Debunking, part 1: Liquor stores will not be run out of business

One of the first scare tactics liquor store owners throw out in support of keeping Prohibition-era laws on the books is that changing them (thereby opening up more avenues of competition) would be disastrous for their business. They would ALL go under--all 500+ of them--taking a number of jobs with them. The only guy still making any money would be the guy who makes tumbleweeds.

The facts may be inconvenient to the TWSRA, but not only does research not support that claim, 33 other states prove quite the opposite every single day.

First let's look at some numbers. When I talk about liquor store owners, what I do know? According to the 2007 Economic Census, there were 512 establishments listed as "beer, wine, and liquor stores" and the average sales for that year was $1.13M per store. (Note that, unlike other states, Tennessee does not currently allow a person to own more than one store.) And we are to believe that consumers are going to take all that disposable income that they used to spend at the locally-owned package store and go spend it all in some big box national chain with out-of-state owners.

Will that happen? A 2004 study by American Economics Group [PDF alert] says not only will it not; research reveals that the number of liquor stores will increase. (PS: check the note on the graphics--in direct opposition to what Bard Quillen had to say, the study uses population numbers of residents over the age of 21.)

The data show unequivocally that increasing wine outlets in a restrictive state above the median number of outlets per capita for all states will not force a collapse in the number of liquor stores. The impact on liquor stores will be a reduction in the amount of the "monopoly profits" conferred on them by states that restrict the number of stores below a competitive level.

Two pages later, that study outlines how lower prices allows a state to potentially recapture some of the revenue it loses when its residents travel to other states (say, Trader Joe's in Atlanta) to purchase cheaper wine there.

Wait, so we prove basic economic theory--competition in a marketplace results in lower prices and benefits the consumers--and the number of stores serving them goes UP?

See page 19 of the AEG study.

There is a strong and persistent relationship between the number of wine outlets per capita and the number of liquor stores a state supports. Quite the contrary of what some believe, the number of liquor outlets increases as the number of wine outlets grows. The competitive market supports more liquor stores than restrictive states allow.

Pretty sure that means new jobs, too.

Here's what a couple of academics in New York [PDF] had to say regarding that state's similar fight:

According to Appleseed, liquor stores would lose about 15% of their wine sales to supermarkets, which represents a 6%-8% average reduction it total sales per store. However, allowing liquor stores to sell other products could offset this small decrease in average sales.

I've actually seen figures smaller than that in terms of expected impact on liquor stores. One study done in Massachusetts in 2004 found that wine represented around 3.5% of sales in grocery stores, that only about 7% of customers purchased wine (they cited one in 14 customers), that more than 93% of wine were accompanied by the sales of other items, and the average wine purchase per visit was 1.6 bottles.

In short, we have a number of studies disproving liquor store owners' claims that their businesses would shrivel up and die. I've yet to see a single study backing up that anecdote.

Yet again, however, I am reminded of what bar owners across the state said four years ago when the smoking ban was being discussed: "My customers will stop coming here and I'll have to close down and lay off all my employees." Similarly that was not based upon fact, and was actually refuted by what had already happened (or not happened) in other states. And, of course, none of those doomsday predictions ever came to fruition. In fact, there's a really great parallel to be found in this KNS article from the senior VP of Ruby Tuesday:

“We haven’t seen it have an impact on our business (in other states),” Johnson said. “If it’s applied across the board, it doesn’t keep people from coming to a restaurant they enjoy coming to.”

I couldn't have said it better myself.