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ALCOHOLIC BEVERAGE REGULATION ADMINISTRATION
ALCOHOLIC BEVERAGE CONTROL BOARD
NOTICE OF EMERGENCY AND PROPOSED RULEMAKING
The Alcoholic Beverage Control Board (Board), pursuant to the authority set forth in D.C. Official Code §§ 25-211(b) and Mayor’s Order 2001-96 (June 28, 2001) as revised by Mayor’s Order 2001-102 (July 23, 2001), hereby gives notice of its intent to adopt the following emergency and proposed rules that would add a definition of a full-service grocery store to § 199 of Chapter 1 (General Provisions) of Title 23 (Alcoholic Beverages) of the District of Columbia Municipal Regulations (DCMR) pursuant to the Omnibus Alcoholic Beverage Regulation Emergency Amendment Act of 2012, effective January 14, 2013 (Act 19-0597; 60 DCR 1001), adopted by the Council of the District of Columbia on December 18, 2012. These emergency and proposed rules define what constitutes a full-service grocery store in order to effectuate the purpose of the full-service grocery store exception to the existing moratorium on the issuance of new off-premises Retailer’s Class B Licenses. This rulemaking is also necessary to address a specific provision of the Act which requires the Board to undertake a rulemaking defining the term “full service grocery store” within forty-five (45) days of the effective date of the Act.
Pursuant to D.C. Official Code § 25-211(b)(2) (2012 Supp.), these proposed rules are also being transmitted to the Council of the District of Columbia (Council) for a ninety (90) day period of review. These rules shall not become effective as permanent rules absent approval by the Council.
The Board is adopting these rules on an emergency basis so that applications for the full-service grocery store exception can be reviewed and processed by the Board in a timely manner. Specifically, it is imperative that applicants, Advisory Neighborhood Commissions, and other members of the public know what criteria the Board is using to determine whether an applicant meets the full-service grocery store criteria. In addition, a definition of a full-service grocery store is necessary on an emergency basis to enable the Board to timely adjudicate protests that challenge the designation of an establishment as a full-service grocery store.
The Board held a public hearing on the initial proposed rules on February 28, 2013. In addition, the Board left the record open until March 8, 2013, in order to give the public an opportunity to submit written comments. The Board received the following comments regarding the proposed regulation:
Florence Harmon, Chair of the Foggy Bottom & West End Advisory Neighborhood Commission 2A (ANC 2A), submitted a resolution dated March 19, 2013, supporting the proposed rulemaking. ANC 2A praised the Board for its undertaking, recognizing the difficulty in crafting a specific, quantifiable, “one-size-fits-all” definition for grocery stores. ANC 2A noted that the standards set forth in the proposed rules will encourage retail establishments seeking alcoholic beverage licenses to offer a more robust line of traditional grocery products, especially in certain geographic locations that lack stores that offer a full line of groceries.
Gary Cha, the owner of Yes Organic Market, believes that the Board’s proposed regulation could exclude some full-service grocery stores. According to Mr. Cha, the proposed regulation has omitted frozen foods, which could be included in any of the categories listed in the proposed regulation. In addition, Mr. Cha is concerned that the measurement requirement is vague on how to comply with the space requirement. For example, the regulation is unclear on how to count food preparation areas, such as deli or butcher areas that include sinks, cutting equipment, and scales. In addition, he believes the measurement criteria does not consider the possibility that a store may mix product areas and that some areas of the store may switch products on a frequent basis (i.e., end caps may change from holding rock salts, Valentine’s Day products, and other products on a rotating basis). Mr. Cha suggested that the Board consider a food-related stock-keeping unit (SKU) minimum to determine whether an establishment is a full-service grocery store.
Angus Armstrong, Esq., and Stephen O’Brien, Esq., on behalf of Trader Joe’s Co., cautioned the Board that the proposed regulation may unnecessarily preclude full service grocery stores from obtaining a license. Trader Joe’s is concerned that the proposed regulation excludes canned and frozen foods, which are products mentioned in the statute. Trader Joe’s suggests that if they are not intended to be omitted, then the Board should cite canned and frozen foods in the regulation.
Denis James asked the Board to broaden the proposed regulation to include all products that a consumer would expect at a full-service grocery store. He opposes the four out of five product category criteria created by the Board, and he believes that the regulation should include frozen or canned foods.
Nina Albert, on behalf of Walmart, is concerned that the proposed rules may adversely impact Walmart’s operations in the District of Columbia, and adversely impact Walmart’s merchandise selection in certain parts of the city. However, Ms. Albert believes that Walmart can comply with the product category requirements, and therefore, she does not oppose the present language in this section of the proposed rules. Nevertheless, Walmart has concerns about the minimum square footage requirement, such that it would require a store containing 100,000 square feet of retail space, to have an aggregate of 20,000 to 25,000 square feet set aside for each of the food categories identified in the rule. Moreover, Ms. Albert is concerned that the minimum requirement for each category would require 5,000 square feet if the store had 100,000 square feet of retail space. Walmart suggests that the Board consider the square footage of the grocery store within a combination retail-grocery store as the total retail space for ABRA compliance purposes.
Paul Pascal, Esq., on behalf of CVS, recounted the legislative history of the full-service grocery store exception, stating that the original law was created to attract a variety of food service businesses of all varieties to the District. He also noted that the new law was intended to be flexible. Mr. Pascal is concerned that the product requirements do not align with market realities, nor do they include canned or frozen foods. Mr. Pascal is also concerned that it is unclear as to who is responsible for ensuring the accuracy of the measurements. Mr. Pascal encouraged the Board to process pending applications, because CVS dutifully applied under the full-service grocery store exception in good faith, and it applied with the understanding that ABRA’s administrative processes would adjudicate its application.
Rick Conner, the District Manager of Walgreens, commented that the proposed rules impair the ability of Walgreen, Co., to expand in the District of Columbia. Mr. Conner argued that supermarkets are entering the pharmacy market and becoming one-stop shopping destinations. Likewise, Walgreens must do the same to remain competitive. Mr. Conner also commented that the Board is departing from past practice by applying the regulation to pending applications.
ANC Commissioner Karen Perry believes the proposed regulation is not sufficiently restrictive. Citing the Food Marketing Institute, Commissioner Perry believes that a full-service grocery store should carry anywhere from 15,000 to 60,000 SKU’s, and generate at least $2 million dollars in sales. In addition, she reports that the median square footage of a grocery store is 46,000 square feet. Commissioner Perry believes that a full-service grocery store should have more than half of the store dedicated to the sale of food items.
Brian Lederer believes that the proposed regulation is too broad. He finds that the legislative history shows that the Council of the District of Columbia only intended the exception to apply to “high-quality grocery stores.” According to Mr. Lederer, supermarkets like Safeway, Giant, and Whole Foods dedicate far more than half of their retail space to food products. In his opinion, the grocery store exception should not apply to pharmacies and other convenience stores.
Risa Hirao, Esq., on behalf of the District of Columbia Association of Beverage Alcohol Wholesalers (DCABAW) is concerned that the proposed regulation will impede economic development. Ms. Hirao stated that the five percent (5%) requirement should not be based on the total retail space of the store. She believes the five percent requirement will harm “big box” stores, because it requires them to dedicate more space to consumables than they otherwise would. She also believes it will be difficult for small stores or specialty grocery stores to comply with the regulation. She is further concerned that the product categories listed in the proposed rules exclude gourmet frozen foods, honey, maple syrup, soups, sauces, tuna fish, non-dairy products such as hemp, hazelnut, and soy milk, canned vegetables, and other products. Lastly, Ms. Hirao argued that the proposed regulation deprives retailers of the ability to choose what items they purchase and where to display them in their stores.
Ms. Hirao is also concerned that the regulation does not clearly explain the methodology the Board will use to determine whether a store has met the minimum space requirement set forth in the proposed rules. For example, Ms. Hirao questioned how the Board will define total retail space, and how the Board will measure the retail area if products from multiple categories are comingled on the same shelf or display case.
Ms. Hirao further argues that the regulation will create a disincentive to do business in the District of Columbia. She is concerned that businesses will delay expanding their operations or product lines, because changing space in the store would affect their ability to continue qualifying as a full-service grocery store. The regulations create a disincentive to add retail space dedicated to other departments, like flower shops, kitchens, and bakeries, because those other areas may reduce the amount of space available for the sale of food products required by the proposed regulation.
Eric Smucker, represented by Andrew Kline, has a pending application for a Retailer’s Class B License, and he seeks to qualify his establishment as a full-service grocery store. According to Mr. Kline, the Board should consider that the city has limited space to accommodate large grocery stores and that there are many types of food selling operations that could qualify as a full-service grocery store. As a result, he urged the Board to ensure that the rules take into account small business operations.
Roderic Woodson, Esq., believes that the Board should leave itself the flexibility to determine what qualifies as a full-service grocery store on a case-by-case basis. Mr. Woodson noted that the definition of a full-service grocery store should depend on the expectations of each community.
These proposed rules were originally adopted by the Board on January 16, 2013, by a five (5) to zero (0) vote. The Board gave thoughtful and measured consideration to the oral and written comments submitted by the various affected parties. In response to the testimony, the Board has amended the rulemaking in order to clarify the definition and to address concerns raised by the public. Notably, the Board includes frozen and canned foods as product categories, which are described in §§ 25-331(d) and 25-332(c). Additionally, the Board includes a definition of the term “selling area” to clarify that the space being measured under the rule includes the areas of the store open to the public, but does not include preparation areas, rest rooms, or storage facilities.
The Board retained the minimum square footage criteria it adopted in the first proposed rulemaking. The Board concludes that the square footage requirements ensure that the full-service grocery store designation will be applied consistently. In addition, providing minimum square footage requirements provides applicants with clear guidelines on how to comply with the full-service grocery store rules. Furthermore, the Board will allow applicants to qualify as a full-service grocery store by only selling six of seven qualifying products so that retailers can experiment with different business models.
The Board also finds that the legislative history of the full-service grocery store exception does not limit the exception to large grocery stores, such as Whole Foods, Safeway and Giant. Instead, the Board concludes that the Council created the rule primarily to attract all varieties of high-quality grocery stores to the District of Columbia. The Board does not find any intent on the part of the Council to exclude small businesses that operate as full-service grocery stores, or to provide large grocery stores with a competitive advantage over small full-service grocery stores.
Finally, the Board will apply this rule to all applications approved by the Board on or after January 14, 2013, the effective date of the Omnibus Alcoholic Beverage Regulation Emergency Amendment Act of 2012. The Board concludes that the intent of the Council in halting the issuance of Retailer’s Class B Licenses was to ensure that no additional licenses would be approved until the Board crafted a definition that could be applied to all applications being considered by the Board for approval.
On April 10, 2013, the Board voted 5 to 0 to adopt the emergency and amended proposed rules.
As such, Title 23, ALCOHOLIC BEVERAGES, of the D.C. Municipal Regulations is amended as follows:
Chapter 1 PROVISIONS OF GENERAL APPLICABILITY is amended by adding the definition of a “full-service grocery store” after the definition of “Fact-finding hearing” in § 199, which shall read as follows:
“Full-service grocery store” –
(A) A self-service retail establishment independently owned or part of a corporation operating a chain of retail establishments under the same trade name that:
(i) Is licensed as a grocery store under § 47-2827; and
(ii) Offers for sale a full line of food products that includes at least six
(6) of the seven (7) following food categories:
(a) Fresh fruits and vegetables,
(b) Fresh and uncooked meats, poultry and seafood;
(c) Dairy products;
(d) Canned foods;
(e) Frozen foods;
(f) Dry groceries and baked goods; and
(g) Non-alcoholic beverages.
(B) A “full-service grocery store” in subparagraph (A) may include related service departments, such as a bakery, pharmacy, or flower shop, as well as departments that offer household products and sundries.
(C) A retail establishment shall meet the primary business and purpose standard described in Title 25 of the D.C. Official Code if (1) a minimum of fifty percent (50%) of the store’s square feet of selling area is dedicated to the sale of the food categories listed in (A)(ii) above; or (2) a minimum of six thousand (6,000) square feet of the store’s selling area is dedicated to the sale of the food categories listed in (A)(ii) above.
(D) A retail establishment that meets either standard set forth in subparagraph (C) must also dedicate a minimum of five percent (5%) of the store’s selling area set aside for the sale of food items listed in subparagraph (A) to each of six (6) of the seven (7) food categories listed in subsection (A)(ii).
(E) The term “selling area” means the area in a retail establishment that is open to the public and does not include storage areas, preparation areas, or rest rooms.
(F) The definition of “full-service grocery store” contained in this subsection shall apply to license applications being considered by the Board for approval on or after January 14, 2013.
Copies of the proposed rulemaking can be obtained by contacting Martha Jenkins, General Counsel, Alcoholic Beverage Regulation Administration, 2000 14th Street, N.W., Washington, D.C. 20009. All persons desiring to comment on the proposed rulemaking must submit their written comments, not later than thirty (30) days after the date of publication of this notice in the D.C. Register, to the above address.
