With a proposed bill in Connecticut’s General Assembly, Gov. Dannel Malloy would help both state residents and their wallets run less dry.
Senate Bill 789, which is now in the Joint Committee on General Law, aims to eliminate a law enacted in 1981 that requires alcohol retailers to follow minimum bottle prices on spirits and wine set by wholesalers. Opponents of the bill, which include numerous legislators and industry representatives, argue that the bill’s successful passage would mean closure for hundreds of mom and pop liquor shops and thousands of job losses across the state. But Malloy contends that the law leads to unnecessary government intervention in the market.
“If we had a law that forced stores to sell bread for a price that was determined by state government, people would be screaming about capitalism and big government,” Malloy said in a Monday press release. “But for some reason, we allow this anti-free market mandate to continue for this one particular industry.”
The bill’s critics say that if it passed, larger shops would be able to afford undercutting smaller ones, and the deregulation could open the market for larger alcohol stores to become commonplace in the state.
Speaking against the bill during a Tuesday hearing at the State Capitol, Lawrence F. Cafero, the executive director of Wine & Spirits Wholesalers of Connecticut, said alcohol does not fall under the same free market principles as other products like bread, given that it is an intoxicant and therefore already highly regulated.
Along with Cafero, other legislators, liquor store owners and lobbyists pushed to keep the law at Tuesday’s hearing.
“[Most small businesses] bought their businesses under one set of rules,” state Rep. David Rutigliano, R-Trumbull, said at the hearing.
That holds true for Jay Patel, who bought Gag Jr’s Liquor Shop in August 2015 with Shital Patel, his wife. The couple has since renamed their store Chapel West Wine & Liquors.
Of the 1,250 liquor stores throughout the state, only 30 of the shops are wine and spirits superstores, Jay Patel said. He added that the law’s passage and implementation could have immediate effects for many of the small businesses near larger distributors. But for Chapel West Wine, Patel said the short run impact would be inconsequential due to the shop’s location, clientele and pricing.
Over time, however, companies like Total Wine & More and BevMax will locate their liquor stores closer to existing shops, and those small businesses could also be driven out of business, state Rep. Dave Yaccarino, R-North Haven, said in an interview with the News.
“It’s a way to knock people out of business,” Yaccarino said. “It’s manipulating the market.”
Support for SB 789 is partly inspired by a study published by New York University economists Christopher Conlon GRD ’10 and Nirupama Rao. They argued that the current minimum price rule allows wholesalers to collude and set prices. In Conlon and Rao’s simulation, they found that similar regulations led to wholesale liquor markups of 30 to 40 percent on average.
When questioned about the likelihood of wholesalers fixing prices, Cafero said that although he was unaware of any ongoing lawsuits, he knew of some investigations that were underway.
Carroll Hughes, a lobbyist for the Connecticut Package Stores Association, attributed Connecticut’s higher liquor prices to wholesalers that sell alcohol at different prices in different states. Since Connecticut residents have a high average income, if wholesalers were to take advantage of a state, they would likely take advantage of Connecticut, Hughes said at the hearing.
According to the study, Connecticut could more than triple its liquor tax revenue by removing the minimum bottle price and then readjusting the tax rates that affect alcohol sales.
Last August, Total Wine filed a lawsuit against the state alleging that the minimum bottle price violates antitrust laws. That lawsuit is still pending.