at Douglas Wine & Spirits on
Atwood Ave. in Cranston
Store owners decry a bill being backed by retail competitors.
A bill introduced in the General Assembly would tighten the language of a Prohibition-era
law making liquor store franchising in the state illegal.
While certain to set off a larger debate over price wars, profit margins and fair competition in the Ocean State’s retail liquor industry, what the legislation could mean for the only two liquor franchise operations – Douglas Wine & Spirits and People’s Liquor Warehouse – in Rhode Island is less clear.
“They’re trying to legislate us out of business in this industry,” said John Haronian, president of Douglas Wine & Spirits, who began franchising both Douglas and People’s stores in the late 1990s. “The next question is who’s going to be next?”
Haronian no longer owns any of the store locations and does business solely as a franchiser, although his daughter now operates the original storefront he opened on North Providence’s Mineral Spring Avenue in 1977. With 10 locations operating under the two brand names – seven of the smaller Douglas operations and three People’s Liquor Warehouses – Haronian said his franchise business is being unfairly targeted.
And while supporters of the bill say they are only targeting liquor stores, Haronian questioned whether the bill could set a precedent threatening other popular franchises in the state like Dunkin’ Donuts and McDonalds.
The state Department of Business Regulations held hearings in December to begin considering the language in the 1933 law outlawing chain stores from selling alcohol.
The definition of a chain store within the current law, is loose to say the least. As the law reads, “What is a chain store is declared to be a question of fact, and the department is empowered to determine finally whether any applicant for the issuance, grant or transfer of a license is acting for or on behalf of a chain store organization or a store unit of a chain store organization.”
Specific issues the department asked for comment on included whether liquor stores that have an agreement with a third party, to share in either management program, advertising buys, or royalty fees, should be allowed. Craig Power, vice president of operations for Douglas, said the business group attended the department hearings and made a presentation outlining the differences between a chain store and a franchise operation. He said whatever regulations come down from the state, they are expected this spring.
Haronian said his franchises, which are completely independently owned and operated, should not be punished for their success. He said support for the bills, introduced in both Houses of the General Assembly in mid-February, comes from “competitors who don’t like competition,” and is a result of his two brand names raising the bar in the local industry.
The five representatives who introduced the House version of the bill did not return calls by press time and neither did state Sen. Maryellen Goodwin, a Providence Democrat, who introduced the bill in the Senate and serves as chairperson of the Senate Constitutional & Gaming Issues Committee where the bill has been referred.
Elliott Fishbein, president of United Independent Liquor Retailers of Rhode Island and owner of Town Wine & Spirits in Rumford, and the liquor retailers group, which Fishbein said was formed about five months ago and has already been joined by about 150 of the state’s 250 liquor retailers, are among the bill’s supporters.
Fishbein said allowing liquor franchising operations would not benefit the consumer in the long run. With a business model that encourages owners to set lower prices through bulk sales, Fishbein said prices would inevitably begin floating upward as the franchises forced independents out of business. He said independents typically don’t focus on selling huge volumes of products, and pointed to his own store which carries thousands of wine varieties and hundreds of different single malt scotches.
“It’s not about the fastest-sellings SKUs (stockkeeping unit),” Fishbein said. “It’s about selection and catering to the community around you. … The law has always been written to allow liquor businesses as a single-store entity. We’re looking to maintain an honest way of doing work.”
Christopher Gasbarro, owner of Seekonk Fine Wine & Spirits and a member of the liquor retailers group, said liquor store franchising is an attempt to skirt the intentions of the state’s law and noted that the concept of franchising had never been thought of at the end of Prohibition when the law was written.
“Prohibition never came down on hamburgers and donuts,” said Gasbarro, explaining that the bill looks at other franchise operations, like Burger King, as a non-issue. “Liquor is a controlled substance and it needs to be constantly policed.”
If the legislation is passed, or new regulations from the state Department
of Business Regulation prohibit liquor franchising, Haronian and Power say they
are unsure what that will mean to their 10 locations.
Strict screening process
Also up in the air is what the proposed bill could mean to the handful of Haxton’s Liquors operating around the state, all of which are independently operated though they share the name of a previous owner. Haronian, along with owners of franchised locations, planned to appear before the House Corporations Committee last week, after the Providence Business News had gone to press.
“We don’t believe the Legislature should be able to legislate you out of business,” he said.
Power said the 10 stores all abide by the rules and the regulations issued by the state and that anyone who is awarded a franchise has to go through a strict screening process. Store owners can opt out of any shared advertising campaigns or marketing plans (both of which would be outlawed in the proposed bill) and have the ability to set their own prices as well as tailor their inventory to surrounding community.
Ron Bochner, whose own business experience was in pharmacies for the past 20 years, opened a Douglas Wine & Spirits location almost a year ago on Atwood Avenue in Cranston. Although he had plenty of retail experience, he didn’t have any liquor-industry specific knowledge and decided buying a franchise was the safest bet in entering the market.
Along with name recognition, he knew buying a franchise would help him select a site selection, set up the store, train his workers and create inventory controls.
With the flexibility to either take part in ad campaigns and programs or not, he said the Douglas program still allowed him independence. Knowing that gross profits in liquor were low, Bochner knew he needed to sell high volumes to make money and the name recognition of Douglas could help him do that. He stresses that he still secured the loan and makes all decision for his corporation, which is merely doing business under another name.
“I live in the community, I employ people from the community,” Bochner said.
“I’m just an independent businessman who decided a franchise was the way to
go. It’s all on the up and up, competition is the American way.”
