Tuesday, July 10, 2007

The puzzle of American liquor stores.

Economist Bryan Caplan has been accumulating items that puzzle economists. One that he wonders about regards liquor stores. Here is how he words it:

There's a lot less economic freedom in my state of origin, California, than in my state of residence, Virginia. According to the Pacific Research Institute's rankings, the state of California comes in 49 out of 50th. Virginia comes in 3rd. As far as liquor is concerned, however, it looks like you can flip those rankings. In Virginia, you can buy beer and wine from the grocer, but hard liquor is only available at Virginia Alcoholic Beverage Control stores. (For their sickening propaganda, go here). In California, you can buy hard liquor almost everywhere
If I didn't know anything else about these states, I would predict that California's grocery stores would dominate the liquor market. Why make a special trip to a seedy liquor store when you can buy tequila at CostCo during your weekly shopping?
But this prediction is way off. The blatant fact is that there are seedy liquor stores on virtually every commercial street corner in Los Angeles. People are free to buy their liquor in regular grocery stores, but for reasons I can't grasp, grocery stores only seem to have a modest slice of the market.
Another way to think about this Los Angeles Liquor Puzzle: It seems like the Wal-Mart model should be working, but it's not. The mom-and-pop liquor stores are thriving in the face of big(ger) box competition.

Many smart people took stabs at this puzzle. Typically the argument was one of “specialization”. A liquor store has a wider selection. True, but a video store has a bigger selection than Wal-Mart yet Wal-Mart still have a big video selection.

Others argued that it was more convenient to shop at the liquor store since it was easier to park, easier to shop, not as crowded, etc. Again, that is true. But this is also true about any item in Wal-Mart. The auto store has more convenient parking as does the hardware store but still people will purchase auto supplies or hardware at Wal-Mart.

One person got close to what I think may be the answer. He said people don’t stock on liquor for the same reason married men don’t carry condoms. The stocking up on liquor, which is how people shop in grocery stores, makes one feel like an alcoholic.

I think there is a “shame” factor involved. America was the one “civilized” country to ban alcohol and that was less than a 100 years ago. Much of that was based on the assumption that drinking was sinful. The counter-argument is that many people today no longer see drinking as sinful. True. On the other hand, they do see being a drunk as a problem. Most people look down on one being an alcoholic.

In the grocery store you are likely to run into neighbors, friends, work colleagues, relatives, etc. And if you have a few bottles of liquor lined up next to the veggies some people might wonder. This, I would think, is especially true for hard liquors. When people see a lot of booze they wonder if a person has a drinking problem.

Liquor stores are like porn shops. A consumer walks in knowing that anyone else in the shop is not going to judge him negatively for being there.

And porn is a good comparison. Large bookstores could have adult sections if they wished. But they don’t. One factor is that people who hate porn would boycott them. The same is true with liquor as many fundamentalist types would avoid any store selling demon rum. But the boycott factor would be lower for liquor. But more likely, the porn consumers aren’t willing to purchase there.

They would be most unlikely to take their purchase up to the cashier if there is some chance that other people in line would react negatively to their purchase.

Inside a porn shop or a liquor store everyone is pretty much there for the same reason. And the moralistic view still pervades much of America even if it is replaced by “health concerns” among the more secular.

Other cultures react differently. The grocery stores in Europe have large liquor selections including hard liquor. But then Europeans are allowed to drink on the streets or on the trains. Even teens standing around drinking beer don’t attract any attention. The issue has none of the moralistic aura that it does in the United States.

Even porn is seen differently in Europe. You will find major airports (outside the UK) which have porn shops in them and the same is true for train stations. And I was surprised to see a selection of hard core DVDs for sale inside one of these quicky mart shops attached to a petrol station in the Czech Republic. What was even more surprising was that it was off in the corner away from the cashiers.

Many of the large video stores in Europe carry adult material. I’ve seen hardcore DVDs for sale in Virgin shops in England but did not see them on sale in Virgin shops in the US. A massive six floor electronics/video store opened a few blocks from my flat. They carry adult material which is displayed under a red transparent cover. And that is just stuck in the middle of the shop. Except for the red transparency, which makes them stand out while slightly masking the images, no other effort is made to restrict access.

There must be liquor stores here in Europe. But the truth is that I don’t remember seeing any. There are none in my neighborhood. All the stores carry adequate selections of liquor and the largest department store in Europe is two blocks away. I have wandered past their liquor selection but I don’t drink so I didn’t pay much attention. But I believe it was rather massive. But then this store has a selection of chocolates that are bigger than my normal grocery store.

In the end I think the answer to the puzzle relates to the American concept of sin. And often the theology dies out long before the puritanical nature of the believer does. Even in those parts of the us that have shunned fundamentalist moralism there is still a lively puritanical sentiment.