Liquor store owners in bad spirits over tax hike
Increase in excise tax leads to higher prices
Liquor store owners in New York State caught a slight reprieve when Gov. David A. Paterson’s controversial plan to allow wine sales in grocery and convenience stores was removed from the state budget in March.
But an increase in the state excise tax on wine — from about 19 cents to 30 cents per gallon — is knocking them for another loop.
Dianne Bloom, owner of Clarence Wine & Spirits, is just one of many local owners making tough decisions regarding price and inventory in her small Clarence store. Forced to raise prices to recoup losses on already tight margins, she’s worried how she will compete with larger stores planning to absorb the price increase and take the hit on profit.
“I can’t afford to eat 10 cents a bottle, but I can’t afford to lose customers because of price, either,” Bloom said. “I’ve got nine flavors of Barefoot [brand wine]. But I haven’t raised the price on that because it’s so popular and people can get it anywhere.”
Because the tax increase is levied at the wholesale level but was enacted as of May 1, store owners were required by law to inventory all wine in their possession April 30 and pay the state 11 cents per gallon to make up for the gap in a one-time “floor tax.” Payments are due July 20.
For a big-volume retailer like Burton Notarius, president of Prime Wines in Kenmore and a member of the Premier Group, that will mean writing a lump sum check to New York State for nearly $55,000— whether or not a single bottle of wine from his nearly 500,000- gallon inventory has been sold.
Citing an unfair burden on small businesses during turbulent economic times, Assemblywoman Addie J. Russell, a Democrat from near Watertown, has sponsored a bill calling for the repeal of the floor tax and refunds for those who have already paid.
But whether or not that happens, merchants will still have to contend with increased prices.
The excise tax increase has been accompanied by across-the- board increases in prices at the major wine distributors. What ordinarily would be a 26- cents-per case increase owing solely to the excise tax has become an increase of about 60 cents per case.
“The problem from a retail standpoint is you can’t change the price every time your costs increase,” Notarius said. “It’s hard to make up a 1 percent increase in cost, but at the end of the year, that’s a substantial profit loss.”
But in talks with the major wholesalers, Empire Merchants and Southern Wine and Spirits, Notarius said the distributors have vowed to take another look at pricing to settle on something that makes more sense for retailers and consumers alike.
Still, because local distributors increased the minimum number of cases a retailer must buy when fuel and delivery costs started rising, many smaller stores have been forced to buy wine and liquor in amounts they don’t have the space or funds to support in order to take advantage of discounted quantity pricing.
That has led to occasional empty spots on shelves as smaller store owners decide what they can afford to replace and how often.
And selection is becoming more important than ever.
“It used to be that customers stuck with brands they liked. Now, as they experiment, they come in and say, ‘I liked what I had last time. What else do you have that tastes like that?’ ” said Notarius.
Of course, decreased selection is bad for business, but so are increased prices.
“I don’t know if you’ll be able to keep selling this stuff if they keep raising the taxes,” said Ruth Miller to a Premier clerk as she cashed out a five-liter box of Almaden Vineyards Rhine Wine.
Miller said she used to be able to get the same product on sale for $9, but now pays about $16.
“The price has just gone steadily up and up over the last couple of years,” the Town of Tonawanda resident said. “That’s ridiculous.”
But an elevation in the quality of less expensive wines has meant it is easier for increasingly frugal customers to switch to cheaper wines without sacrificing taste. That’s a plus for consumers, but can pose an obvious problem for merchants, driving potential profits down.
Consumers buying wine at restaurants — and there are a lot of them these days, thanks to a resurgence in wine’s popularity — could also see price increases, according to industry experts.
Even though restaurateurs have a little more breathing room on price margins due to service and overhead mark-ups, it is an industry with notoriously tight margins. The dining industry also has been hit hard by the drop in consumer spending. Though restaurants in Western New York have fared better than in some other places, business here is soft and traffic patterns are unreliable.
Still, selection is key and cost efficiencies could be implemented to maintain it.
“If a customer develops a preference for something on your wine list and suddenly you’re out of it, that is a bad situation,” said Vince McConeghy, community manager for Western New York’s LocalFoodService. com, a business-to-business online community for those in the restaurant industry.
Beer is also subject to an increase in excise tax, going from 11 cents to 14 cents per gallon. That comes out to about seven cents per 24-pack of beer and is an increase grocers and convenience store owners must also decide whether to eat or pass on to customers.
“At this point we’re absorbing it. We really want to see where all this lands,” said Ann McCarthy, Wegmans spokeswoman. “There could be other potential increases because of the bottle bill, so we’re waiting for that to flesh out.”
Tops has made “modest price adjustments where necessary” in response to distributor price increases, said spokeswoman Kate McKenna.
Just as liquor store owners navigate the perfect storm of increased taxes, higher prices and minimum buy requirements, another wave of game-changing legislation threatens to exert even more pressure.
Though liquor stores won the fight against bringing wine to grocery stores just three months ago, the battle has already been resurrected with the introduction of the Wine Industry and Liquor Store Revitalization Act by Assemblyman Joseph D. Morelle, D-Irondequoit.
The bill proposes easing up on liquor store restrictions, such as allowing them to carry snacks and drink mixers while allowing grocery, convenience and drug stores to carry wine.
It’s a move liquor stores have continuously said would put them out of business.
“The floor tax was the lesser of two evils. As small, independent stores, we realize we have to do our part to help the state,” said Mark Ressler, vice president of the New York State Liquor Store Association and owner of Midnight Wines and Liquors in Tonawanda. “But the campaign to allow wine in grocery stores, that is the big threat going forward.”
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