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Date: May 23, 2000

Section:

Location: Livingston

Title: Bottling Success

Author: By Chris Dupin

Deck: Big chain grows in the heavily regulated liquor store industry.

Story:

Bottle King, a chain of liquor stores that has annual sales of more than $100 million, will open a new liquor store in Glen Ridge next month. It will be the chain”s 14th store in the state. But while Kenneth Friedman, founder of the Bottle King franchise and president and CEO of its management company Allied Management, is savoring his success, other retailers are tasting sour grapes.

Critics charge that Bottle King and other big chain operators have been able to build large operations despite a law that prohibits individuals and companies–with the exception of grandfathered operations such as the Montvale-based A&P supermarket chain–from owning more than two liquor stores. With deregulation the wheelers and dealers got around that, complains Fred Guarnieri, owner of Freddy”s Liquor Store in Haddon and vice president of the New Jersey Liquor Store Association.

Friedman brushes off the criticism. While he calls New Jersey”s laws for regulating the industry antiquated, he insists We abide by the law and abide by it strictly. And then he adds, If the competition doesn”t like the way you operate, you”re probably a threat to them.

Booze is big business in New Jersey. There are 1,771 licensed liquor or package stores in the state, down from about 1,869 in 1989. The New Jersey Department of the Treasury estimates liquor stores sell about $1.8-billion worth of alcoholic beverages annually, and lots of soda and chips to boot. The stores compete fiercely among themselves, and to some extent with taverns that sell package goods from coolers or behind the bar.

David Bregenzer, deputy attorney general in charge of licensing for the New Jersey Division of Alcoholic Beverage Control, says most of the decline in the number of liquor stores over the past decade has been in old industrial cities where licenses were more plentiful. In the suburbs and faster-growing parts of the state, liquor store licenses are scarce and highly valuable, selling in some cases for close to $500,000. That”s because the state now limits the number of liquor store licenses that a town can issue to one for every 7,500 residents.

When Bottle King is looking to open a new store, Friedman says first he has to find a location, then he has to find a license. If a new license is not for sale, the chain must find an existing business to buy, which usually sells for about 25% of annual revenues–and that doesn”t include the store”s inventory.

While Friedman can only own two licenses, that hasn”t prevented Bottle King from growing. Allied provides management services and buys products and services for liquor store owners in the Bottle King chain, which include two of Friedman”s children, as well as some friends.

Friedman also operates one of the state”s 469 cooperatives, buying alcoholic beverages for the Bottle King chain in bulk. In 1980, New Jersey allowed wholesalers and retailers to start competing on price, and permitted smaller retailers to form co-ops to compete with the likes of A&P. The change in the law set the industry on its ear, says Tom Leach, lobbyist for the New Jersey Liquor Store Association. He says several hundred licenses change hands annually and many, many small stores have been driven out of business. The large discounters have done extremely well. Bregenzer says prices in the state are lower than in either Pennsylvania or New York.

Not only is the Bottle King co-op able to obtain better prices than an individual store, but Friedman has been able to negotiate directly with producers for special deals. Example: he works with about 30 different wineries to buy surplus production and have it bottled under Bottle King”s own private labels such as Leaping Lizard and Stone Church. These private label wines can be exceptional bargains, he says. For example, last week he was selling a three-quarter liter bottle of a California cabernet sauvignon for $9.97 that came from a winery selling the same product under its own label for $31.99.

When he first entered the wine business in 1969, Friedman said wine only represented about a quarter of his sales. Today it is over 50%, pushing 60%. Beer accounts for about 22%, hard stuff the remainder.

Bottle King sells cheese and other gourmet foods in six of its stores to entice customers to linger a little longer, and Friedman is enthusiastic about a proposed state law that would allow liquor stores to hold on-premise wine tastings.