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Covid-19 and Alcohol: Where Things Stand Right Now in Boozeland

March 30, 2020

issues: Alcohol Policy, Competition Policy

originally published in Drinks Reform

We previously posted a roundup of how the alcohol industry was dealing with Covid-19 and what government policy responses could be implemented to ease the burden on producers and consumers. News surrounding the virus and its impact moves fast, however, which means it’s time for another rundown of where things currently stand.

Alcohol Delivery vs. Taproom Sales: Eater published an article this week titled “Now Is a Time of Boom and Bust for the Liquor Industry,” which provides a good summary of the current state of play when it comes to how Covid-19 is affecting alcohol sales. On the one hand, liquor stores and grocery stores that provide alcohol delivery (in places where its allowed) and off-premise sales have seen a rise in sales since self-quarantining practices were implemented. According to Nielsen data obtained by Eater, “off-premise (i.e., grocery and liquor store) sales were up 27.6 percent for wine, 26.4 for spirits, and 14 percent for beer, cider, and malt beverages.” At the same time, however, on-premise sales at brewery or distillery taprooms—as well as restaurant and bar sales—have taken a hit. As The Beer Edge newsletter pointed out in a separate article, the virus could reorient craft beverages away from the recent on-premise, taproom-only model that many small producers have followed, and spell the return of flagship brews and spirits produced by more production-focused breweries and distilleries. In other words, producers focused on making beverages and distributing them to retail outlets are likely to fare better in the coming weeks than producers who have largely chosen to eschew distribution and off-premise sales in favor of robust taproom offerings. While it’s hard to make any definite predictions this early in the crisis, it will continue to be a trend worth watching.

Control State woes continue: As noted last week, Pennsylvania made the decision to close all of its state-run liquor stores as a result of Covid-19; curbside pick-up or delivery are not being offered either, which means Keystone State consumers are effectively cut off from distilled spirits purchases. This decision shows both how control states are proving much less capable of adapting dynamically to the virus (as another examples, Virginia ABC stores are remaining open but still do not have any delivery or curbside options in place), as well as providing an example of how government policy can actively take a bad situation and make it worse. Closing state-run liquor stores does not mean that consumers will stop wanting or buying distilled spirits; rather, it will encourage them to cross state lines to nearby states like Delaware to purchase alcohol, which undermines the push for citizens to self-quarantine. Also, as several experts have pointed out, the closures could create significant public health concerns—at a time when our medical system is already overloaded—for those struggling from addictions.
Are Liquor Stores Essential or Non-Essential? Much of the debate surrounding liquor stores closures in states like Pennsylvania and elsewhere boils down to whether state-based shelter-in-place orders are classifying liquor stores as essential or non-essential. States like Virginia have classified their state-run ABC stores as essential, while other states like Pennsylvania and Nevada have gone the other way. In fact, most of the government enforcement actions against businesses that are deemed non-essential in Nevada have come against liquor stores, according to the Las Vegas Review-Journal. As R Street Institute scholar Kevin Kosar has explained in his book Moonshine: A Global History and elsewhere, the entire arc of human history has proven that humans will find ways to produce and access alcohol. And where government barriers are erected that are too high to legally do so, black markets and other illicit supply chains will emerge. As noted above, closing liquor stores will merely encourage off-market sales of alcohol as well as prompting more citizens to drive further distances across states lines to obtain spirits.
A Model for Reform From Kentucky: As noted last week—and in a recent Washington Examiner piece by R Street’s Jarrett Dieterle—the Covid crisis should prompt localities to reform alcohol delivery and shipping laws to allow more producers to get their products to consumers. Alcohol remains one of the main exceptions to the 2-day delivery world that we live in. Right on cue, Kentucky’s legislature has just sent a bill to the governor’s desk that will allow alcohol producers both in and out of state to ship directly to Kentucky residents. While lawmakers had been working on the bill for a several years, it’s passage is quite timely given the Covid pandemic. In order to have a truly interstate shipping market for alcohol, however, more state legislatures will need to follow Kentucky’s example. According to the National Conference of State Legislatures, only a small handful of states permit direct shipments of all types of spirits.
New Jersey Goes Backwards: Eric Boehm of Reason recaps the bizarre situation out of New Jersey where breweries and distilleries were originally delivering their products directly to consumers, only to have the government reverse course and block them from doing so. Several New Jersey brewers have warned that they may be forced to permanently close if the government does not change the rules quickly.
Hand Sanitizer Update: We discussed the ins-and-outs of distilleries producing hand sanitizer last week, including calling for Congress to clarify that sanitizer made from undenatured alcohol should not be subject to federal excise taxes on alcohol. Congress came through in the latest Covid relief bill, and now the focus has shifted to getting the FDA to change its guidance to allow undenatured sanitizer (which is already recommended by the WHO).