UNITED STATES DISTRICT COURT - Healthy Alcohol Market



UNITED STATES DISTRICT COURTFOR THE WESTERN DISTRICT OF KENTUCKYLOUISVILLE DIVISIONELECTRONICALLY FILEDMAXWELL’S PIC-PAC, INC., et al.) Plaintiffs))v.)Case No. 3:11-CV-00018-JGH))ROBERT VANCE, in his official)capacity as Secretary of the )Kentucky Public Protection)Cabinet, et al.) Defendants.)_______________________________ )AFFIDAVIT OF PAMELA S. ERICKSONSTATE OF ARIZONA))SS: AFFIDAVITCOUNTY OF MARICOPA)The affiant, Pamela S. Erickson, being duly sworn in accordance with law, deposes and states as follows:I am fully familiar with and have personal knowledge of the matters in this Affidavit. I make this Affidavit based on my extensive personal and professional knowledge of alcohol issues, laws, and regulations.I have been retained in this matter as an expert witness on behalf of the Intervening Plaintiff. My qualifications, education history, and experience have already been provided to the Court as part of Exhibit A to my September 29, 2011 Expert Witness Report. By bringing this lawsuit, Plaintiffs seek a major competitive advantage currently not available in Kentucky. That advantage is to be able to sell all forms of alcohol in an environment with very little regulation or control as compared to existing package liquor stores. It is my understanding that in Kentucky grocers are not denied the ability to sell wine and spirits; they just must do so in a separate licensed premises. Kroger and Trader Joe's, members of Plaintiff Food with Wine Coalition (“FWWC”), already do so and hold package liquor licenses. Many supermarket chains, such as Kroger, already have separate businesses within the store "box" that operate as separate businesses and customers must pay separately for their transactions with those businesses. Common examples are coffee shops, banks, and cleaners. While a grocery store’s package liquor store has to have a separate outside entrance, that does not constitute a major customer inconvenience and it maintains important protections such as not allowing minors to remain in the store or to enter with the intent to purchase. The real issue is the separation of premises. Here is why:Wholly separate liquor stores that sell wine and spirits attract a small portion of the population as customers. For example, Washington state conducted a random sample survey of citizens and found that only 46% had been in a liquor store in the past year and of those only 10% shopped once a week. (Source: Elway Research Inc., "Survey of Customers & Non-customers Satisfaction & Potential Changes," December 2010, Washington State Liquor Control Board). In contrast, the Food Marketing Institute found that in 2010, customers made an average of 1.7 trips per week to a supermarket and, of course, the vast majority of families in any community must go to a grocery store weekly to buy food. (Source: facts-figs).Advertising has shifted away from mass media to trade promotions that help retailers influence consumers once they are in the store. As the Food Marketing Institute states, "The reasons for this shift in promotional spending are clear. It has become much harder to reach consumers through the mass media with the decline in the market share of network television and with the proliferation of cable channels, special-interest magazines and millions of Web sites. In this age, consumers can be reached most effectively in the stores where they actually buy groceries." (Source: Food Marketing Institute, "Slotting Allowances in The Supermarket Industry," on-line PDF, available at ).In-store promotions have proven highly effective. According to a study reported on-line, "Despite the recession, more than 90% of shoppers make unplanned purchases, and 51% of those decisions take place in the shopping aisles…" ("In-Store Ads More Effective than Out-of-Store," April 7, 2009, ).Without being able to use these in-store marketing techniques (displays, product placements, signage for "specials," and price reductions), a grocery store cannot maximize sales for alcohol products. It is noted that sales for wine and spirits are increasing nationally while beer sales, except for craft brews, are generally flat. (See, “Higher Spirits. Why wine and liquor sales beat beer in a flat economy,” Bill Saporito, Time magazine, January 19, 2012.) Large supermarket chains are increasingly using a model perfected in the United Kingdom which uses heavy promotion of alcohol throughout a store. The United Kingdom deregulated alcohol allowing all forms of alcohol to be sold in any grocery or convenience store (even those with self-service stations), 24 hours a day, seven days a week. The model involves heavy in-store promotion of alcohol products to foster impulse buys. Typically, a store will have a large display of alcohol, often at a "special price," at the entrance to capture maximum foot traffic. Alcohol is often sold very cheaply. Four large grocery chains have 75% of the grocery market and have even captured some of the on-premise market as people frequently drink cheap alcohol at home before venturing to bars and pubs. Cheap alcohol in these supermarkets is widely believed to be the cause of an alcohol epidemic in that country. Drinking rates and social problems rose steadily as alcohol was deregulated. (See, "The Danger of Alcohol Deregulation: the United Kingdom Experience," submitted as Exhibit 20 to Party Source’s Memorandum in Support of Summary Judgment and referenced in my Expert Report).Plaintiff also seeks to sell in an environment where staff costs can be reduced. The grocery business is extremely competitive and supermarkets must make their money by selling in high volume. The Food Marketing Institute found that the average net profit after taxes was less than 1% for 2010. (Food Marketing Institute, “Supermarket Facts, Industry Overview 2010,” available @ facts_figs.) In such a marginal business, retailers look to reduce labor costs through the use of self-service and often seek young employees as they are more likely to accept lower pay. But, self-service represents another weak point in a lightly controlled retail environment making it difficult to abide by laws that prohibit sales to intoxicated persons and minors. In fact, California now prohibits self-service for alcohol sales. (See my Expert Report for greater discussion of self-service).Given this scenario, it is hard to envision Plaintiffs, including FWWC members such as Kroger, as "victims of discrimination." Kroger is the second largest of 75 U.S. food retailers based on 2010 revenue and earned $82.2 billion in sales with 3,624 stores, according to Supermarket News. (Supermarket News, “Top 75 Retailers and Wholesalers 2011,” @ .) Alcohol is the third leading cause of preventable death and it is eminently reasonable to assert strong control over this product, particularly the products which are packaged in a potent form. According to the Centers for Disease Control and Prevention, "There are approximately 79,000 deaths attributable to excessive alcohol use each year in the United States. This makes excessive alcohol use the 3rd leading lifestyle-related cause of death for the nation. Additionally, excessive alcohol use is responsible for 2.3 million years of potential life lost annually, or an average of about 30 years of potential life lost for each death. In the single year 2005, there were more than 1.6 million hospitalizations and more than 4 million emergency room visits for alcohol-related conditions." (CDC Fact Sheet, "Alcohol Use and Health," alcohol/fact-sheets). States would be remiss if they did little or nothing to moderate the impact of this product on their citizens. It is a common strategy to curtail retail practices for a potentially dangerous product. Tobacco, the leading cause of preventable death, is a good example. Except in adult-only stores, it cannot be sold in self-service displays and advertising/promotions are highly restricted. Alcohol is different from tobacco in that regular, moderate use causes little harm. Therefore, states have sought to balance their regulatory measures to foster moderation - steering people toward "lighter beverages" and curbing high volume purchase (and consumption) as well as limiting outlets, hours of operation, and days of sale. Allowing grocery stores to sell all forms of alcohol in lightly controlled shopping environments would be directly opposite from public health recommendations for regulation. It would increase availability, likely increase inducements for high volume purchase, remove incentives to purchase "lighter beverages," and effectively eliminate age restrictions on employees. Underage drinkers would be frequently confronted with alcohol promotional advertising and would have more opportunities to purchase and pilfer alcohol products. It is very reasonable to assert greater control over products of high alcohol content that are frequently not packaged or sold in single serving sizes. Drink equivalent charts merely demonstrate how much alcohol of one form is equivalent to another. These charts aren't a definitive measure as to how people consume the different forms of alcohol. The fact is that it is easier and faster to consume 1 and ? ounces of hard liquor than to consume a 12 ounce bottle of beer. That just makes it potentially more dangerous particularly for youth who drink for the intoxication impact.Grocery stores create opportunities for community gathering because that increases foot traffic in their stores. Plaintiffs scoffed at Defendant Dehner's statement that grocery stores are community gathering places. It is very common for a supermarket to have a coffee service in their store with tables to enjoy a beverage. Other grocery stores have deli sections that sell prepared food for immediate consumption and they provide chairs and tables for that purpose. Some stores are now adding on-premise units such as wine bars. These gathering places bring community members to the store with the likelihood that they will buy products in addition to enjoying food and beverages. It is quite reasonable to grant package store licenses to drug stores given their long experience with selling alcohol and their expertise in selling highly controlled products. Supermarkets are not likely to be seriously damaged by drug stores that sell wine and spirits because the amount of staple groceries a drugstore can sell is severely limited unless they want to give up their liquor license. Drug stores and other licensees are limited by the ten (10) percent threshold of KRS 243.230(5). This makes it highly unlikely that they will get the foot traffic that grocery stores get. Drug stores sold alcohol throughout Prohibition for medicinal purposes. After Prohibition, they were ideal venues for package licenses because they were legitimate businesses whereas most alcohol sold during Prohibition was done by criminal syndicates. Drug stores have considerable experience selling very highly regulated products and must receive and maintain licenses for those purposes. It is also highly reasonable to prohibit convenience stores that sell gas and lubricating oil from selling wine and spirits. As discussed in my Expert Report, several states have regulations about gas stations due to the serious problem of drinking and driving. This prohibition acts as a means to limit availability and to act as a deterrent to drunk driving. The basic model for selling high alcohol content products in retail outlets with greater control is used in some way by virtually every state. Nevertheless, no state fits perfectly into the model and all states have modified these systems over the years. In addition, retail outlets frequently change their business models, add new product lines, and modify sales methods. It is often difficult for a regulatory system to keep pace with the changes. This does not mean that the basic idea to regulate alcohol is no longer reasonable or valid. In every state, alcohol systems create exceptions that attempt to balance business and customer needs with measures needed to control alcohol problems.Attached to this Affidavit as collective Exhibit 1(a)-1(i) are nine photographs that I am familiar with. I took all of the photographs in grocery stores with my Olympus, Stylus 760, digital camera. I have saved and retained copies of all the photographs. All of the photographs fairly and accurately represent the areas of the grocery stores pictured on the day and at the time I took the photographs. The following is a more detailed description of each of the photographs:Exhibit 1(a) was taken on Wednesday, January 18, 2012, at approximately 7:00 p.m. at a Fry’s store located at 90th Street and Shea in Scottsdale, Arizona. The photograph shows a portion of the front of the store in which a car rental counter, dry cleaners, and a floral department is located.Exhibit 1(b) was taken on Wednesday, January 18, 2012, at approximately 7:00 p.m. at a Fry’s store located at 90th Street and Shea Boulevard in Scottsdale, Arizona. The photograph shows a large wine display located at the front of the store near its floral department and next to the in-store Starbucks Coffee counter.Exhibit 1(c) was taken on Wednesday, January 18, 2012, at approximately 7:00 p.m. at a Fry’s store located at 90th Street and Shea Boulevard in Scottsdale, Arizona. The photograph shows a section of the store dedicated to customer seating and includes tables, chairs, and couches.Exhibit 1(d) was taken on Sunday, January 24, 2010, at approximately 3:00 p.m. at a Sainsbury supermarket in Bristol, England. The photograph shows a large wine display located just inside the front entrance of the store.Exhibit 1(e) was taken on Sunday, January 24, 2010, at approximately 3:00 p.m. at a Sainsbury supermarket in Bristol, England. The photograph shows a store display advertising the sale of Coke and vodka together at the front of an aisle selling soft drinks and alcohol next to one another.Exhibit 1(f) was taken on or about July 20, 2011, at a Fry’s store located at 90th Street and Shea Boulevard in Scottsdale, Arizona. The photograph was taken by me in preparation for and use in a presentation I gave on August 10, 2011, in Orlando, Florida at the U.S. Department of Justice, Office of Juvenile Justice and Delinquency Prevention’s 13th National Enforcing Underage Drinking Laws Leadership Conference. The photograph shows a wine display set up in the store’s produce department.Exhibit 1(g) was taken on or about July 20, 2011, at a Fry’s store located at 90th Street and Shea Boulevard in Scottsdale, Arizona. The photograph was taken by me in preparation for and use in a presentation I gave on August 10, 2011, in Orlando, Florida at the U.S. Department of Justice, Office of Juvenile Justice and Delinquency Prevention’s 13th National Enforcing Underage Drinking Laws Leadership Conference. The photograph shows a wine display set up in the store’s deli department.Exhibit 1(h) was taken on or about July 20, 2011, at a Fry’s store located at 90th Street and Shea Boulevard in Scottsdale, Arizona. The photograph was taken by me in preparation for and use in a presentation I gave on August 10, 2011, in Orlando, Florida at the U.S. Department of Justice, Office of Juvenile Justice and Delinquency Prevention’s 13th National Enforcing Underage Drinking Laws Leadership Conference. The photograph shows a wine display set up in the store’s kitchen section.Exhibit 1(i) was taken on or about July 20, 2011, at a Fry’s store located at 90th Street and Shea Boulevard in Scottsdale, Arizona. The photograph was taken by me in preparation for and use in a presentation I gave on August 10, 2011, in Orlando, Florida at the U.S. Department of Justice, Office of Juvenile Justice and Delinquency Prevention’s 13th National Enforcing Underage Drinking Laws Leadership Conference. The photograph shows the store’s wine bar.FURTHER AFFIANT SAYETH NAUGHT_____________________________________PAMELA S. ERICKSONSWORN TO BEFORE ME AND SUBSCRIBED in my presence this _____ day of January, 2012._____________________________________NOTARY PUBLIC, State of ArizonaMy Commission expires: _________________ ................
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