Dozens of liquor shops shuttered after voters OK wine sales in grocery stores; hundreds more expected

David Migoya | The Denver Gazette | Dec. 3, 2024 | Original Source

When Colorado voters were asked in 2022 to allow grocery stores to sell wine — lifting a 107-year restriction the industry repeatedly and unsuccessfully tried to beat back legislatively for decades — proponents billed it as a win for consumers’ pocketbooks and the leveling of the playing field for alcohol sales statewide.

With far less money in their campaign war chest against Proposition 125, independent liquor store owners fought back with claims that their businesses would be ravaged by an already-competitive market that ultimately favored the larger retailers.

The days of the local family-owned liquor store, they said, would be numbered.

For many of those stores, the predictions were right.

In the two years since 50.6% of state voters passed the measure, dozens of independently owned liquor stores have closed, a Denver Gazette analysis found. The way they described it, with Proposition 125 in place, they were to the edges of fiscal solvency by grocery store chains that sustained penny profits until their competition was emaciated.

And the likelihood that scores more are expected to shutter in the coming year — a handful of industry watchers estimate that as many as 400 additional liquor stores will be forced to close by 2026 — appears by some to be a conservative guess.

The trade group of grocers in Colorado countered that the change is ultimately benefitting consumers. 

The reasons are varied, the owners and industry insiders told the Denver Gazette. In some cases, it was a liquor industry that couldn’t compete with chain-owned grocers that drew in and kept the clientele that would normally have stopped only for dinner items and then elsewhere for wine or beer.

In other cases, it was savvy big-box retailers that also dispensed prescriptions — Costco and Sam’s Club among them — that tapped into a little-used decades-old liquor license that was originally designed for local pharmacies.

And in still others, it was grocery chains that saw they could simply outlast any nearby independent liquor store owner long enough to make the latter’s license virtually worthless for any resale consideration.

What voters ultimately approved was a cutthroat industry that in a short timeframe has turned into a bloody and apparently one-sided brawl.

What’s more, the state’s craft brewers say they are equally feeling the pinch — dozens have already closed or have diminished their output — because demand for their product lines has also dropped, largely the combined result of fewer local-friendly liquor stores and grocers with little appetite to offer prime shelf space to unproven brands.

“The number of stores closing or near closing is a train wreck that is happening and we can see it getting worse,” said Bruce Dierking, co-founder of Hazel’s Beverage World in Boulder and longtime proponent of independent liquor store rights. “I’d say broadly that I knew it would be bad (if Proposition 125 passed), but it’s been worse. For every independent it’s been at least a gut punch if not more devastating.”

What stung all the more was only 15 of 64 counties passed the measure, carried mostly by the largest Front Range counties, although it did lose in Jefferson, Boulder, Pueblo and Larimer counties. Another, Proposition 126, which sought to allow third-party deliveries of booze was narrowly defeated.

When Prop 125 went into effect in March 2023, the number of stores competing to sell beer and wine literally doubled, as 1,934 outlets that sold 3.2 beer were converted. At the time, there were 1,603 licensed retail liquor stores in Colorado, state records show.

By September 2024, the number of independent liquor store licenses had dropped to 1,572, a number experts say is deceptive since licensees are not required to report whether they’ve closed their shop or intend to sell.

“I hear of so many others who say they can hold on another year or two until their lease is up,” Dierking said. “Remember, if they close they still have to pay that lease.”

The biggest hit hasn’t been in overall sales — state sales tax figures suggest the consumption of alcohol has actually dropped the past few years — but rather foot traffic through the front door. Some store owners have said it’s been a one-third drop; others said their customer traffic has decreased by more than half.

“The people through the door has fallen so precipitously,” Dierking said. “We knew it would hurt wine sales, but it’s been much more than expected.”

'Blew open the doors'

In 2016, independent liquor store owners witnessed a renewed effort by retail grocers to land the right to sell full-strength alcohol. It had been nearly 35 years since the last time voters were asked to allow wine into grocery stores and it failed.

To shortcut what might be a more successful process, though, liquor licensees came up with a grand compromise in the Colorado Senate that looked to preserve some of the old ways of selling booze while allowing for newer phased-in rules to apply.

It would set up a 20-year phase out of the state’s post-prohibition ban on grocery store alcohol sales. Grocers with drugstore components were allowed to sell beer in a single location, but could add additional stores over time with an eventual unlimited number of licenses allowed by 2037.

Put simply, grocers and convenience stores could sell full-strength beer by 2019 and if grocers wanted to sell anything harder or add locations, they’d have to first acquire the liquor license of an existing store if it was within a 1,500-foot radius or 3,000 feet for towns of fewer than 10,000 people.

“I was part of that compromise and I regret it,” Dierking said. “It was like a compromise with (Russian President Vladimir) Putin. A few short years later, they came back to break the deal.”

A key restriction was that drug-store liquor licensees would not be limited in the number of locations they could operate, while independent liquor store owners were.

“A retail liquor store … could never have more than four stores selling beer and wine and spirits in competition with grocery chains and their hundreds of stores selling everything from food to tires to dog food — something independent liquor stores cannot do,” Jim Shpall of Applejack Wine & Spirits told legislators in July 2023 during unsuccessful efforts to change the laws.

Prop 125 “blew open the doors” and the industry has tried to grapple with the outcome, Shpall said. 

Worst, one store owner said, was its passage came just after the impact of the COVID-19 pandemic.

“COVID years must be asterisked as most liquor store owners saw a large boost in sales that eroded as soon as the world started re-opening,” said Peter Cook, owner of ACME Liquor Store in Crested Butte. “Since then, the addition of wine to the chain stores has been devastating. Immediately, we saw sales drop 35%. Last fall, off-season sales were down 40%. This year has trended 10-15% down from those numbers.”

Struggling to keep up, shop owners chose not to fill employee vacancies as they occurred rather than strip their ranks. Others pared down the amount they bought from wholesalers, with some even stopping altogether.

“At the end of the day, I didn’t have a business that could hold water anymore,” said Joe Brunner, owner of Lukas Liquors in Highlands Ranch. The shop closed after 27 years and auctioned its inventory this summer. “Bigger pockets than me blocked me out. Colorado is a horrible state for small business and a great state for corporations.”

Brunner predicted as many as 800 additional liquor stores will close over the next two years.

“I thought I could survive but at the end of the day the consumers simply didn’t want it anymore,” he said. “We voted for this and I was on the other side of the vote and I lost. That’s how it works. It sucks that it happened to me and I wish it was them instead.”

Retail grocers were supported by the Colorado Retail Council in all its battles, a trade association that argued consumers would ultimately win.

“Go into any grocery store and see the wine and the variety and see if people are buying and that’s a pretty good way to tell,” CRC president Christopher Howes said. “Yeah, it’s been wildly popular. As we said for at least a decade, the customer ultimately wins and the prices are really appealing and the convenience is there.”

During the Prop 125 campaign, proponents said selling alcohol in grocery stores was a safer prospect than those in corner liquor shops.

But state law enforcement records show it’s a draw.

Ninety retail liquor licensees were cited for selling alcohol to a minor in 2022, while 92 grocery locations were similarly cited, records obtained by The Denver Gazette show.

In 2023, after Prop 125 took effect, the state cited 112 retail liquor stores for selling to minors and 113 grocery and convenience stores.

The numbers are nearly identical for 2024, with 83 licensees cited in each category through October.

'It hurts the smaller guys'

In 2024, liquor store owners made an effort with House Bill 24-1373 to lessen the sting of Prop 125 by eliminating the liquor-licensed drugstore license and convert them to malt beverage and wine retailer licenses — in essence, protecting liquor stores’ right to sell spirits by allowing only a single store in a grocery chain to do so.

It also would prevent “large national grocery store chains from mandating they receive free labor from alcohol distributors, which currently occurs daily,” according to a letter United Food & Commercial Workers Local 7 president Kim Cordova sent to legislators in April 2024.

In essence, liquor stores provide the labor to stock their shelves, while grocers have demanded the distributors do it.

"We don't require the sales reps to unload or stock," said Trent Olson, owner of Riverwalk Wine & Spirits in Edwards. "Grocery stores have been demanding it without any increase in sales. What folks didn't realize is that wine into grocery stores added about 1,500 new stops to those locations for distributors, increasing costs we have to cover."

Most didn’t see HB 24-1373 as a panacea, but did hope, as Dierking said, “that it slowed down the nails being driven into our coffins.”

HB 24-1373 made it through a trio of committees at the House of Representatives before the full House approved it, 42-19.

But it survived only three more days in the Colorado Senate before it died in that branch’s Finance Committee on a 4-3 vote, in which Rep. Chris Hansen, a Denver Democrat, sided with the Republican minority.

The impact of Prop 125 has magnified ever since, several liquor store owners said.

“Our beer sales are down so much more than we expected,” Dierking said. “And we didn’t think the impact would be so large and that the foot traffic shift would be such an issue.”

By extension, craft brewers have been impacted as well, Dierking said. 

Colorado, which per capita has the 5th most craft breweries of any state, had 468 breweries in 2023, according to the American Brewer's Association.

“It’s just a token to them,” he said of large grocery stores. “They’re not really committed and over time they cut the independent and stock the larger brewers. And those whose product is given shelf space, it’s only their most popular and not the whole lineup, which is what independents offered.”

The Colorado Brewers Guild, which represents the bulk of independent craft brewers in the state, said its members are either scaling back, consolidating or, at the worst, closing.

“We’ve had about 30 close already this year and last year was 35,” CBG executive director Shawnee Adelson said. “It hurts the smaller guys when you don’t have access to the market like the small independents.”

By picking and choosing what they’ll put on a shelf, larger grocery stores have a stronger say over which small businesses survive, Adelson said.

“Losing retail liquor stores does impact our smaller crafts that can’t get into the grocery stores; they don’t have the volume,” she said. “The margins are awfully small.”

For the grocers, however, a competitive marketplace is ultimately a survival of the fittest.

“We said over and again that we didn’t believe the apocalyptic forecast that they’ll all go out of business,” Howes at the Colorado Retail Council said. “And if you keep an eye on those stores around town, they’re not out of business, and the larger ones are doing well. There’s enough room to compete.”

He added: “They’re still in business because the smart business owners craft a strategy successfully.”