New Laws, Taxes, and Demographics Weigh On Philly’s Beverage Industry | Philly Views
April 6, 2017

New Laws, Taxes, and Demographics Weigh On Philly’s Beverage Industry

Written by Kevin Kinkead


A guy named “John” walks into The Richmond Bottle Shop, buys a Lagunitas Lil Sumpin’ Sumpin’, and sits down at a table.

He doesn’t want his boss to know that he’s here on his lunch break, but he’ll speak to me on the condition of anonymity.

“Instead of buying a six pack for a high price, you can buy one good beer for a lower price,” says John. “I usually mix and match a six pack for when I go out at night.”

John explains that he’s a craft beer guy, but still buys from distributors.

“Probably a case of Yuengling Lager, or, around the holidays, I’ll get a case of Mad Elf,” he adds.

Most beer buyers in modern-day Philadelphia seem to follow the same formula that John does.

Bottle shops are good for variety purchases and taste testings. Distributors are the place to go for large cases and party prep.

In a world that demands beer, there’s no shortage of supply.

The Richmond Shops IGA was one of the first grocery stores within Philadelphia city limits to start selling alcohol.

An area of the building that originally held frozen food now features hundreds of beers, a brand new wine selection, and taps for filling up growlers. A wall was blown out to create a dedicated entrance to the bottle shop, which butts up against the self-checkout section of the grocery store.

General Manager Don Petzak put the plan in motion a few years back.

“There’s a lot of competition around here, even with the dollar stores that move in,” Petzak told Philly Views. “Dollar Tree, Family Dollar, the CVS across the street, Walmart, Shop Rite, the ACME that used to be a Super Fresh, Save-a-Lot down the street.

“As a little, independent business, singularly owned, one store, we’re assaulted from all angles and it’s very difficult to compete conventionally. We realized back in 2013 or 2014 that if we didn’t find a way to identify possibilities to improve ourselves or recreate ourselves, that we weren’t going to survive. There were a lot of young people moving into (the neighborhood) at that point in time, down towards Northern Liberties.”

Petzak says bottle shop business has been “extremely successful.” It was part of a two million dollar investment that also included a restructuring of the store’s produce department, which now features more organic options and an Asian food area featuring sushi and a small buffet. He sees more millennials entering the store, while the “Bud crowd” is also beginning to experiment with craft beer and buy different products.

“Younger people are the most prevalent and they’re the ones who buy the higher range beer and the more unique beers,” Petzak said. “But everybody comes in here. I sell Budweiser, I sell Miller Lite, I sell Pabst Blue Ribbon. Everyone does shop here. In the beginning they were reluctant to change their habits. Once a week, they might go to a distributor and buy a thirty pack and that would last them whatever amount of time.”

In a thirty minute stay, I noticed people using the bottle shop in different ways.

Four more workers came through on their lunch break, bought individual bottles, and sat down to eat. Another woman went through the self-checkout with groceries, bought a six-pack, then went out through the main doors. A third customer put together a mix-and-match of various craft selections before exiting through the side.

 

Petzak says convenience is a sticking point, since customers are able to address their food and alcohol needs in the same store.

There are, however, restrictions on what he can sell.

“When we first sold, it was just malt beverages,” Petzak explained. “You couldn’t sell anything but malt beverages. As far as size goes, we can sell basically twelve 16 ounce beers, which is our limit. We can’t compete directly with distributors. It would be the end of them, and I can appreciate their designs on trying to stay open.”

“People are always going to drink beer.”

The Philadelphia Beer Company is located two blocks from the Richmond Bottle Shop across a busy stretch of Aramingo Avenue.

It has the makings of a traditional beer distributor, with cases of Corona and Coors Light stacked along the wall.

But the first thing you notice is a brand new cooler that holds six packs and bottles, just like the competing grocery store down the street.

It’s the result of a new law that went into effect this January allowing distributors to sell beers by the bottle and the half-dozen.

“When they changed the law to allow us to sell 12 packs two years ago, we added a second cooler to accommodate that,” said store manager Michael Bennett. “When the six pack law came around, we added another cooler for six packs and single bottles for mixing and matching.

“That’s something people like, that mix and match six pack where they can try a variety of beers. If they find something that they like, they can come back and buy that 12 pack or case sometime later.”

Bennett’s store, like most distributors, is adapting to the changes coming from Harrisburg.

He says that case sales have died down recently, which has given way to a crowd that buys in smaller amounts.

He echoes the sentiments of Petzak in his assessment of changing Fishtown demographics.

“As far as clientele goes, it’s still a huge variety of customers,” Bennett said. “You have people who are still your diehard Bud fans coming in every day or several times a week. People will drink the same thing every day. The last few years have seen a huge change in the neighborhood with a new wave of people who are into the craft beer scene and want to try something different every time they come in.”

Despite the change in bulk beer sales, Bennett identifies a positive.

More sampling options can open the door to larger purchases if customers like what they taste.

As Petzak suggested, most traditional consumers would buy their cases of Budweiser or Miller Lite then come back some other time. That’s changed due to variety and the allowance of smaller sales, which serve as gateway of sorts.

“I’ve noticed that a lot more of the expensive beers have been going out at a higher rate,” Bennett said. “Before, it was so hard to get a customer to commit to a case for 80 or 90 dollars, especially if they never tried it before. But they might be willing to spend 10, 12, or 13 dollars on a four pack or a six pack and try it out. They’re definitely more willing to try new things, more of the higher-end craft beers.”

Drop a pin on the map and you’ll find four beer-sellers within a half-mile of Bennett’s store.

Capital Beer is a bottle shop and Asian restaurant on the other side of Aramingo. Camiel’s Beer Service is a bit further up, about a three minute walk. Beer City is located next to a Dunkin Donuts on nearby Girard Avenue.

The Richmond Bottle Shop, which is probably the most direct competitor, is 0.2 miles away.

A new threat might be unnerving, but the larger concern is the potential for further loosening of existing laws.

“We haven’t noticed an enormous change yet, but there’s definitely, I guess, a worry,” said Bennett of the Richmond project. “You hate to see bigger corporations like Walmart or somebody get (involved), because that could really be a killer in the long run. I think Wawa getting some licenses is a worry. But, on the other hand, I know that our selection is going to be much better than what you would be able to get at a place like Wawa. They only have so much space to sell beer, so we’ll always have that benefit in our favor.”

Bennett points out that he has some “great customers” who have been coming to his distributor for more than ten years. He also understands the convenience of buying beer in a grocery store.

But his operation is ultimately going through the same changes as the competition.

Distributors and bottle shops alike are riding the craft beer wave while navigating new laws and striking an inventory balance that caters to both millennials and traditional beer buyers.

“I definitely see (craft beer) sticking around,” Bennett said. “I get several different new beers, beers I’ve never even heard of before, in here every single week. It just never ends. It’s a challenge to keep up with inventory and trying to rotate new things in while also keeping around the products that people want to see. But it’s good for beer. People always want to try new things. I don’t know how much change there will be in the future, but people are going to drink beer no matter what.”

“My soda sales are down 60 percent.”

The other thing these competitors have in common is that they both despise Philadelphia’s sugary drinks tax.

Petzak’s store was the first in Philadelphia to carry wine under a new law that passed in August. He says wine sales are fantastic and that they’ve caught up with beer sales in just a couple of months. His inventory is built around wines that state stores aren’t carrying.

Instead of being satisfied, though, success comes with a bitter aftertaste.

“Honestly, if we didn’t make this change here and do the things we’ve done with beer, wine, and the other changes in the store, we’d be out of business right now,” Petzak admits. “If you take away my ability to compete with Camden, Delaware County, Bucks County, and Montgomery County with soda — my soda sales are down 60 percent from this time last year — then that person is not going to buy the pork chop they were also coming in to get. They’re not going to buy the head of lettuce and they’re not going to buy their gallon of milk.

“Why are they going to drive somewhere, buy a 12 pack of soda, and get nothing else? That’s ridiculous. I am losing that sale. The CVS and the Dollar Tree take that sale from me. We’re taking something from somebody else. We sort of have to take from the distributor a little bit and I have to take a little bit from the corner bar. I have to take something from another bottle shop in the city. That’s the essence of why we create these retail outlets, is to draw people in and have them make a choice of ‘me versus them.'”

Petzak says that lost revenue in the soda department has been made up in alcohol sales, but that’s not necessarily something to be happy about.

This is, after all, a two million dollar investment that has resulted in new earnings being used to cover a deficit instead of elevating business to the next level.

“That’s something that, I think, is unfair for the city to say, which is, ‘you’re still making money,'” Petzak added. “We invested a lot of money to do this, a tremendous amount of money to improve our situation, not to tread water. Yes, it’s put me in that position (to break even), but that’s not what we invested the money for.

“We didn’t spend all of this money to create this as a defense against the soda tax. We try to improve our retail operation.”

Bennett has gone as far as to cut down on taxable inventory.

In the same way that his store has adapted to new state laws in a positive way, he’s been forced to tweak business based on new rules at the local level.

“Soda sales are way down,” Bennett said. “It’s been a killer. As far as our soda sales, we did okay before but it wasn’t a huge seller. We did enough, but ever since January it’s been way down. I don’t think it will ever go away entirely, since pretty much all of our sales now are (16 ounce) soda bottles.

“People will still come in for the convenience of grabbing a bottle when they’re thirsty, but sales of soda cases are almost nonexistent now. We’ve cut down on a lot of the products that we did carry before. We’re just keeping it to a minimum now.”

Both Bennett and Petzak agree that the market for alcohol sales is changing, but they seem to be handcuffed by things that are out of their control.

If they don’t adapt, they’ll suffer the consequences.

“The key is that there’s an environment out there, where, in order to improve yourself, you have to look into the future and see where you’re going to be, ” Petzak said. “Right now, I’m making investments for four years or five years down the road. For all of these retail outlets in the city to be making investments and then have somebody come along and decide for you where your future is, that’s what the tax did.

Petzak sees a problem that’s not unique to him. Retail outlets make investments and then laws and taxes guide whether those investments pan out, he said.

“What this tax did is it decided that for me how my sales were going to go. If I invested into the demographic that the tax affects, then how is that fair? I have no control. When I want to invest, we put our own money into the store. It’s different than investing by pulling from someone else’s money, which is what the tax does.”

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