Late liquor license bill pits smaller stores against some local retail giants
Author: Ernest Luning - May 3, 2017 - Updated: May 4, 2017
Legislation introduced Tuesday to permit independent liquor stores to amass more than twice as many licenses as last year’s landmark compromise allows has groups representing smaller merchants warning the move will devastate Colorado’s mom-and-pop retail landscape, but the bill’s sponsors and supporters say it’s simply an attempt to level the playing field.
House Bill 1370, set for a hearing before the House Finance Committee on Wednesday morning — it’s on an accelerated schedule as the General Assembly nears the end of the 2017 session — would let independent liquor stores that meet certain requirements own as many as nine retail liquor licenses over the next decade, while current law caps the number at five.
Last year’s Senate Bill 197, which went from negotiations to approval in just four days at the very end of the 2016 session, headed off a number of proposed ballot measures to allow some combination of beer, wine and liquor sales in grocery and other stores, which the owners of smaller liquor stores worried would have led to the demise of mom-and-pop stores, particularly in rural Colorado.
Supporters say this year’s House Bill 1370 is necessary to allow locally owned stores to compete with grocery and big-box chains, including Safeway, King Soopers and Target, which will be able to own as many as 20 liquor licenses over the next two decades and an unlimited number after that, as a result of last year’s compromise legislation.
Opponents, however, counter that the late bill is an attempt to usher in an era of mega-stores led by Wheat Ridge’s Applejack Wine and Spirits that will swamp the competition and drive smaller stores across the state out of business.
And, while Applejack is presenting itself as a local, family-run business — albeit one that’s grown over more than 50 years to enormous size — documents obtained by The Colorado Statesman show that the lion’s share of the business is owned by a local billionaire and his hedge fund. What’s more, the owner of a smaller independent liquor store says, Applejack’s management has been candid about wanting to build a chain of liquor giants as quickly as possible before cashing out.
House Bill 1370 is sponsored by state Reps. Faith Winter, D-Westminster, and Larry Liston, R-Colorado Springs, and state Sens. Tim Neville, R-Littleton, and Andy Kerr, D-Lakewood.
Earlier this session, the same four lawmakers sponsored two similar measures — both would have allowed independent liquor stores to accumulate additional licenses on the same schedule as the grocers and big-box stores, ultimately being able to open an unlimited number of liquor stores — but they died in Senate committees. The Senate State, Veterans and Military Affairs Committee killed Senate Bill 195 in late February, while Senate Bill 199 passed out of two committees before the Senate Appropriations Committee sunk it.
Winter told The Statesman that the multiple attempts are simply an effort to fix some problems that remained after last year’s massive overhaul.
“We got close to a compromise but at that time there were unresolved issues,” said Winter, who participated in last year’s negotiations. “I always questioned why are we giving the grocery stores and the big-box stores so much of an advantage over our local, homegrown liquor stores. Why do the Targets and Wal-Marts get to ultimately have an unlimited number of liquor licenses? It didn’t seem right to me. So I wanted to figure out a balance that protected the interests of the little guys.”
But according to members of a coalition of independent liquor retailers — the Colorado Licensed Beverage Association and Coloradans for SAFETY — the new legislation will protect the interests of a handful of the largest guys and throw the rest to the wolves.
“It would trigger an arms race,” said Bruce Dierking, an attorney and an owner of Hazel’s Beverage World in Boulder. “People would be going to Wall Street for money, not Main Street. Our marketplace would convert from primarily an independent marketplace with a lot of family-owned businesses to mostly a chain marketplace. The little stores would just be getting crushed left and right.”
Lobbyist Mary Alice Mandarich, who represents a small group of larger independent liquor stores, including Applejack, said the bill will benefit independent liquor stores like Hazel’s, not threaten them.
“I really believe this is a bill that is good for independent liquor stores,” she told The Statesman. “We are making a more competitive climate, and that can only help them. Once you look at our bill, with the amendments that are coming, what we are actually doing is trying to make a more competitive market for the smaller liquor store and to also give value to the licenses they are currently holding.”
(The amendment Mandarich referenced was a change Winter told The Statesman she plans to introduce Wednesday to strike a passage in the legislation that would have capped at 20 the number of liquor licenses grocers and big-box stores can accumulate, and instead restore the unlimited number available to the companies after 20 years.)
Winter made a similar point.
“I do think it creates some investment opportunities for our mom-and-pops to stay competitive,” she said, It’s a good balance to make sure we’re not just giving everything to the grocery stores and big box stores.”
Winter said it’s important to keep in mind that a key aspect of last year’s compromise was a provision requiring stores to buy out nearby smaller stores as they expanded over the years.
“I think this is going to help increase the value of the licenses,” she said. “A big part of the buy-out program is the value of the licenses is going to go up.”
Dierking wasn’t buying it.
“It would definitely be a significant dismantling of the big compromise from a year ago,” he said, noting that he was at the table, along with other liquor store owners, the grocery stores, wholesalers, suppliers and others. “We worked together to come up with this grand compromise that I don’t think anybody really liked very much, but we compromised to avoid all the ballot issues.”
“Here the ink is barely dry,” he added. “We’ve barely had a chance for these provisions to go into effect, and already there’s someone who didn’t get everything he wanted in the compromise and he wants the law rewritten.”
Jeanne McEvoy, who heads the Colorado Licensed Beverage Association — she owned a liquor store in Loveland for a decade before her current position — said last year’s compromise was just what the word suggests, a deal where everyone gave up something they wanted in order to reach agreement with everyone else.
“They’ve taken a well-thought-out plan that was a compromise, and they’ve decided, ‘Oops this doesn’t fit our investment portfolio well enough so let’s change it,’” she said.
“Senate Bill 197 was a well-thought-out phase-in that would slowly change the marketplace so small stores could slowly adjust,” McEvoy said, adding that she believes banks and other businesses have just started to become accustomed to the new retail arrangement but have put their plans on hold because the new bill could “upset the applecart.”
“The market will never recover if people don’t leave it alone,” she said. “Senate Bill 197 was a major change, but it needs time to stabilize the market.”
Dierking asserted that changing the formula as this year’s bill proposes would undermine key safeguards built into current law.
“The idea of the compromise was that growth would be organic and evolutionary, not to allow somebody to just go chain up,” he said. “If you were to change the law to allow that, what would be the impact on all the stores that don’t have any intention of doing that? Either they get a big capital partner, sell to a big chain or go under.”
Mandarich, who represented the 7-Eleven convenience stores during last year’s negotiations, maintained that it should come as no surprise to anyone that last year’s legislation wasn’t the final word.
“Last year everybody was aware that a group of liquor store owners wanted parity in the bill. Because that bill was run really at the last minute, people were told, ‘Come back and run your own bill. We don’t have time to get it included in this.’ That’s what they’re doing. There was not one person that did not know that this was an unresolved issue from last year’s bill,” she said.
But there’s sharp disagreement between the camps over which organizations representing different groups of independent liquor retailers are actually standing up for the little guy.
Lobbyist Jason Hopfer said he formed Support Your Local Liquor Stores last year after his firm, JLH Consulting and Public Affairs, was approached to represent “multiple liquor stores,” including Applejack, PJ’s Wine & Spirits in Longmont and Molly’s Spirits in Lakeside.
“Their concern is being on a level playing field to compete with Safeway, King Soopers and Target,” Hopfer told The Statesman in March when Senate Bill 199 was pending. “They don’t see that level playing field today with the limitations on licenses they can get as truly independent stores.”
For their part, Dierking and McEvoy charge that the group only has the interests of extremely well funded stores in mind.
As Applejack’s 50th anniversary was nearing in 2011, Shpall told The Denver Post’s Penny Parker that his goal “is to grow and grow and grow.” At the time, Parker wrote, Shpall claimed the title of “largest single liquor store in the country” due to his store’s size and its sales volume.
According to documents released in March by the city of Wheat Ridge under the Colorado Open Records Act, Applejack is controlled through a series of companies by billionaire Ken Tuchman, the chairman and CEO of the Englewood-based outsourcing firm TeleTech, through Tuchman’s investment firm Mantucket Capital. (According to Forbes, Tuchman has a current net worth of $1.35 billion and ranked 1,567th among American billionaires on the magazine’s 2017 list.)
The documents also show that the store has roughly $50 million in annual sales, putting it in a different league than the hundreds of smaller liquor stores represented by McEvoy’s organization, which might reach $1-2 million a year in sales.
According to the records, Tuchman — along with several associates and their business entities, who together own small shares — bought an 80-percent stake in Applejack in a leveraged buyout three years ago, leaving longtime owner Jim Shpall with just 20 percent of the company, which had been in the family for more than three decades since Shpell’s father-in-law purchased the business in 1980. While Shpall serves as chairman and CEO of Applejack, according to the records, Tuchman and Mantucket Capital have control of the company.
When Shpall testified in favor of Senate Bill 199 before the Senate Business, Labor and Technology Committee in March, he described Tuchman as his partner and “a gentleman who lived about four houses down from me” who “loves wine.”
“And he’s a Colorado resident,” Shpall testified. “I’m a Colorado native. There’s no big, looming force out there as it’s been portrayed sometimes. As I said, he lives four houses from me.”
Neither Shpall nor Tuchman responded on Tuesday to The Statesman’s request for comment.
Dierking recalled that Mantucket Capital managing director Brian Mankwitz — an owner of a small share of Applejack, according to the records, and one of the company’s three directors, along with Shpall and former Mantucket director and operating partner Larry Hay — was a key player in last year’s negotiations and said explicitly that the company’s goal was to build a chain rapidly “to maximize the ‘terminal value’ of their business.” That phrase — “terminal value” of their business — stuck with him, Dierking said, because he’d never heard it before.
“We told them that wasn’t consistent with our view. Our store and the larger stores — none of us want to radically change the marketplace,” Dierking said. “We think the Colorado market is the best in the whole country in terms of craft products, consumer options and competitive pricing and all these middle class families being able to run their own business. Why the Colorado Legislature would want to turn that upside down to benefit a billionaire is beyond me.”
McEvoy said she was alarmed that House Speaker Crisanta Duran, D-Denver, had assigned the bill to the Finance Committee.
“Why would this Legislature, why would the speaker of the House committee-shop this bill to a committee that liquor bills have never gone to, ever? And for a billion-dollar investment firm,” McEvoy said.
Winter acknowledged that she’d “had a lot of conversations around strategy with the speaker and what we thought was the best approach” but said there was nothing unusual about the bill’s committee assignment.
“It’s in Finance because it does deal with some financial issues,” she said, adding, “The liquor issue gets so personal that having some fresh eyes on the issue is also beneficial.”
The bill is scheduled to be heard in committee as soon as the House adjourns following its morning business.
Dierking ripped the bill’s last-minute appearance.
“The process doesn’t seem to be designed for a thoughtful, considered process with full public input,” he said. “It seems to be more designed to railroad something through.”
“It’s going to be a long haul because the liquor lobby gets very emotional,” Winter said. “It’s going to be an interesting vote count. It’s not going to be partisan, It’s not going to be based on geography. It’s going to be an interesting next couple of days.”