by Kristen Cloud/staff writer
A referendum to allow food retailers in Tennessee to sell wine passed everywhere it was on the ballot last year. While getting that referendum on the November ballot was a long and oftentimes arduous process, the challenges aren’t over. Grocery stores in the 78 municipalities where wine sales will be allowed in less than a year—on July 1, 2016—are now faced with making sure provisions of the new law are met.
“Planning started the day after the election to figure out how to make room on the shelves for wine, how to establish relationships with wine wholesalers and to figure out what the statue really says about what they can and can’t do,” Rob Ikard, president and CEO of the Tennessee Grocers & Convenience Store Association (TGCSA), tells The Shelby Report. “The devil is in the details and, as we’ve all started to peer closely into what the details are, it turns out that there are some restrictions on things that grocery stores can do.”
Among the provisions:
• If a grocery store is within 500 feet of a package/liquor store, that grocery store must receive a letter granting permission to sell wine from the package store. If the package store does not grant permission, the grocer will have to wait an extra year—until July 1, 2017—before selling wine. If it declines permission to the grocer, the liquor store must stop selling certain items that the wine legislation allowed it to begin selling this year (beer, cigarettes, soft drinks, ice, corkscrews, etc).
“The hope is that they will not want to give that up, so we anticipate that most liquor stores within 500 feet of a grocery store will ultimately provide written permission for them to sell wine,” Ikard says.
• Although supermarkets can continue to sell beer on Sunday as they currently do, they will not be able to sell wine on Sunday. In addition, liquor stores currently are required to close on certain holidays and, on these five holidays, the state’s grocers will not be allowed to sell wine, including New Year’s Day, Fourth of July, Labor Day, Thanksgiving and Christmas.
• Under the legislation passed last year, wine wholesalers can only deliver their product to a grocer’s loading dock; they cannot provide “shelving, dressing, displaying or setting inventory” services, according to the rules.
“That is one detail, in particular, that grocery stores are concerned about, and that provision was a compromise that was sort of given to the wholesalers when the legislation passed. We feel like some of the wholesalers are now questioning the wisdom of that, because we suspect that they want to be able to be in control of how their product is presented in the grocery store. While we don’t think that there’s much interest at the legislative level in amending the law that passed, we feel like this is one area that we might be able to fix in the law in the 2016 legislative session. We are reaching out to the wholesalers to see if we can work on an agreement that would allow them to come into our stores and set up their product.
“That is the one area where we think we have room to improve the law that was passed in 2014,” Ikard adds. “The legislature is less likely to have interest in changing the Sunday sales provision or holidays, but you can’t completely rule it out. TGCSA is certainly exploring every opportunity to make the law as optimal for our grocery store members as we can.”
Food retailers that have questions about selling wine in their stores next year and about the law’s provisions can contact Ikard at 615-889-0136 or [email protected].
What will the wine permit application look like?
Stores that qualify to sell wine in 2016 have to be larger than 1,200 s.f. and have more than 20 percent of sales from food; these qualifying stores already are interested in what the wine permit application will look like.
Ikard says the TGCSA, which is working alongside the Tennessee Alcoholic Beverage Commission (ABC) on the wine-in-grocery-stores issue, expects to have a draft application available for viewing later this summer. It anticipates that the ABC will begin accepting applications from food retail stores in the fall.
“This legislation handed (the ABC) a big new responsibility,” Ikard says. “Just like grocery stores, they are wrestling with this and how to cope with this new statue as well. It’s a challenge for us and our regulatory partners, and we’re working closely together. They are being very collaborative and cooperative with our industry.”
What about the rest of Tennessee?
Although a great many in the Volunteer State will be able to sell wine in their supermarkets next year, others will not because the issue did not make it on to their communities’ ballots in 2014.
“There are plenty of grocery stores in communities that do qualify under the statue that have yet to try to to pass a referendum, and I know that many communities that fall into that category are working now to get the referendum on the ballot for whenever their next municipal or state election occurs,” Ikard says.
Many communities have signature-gathering campaigns under way, while others already have been qualified to place the referendum on their ballots.
“There’s still fertile ground yet to be sewn for wine in retail food stores,” Ikard says. “Efforts are under way in these communities because grocers recognize what a profitable commodity wine is.”
Retailers pleased with markup on cigarettes
A new law that took effect July 1 to increase Tennessee’s statutory minimum markup on cigarettes from 8 to 11 percent already has retailers expressing pleasure. The markup will increase to 15 percent over the next two years.
“We already were hearing very positive reports from retailers who are glad to finally be able to have a margin where they can actually make a little profit,” Ikard tells The Shelby Report. “Cigarettes are definitely a bigger piece of a convenience store’s business than that of a grocery store, but our grocery retailers, too, are expressing satisfaction that they’re able to make a little bit more in that category. It does make a difference, and they are pleased with it.”
For retailers, the increase in the automatic markup was necessary because the two large cigarette manufacturers require Tennessee retailers to sell their products at or near the state minimum, according to Ikard.
“With the heavy regulatory and handling costs associated with cigarettes, it is very hard for Tennessee retailers to sell the product at an 8 percent markup without losing money,” he says. “The manufacturers make a handsome profit off of a pack of cigarettes, and the state benefits nicely, too, through taxes. Now the businesses that sell the product to the consumer can realize some profit as well.”
The original minimum markup has been a feature of state law since the 1940s and has been used to prevent retailers from enticing minors to smoke by selling cigarettes as a loss leader. Health advocacy groups partnered in this year’s legislative effort as a way of making smoking less affordable for young people without levying or increasing taxes.
“It was great to work with these groups to pass something that contributes to greater community health and benefits the retail employers of Tennessee at the same time,” Ikard adds.
Gas tax increase debate likely will come to a head in 2016
Tennessee hasn’t seen an increase in its gas tax—which funds transportation infrastructure—since 1989.
“The pro-increase funding faction really pushed it hard this last legislative session, but they couldn’t get the commitment from legislative and gubernatorial leadership to make it happen this year,” Ikard says. “Now, the main legislative proponent, the chairman of Tennessee’s Senate Transportation Committee, Sen. Jim Tracy, has vowed that he’s going to make a full-on effort to get it passed next year, and he has gone on the road to get individual communities fired up about new infrastructure projects. The governor has sort of taken up that same tactic, and the governor is indicating strongly that he is going to propose something in 2016.”
Neighboring Georgia implemented a gas tax increase July 1, the first in the Peach State since 1971. Georgia’s 7.5-cent excise tax and 4 percent sales tax was replaced with a flat 26-cent excise tax.
Other bordering states, like North Carolina, also are addressing their gas taxes.
“The challenge of securing adequate funding for infrastructure maintenance and improvement is something many states are wrestling with,” Ikard says.
He adds, “One thing that they might propose is indexing it, like increasing the cents-per-gallon tax, then indexing it to inflation. That’s a big question. We might be able to accept an increase in the per-gallon tax rate but, to ensure that it grows—and grows with inflation year after year—is another question altogether.”
The TGCSA, Ikard points out, does not hold a position on the gas tax.
“No one has put a formal proposal together, but I know that our board of directors would love to see a proposal and have a chance to debate it and hear from both sides of the issue,” he says.
In store news…
• Athens-based United Grocery Outlet held a grand opening celebration June 17 at its new Chapman Highway store. The South Knoxville branch was originally located at 6021 Chapman Highway but now enjoys a larger space at 4225 Chapman. The new store is called Grocery Outlet.
• For more than a decade, the East Chattanooga neighborhood of Churchville has not had a grocery store. That changed this summer, when Michael Scarbrough opened Scarbrough’s Produce at 2001 E. Third Street, bringing fresh fruit and vegetables to one of the city’s worst food deserts, the Chattanooga Times Free Press reports. “There (were) no stores in that area. Nowhere,” he said. “I want to supply a little bit of everything.” Refrigerators line the back wall of the Third Street store, stocked with sliced watermelon, bell peppers, celery, carrots, cabbage, cucumbers, eggs, milk and juices. Another stand includes peaches, apples, oranges, yellow squash and onions. Home-grown green beans, turnip greens and cabbage also are for sale. Still, the store isn’t a full-scale grocery yet because it has limited fresh meats.
• Same-day grocery delivery service Shipt began servicing the greater Nashville area in July. Using the Shipt app, customers can select from more than 40,000 grocery items to be delivered to their homes within one hour. The company uses trained shoppers to complete each order and make the delivery. There is no limit to the amount of groceries that can be delivered, and customers can receive perishable items such as meat and produce. Deliveries are unlimited for $99 a year, or $15 a month.
• Sprouts Farmers Market opened its second Tennessee store in the Memphis area on July 8. The 28,700-s.f. store in Germantown is located at 3150 Village Shops Drive near Poplar and Forest Hill. It marks the second area store for the Phoenix, Arizona-based company. The first Memphis store opened in Lakeland in May. The grocer also has reportedly announced plans to enter the Nashville market.
• Benson’s Market, one of the oldest businesses in Hermitage, was expected to close sometime in July after more than 65 years. The 8,000-s.f. family-owned grocery store at 3803 Central Pike stood its ground for decades, as Hermitage grew and competition in the grocery market increased, The Tennessean reports. Longtime Hermitage resident and store owner Richard Benson told the newspaper that he is ready to retire, 50 years after he took over the business from his father, Myron Benson.
• The site of a vacated grocery store in central Johnson City will soon once again bring food—and relief—to residents of surrounding neighborhoods. The Johnson City Press reports that Justin Essary and his family recently signed a lease for a 15,000-s.f. retail space in the Central Shopping Center on North Roan Street, formerly occupied by a Hometown IGA grocery store, intending to install a Save-A-Lot grocery store later this year. The Hometown IGA store abruptly shut its doors in February 2014, leaving behind a food desert.
• The Fresh Market plans to open its ninth Tennessee store in early 2016 in Hendersonville. The North Carolina-based specialty grocer signed a lease for a location at Merchant Pointe, located at the intersection of Indian Lake Boulevard and Anderson Lane.
• Publix continues to open and plan stores in Tennessee. The Lakeland, Florida-based chain is expected to open a store in the Berry Farms development that Boyle Investment Co. is creating in Franklin. The store is expected to open in summer 2016. It’s the latest case of Publix anchoring the retail piece of a Boyle development, a combo that’s occurred in Donelson, Cool Springs and Mt. Juliet, among other places, according to the Nashville Business Journal. Boyle also is reportedly in talks with an unidentified grocer for space in its forthcoming Capitol View project in Nashville’s North Gulch area.
*Editor’s note: This 2015 Tennessee Market Profile also appears in the August print edition of The Shelby Report of the Southeast.