How TWSRA vs. Blair Could Change the Beverage Alcohol Industry

May 22, 2019 In Latest News

In January, the U.S. Supreme Court heard arguments in a case that could have a powerful impact on beverage alcohol retail. Tennessee Wine & Spirits Retailers Association vs. Blair (previously Byrd) deals with restrictive residency requirements in Tennessee, which block out-of-state alcohol retailers and wholesalers from operating there.

In short, the case will decide if alcohol retailers can sell in states where they aren’t residents.

But, the involvement of The Supreme Court means this matter could have a wider-reaching impact on the industry, beyond the residency issue — the court’s decision could lead to a sweeping change of inter-state shipping laws, opening retailers up to a much larger (and e-commerce-friendly) competitive market.

Here, we’ll dig into the details of the case, then speculate on potential outcomes and what impact they might have on retailers in the beverage alcohol industry.

 

A Brief History of Beverage Alcohol Laws

The 21st Amendment put an end to federal prohibition in 1933 when it was ratified by 36 states. It allowed, however, for state authorities to have vast control over laws on manufacturing, transporting and selling alcohol. By 1966, all states had ended prohibition, but many had restrictive laws in place that affected how retailers and wholesalers could operate.

In 2005, the Supreme Court decision in Granholm vs. Heald struck down state laws that treated in-state and out-of-state wineries differently, citing the Commerce Clause. Now, consumers can order wine directly from wineries located in any state.

But the Granholm decision applied only to wineries, not to out-of-state retailers. That’s where this current case comes into play.

 

TWSRA vs. Blair

This case began in 2016, when Total Wine & More applied for a license to operate in Tennessee. But, Tennessee state law requires alcohol retailers to be residents for at least two years in order to get an operating license. Total Wine is based in Maryland, so the license was denied.

Around the same time, a family that had just moved from Utah to Memphis was denied an operating license for their independent retail store on the same legal grounds. Together, the Ketchums and Total Wine took the case to a federal appeals court, which struck down the residency requirement as unconstitutional.

That decision was upheld at the Sixth Circuit Court of Appeals, and from there, the case made its way to the Supreme Court. Arguments were heard in January 2019, exactly 100 years after the 18th Amendment (which ushered in Prohibition) was ratified.

At this level, the case has taken on greater significance. By reexamining aspects of the 21st Amendment, the court is deciding if and how a state can prevent out-of-state alcohol retailers from operating the same way as in-state retailers.

 

Key Implications and Impacts

While the players at hand (Total Wine, the Ketchum family) both operate brick-and-mortar retail stores, there is a possibility that the ruling could affect alcohol e-commerce, as well. During oral arguments, Justice Neil Gorsuch asked: “Isn’t the next business model just to try and operate as the Amazon of liquor?”

While Total Wine is only challenging restrictions on brick-and-mortar stores, the broader issue of inter-state shipping could be affected by the court’s potential interpretation of the amendment. If they make a broad decision in favor of inter-state shipping, it’s likely that — online or offline — alcohol retailers would be able to sell across state lines. If they make a more narrow decision in favor of brick-and-mortar stores alone, e-commerce companies would likely bring separate cases in the future.

 

Here are three plausible scenarios that could impact independent retailers and the industry:

  • Supreme Court broadly affirms Blair. Total Wine and the Ketchum Family win; in-state residency requirements in 22 states (including Tennessee) are struck down as unconstitutional. A federal standard would replace state-controlled alcohol laws, ending any discrimination between in-state and out-of-state retailers, whether brick-and-mortar or online.

    In this scenario, the “Amazonification” of beverage alcohol really has legs, and Amazon’s new Alcohol Lobbyist will have runway. A broad decision would open the door for online marketplaces to sell and ship booze across the country. This increases competition and makes the market much more crowded, while consumers would benefit from lower prices for national brands.

    If inter-state shipping laws are relaxed, independent retailers should focus on improving their selection, service, and tech integrations. Having a unique inventory, expert staff, and exceptional in-store assistance will differentiate independents from the big-box stores, who will try to compete on price rather than expertise. Using tools like 3×3 DataBar to help monitor trends and design in-store strategies, as well as exploring e-commerce capabilities, will also be critical to long-term independent growth.
  • Supreme Court narrowly affirms Blair. Total Wine and the Ketchum Family win; in-state residency requirements in 22 states (including Tennessee) are struck down as unconstitutional — but only for brick-and-mortar stores. States would still have control over shipping and alcohol e-commerce laws.

    But, big-box stores like Total Wine & More — as well as alcohol departments at stores like Walmart, Whole Foods and Trader Joe’s — would start to spread out across the country. As chains move into smaller markets, the competitive landscape shifts. Instead of comparing prices and promotions with similar independent retailers, store owners will have to face much larger companies with significantly different margins.

    Again, in this scenario, many independent owners should lean into their specialities rather than going toe-to-toe with the chains on national brand pricing. The goal should be to elevate their business through curated inventory, customer service, and better technologies. By focusing on these kinds of strategic differentiators, liquor store owners can ensure that consumers come to perceive the experience of independent retail as indispensable to their product selection process, despite the convenience offered by big box chains.
  • Supreme Court sides with TWSRA. Residency requirements are upheld as constitutional based on an interpretation of the 21st Amendment. Out-of-state operators are limited to selling in the 28 states without residency laws. There’s a potential here for more restrictions to arise. State governments without residency requirements could see this as an opportunity to make changes, essentially cutting off the growth potential of retailers like Total Wine.

 

Conclusion

In the end, the best thing a retailer can do is continue to improve their store, making it appeal to the market they serve. Use data to run more intelligent promotions and better engage with your customers. Be proactive and cement your store as a part of the community so that no matter what decision comes out next month, you are ready to compete.