Tennessee: With Costco as landlord, Memphis wine & spirits retailers adjust to competition next door

 

Source: commercialappeal.com

By Kevin McKenzie

July 17, 2016

 

If any small wine and liquor store in Memphis could clearly see the handwriting on the wall with grocery and big-box retailers beginning to sell wine in Tennessee, Wolfchase Wine & Spirits was one of them.

 

Wolfchase Wine & Spirits opened about 15 years ago as a tenant of the Costco Wholesale Corp. warehouse store in Cordova.

 

Often cited as the nation’s largest wine retailer, Costco couldn’t sell wine to its members in Tennessee until 2014, when a compromise with liquor retailers worked out in the state Legislature allowed food stores to begin offering wine this month.

 

“We knew it would impact us and it has, with them and their prices, it has definitely impacted my wine sales,” said John Anderson, general manager of Wolfchase Wine & Spirits.

 

At the second Costco built in the Memphis area in 1999, at Winchester and Hacks Cross, the family owners of Southwind Wine & Spirits have hedged their bets.

 

A year ago they opened a second store, Doc’s Wine, Spirits & More at Poplar and Kirby in Germantown, designed to compete with the new world of big box stores and grocery store chains.

 

A 28-tap growler station is available along with wine on tap and Doc’s own private-label wines from California, South America and France at costs of $79.99, $12.99 and $7.99 a bottle. Wine and whiskey tastings are also offered along with a wine academy, loyalty cards, home brew supplies and more.

 

“This store was designed after the wine and grocery store law passed with the idea that this would be grocery-store proof,” said Ryan Gill, general manager for the Southwind and Doc’s stores.

 

The initial blending of grocery stores into the retail wine market hasn’t been without its missteps and controversies.

 

At Walmart in Collierville, for example, a receipt clearly shows a $10.77 bottle of Clos du Bois wine being sold on July 4 – a holiday when wine sales are barred.

 

“We are a responsible seller of alcohol and we take the responsibility seriously,” said a statement emailed by Arkansas-based Wal-Mart spokeswoman Leslee Wright.

 

“However, in this situation we made a mistake. We’re working with state authorities to ensure we’re addressing their concerns.”

 

The Tennessee Alcoholic Beverage Commission, while not revealing company names, reports that it issued one citation for selling wine on July 4. A second citation issued under the unfair wine law was to a store selling a product with an alcohol by volume content above 18 percent.

 

Kroger Delta Division’s gift of corkscrews to the first 50 customers at 34 West Tennessee stores on opening day drew protests from liquor retailers who said they are banned from offering giveaways.

 

However, ABC officials said nothing in state law prohibits either type of store from giving away certain items that can be sold at the store. Grocery stores can’t offer wine tasting on the premises, while wine and spirits stores can.

 

The ABC is being called upon to rule on whether a handful of products meet the legal definition of wine. Shoppers, for example, may have difficulty finding a margarita using agave wine initially available at Costco.

 

The new law requires prices that are at least 20 percent above the wholesale price, and the ABC is investigating complaints that grocery or big-box stores dropped prices below the floor.

 

That may involve differences of opinion on whether “municipal inspection fees” should be added to the basic cost of wine. The ABC’s position is those fees, as well as taxes and other charges wholesalers pass to retailers, should be included, officials said.

 

Fines for violations are $1,000 for a first offense, $2,500 for a second and up to $5,000 for more.

 

Gill said that Southwind Wine & Spirits saw an uptick on July 1 as customers showed their support when wine sales debuted at the neighboring Costco. That enthusiasm, however, is flattening.

 

For its 2015 budget year, Costco global wine sales reached nearly $1.7 billion, but the Issaquah, Washington-based company is unsure whether it’s No. 1 because all retailers don’t report sales, according to Bob Holler, a Costco buyer in Duluth, Georgia.

 

“At this time, Costco plans to continue renting space to the current liquor/wine retailers,” Holler said by email.

 

Anderson said that Costco recognized that its wine sales would impact its tenants and has been willing to negotiate lower rents.

 

Originally, a Memphis cancer surgeon, Dr. Roy Page, owned the Southwind store while his wife, Nancy Page owns the Wolfchase store separately. Dr. Page died in 2010 and his children, Mark Page, Lisa May and Roy Page became owners of the Southwind store, Gill said. Mark Page’s wife, Audrey, and Lisa May’s husband, Keith May, own Doc’s, he said.

 

“Costco is all about being able to offer everything to their customers,” Gill said, and the giant retailer still can’t sell the spirits available at the neighboring liquor stores.

 

“I knew all along my biggest nemesis is going to be next door, but they want us here because they want liquor to be here,” Anderson said.