Two years ago, Wal-Mart Stores Inc. held a series of meetings with the world’s top liquor makers at its alcohol-free headquarters in the middle of a dry county. The subject, say several people who were there: What did Wal-Mart need to do to sell more vodka, whiskey and rum?
The results of those meetings are now starting to hit store shelves. In a move partially meant to spur flagging growth at stores open more than a year, Wal-Mart is pushing into hard liquor, one of the rare product categories where the world’s largest retailer is very small.
Using its classic strategy that has transformed how Americans buy everything from bread to diapers, Wal-Mart is likely to shake up the booze business with its low prices, carefully chosen products, big displays and fast deliveries. The push is changing how Wal-Mart lays out some stores and influencing where it builds some new ones. Meanwhile, liquor stores and distributors are anxiously watching to see how the giant’s moves will affect them.
But selling more alcohol raises complicated issues for a company that presents itself as a folksy all-American enterprise and an arbiter of social mores. In addition to banning risqué magazines from its stores and selling sanitized versions of CDs with controversial song lyrics, Wal-Mart forbids alcohol consumption on company property and at company events. When Wal-Mart executives put business meals on expense accounts, they must personally pay for any alcoholic drinks. Some store managers have balked at the effort to promote liquor sales, citing local sensitivities.
Groups such as Mothers Against Drunk Driving question whether busy supermarkets can police liquor sales as adequately as stores that sell alcohol only. Wal-Mart says it requires its salespeople to request ID of anyone who appears to be under 27 and that its training is adequate.
Wal-Mart is also finding that selling booze is a lot harder than selling toilet paper. Twenty-four states allow supermarkets to sell hard liquor, but restrictive rules make it practical for large chains to get into the business in only about 17 of them, liquor-industry experts say. Even among those 17, Byzantine laws regulate selling hours and tough rules for getting a liquor license are common. In some cases, stores must close off aisles or sections during hours when alcohol sales aren’t permitted.
The campaign is forcing Wal-Mart to bend some of its most firmly held business tenets. Everywhere it sells alcohol, state laws require Wal-Mart to buy through distributors, a layer it typically eliminates to squeeze costs. And because Wal-Mart forbids alcohol consumption at its home office, sometimes its buyers must jump through extra hoops to test the merchandise they bring into the store.
Wal-Mart is making other adjustments to meet liquor-sale requirements in various states as it struggles to catch up to competitors with large liquor sections. In Florida, it has gotten around a law restricting the sale of liquor in grocery stores by walling off the liquor department and building a separate entrance in some of its new stores.
Now our Lehigh Acres Wal-Mart is now going through Lee County Development to add a liquor store to the outside left side of the current store.
As with other Wal-Mart expansions, the push into booze is scaring some small retailers. To gird against big-box retailers such as Costco and Wal-Mart, Tom Williams, owner of a liquor store in Waltham, Mass., joined with 12 other stores to form a business group that pools its resources to do joint marketing and promotions. “Look what they’ve done to other categories — independent pharmacies, optical shops. They’ve crushed them,” Mr. Williams says of Wal-Mart.
Some distributors are also nervous that Wal-Mart could squeeze the profit margins they have long enjoyed because of heavy state regulations. After the repeal of Prohibition, the states established what is called a “three-tier system” that requires the makers of alcohol to use a middle man, or distributor, to sell to bars and stores. The goal of the system was to help in regulating the industry and to prevent the large manufacturers from having too much power over mom-and-pop retailers.
Wal-Mart’s entrance into the business could help spur changes already taking place in the distribution business. Over the past few years, Glazer’s Wholesale Distributors, the No. 3 liquor distributor in the U.S., has invested in computer software, including some that is compatible with Wal-Mart’s systems, to compile inventory and sales data faster, enabling it to restock shelves at individual stores more quickly. While Wal-Mart still must place orders with each Glazer distributor in individual states, Glazer has appointed one manager to run interference should problems crop up with pricing or late deliveries.
Wal-Mart’s move comes amid challenges to distributors’ role in controlling the sale of alcohol. Earlier this year, the Supreme Court ruled that states could no longer ban the direct sale of wine across state lines. And a closely watched Costco lawsuit challenges a Washington state law requiring retailers to buy wine from a distributor rather than directly from a manufacturer. But liquor industry officials say any significant changes to the sale of hard liquor as a result of these cases would likely be years away..
Because Wal-Mart executives aren’t allowed to drink on company premises, spirits manufacturers sometimes book hotel rooms in Bentonville or take executives to the few local members-only clubs that have liquor licenses to sample products.
Bob MacNevin, head of national accounts for Pernod Ricard, says that when his team flies to Bentonville for meetings with Wal-Mart, they make special arrangements. The executives ship sample bottles of Jameson Irish whiskey and Wild Turkey bourbon to their hotel ahead of time because they can’t buy their brands locally. Oftentimes, they leave Arkansas with the bottles unopened. “They are very, very careful,” he says.
Unlike many rival grocery chains, Wal-Mart prohibits alcohol ads in its monthly circular and doesn’t permit spirits promotions outside the liquor aisle, blocking cross-promotions with food or glassware, for example.
Even when Bentonville headquarters approves a liquor display, some Wal-Mart store managers decline to install it. This is allowed, under Wal-Mart’s policy of letting local store managers have some say in adjusting their merchandise and marketing for local taste. To combat that, liquor makers are instructing their distributors to meet with individual Wal-Mart store managers to show them sales data to argue that selling spirits helps overall sales.