Bradley Rickard: New, fairer bill could help state and industry

 Among the new revenue streams in Gov. David A. Paterson’s ultra-tight budget is a proposal to allow the sale of wine in grocery stores in New York State. Just how lucrative will this be for the state? In addition to the $93 million that would be generated from a one-time franchise fee charged to grocery stores, my calculations show that annual government revenues would likely increase by $22 million from taxes on additional wine sales.

Agreed, that’s a mere droplet for a state facing a $7.4 billion deficit this year, but allowing supermarkets to sell wine would have substantial long-term effects, with in-state wine sales increasing by approximately 13 percent and out-of-state wine sales expanding by 30 percent.

For many, the initial reaction to the proposal to allow wine sales in grocery stores was that this is just another opportunity for large businesses to drive wine and liquor shops out of business. And, indeed, my research shows that a policy that introduces wine into grocery stores without any compensation for liquor store owners would lead to a decrease in annual liquor store revenues by 17 percent to 32 percent.

However, Paterson’s proposal includes various provisions to provide compensation to liquor store owners for lost wine sales. For example, it would allow liquor stores to sell additional items and to maintain more than one sales outlet. And it would provide each liquor store with an additional, transferable license.

But two problems emerge: The benefits of such provisions are unknown and there is too much uncertainty whether these provisions would under-or over-compensate liquor store owners. Providing compensation will be a key component in keeping the legislation moving forward, but policymakers need to assess the full value of these licenses in an effort to properly determine appropriate compensation.

Proposals that would allow wine to be sold in grocery stores are hardly unique to New York State. Thirty years ago, wine was sold in grocery stores in only 27 states. Currently 35 states allow wine sales in grocery stores and many of the remaining states have recently considered proposals that would also liberalize wine sales. The introduction of wine into grocery stores in Washington state in 1969 increased annual wine sales by 26 percent, while a similar policy change in Iowa in 1985 increased annual wine sales by nearly 80 percent.

While New York State’s wine sector is small compared to the major wine-producing regions in the world, it has experienced significant recent growth. Now it is approaching a stage in its development where strategic marketing is critical, including attracting a larger consumer base in New York State. Introducing wine into grocery stores would be one way to increase the availability of local wine, and may be a mechanism to foster the development of the state’s burgeoning wine industry.

Bradley Rickard is assistant professor of applied economics and management at Cornell University.