Durango liquor store owners are crying foul and accusing grocery stores of selling wine at below retail cost.

Liquor stores say they have taken a financial hit since March when Colorado grocery stores became allowed to sell wine.

Before the law taking effect, James Dempsey of Wagon Wheel Liquors said he wasn’t too concerned about grocery stores being allowed to sell wine. He said he was confident his longtime customers would keep buying from him.

But since grocery stores began selling wine on March 1, Wagon Wheel has lost an estimated $100,000 in wine sales, he said.

Beer sales are also down, Dempsey said. Customers are more likely to buy beer when purchasing wine at the grocery store to avoid having to make another stop at the liquor store, he said.

But more than convenience, part of the reason so many people are buying alcohol from grocery stores is because the stores are selling wine at below cost, Dempsey said. In other words, they are selling wine at a loss. He said the sticker price per bottle may not be below cost, but by the time loyalty programs and other discounts are applied, it is being sold at below cost.

“If they’re selling for less than cost, that hurts us because there’s no way for us to do that,” he said.

Under Colorado Regulation 47-321, retailers cannot sell alcohol under the retailer’s cost as listed on the invoice. The only exception is when it is a sale of discontinued or closeout alcohol beverages.

As part of a statewide complaint, Eric Tegl, owner of The Liquor Cabin & Spirits in Windsor, shared a spreadsheet examining the cost of a bottle Oyster Bay Wine with the Colorado Liquor Advisory Group. The retail cost was $9.62 per bottle and was originally sold for $11.99 by Kroger.

Dempsey said the $9.62 per bottle cost is the lowest any retailer can go for that particular product because that is the cost set by the wholesaler.

But after applying a $2.50 discount for City Market’s digital coupon and the store’s “bulk” discount of 10% for buying six bottles, the price for a bottle of Oyster Bay becomes $8.29, making it $1.33 cheaper than the $9.62 lowest retailer cost.

Colorado mandates a three-tier system for selling liquor. It is broken down into a process in which a supplier or producer must distribute the product through a wholesaler that then dispenses it to alcohol retailers across the state.

Under regulation 47-321, all invoices must clearly designate a price paid for each product, which cannot be less than the wholesaler’s laid-in cost for each product.

A Kroger spokesperson did not respond to a request for comment all of last week.

In a letter written to the Colorado Liquor Advisory Group on June 28, Tegl stated the disadvantage independent liquor retailers face when grocery stores are able to sell below cost with the advantage of grocery coupons.

“The digital coupon is a loophole around the law of selling below cost for major chains,” Tegl’s letter said. “Independent retailers are not getting these coupon offers creating a major competitive difference.”

Attempts to reach the Colorado Liquor Enforcement Division were not immediately successful Thursday.

Star Liquors in Durango has joined the statewide complaint to the Colorado Liquor Commission, which is comprised of 200 to 300 small liquor retailers. Store Manager Mike Vermette disagrees with the sentiment that grocery stores are selling wine under cost and instead agreed with Tegl’s statement that grocery stores have found a loophole that creates an unfair advantage.

“What they’re doing is finding other ways to leverage and discount down through mostly digital coupons,” he said.

He said this is nothing new as big box stores have been known for doing this. Grocery stores are able to sell wine at lower costs because they sell other products, which allows them to profit through other revenue streams.

Star Liquors’ wine sales are down 15% as a result of the law coming into effect. He wouldn’t speculate as to what the year’s total loss would be without having yet experienced the holiday season.

The new law has not impacted beer sales for Star Liquors like it has Wagon Wheel, but Vermette believes that may be a result of Wagon Wheel’s location. Wagon Wheel is located within a mile of Albertsons, City Market and Liquor World, which means it must compete in proximity with three different retailers for beer sales.

Star Liquors, near Florida Road and East Animas Road (County Road 250), is about 1½ miles from north City Market and is well isolated from other beer and wine retailers, he said.

“A big part of it is that Wagon Wheel’s beer sales are probably higher than ours,” Vermette said.

Vermette said beer makes up only about 20% of the store’s sales and that its focus is primarily on wine and hard liquor. He said he wouldn’t be surprised if there was a proposition to allow hard liquor sales in grocery stores during the next voting cycle.

Supporters raised around $14.6 million for Props. 125 and 126 (which did not pass) with its top donors including DoorDash, Instacart, Target, Albertsons, Safeway and Kroger.

Vermette said that independent retailers in the state raised about $3 million to prevent Prop. 125 from passing, but there was no way they could compete with the lobbying of the big-name grocery stores.

If hard liquor is allowed in grocery stores, he believes 40% of Colorado’s independent alcohol retailers will be out of business in the next five years.

But, by comparison, Durango stores are not getting hit as hard as the Front Range stores. Vermette said Front Range independent liquor store wine sales have been down 30% to 35%.

“It’s a David and Goliath kind of thing. But I’m definitely not saying that Star is going anywhere. We turn 40 next year,” Vermette said.

tbrown@durangoherald.com