June 26, 2004|By Paul Adams | Paul Adams,SUN STAFF
Beltway Fine Wine & Spirits in Towson is a liquor warehouse of 20,000 square feet that pulls in about $17 million in annual sales, spends lavishly on advertising and draws customers by the busload with its deep discounts.
Walther Liquors is a 3,000-square-foot neighborhood store farther east around the Beltway in Carney that pulls in a fraction of the sales, can't afford big newspaper ads and relies on its personalized service to keep its price-conscious clientele from bolting to the competition.
It's the liquor world's equivalent of Wal-Mart vs. the corner drug store. But in Maryland, Prohibition-era laws designed to curb alcohol consumption have historically leveled the playing field by requiring wholesalers to sell liquor and wine to big and small retailers at the same price.
That's about to change.
After a five-year legal skirmish with the state, David J. Trone, majority owner of Beltway Fine Wine, recently won a U.S. District Court ruling throwing out Maryland's regulations governing the distribution of alcoholic beverages because they violate federal antitrust laws. Similar laws have been struck down in at least a handful of other states.
In the weeks since the decision, liquor wholesalers in Maryland have been preparing to start rewarding their high-volume customers with discounts that many industry insiders say will lead to lower prices for consumers at the expense of small neighborhood retailers such as Walther Liquors.
"Over time, there will be some significantly lower costs of products that consumers will clearly notice as the wholesalers and distilleries and wineries seek to increase their market share by discounting," said Trone, whose company, TFWS Inc., owns liquor stores in Delaware, Pennsylvania, Maryland, Virginia and the Carolinas. His brother, Robert Trone, owns Corridor Wine & Spirits near Laurel.
"He impacts us all," said Jay Gernand, whose family owns Walther Liquors and considers Beltway a savvy competitor. "With the new quantity discounts, it's going to put a lot of guys into some jeopardy."
The state is appealing the decision, a move that will write another chapter in a federal antitrust case that since 1999 has bounced back and forth between the U.S. District Court in Baltimore and the U.S. Court of Appeals for the 4th Circuit in Richmond, Va.
Depending on whom you talk to, the fight is framed as big business vs. mom-and-pop stores; states' rights vs. the federal government; and the free market vs. the government's desire to discourage heavy drinking.
"It's a fight over values," said Jay Schwartz, a lobbyist for the Maryland State Licensed Beverage Association, a politically powerful group that has up to now successfully battled to preserve Maryland's liquor-selling structure.
There are 7,000 license holders in the state, with a large number owned by family businesses that are well-known in their communities. The liquor industry in Maryland has an anti-big bias that spans generations.
"In certain parts of the state, the Little Leagues wouldn't exist without the bars [and liquor stores]," Schwartz said, referring to store sponsorships.
And some of those businesses won't survive volume discounts, he said.
"I think what will happen is they will drive some people out of business," he said. "I don't think there's any question about that. It's the little guys."
Like a lot of states, Maryland adopted a three-tier system for the sale of alcohol after the repeal of Prohibition in 1933. The way it works is that breweries, wineries and distilleries sell products to wholesale distributors, who in turn sell to retailers.
In addition to repealing Prohibition, the 21st Amendment gave states wide latitude in regulating the distribution of liquor.
Maryland adopted some of the strictest rules in the nation, essentially handing state officials authority to limit price wars among retailers by squelching competition at the wholesale level. They do it by forcing wholesalers to publicly post their prices and charge all customers the same regardless of the size of their order. The rules apply to spirits and wine, but not beer.
The state also prohibits anyone from owning more than one liquor store, a provision that prevents chain stores from moving in and using their market power to slash prices and undercut small retailers.
Not long after Trone and his brother opened their warehouse-style stores in Maryland, the licensed beverage association pushed lawmakers to pass a separate law restricting stores to no more than 10,000 square feet unless they meet certain requirements.
"The core issue remains the conflict between the state's acknowledged 21st Amendment interest in regulating the sale of alcoholic beverages and the federal government's acknowledged interest in promoting or preventing restraints on trade," said Will Brockman, an assistant state attorney general.
