Crime and Alcohol in Lake Forest. Part 4 - False Claims

We’re examining the request from a discount chain to sell beer and wine in two of their stores in Lake Forest.

In Part 1 of this series we reported that –

• Lake Forest has 159 total outlets selling alcohol, and among the 12 cities in South Orange County, we have the 5th highest concentration with 1 outlet for every 496 people.

• Of the 16 census tracts in Lake Forest, 5 are oversaturated, 4 are at their limit, 2 are below their limits, and 5 are zoned exclusively residential and do not permit commercial stores

In Part 2 we reported that –

• A majority of criminal offenders were under the influence of alcohol alone when they committed their crimes. This amounts to more than 3,000,000 violent crimes per year.

• For 40% of convicted murderers being held in either jail or State prison, alcohol use was a factor in the homicide.

In Part 3 we found that

• Throughout the U.S. research for the past 30 years demonstrates that as the number of outlets goes up, serious crime and DUI arrests go up.

• Right here in Orange County, for 2013, we found that as the number of outlets goes up, serious crime and DUI arrests go up.

Today we want to look at the claims by the representative of the discount store, who basically asks us to put aside the enormous amount of research on the harm caused by adding more outlets.

SITUATION

99 Cents Stores proposes to add beer and wine sales in two of their stores in Lake Forest – one near the Freeway and the other in Foothill Ranch.

Both stores are in census tracts that are classified by the State’s Alcohol and Beverage Commission (ABC) as “oversaturated” – meaning, there are already too many such stores in these area given their population.

In addition to being in oversaturated tracts, the physical location of both these stores is within walking distance of a half dozen other stores that sell beer and wine, many of which are small businesses who depend on the income from beer and wine sales to survive.

The Director of Planning for the City recommended denying the request to add two new outlets. A consultant who was hired by 99 Cents Stores to get them their license appealed to the Planning Commission. Here are the bases of his appeal -

CLAIMS

Remain Competitive

The consultant claims that 99 Cents Stores needs “to sell beer and wine to be competitive in the grocery business”. According to their most recent financial statement on their website, the company had $889,492,000 in assets. Their net sales were $403,920,000 and they reported a gross profit of $165,215,000. Their operating income was $37,542,000 and their net income was $22,175,000.

They have 238 stores in California and 332 altogether. According to their website  “Stores open for at least a year generated average net sales per estimated sellable square foot of $295 and average net sales per store of $5 million, which the Company believes are the highest in the dollar store industry.”

With a net income of $22 million and the highest net sales per square foot of any store in the dollar industry, 99 Cents Stores doesn’t need to sell beer and wine in Lake Forest to remain competitive. In fact, without selling beer and wine in Lake Forest they made the decision to expand from 1 store to 2 and recently from 2 to 3 stores.

In any event, selling beer and wine was not part of the official 99 Cents Stores marketing strategy as shown in their recent SEC filing.

Promote One-Stop Shopping

The consultant  also argues that by selling beer and wine they will contribute to a growing shopper preference for one-stop shopping, however, research shows that one-stop shopping only appeals to a very small part of the population in general, and an even smaller percent in Lake Forest where only 10% of the population consider it important, and no one considers it “very important”.

In terms of convenience, there are already much larger retailers within walking distance of both these locations who currently sell beer and wine, and 2 of the 4 are discount retailers. Hence, 99 Cents Stores has nothing unique to offer.

Discourage New Business

The 99 Cents Stores consultant argues that if the Planning Commissioners deny 99 Cents Stores a license, this will discourage other retailers from moving to Lake Forest, and in particular, Trader Joe’s has been singled out. However, each application is considered on a case-by-case basis, so any decision made regarding 99 Cents Stores is not applicable to any other application. Moreover, Trader Joe’s is vastly different from 99 Cents Stores (e.g., smaller, more profitable, more organic, more local sourcing, more upscale, etc.).

Adding Revenue

The argument was also made that allowing 99 Cents Stores to sell beer and wine will increase the City’s revenue, but allowing 99 Cents Stores to add beer and wine sales will not increase the City’s revenue, since the location of these stores, so close to nearly a dozen other stores with Type 20 licenses, will undoubtedly cannibalize the current sales.

In addition, allowing 99 Cents Stores to sell beer and wine in tracts that are oversaturated will take away sales from existing businesses around them, which include nearly a dozen small businesses. This may cause some small businesses to close down, resulting in a loss of revenue for the City.

SUMMARY

Claims made by the consultant hired to secure a license for the sale of beer and wine for 99 Cents Stores are clearly unfounded.

• The company does not need to sell beer and wine to remain competitive.

• One-stop shopping is not a major consideration for the vast majority of Lake Forest residents and if it were, it could be accommodated better at several other stores (e.g., WalMart, Target, Smart and Final).

• Decisions made for 99 Cents Store do not set a precedent for any other retailer.