Photo from Flickr user jamescridland.
Amazon has applied for licenses to open liquor warehouses in Columbus and Cincinnati that would allow the company to sell beer, wine, and liquor for delivery as well as carryout. This move is the latest in the company’s increasingly aggressive attempts to position itself as a dominant player in brick-and-mortar food as well as online beverage retail.
While Amazon will likely tout the convenience and affordability of such services, some in the alcohol industry are concerned that Amazon’s goal is ultimately to displace existing alcohol retailers and distributors and perhaps the traditional three-tier regulatory system as well.
Alcohol sales and distribution is highly regulated. A three-tier system, in which producers, distributors, and retailers must maintain independence from one another, prevents any one company from dominating multiple sectors of the industry. State and federal laws upholding the three-tier system were implemented after the end of Prohibition in 1933. Other regulations governing liquor retail and interstate commerce are also meant to preserve competition in the sector.
These regulations are designed to give citizens control over where and how–even whether–alcohol is sold in their communities. They are also designed to keep alcohol related businesses small enough to easily regulate.
But in recent years giant brewers and retailers have launched a series of attacks on the three-tier system. Costco pushed legislation in Washington State in 2012 and 2015 that made it easier for the retailer to act as a de facto, unlicensed liquor distributor. Anheuser-Busch InBev has bought 9% of its distribution network, and used incentive programs to ensure exclusive loyalty from distributors until regulators caught on. Walmart sued the state of Texas to overturn Prohibition-era laws that prevented the retailer from selling liquor.
Paul Pisano, senior vice president of the National Beer Wholesalers Association says Amazon may prove to be even more formidable of a foe than Costco, Walmart, or ABI. For instance, he says, the company could challenge interstate commerce laws that currently prohibit shipping alcohol across state lines. “Amazon,” Pisano says, “has enough resources to out-muscle, out-lobby everybody to change laws to their liking.”
Pisano is also concerned that Amazon’s position as an online retailer could compromise existing laws against alcohol “slotting fees.” In the grocery retail sector, large food processors commonly pay thousands or even millions of dollars to secure prime shelf space for their products in grocery stores. This practice is banned in alcohol retail. But since Amazon is an online retailer, Pisano says they could potentially be exempt from laws that prevent such behavior. He says his organization has its “eyes open” to Amazon’s future plans.
Amazon’s Ohio licenses also allow for carryout sales of liquor, meaning Amazon could open liquor stores in Cincinnati or Columbus. This would be simply the latest in a series of Amazon ventures into brick-and-mortar markets. First, the company opened a Seattle bookstore. Then it announced it would be opening grocery and convenience stores for some users. At Amazon grocery stores, Amazon Fresh customers will be able to shop for produce and other perishables as well as place online orders for same-day delivery of pantry staples.
At present, only 2% of all groceries in the United States are sold online. Almost no alcohol is legally sold online.
Not everyone is concerned about Amazon’s entrance to the Ohio alcohol market. “We welcome all types of competition,” says Auday Adamo, head of the Association for Food and Petroleum Dealers, which represents independent retailers in Ohio and other states. But Adamo did note that if Amazon opens liquor stores in Ohio, it could prove disruptive to existing Ohio retailers.
Last year, Amazon applied for liquor permits for three locations in and around Seattle, Washington. A few months after those liquor permits were approved, the company introduced one-hour alcohol delivery to the city.
The company, whose sales exceeded $29 billion in the first quarter of 2016, has previously come under fire for its anti-competitive practices in the book industry. In 2015, a group of authors submitted a letter asking the Department of Justice to investigate the company’s alleged practices, such as selling some books as loss leaders and advantaging books published through the company’s own imprint over independent publishers.
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