Proposed law in Colorado could restrict alcohol sales at large chain grocery stores

A Colorado House bill could change the kind of liquor consumers can buy from some of the state's large grocery and drug stores, mostly along the Front Range, if enacted into law.

Slated to be discussed by the House Business Affairs and Labor Committee on Thursday, House Bill 1373 would convert liquor licenses for about 30 mostly large chain grocery stores that allow them to sell beer, wine and spirits to being able to sell just beer and wine.

The licenses, known as liquor-licensed drugstore licenses, are mostly held by large retail liquor stores that are run by large retail grocery stores.

Scott Chase, representing Colorado Independent Liquor Stores United, said the bill could help half of the 1,600 small liquor stores statewide survive.

Currently, he said, they forecast these stores to close in the next two years. These stores are the primary locations for consumers to buy specialty Colorado craft beers, wines and spirits, he added.

The bill comes just two years after Proposition 125, a 2022 ballot measure narrowly passed by voters that allows grocery and convenience stores to sell wine, which makes up the majority of sales in liquor stores.

That has resulted in a 30% to 40% drop in sales at liquor stores in just over a year, Chase said.

The 30 stores that could be affected by HB 1373 are operated by Safeway, King Soopers, Costco, Walmart, Target and Sam's Club, all but one (in Grand Junction) are located along the Front Range. It would also affect five drug stores that are not grocery stores in Denver, Limon, Aspen, Oak Creek and Fort Collins.

The license targeted in HB 1373 is one that existed prior to 2016, when a "grand compromise" was worked out between some of the grocery chains and the liquor stores, and as contained in Senate Bill 16-197. Eight of the 30 stores, including the five stand-alone drug stores, had those special licenses prior to 2016.

Three grocery stores — one location each for King Soopers, Safeway and Costco — also held those special licenses, under the law that existed prior to 2016. 

The state Department of Revenue created a license just for selling malt beverages (beer) following the passage of the 2016 law. After Proposition 125 passed, a new license for selling beer and wine was added. 

The grand compromise meant grocery stores that wanted to sell alcohol had to buy out any liquor licenses within 1,500 feet of the grocery store and at a tremendous cost, according to the Colorado Retail Council, which opposes the measure.

Proposition 125 changed that to 500 feet for the beer and wine-selling stores.

The measure also would clamp down on grocery store display practices that the independent liquor stores claim are unfair and may violate local government agreements. It would require beer and wine retailers to display their alcohol beverages in a single location, as well as prohibit those stores from selling alcohol beverages with greater than 14% alcohol by volume.

Currently, some of the grocery stores temporarily display wine and beer in "end caps" — those shelves at the end of an aisle that may be shelved further from the actual alcohol section.

These "end cap" displays raise serious safety, theft, youth access and alcohol abuse concerns, according to the Colorado Independent Liquor Stores United. 

The measure would also eliminate a limit on the amount of liquor sales a restaurant, for example, could buy from a liquor store.

Restaurants buy their alcohol wholesale, but sometimes run out and want to supplement their supplies from a liquor store, instead of waiting two weeks for a wholesaler to restock. Current state law caps the annual purchase limit at $2,000.

Those sales help the small liquor stores, Chase said.

Grocery stores and other retailers that sell beer, wine and spirits claimed the bill would violate the "grand compromise" to level the playing field.

The retail council pointed out a 2021 study that said small liquor stores control 71% of the market; grocery stores have about 5.5%, and large "format" stores that have 20,000 square feet of retail space — Applejack and Total Wines — have 23.6%

That study, however, was conducted before the passage of Proposition 125, which was backed by grocery and convenience stores.

The 'grand compromise'

All of this ties back to the 2016 legislation known as the "grand compromise."

Opponents of HB 1373 claimed the measure would abolish the system set up under that 2016 legislation.

SB 16-197 was a compromise between the small liquor stores and certain grocery and convenience stores, which were then threatening to go to the ballot to ask voters to allow the grocery stores to sell beer.

Chase said small liquor stores didn't have the money to fight a ballot measure and instead agreed to a phased-in approach for grocery stores to sell everything. By 2030, there will be no limitations on what a grocery or convenience store can sell, giving the liquor stores time to adjust to the market changes.

The bill was opposed by the state's largest grocery chains, King Soopers and Safeway. So intense was the fight over SB 197 that virtually every lobbyist in the state Capitol who had the bandwidth wound up with a one-month contract to work on one side or the other. 

The Colorado Retail Council points out that since 2016, the retailers have invested millions to obtain liquor licenses, lease land, and reconfigure existing floor space with approvals from local governments, which ties into the display issue raised by the Colorado Independent Liquor Stores United.

The result of HB 1373, according to Chase, is that consumers would know they can get beer and wine at grocery and convenience stores — and beer, wine and spirits at liquor stores. 

From the perspective of the retail council, HB 1373 would eliminate any future opportunity for small liquor stores to be bought out by the grocery and convenience stores, which they point out is a system approved in the 2016 grand compromise. The council said there are at least four current deals on hold while HB 1373 goes through the process. 

What could be on the horizon

Many in the liquor industry had expected an omnibus bill, reflecting recommendations from the governor's 2023 liquor advisory group.

The group recommended 33 changes to the state's liquor laws. The concepts in HB 1373 were among the non-consensus recommendations of the group.

Some of those recommendations, both consensus and non-consensus, include the following:

• Allow liquor stores to be open Christmas Day

• Change "last call" from 2 a.m. to 4 a.m.

• Change the license renewals from one year to two years

• Create a new retail tier license that would allow a catering company to license a physical location while also having the ability to pull temporary permits to sell and serve alcohol in unlicensed locations.

• Allow beer and spirit manufacturers to apply for up to five sales rooms (temporary or permanent) in addition to their primary location.