more extensive and time-consuming than the process to make vodka, for example.

When Tallarita asked him how “mom and pop” stores would be affected by the elimination of minimum pricing, Ozgo answered that some of them would go out of business, adding that current pricing protections impede the marketplace and only wholesalers and big box retailers would benefit from discounts per delivery, according to the meeting minutes.

Curt Cameron, owner of Thomas Hooker Brewery, spoke on behalf of the Connecticut Beer Guild. He said the market for locally-brewed craft beer has “enjoyed double-digit growth” over the last decade, but that there are still many obstacles to small breweries in Connecticut. “Our states franchise laws have by and large remained unchanged since their introduction in 1971, and have failed to accommodate for the substantial changes in the market,” he said in written testimony.

Cameron said he wants to see the three-tiered franchise law preserved but updated, the main problem being that it is difficult for a small retailer to switch distributors. Cameron proposed to the Task Force that a small brewery should be allowed to switch distributors if:

  • The craft brewer has an annual production volume of less than 200,000 barrels.
  • The distributor’s annual purchase of the craft brewer’s beer is less than 2.5 percent of the distributor’s total annual brand purchases of all beers.
  • If the craft brewer and/or their new distributor is willing to compensate the affected distributor.

The amount of compensation should be calculated as: a multiplier of six times the amount of the affected distributor’s gross profit earned selling the craft brewer’s products during the previous 12 month period.

Peter Berdon spoke on behalf of the Wine and Spirits Wholesalers of Connecticut. His group supports reductions in the alcohol excise tax as a means to lower consumer prices, and that Connecticut should meet or beat the excise tax rates in surrounding states, according to meeting minutes. Berdon said the WSWC is conducting a study comparing a “breadth” of wine and spirit prices in Connecticut to those in surrounding states over the last year, with data gathered by Nielsen. So far, results have shown:

  • Connecticut prices were lower than New York prices 36.5 percent of the time and lower than Massachusetts pricing 18.9 percent of the time.
  • In instances where Connecticut was higher, the price differential was small.
  • Two significant costs that influence Connecticut prices are its high excise taxes and general high costs of doing business in the state.

Commissioner William Rubenstein of the Department of Consumer Protection asked how wholesalers arrive at their “per case” and “per bottle” prices. Berdon said there is no specific methodology used in determining prices for either, according to the minutes. With minimum pricing, wholesalers and retailers are prohibited from selling below cost.

Dominic Alaimo, owner of Freshwater Package store in Enfield, spoke as a single store owner. He recommended that Sunday hours be amended to allow stores to be open noon to 8, instead of 5 p.m., as it is currently. Alaimo—who is widely credited with starting the whole push for Sunday sales by going to

Rep. Tallarita a few years ago— said the new Sunday sales law is a “great success.”
Alaimo also told the Task Force he’d like wholesalers to stop the practice of “blacklisting,” by which names of retailers with delinquent payments are placed on a list by the wholesalers. Task force member David Rutigliano, who owns multiple restaurants in Connecticut, said that often disputed invoices are the source of these disagreements. Once a retailer is blacklisted, they are automatically placed on COD for further deliveries until the dispute is resolved.

He told The Beverage Journal after the meeting: “Blacklisting is unconstitutional; it’s political; it’s unfair. The state of Connecticut should not be a private bill collector for any businesses. They don’t do it for store owners; they don’t do it for cigarette companies. I’ve been in business 35 years, and blacklisting has been going on this whole time. And it’s absolute corruption. If own I owe a distributor 10 cents, they put you on the blacklist. It’s an antiquated system.”

The public meeting minutes incorrectly stated that the “blacklist” is printed in The Connecticut Beverage Journal. The Connecticut Beverage Journal has never printed such a list, and has written a letter to the Task Force for a correction.

Tony Gallo of Star Distributors spoke on behalf of the Connecticut Beer Wholesalers Association. He said the current pricing system works fine. Price posting helps wholesalers because without transparency, there will be price discrimination and favoritism. He said beer manufactures set beer prices in Connecticut. Wholesales are required to sell at those prices by state law.

Gallo said there are beer territories in all 50 states and they are established by the manufacturers. Territories primarily serve as an efficient tax collectionsystem and provide order to the market. He said that a wholesaler also has advertising and promotional responsibilities that are dictated in a manufacturers’ contract with a distributor.

Kevin Pimental, retail automation manager for Xtra Mart said that convenience stores should be allowed to sell alcohol, as that 40 others states allow that. Cathy Barber of the New England Convenience Store Association, argued the same point.

Pimental said that Connecticut law has an “antiqued” formula to determine if a store “primarily” sells grocery items in order to qualify for beer permit. The mix of product offered for sale at some convenience stores—i.e. cigarettes and gasoline— prevent certain stores of obtaining a permit. Barber said her organization’s members are single-store operated and family-owned. Connecticut ranks 49 out of 50 in state per capita beer sales, she said. “I suspect we drink as much beer in Connecticut as anywhere else—we just don’t buy it in Connecticut,” she said in her written testimony. “Beer is a regular item in most convenience stores, except in Connecticut.”

Michael Cimini— former owner of Yankee Spirits in Sturbridge, Mass., and a current Connecticut package store owner— spoke on behalf of the Package Store Association. He recommended that the state lower excise taxes in order to boost sales. He said when Massachusetts eliminated sale tax, his store there saw an increase in business.

George Motel of Sunset Meadow Vineyard spoke on behalf of small farm wineries. He said that in order to grow the current market for locally-produced wines, they should be sold in grocery stores, and should be able to be tasted at farmers markets. Currently, wine can be sold at farmers’ markets but not tasted.

Stan Sorkin of the Connecticut Food Association recommended eliminating minimum pricing, expanding the SKU law, allowing quantity discounts, and expanding the hours beer may be sold. He suggested increasing the number of licenses that a single holder may have, and that the task force should review the current liquor license application process and streamline it.

The Existing Alcoholic Liquor Permit Restrictions Subcommittee met for five minutes on Sept. 19. After announcing at that meeting that Rep. Kathy Tallarita was ill and unable to attend the meeting, Task Force co-chair Ed Berthiaume cancelled the other two subcommittee meetings scheduled for that day, saying there was “lack of material to review,” according to the meeting minutes. The other two subcommittee meetings canceled were the Minimum Pricing and Price Posting Subcommittee and the Alcoholic Liquor Tax Subcommittee.

At that meeting, the Task Force subcommittees reported that they’re awaiting the results of numerous research inquiries submitted to the Office of Legislative Research, the Office of Fiscal Analysis, the Department of Revenue Services, and the Department of Consumer Protection.Present at the Competitive Pricing meeting were Chief James Cetran, Edward Crowly, Rep. Sandy Nafis, Commissioner William Rubenstein, David Rutigliano, Rep. Rosa Rebimbas.In the time that they met, from 9:10 a.m. to 9:15 a.m., the group reviewed an Office of Legal Research report regarding existing permit restrictions in other states. Commissioner Rubenstein asked if OLR could research further the definition of “grocery store” in other states.

UPDATE AS OF 10/10/12
With some 10 weeks to go until their deadline, the latest Task Force meeting on October 10, 2012 saw the members wondering what to do next. Tallarita asked the members if they had “thoughts on how they all want to move on; should they give thoughts or actual recommendations?” The meeting discussion that followed focused on the ability to complete the report or to make recommendation—and how either might best be achieved.

Commissioner Rubenstein said, “With everyone still gathering information, maybe we should not put the cart before the horse… (Let’s) take what we learned, and as we get a better handle on what we gathered, then (we can) make recommendations.”

Tallarita asked economist McMillen how he was progressing on his report on suppliers—the report promises to have key information that the Task Force says it needs to move forward. McMillen stated that he is still “in the process” of finishing the report, which will include comprehensive pricing information from neighboring states include Vermont, New Hampshire, Massachusetts, Rhode Island, New York, Pennsylvania and New Jersey.

Commissioner Sullivan stated: “Until the pricing issue is resolved, (the Department of Revenue Services) will not support changes in taxation. You the legislators created this group. It is up to you to find what is doable.”

The meeting minutes can be found at www.cga.ct.gov/gl/liquor/default.asp. The next meeting is slated for November 14, 2012.

 

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