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Ohio Senator Tries to Eliminate Hefty Wine Markups Posted: Friday, October 17, 2003
By Nick Fauchald
Bob Eppich is riding a fence. The owner of Colonial Wine and Beverage in Chesterland, Ohio, can't decide if a proposed bill calling for the end of Ohio's minimum markup on wine will boost his business or destroy it.
"Right now, lots of people are driving to Chicago and loading their trunks up with wine," Eppich said. "This bill could keep prices down enough to keep these consumers in the state, or it could allow a lot of big box retailers to drive the little guys, like me, out of business." He fears that, without fixed pricing, the new Trader Joe's down the road could kill his business by offering huge discounts.
Ohio is among the 17 states that still impose mandatory markups on the sale of alcohol, but according to a 2002 study by the Cleveland Plain Dealer, its retail markup is 135 percent, making it the highest in the nation, with consumers paying 25 percent to 50 percent more per bottle than in other states. (The Ohio Liquor Commission's rules list the minimum markup at about
100 percent more than the wholesale invoice cost.) This markup is drastically higher than those imposed on beer (25 percent more than wholesale) and hard alcohol, which has its price fixed by the state government.
Legislation recently introduced in the state senate would eliminate the minimum markup, and also prohibit retailers from selling wine below cost. The latter provision is intended to prevent large retailers from predatory pricing -- selling wine at a loss in order to drive smaller retailers out of business.
But the author of SB 135, state Sen. Eric Fingerhut (D), knows it won't be easy to convince his colleagues to rescind the law, which was codified more than 50 years ago. Groups such as the Wholesale Beer and Wine Distributors of Ohio contribute to the legislators who control the state's liquor laws, Fingerhut said, which "keeps them more attentive to special interest than public interest." Last year, Fingerhut sponsored a similar bill that was quickly discarded by the Senate Agriculture Committee.
Even before Fingerhut reintroduced the bill last week, lobbyists from five r etail and beverage groups distributed a memo among legislators urging them to oppose the new measure, calling the existing laws an "effective tool" to "control the overconsumption of wine." The memo also stressed the importance of fair competition between large and small retailers.
Fingerhut disagrees with both arguments. "We have laws against public drunkenness, we have laws against drunk driving," he said. "That's how we deal with overconsumption. The public doesn't expect us to fix prices in order to control consumption. If we wanted to control consumption, we should do it like we do with tobacco, through taxes."
As for unfair competition, Fingerhut said: "It's not our place to fix these prices. Do we protect small hardware stores from Home Depot by controlling the price of hammers?"
However, Phil Craig, executive director of the Ohio Licensed Beverage Association, said eliminating the minimum markup would have a devastating effect on smaller retailers. "Some of the bigger food chains have such a large volume that if we didn't impose minimum markup, they could sell wine below milk cost," he said.
Craig also stressed that smaller retailers create a more diverse wine market: "Big box retailers will never carry the length and breadth that some of our small shops carry, simply because they're not as interested in the experiential and educational aspects of wine. . As long as these smaller 'mom and pops' exist, the more people will be able to share wine and talk about it in a more thoughtful manner."
If wine becomes too cheap and more of it is sold, Craig added, it could be abused like its shelf mates, beer or liquor. But Eppich discounted that theory, based on what he sees among his customers. "Fine wine, by the very nature of who drinks it, is rarely abused," he said. "In my opinion, this is a nonissue."
Independent retailers, Eppich said, are more concerned with discount chains undercutting them out of business. But he said, "I'll survive, because I'm already a chameleon. I will conform and find a way to make money, one way or the other."