Groceries seeking ways around wine sales ban

Melinda Goodman, left, buys beer from Tonya Williams, wine consultant at The Cellars, a liquor store in McHenry Row. Then she goes to Harris Teeter through the entryway from the liquor store (background) to do some grocery shopping. Goodman thinks the opening that joins the stores is "great, very convenient."

Unlike most other states, Maryland shoppers have to make one extra stop for a cabernet to go with that steak they bought on sale at the supermarket —grocery stores in the state generally are banned from selling alcohol.

Increasingly, though, grocery chains like Wegmans and Harris Teeter are trying to find ways around the prohibition, drawing pushback from Maryland's powerful liquor lobby and package goods stores but support from consumers hoping for easier food-and-wine pairings.

"This issue is clearly the next fight," said Adam Borden, president of Marylanders for Better Beer & Wine Laws, an advocacy group that fought successfully to get direct shipments of wine to Maryland residents. "It's clear that consumers are aching to be able to buy their groceries and a bottle of wine in the same place."

The battle is currently being fought in Columbia, where a new Wegmans plans to open in June. Developers envisioned a large liquor store, but that's unlikely, at least initially. After a heated, 4 1/2-hour hearing last week that was dominated by opponents, the Howard County Alcohol Beverage Hearing Board decided not to vote on the liquor license application but to re-convene on June 14, just three days before the store's grand opening.

Similar skirmishes have occurred recently, to different outcomes, in South Baltimore and Bowie. The new Harris Teeter on McHenry Row survived a challenge to The Cellar, the liquor store that's connected to it. But in Bowie, city officials tried unsuccessfully to get permission for alcohol sales at a vacant site in a shopping center in the hopes that it would help attract a Trader Joe's.

"It died in legislative session," Bowie Mayor G. Frederick Robinson said of the proposal. "I understand it's a bill not without controversy, but to me, it's an economic development issue. I've got a couple of shopping centers with vacant grocery stores that have moved on. When I talk to grocery stores, to a person, they tell me the modern business plan is, they want to sell beer and wine."

Under current law, liquor licenses cannot be issued to or used in conjunction with or on the premises of grocery store chains. Exceptions seem to abound, though, as do interpretations of those standards, with some grocery store licenses apparently "grandfathered" in and others allowed when the liquor business is owned by a separate entity.

Opponents say that allowing Wegmans to have a liquor store would lead to other grocery chains angling for one, and that would be the death of small, family-owned liquor stores. In arguments reminiscent of those used by mom-and-pop shops when Walmart and other big-box stores come to town, the merchants say they cannot compete with the prices and selection that the chains can offer.

"It would open the doors to the Giants and the Safeways and the Harris Teeters," said Bill Harrison, owner of the 27-year-old Kings Contrivance Liquor and Smoke shop in Columbia. "It opens up the whole bag of worms."

The independent liquor stores are backed by the Maryland State Licensed Beverage Association, a powerful group that remains formidable despite some recent losses — the state raised the alcohol tax after decades of it remaining unchanged, and now allows wineries to ship directly to consumers.

Wegmans has had to deal with bans on beer and wine sales in other states. In New York, it has rented space to liquor stores for decades at shopping centers it has developed and anchors. In New Jersey, it has subleased space to liquor stores owned by members of the Wegman family.

Each of the liquor stores Wegmans leases space to in New York and New Jersey is independently operated, a company spokeswoman said via email.

"Wegmans receives none of the profits from these stores," Jeanne Colleluori said. "However they do provide one-stop shopping to Wegmans' customers, which is our true goal with these types of arrangements."

That's the goal of the "Upstairs Spirits" shop, a 9,800-square-foot shop planned for a second-floor space in the building housing Wegmans off McGaw Road and Snowden River Parkway. While not part of Wegmans, shoppers would be able to walk through doors between them. But the proposal has drawn controversy partly because of the shop's ownership.

Ninety percent of Upstairs Spirits would be owned by Christopher O'Donnell, who is married to Colleen Wegman, president of the grocery chain. The other 10 percent would be held by a local partner, Mike Smith, an Ellicott City attorney who has handled labor issues for Wegmans in the past.

Opponents charge that such arrangements are a way of getting around the state law banning chains from holding licenses to sell alcohol. Harrison, the Kings Contrivance liquor store owner, echoed the views of other business owners who see Smith as "a frontman."

"Ninety percent of the money is coming indirectly from the husband of the owner of Wegmans," Harrison said. "They are trying to go around the law to get this liquor license."

But others say this is the only way that chains can deal with the often conflicting patchwork of local and state laws they encounter when trying to expand into Maryland.

Smith says the Wegmans chain would have no control, management or ownership at all in the venture. O'Donnell "has a dozen or so other start-up ventures he does on his own," Smith said. "Nobody in Wegmans owns anything in those. I guess (people) aren't used to couples having two high-powered careers."

In the Locust Point neighborhood of South Baltimore, the five-month-old Harris Teeter ran into a fight of its own over an adjacent beer and wine shop, The Cellars.

Mark Sapperstein, the developer of McHenry Row who sought out Harris Teeter to anchor the development and leases the space to the retailer, owns and holds the liquor license of The Cellars. The store is separated from Harris Teeter by a sliding glass door, and each has its own check-out.

In March, the Maryland State Licensed Beverage Association filed a protest against the renewal of The Cellars license. The association, which represents stores and restaurants that hold liquor licenses, gathered signatures from 33 people who own businesses or real estate in the area and who said they believe the license violates the law prohibiting chain stores from holding or using alcoholic beverage licenses.

"The license is being used in conjunction with the Harris Teeter grocery chain store which it adjoins," the letters sent by the 33 objectors said. "And Harris Teeter is managing and operating the store. I believe this to be in violation of the law."

The opponents were backed by the Maryland Comptroller's office, according to an October letter to the Board of License Commissioners of Baltimore City. "It is the comptroller's position that management by Harris Teeter of a retail license violates" state law because it is being used in conjunction with a chain store, Jeffrey A. Kelley, director of field enforcement division said in the letter.

After a hearing in April, the city liquor board granted the license renewal on April 26. Steve Fogleman, who heads the board, said the grocery and liquor store are separate entities. This is a common and legal way to sell beer and wine next to a grocery, he said, much like the Whole Foods and Bin 604 set-up in Harbor East, where the separately owned businesses share a entranceway.

"There is a firewall between the ownership of The Cellars and Harris Teeter," he said. "The name on the [liquor] license is not Mr. Harris or Mr. Teeter. There are separate management structures."

Business owners who are active in the state licensed beverage group say they've launched the recent protests to ensure potential license holders comply with laws designed to prevent unfair competition.

Jack Milani, owner of Monaghan's Pub in Woodlawn since 1989 and the legislative co-chair of the beverage association's Baltimore County chapter, said association members are now closely watching the outcome of the Howard County Wegmans case.

"Our concern is that if people are going to circumvent the law, then other folks will try to circumvent the law," Milani said.

The Food & Wine Institute, a trade association for retailers and wholesalers, estimates that about a third of grocery sales have come at the expense of package stores. But, FWI said in a recent study, liquor stores have been able to compete, especially if laws include, for example, limits on the number of licenses within a geographic zone.

The group also found that in most of the jurisdictions where groceries are allowed to sell wine — 33 states and the District of Columbia — the number of package stores increased or stayed constant.

For Shri Desai, who owns two small liquor stores within about five miles of the new Wegmans, the issue remains a David-and-Goliath one. The Laurel resident said he can imagine a situation where not just Wegmans but all the grocery chains are licensed to sell alcohol, and a small businessman such as himself wouldn't be able to compete on prices, selection or influence with lawmakers.

"They have all the power, the lawyers. As a small retailer, I can't afford to keep a lawyer," Desai said. "They don't have to look at the profit margin like I do."

Borden, of the beer and wine laws advocacy group, acknowledges that small businesses have reason to fear the competition from chain stores, which can leverage their buying power to get better deals on the wholesale level. But, he said, the opposition to grocery alcohol sales is also fueled by liquor distributors that would rather deal with smaller stores than larger, more powerful chains.

Borden argues that liquor laws should protect the interests of consumers rather than businesses.

"Why do package good stores have any greater right to have their business protected than a five and dime? We have a capitalist marketplace. In every other industry, they have to deal with the competition," he said. "The booksellers have to deal with Amazon, Blockbusters has to deal with Netflix. Why do customers have to lose out?"