MONOPOLY MATTERS

California Authorities Investigating Amazon for Shadow Liquor Store as Prime Now Expands Alcohol Delivery

By Claire Kelloway, Food & Power

Last week, a wine industry publication and search engine, Wine-Searcher, claimed that Amazon violated California law to expand its alcohol delivery business.

In order to deliver alcohol in California, retailers need to have a brick-and-mortar store that’s open to the public for at least half as long as their delivery hours. But when Wine-Searcher visited one of Amazon’s alleged liquor stores in Los Angeles they found a warehouse, but no store.

Now the California Department of Alcoholic Beverage Control is investigating whether or not Amazon’s LA location meets state qualifications for a liquor store. Amazon has licenses for at least seven other warehouse “liquor stores” in California as it expands alcohol delivery through Prime Now.

Regardless of whether Amazon broke the law, it is apparent that they intend to focus on delivering alcohol, not running liquor stores in business parks. This gives Amazon a competitive advantage over other California alcohol retailers who must pay for staff, stocking, and real estate. The move threatens store owners as well as craft producers and raises public health concerns about sales to minors.

Amazon offers two-hour delivery of beer, wine, and sometimes spirits in twelve cities through its Prime Now service. Depending on local law, Amazon customers may order booze from Whole Foods, a third-party alcohol retailer, or Amazon’s Prime Now warehouses. All three options are available in Los Angeles.

But California law only allows retailers to deliver alcohol from a physical store that’s open to the public, and retailers cannot deliver alcohol that is stored off the premises. Hence, Amazon got retail liquor licenses for their warehouses.

At one Sunnyvale warehouse, which offers over 200 wines and seventy whiskies for delivery, the US Editor of Wine-Searcher, W. Blake Gray, walked in to try and buy whiskey. The building had no signs indicating alcohol was for sale and staff only appeared with an iPad of offerings after Gray pressed an “assistance” button. Options for in-store purchase included four wines, two beers, and a bottle of vodka.

“These Amazon ‘stores’ are not at all recognizable as a liquor store, or indeed a store of any kind,” Gray told Food & Power. Even Amazon officials agree. “It’s not accurate to call [the LA operation] a store,” an Amazon spokesperson told Wine-Searcher earlier this month. “It’s simply a semantic language requirement as part of the licensing process. It is Prime Now alcohol delivery from a warehouse.”

While Amazon may view this requirement as semantic, California’s law is there for a reason. Bans on off-site alcohol delivery paired with physical storefront and operating hours requirements channel alcohol sales through public-facing stores and prevent absentee sellers from overtaking the market.

“It is my understanding that California doesn’t want an unanswerable giant company dominating liquor deliveries while avoiding the public interaction and commitment required by an actual storefront,” said Gray. “A real storefront has some public health and safety functions,” he added, like trained staff who can safeguard against sales to minors or intoxicated people.

Some public health officials are concerned that online ordering and delivery is making it easier for minors to buy alcohol. One study found that minors successfully purchased and received alcohol online in 45 out of 100 orders.

Another worry is that as Amazon consolidates control over the market for beer, wine, and alcohol, it will become harder for smaller suppliers to get their products to market. Gray, for instance, thinks the selection of Prime Now wine in California is “terrible.”

“It’s almost all corporate wine of the most boring kind. There’s no room for innovative small wineries or exciting small-production wines,” he said.

And for the small producers who can get on Amazon’s platform, there’s no guarantee consumers will find them. A local store owner can direct customers to regional specialties or new offerings. Amazon shoppers rely on the platform’s curated search results.

“In a typical beer aisle, you can see a selection that’s sixty feet long and six feet high,” says Paul Pisano, Senior Vice President of the National Beer Wholesalers Association. “On a five-inch iPhone screen, consumers only see a limited selection or have patience for a few options.”

Amazon’s work-around for warehouse alcohol delivery in California represents just one battle in a larger campaign by Amazon, Costco, Total Wine, and other large retailers to expand their alcohol sales. Following a recent Supreme Court decision, they have significant legal ammunition to challenge state and local laws.

In June, the Supreme Court struck down a Tennessee residency requirement for alcohol retailers in a case brought by Total Wine and others. The decision curtailed states’ constitutional authority under the 21st Amendment to promote decentralized, locally controlled markets for beer, wine, and liquor.