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View Full Version : Sam's Settles for $300,000



cowdery
05-16-2006, 17:40
Since many people on this site are familiar with Sam's, a large retailer here in Chicago, and some do mail order business with the store, I thought you would like to know about this. Also, we periodically have discussions here about the mandatory three-tier distribution system that is unique to the beverage alcohol industry and is a vestige of the repeal of Prohibition.

What follows is a Chicago Tribune (http://chicagotribune.com) story published today. The story as written is a little unclear but what I believe it means to say is that Sam's allegedly set up an illegal distributorship called Skyline. When the article refers to "liquor distributors," I believe it really means--in the parlance of the three-tier system--liquor producers. I'm not sure that's what happened, but the story makes a lot more sense that way.

I'll do a little more research and if I'm reading this wrong, I'll post a correction. Obviously, if anyone else knows more about this incident, please fill in the blanks.

After a 17-month stalemate over the state's allegations that Sam's Wine and Spirits was extorting money from liquor distributors and operating an illegal marketing firm and warehouse, the giant liquor store has agreed to settle the case, Illinois Liquor Control Commission officials said Monday.

Sam's agreed to pay a record $300,000 fine and shut down for the first three days of 2007, state regulators announced Monday.

If the Lincoln Park retailer pays the fine on time it would end a nearly two-year investigation into its business practices. If the case had gone to hearings on the citations, regulators had promised to seek revocation of the store's liquor license. Sam's has annual sales of about $60 million at the Lincoln Park location.

Sam's President Darryl Rosen said the family-owned company is relieved to move on.

"Our position up front was that we did nothing wrong and that's still our position," Rosen said, pointing out that the settlement language allowed the company to stop short of admitting wrongdoing. It did acknowledge the state had evidence to substantiate some of its claims.

He said the decision to settle now was an admission that the ongoing legal battle was too taxing and distracting for the company, and the risks of losing the case were too great.

"Something had to happen. There either had to be an agreement or there had to be a hearing--and when the prosecutor says in the paper that he's going to revoke your license when you've operated without incident for sixty years," the company felt pressured to settle.

While officials called the fine the "largest ever" levied by the commission since its 1934 creation, it is substantially less than the $1 million penalty sources said the state was seeking from Sam's.

The agreement also requires Sam's to remove all alcohol from a nearby warehouse on Kingsbury Street by May 31. Rosen said the company has complied with that order and is seeking to sublet the rented building.

Liquor industry officials in Chicago, especially those in the wine trade, closely watched the case. Because of its size, Sam's wields tremendous influence in the liquor business.

According to the state's initial complaint, Sam's set up a company called Skyline Marketing Co. to extort money from liquor distributors, requiring them to make payments to Skyline if they wanted to sell their products at the store.

The state alleges that Sam's illegally paid business expenses, including some employee salaries, out of the income Skyline received from distributors. Liquor laws prohibit retailers from having marketing relationships with liquor suppliers.

Rosen maintained Monday that Skyline, which maintained its office in the store's building, had no direct ties to Sam's.

Sam's has developed a national reputation among wine connoisseurs with the volume and variety of its stock.

Since the investigation began, the Rosen family has branched out with new stores in Downers Grove and Highland Park.

The settlement calls for the store to pay $150,000 by cashier's check immediately, and another check for the same amount by Dec. 29 of this year. If Sam's fails to pay the fine, the state will suspend the firm's license for another four days, according to the agreement. Rosen said that he had already paid the first $150,000 and would pay the rest when it is due in December.

If the rest of the fine is paid, Sam's will be closed for business Jan. 1-3, 2007, according to the agreement. Coming right after the holiday rush, Rosen said those three days are not big revenue days.

barturtle
05-16-2006, 22:11
This is purely speculation, but it sounds to me like they had a mini-distributorship happening--almost like a fourth tier, but in between the second and third--and were charging the other distibutors (ie. the traditional second tier) to store their products there until they could be absorbed by the actual retail locations.

While I'm quite sure this would be illegal, it would be a great setup for a business...a seperate location (likely in much lower-rent area), from which you could feed your high rent stores, on demand. You wouldn't have to waste storage space on product at any one store, the purchasing power of having everything delivered to one spot would be incredible, and the ability to ship stock from one location to another anytime, without relying on a distibutors operating hours, would be outstanding...too bad it all illegal!

300k from a place that sells 60m a year...whats that like 2 average days sales, and shutting them down on what have to be the three slowest days of the year? The board should have at least tried to figure out what this 2 year long investigation cost them and settled for that amount, I'm gonna say that 150k a year barely covers 3 detectives, much less any prosecutors or actual day to day expenses they might have accrued during this time! Pure government waste trying to diguise itself as protecting the public interest!:soapbox: Okay, I'm getting down now:slappin:

cowdery
05-16-2006, 22:55
It's a bit disturbing that we have to guess at what exactly is being alleged here. The Sun-Times article and the official release from the Illinois Liquor Control Commission did not provide much additional illumination.

It is possible that the vagueness of the allegations indicates weakness in the state's case. That part of the story is coming from the ILCC only.

I did note in those other two sources something the Tribune didn't mention, that part of the settlement includes a requirement that Sam's post at its cash registers "a notice stating that other retail liquor licensees are not permitted by law to purchase alcoholic beverages from the licensee."

It has long been an open secret in the industry locally that many small bars, specifically those that operate on a shoestring and can't get credit from the distributors, basically buy their stock at Sam's with cash from the register, sometimes making several trips there a day/night. That's why Sam's, unlike most retailers, carries liters.

ThomasH
05-17-2006, 06:22
I think that the liquor industry is about to face some more heat from multiple directions. I noticed last night that High Times Wine cellars in California has a notice on its website that states that it is not shipping liquor at this time, only wine and beer. Bevmo, another Southern Cal. retailer only ships within the state. Various states in the US have sued online retailers over loss of liquor tax revenue. A recent article stated that Pennsylvania set up 4 or more outlet liquor super stores near each of its surrounding states borders in order to keep its residents from "traveling to other states to buy cheaper alcohol". Ironically, they don't mention the possibility of the other states residents crossing into PA. to buy. I live 45 minutes fro the Pa. line and go there to buy what Ohio doesn't/won't carry, price not necessarily an issue. The difference in the price of a like bottle in each state is more than wiped out by the price of gasoline to drive there! In Ohio, you are allowed up 5 liters of any distilled spirits that Ohio sells to be brought in from elsewhere in any given trip!

Thomas

NorCalBoozer
05-17-2006, 08:36
It's a bit disturbing that we have to guess at what exactly is being alleged here. The Sun-Times article and the official release from the Illinois Liquor Control Commission did not provide much additional illumination.

It is possible that the vagueness of the allegations indicates weakness in the state's case. That part of the story is coming from the ILCC only.


it is tough to know. I'm sure it's partly true that Sam's didn't want to go to trial and possibly lose their license. Who wants to put a 60 mi. business in the hands of a court? not me. Not unless I have no other choice. It does sound like some "liberties" were taken though.

I found an intersting article while searching for information on this story.....it was back from late 90's saying that Sams was in talks to sell off to bevmo. Since that never happened...does anyone know why?

http://www.bizjournals.com/eastbay/stories/1998/12/07/daily6.html

bluesbassdad
05-17-2006, 12:55
I noticed last night that High Times Wine cellars in California has a notice on its website that states that it is not shipping liquor at this time, only wine and beer.

Having only a couple of weeks ago received a shipment to Arizona from Hi Time, I thought you must be mistaken. I checked the website and found that you are correct.

That leaves only Binny's, if anyone, that will ship to me here. Considering that Sam's never would ship to AZ, I have to think that my days of obtaining bottlings not distributed in AZ are numbered.

Not that it'll do any good, but I hope Chuck or some other industry insider can explain to us what's causing these unfavorable changes.

Yours truly,
Dave Morefield

RedVette
05-17-2006, 13:33
I noticed last night that High Times Wine cellars in California has a notice on its website that states that it is not shipping liquor at this time, only wine and beer.

This is bad. That is my favorite source of products that I am unable to find locally. Oklahoma has very limited availability.

NorCalBoozer
05-17-2006, 13:50
only thing I can think of that could possibly also be related to this....a while back I was checking the ups.com website regarding their terms on shipping alcohol.

What i found was that it says they will only ship beer and wine not alcohol and you have to be a licensed to ship alcohol. (i've actually been denied by UPS to return a package to bevmo that was sent UPS because i wasn't licensed.)


here is the link:

http://www.ups.com/content/us/en/resources/service/terms/service.html


(h) The only alcoholic beverages that UPS accepts for transportation are wine and beer. Packages containing wine and beer are accepted for transportation only from shippers who are licensed and authorized under applicable laws to ship alcohol and only on a contractual basis. To receive service for packages containing wine or beer, the shipper must sign a contract and agree to the provisions set forth in the approved UPS agreement for the transportation of wine or beer. All packages containing wine or beer must have a UPS label requesting an adult signature upon delivery. It is the responsibility of the shipper to ensure that a shipment tendered to UPS does not violate any federal, state, provincial or local laws or regulations applicable to the shipment. All shipments, including shipments containing wine or beer, will be accepted for transportation only according to the terms and conditions contained in the UPS Tariff.

bluesbassdad
05-17-2006, 14:38
My recent shipment, and all others from Hi Time IIRC, arrived via FedEx, not UPS. However, there may have been a recent change in FedEx's policy for some unknown reason. I sense a shadow spreading across the land. :shithappens:

Yours truly,
Dave Morefield

NorCalBoozer
05-17-2006, 15:51
My recent shipment, and all others from Hi Time IIRC, arrived via FedEx, not UPS. However, there may have been a recent change in FedEx's policy for some unknown reason. I sense a shadow spreading across the land. :shithappens:

Yours truly,
Dave Morefield

Dave...was just checking out Fedex...from what I read it looks like they will only ship Alcohol, beer or wine from Licensee to Licensee.


Licensee to Licensee (L2L) – FedEx Express® and FedEx Ground® service within the U.S.
FedEx will accept legal shipments of wine, beer, liquor, or spirits when both the shipper and recipient are licensed wholesalers, distributors, dealers, manufacturers, retailers or importers. Please refer to the Wine Shipping State Pairing guide.


For Licensee to Consumer they only accept wine.

Licensee to Consumer (L2C), wine only – FedEx Express®, FedEx Ground® and FedEx Home Delivery® service within the U.S.
Refer to the Wine Shipping State Pairing guide for state-to-state specifics. FedEx will accept legal wine shipments only from a licensed entity to a consumer originating and terminating in one of the states listed in the State Pairings guide as a reciprocal, direct ship, intrastate or on-site purchase state.

kitzg
05-17-2006, 17:13
we almost lost our local wineries because of proposed changes to the distribution system. I understand the fear that the big wineries would set up their own warehouses in each state and ship to places like Sam's Club, Osco, etc -- cutting distributors out. In this state distributors handle all products. Local wineries previously could ship. Now they can still ship, but the customer has to sign a special statement requesting shipment and verifying a lot of information

Local wineries could have been sacrificied if they were totally unable to ship. Most of them exist through the ability to ship. Our state was thinking of halting all shipments except from wholesalers.

And I have tried to simplify it so some may think it is a bit oversimplified.

ThomasH
05-17-2006, 17:36
Most of the shipments I have received here in Ohio have been by FedEx although some Binnys shipments have arrived by UPS. These shipping companies are total hypocrites. They know exactly what they are picking up when they get these packages from the stores. On a return, they mess with the little guy because it doesn't get them as much revenue as the retailers. They are afraid of losing the business of the big guys to a competitor, so they don't push the isssue. Another online retailer who ships liquor is Shoppersvineyard.com out of New Jersey. I also noticed just the other night that Binnys shipping rates have gone up sharply, probably due to increased fuel prices. This whole issue boils down to one thing, MONEY! Every state wants the tax off of the liquor sales. In Ohio's case, they have a website, but no product list of locator. In addition, they are snail slow in replying to questions and requests, sometimes they don't even bother to reply. Quite frankly, if they want my business, they need to carrry the products I want at a place convenient for me to purchase them. They also need to get with the 21st century and have a website conducive to locating product. Customers like me will not wait for them to get up to speed, if I want something and they don't want to carry it, a few clicks and I will find someone else that does!

Thomas

Edward_call_me_Ed
05-19-2006, 03:26
Things are so much more relaxed here in Japan. I think most small bars buy as they need from retailers, at least when they run short. I have often seen people who are obviously running a bar in convenience stores buying a few 633 ml bottles of beer.

When I asked about it the post office told me that shipping bourbon would not pose a problem. The private shippers all ship spirits within Japan, as far as I know.

Heck, until a few years ago you could buy beer on the corner from a beer machine. You can still find those in hotels and hot spring resorts. Ten, fifteen years ago I use to see kids in the convenience store buying beer for their dads. Way back when I was sixteen, they wouldn't let me carry beer to the car for my mom. They did carry it for her, though.

Getting something through customs might be different. At least I would expect to have to pay duty. Maybe not, if the bourbon was a gift. The guy I asked at the post office didn't know. I haven't tried yet.

On the minus side, most big bars, especially chains, only serve beer from one company. Also, on the production side you have to be really big to get a license, at least for beer. The 'micro' brewers here are still quite large.

CrispyCritter
05-26-2006, 19:22
It has long been an open secret in the industry locally that many small bars, specifically those that operate on a shoestring and can't get credit from the distributors, basically buy their stock at Sam's with cash from the register, sometimes making several trips there a day/night. That's why Sam's, unlike most retailers, carries liters.

I was wondering why I could find liters at Sam's, when I've never seen anything other than 750 ml and 1.75 liter bottles elsewhere. Generally, I've always associated liters with the duty-free market.

cowdery
05-27-2006, 18:04
I was wondering why I could find liters at Sam's, when I've never seen anything other than 750 ml and 1.75 liter bottles elsewhere. Generally, I've always associated liters with the duty-free market.

Bars generally use liters. I'm not sure if there is a reason for that. Maybe someone here who has worked in the hospitality industry will know. It could be a way of differentiating those two distribution channels and perhaps Illinois is unusual in even allowing liters to be sold at retail.

In the pre-metric era, the standard off-premise unit was the fifth (i.e., one-fifth of a gallon) while the standard on-premise unit was the quart.

It could be nothing more complicated than the industry responding to market preferences and, for whatever reason, consumers tended to prefer the fifth/750 ml while bars tended to prefer the quart/liter.

TNbourbon
05-27-2006, 19:58
...It could be a way of differentiating those two distribution channels and perhaps Illinois is unusual in even allowing liters to be sold at retail...

It's certainly not unusual here in Tennessee. Most retail stores (all privately owned) carry most sizes available of popular items, from minis and 200mls right up through 1.75Ls, including liters. And liters sell. There usually is a bit of a per-volume price break as one graduates up in size -- and that seems to be the rationale for most purchasers.

cowdery
05-27-2006, 21:11
It's certainly not unusual here in Tennessee. Most retail stores (all privately owned) carry most sizes available of popular items, from minis and 200mls right up through 1.75Ls, including liters. And liters sell. There usually is a bit of a per-volume price break as one graduates up in size -- and that seems to be the rationale for most purchasers.

Now that you mention it, when I shop in Louisville Liquor Outlet always has liters. I guess the exception is here, where Sam's is about the only place that carries them.

Special Reserve
05-28-2006, 06:03
When did the industry go to metric measurements?

I recently found a couple of bottles of tax stamped fifths of Walkers's Deluxe. In Michigan it is hard to find old bourbon. The bottom of the bottles have a "75" on them, does this have any meaning.

Cost: $7.00/bottle including tax
Status: Unopened (although this will change soon)

Edward_call_me_Ed
05-28-2006, 08:33
And liters sell. There usually is a bit of a per-volume price break as one graduates up in size -- and that seems to be the rationale for most purchasers.

I rarely see liters or 1.75 liter bottles of bourbon here. When I do see them it is either of something I don't really want, or it costs more in the one liter bottle than in a 750 ml bottle. For some reason that happens a lot in Japan.

On the other hand, bottom shelf Japanese whiskey or brandy comes in four liter PET bottles at bargain basement prices. If all I wanted was to get drunk...

Ed

Hedmans Brorsa
05-28-2006, 09:08
I rarely see liters or 1.75 liter bottles of bourbon here.
Ed

They are rare in Sweden, as well.

Currently, at my local liquor store you can get a 1,5 liter Grant´s and a 4,5 liter Famous Grouse. That´s about it.

Quite common here are 350 ml bottles, especially when it comes to blended Scotch but we can get F. Roses, 7 Crown and a couple of malts in this variety, as well.

I rarely thought about the size of liquor bottles until I got into bourbon in a big way. It was then that I noticed that all American bottles were 750 ml as opposed to the 700 ml of the European ones.

And yet, when I was a kid in the 70´s the older guys always referred to a bottle of Vodka/Brannvin as a "75", so apparently there have been a change somewhere around. Maybe this happened when we joined The EU back in 1994.

cowdery
05-28-2006, 16:13
When did the industry go to metric measurements?

I recently found a couple of bottles of tax stamped fifths of Walkers's Deluxe. In Michigan it is hard to find old bourbon. The bottom of the bottles have a "75" on them, does this have any meaning.

Cost: $7.00/bottle including tax
Status: Unopened (although this will change soon)

The "75" might mean 1975, and probably does if that date is consistent with the other evidence, such as the tax stamp and the non-metric size, which it is.

In 1980, the Treasury Department's Bureau of Alcohol, Tobacco, and Firearms (BATF) required distilled spirits bottles to conform to the volume of one of six standard metric sizes. In 1982, President Ronald Reagan disbanded the U.S. Metric Board and canceled its funding, putting an end to metric conversions mandated by the federal government.

Reagan also got rid of the regulatory scheme that put federal agents in every distillery, switching to an audit system. Mandatory tax stamps were eliminated at the same time but many distillers continued to use them until they could convert their bottling equipment to a different kind of tamper-evident cap.

Special Reserve
05-28-2006, 17:31
Thanks for the quick reply, haven't open one yet but since it is hot here, I may have a little bit neat and maybe a KY ice tea. We'll see it depends on what my daughter wants to do. She still comes first (even though she is an adult).