There were lawsuits in Texas and Minnesota, and legislative challenges in South Carolina, Connecticut, and Massachusetts. Every time that Total Wine & More, the wine, beer, and spirits retailer, wanted to expand, it seemed like someone else – often the local package store trade association – sued to stop them. Most of the time, the legal hurdles were resolved in Total’s favour. But it has not been an easy path for the chain, which has grown to 117 stores in 16 US states. Says David Trone, who owns the $1.5bn company with brother Robert: “This is nothing new, and it started when we opened our first store. They didn't like Total Wine then, because they don't want the lower prices that we bring to market, and nothing has changed.”
Nevertheless, Total is proceeding on its quest to become the first national liquor store chain in the US. It's already the largest independent in terms of sales, and David Trone sees no reason why, eventually, it can’t overcome the lawsuits, the US’ various post-Prohibition state laws that discourage liquor chain growth, and the challenges of selling a regulated product in 50 states with 50 different set of laws.
Total’s keys to success? Low, grocery-style margins; appealing, well-lit stores; and its signature private label brand, called Winery Direct. “We're not doing anything differently now than we did 10, 15, 20 years ago,” says Trone. “The business has been successful because we focus on the customer. This is a natural progression – slowly building from one state to the next.”
US complexities
The best way to understand the US retail liquor market is to think of each state as sovereign, where the law in one state has no bearing on the law in another state. For example, grocery stores can't sell wine in New York state at more than one location, and only the state can sell wine in Pennsylvania at state-owned stores. Michigan has minimum pricing laws, while Utah has seven kinds of liquor licenses.
Prohibition, which started in 1920, outlawed the sale, manufacture, and transportation of alcohol, and made the country legally dry. But, as part of the political compromise that made repeal possible, each state was allowed to regulate alcohol as it saw fit. Many remained dry all or in part for decades after Prohibition, and those that didn't regulated alcohol in a variety of ways. Those differences can make expanding across state lines a legal nightmare, and helps explains why even large chains don't do it – Spec’s has more than 160 stores in Texas but none in neighboring states, while all of Binny’s 31 stores are in Illinois.
“Yes, the US is a total nightmare on the regulatory front,” says David Trone. “But it's not going away anytime soon. We understand that there is a need to protect consumers from the dangers of alcohol, and we can only ask that regulators do that, and not try to erect obstacles to competition.”
None of that, though, has intimidated the Trone brothers. They opened two stores in Delaware in 1991, and the chain grew to 100 stores in more than a dozen states over the next two decades. Store size is between 20,000 and 30,000 square feet, and each carries some 8,000 wine SKUs, 3,000 spirits SKUs, and 2,500 beer SKUs. The stores are well-lit, with upscale shelving and modern design, and include tasting areas for wine classes. Also important: Its salespeople are dressed in black slacks and white dress shirts, offering a professional look in an industry where that’s still not always the case.
“Total's stores do not look like the kind of places where you'll go to pick up a six-pack and bag of potato chips late at night,” says Tim McDonald, a Napa marketing and public relations consultant. “There's high selection and a diverse range of products, and there are enough employees around so that you can ask them questions. And don't underestimate how much women enjoy the stores and the chatty style of the employees.”
Good timing
In this, says Rob McMillan of Silicon Valley Bank in northern California, who follows the wine and spirits business in the US, the time may be right for a national chain despite the legal hurdles. First, he explained, the political climate in many states favours less government intervention in the marketplace, making it easier for a chain to enter new markets. Second, the consumer desire for more choices means they’ll welcome a new retailer in a way their parents may not have. Third, stores can be more profitable in a highly regulated environment, thanks to better marketing, lower costs of production, and supply chain efficiencies.
All of which is well and good, but doesn't take into account the resistance Total has faced from retailers in many of the states that it has entered. In South Carolina, for example, one retailer said a proposed state law to increase the number of licenses one company could have, which would have allowed Total to open more stores, would “destroy the little man. That’s Total Wine trying to monopolise the liquor industry.” In Minnesota, a retailer told a city council that he “didn’t think his career would end this way, but if the license goes through neither he nor several other stores will be around next year.” Try to talk to someone in the wine business, whether retailer, distributor, or producer, about Total, and almost everyone says “no”. Its presence has become so controversial in so many markets that few people want to be quoted on the record.
A Total spokesman declined to discuss how many lawsuits have been filed and how many legislative challenges have been made against the company, though there have probably been dozens. In Texas, a San Antonio competitor filed suit claiming Total didn’t satisfy the state's residency requirements for retailer licenses. In several Minnesota cities, the state’s package store trade group challenged Total’s licensing because the chain had been involved in so many lawsuits, because it had been sued by other retailers.
“What makes the local retailers so angry is that Total is willing to work on grocery store-style margins for the national brands that everyone else sells,” says McDonald. “They don't like someone else doing that, because, in a lot of states, the local retailers have never really had to work on those kinds of lower margins.”
In Dallas, Spec’s and Total have been selling many items near cost for a couple of years in what both companies have called an almost unprecedented price war. Partly, this is matching Costco’s wine prices, a common practice for US retailers who see the warehouse giant as the US price leader. But it's also about Spec’s and Total fighting for market share in a state where Total has nine stores and wants to open several more. Much the same thing has happened in the St. Paul-Minneapolis region in Minnesota, where Total, local retailers, and retailers owned by several area cities have been undercutting each other through a series of newspaper ads. At one point, some city-owned stores were selling some of Total’s private label wines – which they could buy from a distributor because Minnesota law allowed it – for less than Total was. “Generally, when we enter a state dominated by supermarkets, there are no issues,” says David Trone. “Supermarkets are professionally run, and they understand that competition is good for the consumer. But we have problems when we enter markets dominated by local package stores. They think they have a God-given right to make money by charging whatever they want.”
Private label
Private label wine is nothing new for US retailers; witness Costco’s Kirkland and Trader Joe’s Charles Shaw brands, both of which have been huge successes in the context of each chain’s overall business. But Costco and Trader Joe’s don't rely on wine sales, and Total’s Winery Direct program has taken the concept where few other liquor retailers have dared. It carries as many as 3,000 private label SKUs from around the world and sometimes carries Winery Direct brands in favour of better-known national labels. And it’s not uncommon for its employees to steer customers to Winery Direct bottles instead of the national brands they might have been looking for. “This is where Total makes up the difference for those grocery-style margins on everything else,” says McDonald, noting that profits on Winery Direct products can be one-third higher than on similar national brands.
David Trone says Winery Direct, and its sister program, Spirits Direct, are part of the long history of US private labels that include Sears’ famed Kenmore appliances. “Winery Direct is about giving customers more choice,” he says. “It's about giving them choices that no one else in the marketplace can offer. It's no different than private label for anything else, whether it's clothing or lumber.”
Shelf talkers for many Winery Direct products tell the story behind the label, featuring the winery owners, so that customers can see that an actual winery made the product. This gives Winery Direct brands a story that other wine private labels, which often exist only as labels on a bottle, don't have. This very thorough approach is part of what even its competitors say is Total’s business acumen – rarely leaving a stone unturned, be it hard negotiating with suppliers and distributors for better prices or an uncanny eye for picking the best sites for new stores without having to pay top prices.
Mission fulfilled?
Total, as well as regional chains like Binny’s, Spec’s, and ABC Fine Wine & Spirits in Florida, are part of a trend that has seen the growth of bigger stores and more regional chains. But none of them, including California-based Liquor Barn in the 1970s and West Coast chain BevMo, with 157 stores in three states, has expanded much beyond their base. In the end, all those laws, as well as a lack of the financing and management required, prevented national expansion. In addition, says Dan Graham, who follows the supermarket business for the Dechert-Hampe retail consultancy in southern California, grocery stores could offer another level of competition as states continue to relax restrictions on grocery store wine sales.
But the Trones are patient.
“This is a hands-on business,” says David Trone. “We invest back in the business, and we invest in great people who have more ideas about how to better serve our customers. Too many others focus on short-term gains. We’re in this for the long term.”
And the chain has stores in 16 states to prove it.
