UPDATE: On 22 August 2017, the Government announced changes to the law to enable grocery stores to continue holding alcohol licences despite increases in tobacco taxes. Those changes took effect on 15 September 2017 and mean that tobacco excise tax is now excluded from a grocery store’s annual sales revenue.
Given this change, tobacco sales are unlikely to have such a distorting effect. However, grocery stores are required to meet other requirements, and getting advice before applying – either for a new licence or to renew an existing licence – is still key.
The Government has declared a war on tobacco and it wants New Zealand to be smoke-free by 2025. Its plan includes regular 10% tax increases on tobacco products, meaning a pack of 20 cigarettes will increase from a cost of around $20 today to around $30 by 2020.
But why would an increase on the cost of tobacco affect grocery stores? Simple: this ever-increasing cost has a disproportionate effect on a grocery store’s annual sales revenue, which is an essential measure used when determining whether a shop is a grocery store or some other type of store.
A grocery store is a kind of premises for which an off-licence may be issued. The Sale and Supply of Alcohol Act 2012 (“Act”) prevents dairies and convenience stores from holding off-licences, so if you want your shop to be able to sell (or be able to continue selling) alcohol, and are not large enough to be a supermarket, qualifying as a grocery store is critical.
‘Grocery stores’ are shops where the principal business is the sale of food products. In forming an opinion on whether any premises are a grocery store, regard must be paid to the store’s size, layout and appearance; the range and kinds of items sold; and its principal business.
‘Principal business’ is defined in the Act as meaning the business calculated in accordance with any regulations that may be in force. There are two regulations that are relevant, one relating to existing businesses and one relating to new businesses. Both require calculations of a shop’s sales revenue.
The issue many applicants experience is the influence tobacco products have on their annual sales revenue. If a shop’s principal business is the sale of tobacco, then it is not considered a grocery store. This affects applicants for new licences as well as those applying to renew their existing licence.
In 2016, the Alcohol Regulatory and Licensing Authority (“ARLA”) issued a decision which went some way toward settling the law in respect of grocery stores. The decision concerned an existing Four Square which applied to renew its off-licence. The District Licensing Committee granted the renewal, but the Medical Officer of Health appealed.
The basis for the appeal was the shop’s statement of annual sales revenue, which showed 53.42% of its gross sales revenue was from the sale of tobacco. The ARLA analysed the Act’s requirements and ultimately reversed the decision granting the renewal. The shop lost its licence.
Essentially, the ARLA held that reference to annual sales revenue was “fundamental” when determining whether a shop is a grocery store:
Notwithstanding that the premises may have the visual appearance or characteristics of a grocery store, if the ‘main’ product sold…is not ‘food products’, then the premises are not a grocery store regardless of how much they resemble one.
This decision means that a shop which cannot prove, through a statement of its annual sales, that its principal business is the sale of food products will not qualify as a grocery store, even if it has the look and feel of a grocery store and sells the products ordinarily associated with such a store.
Consider also the case of the Cockle Bay Four Square. This grocery store had traded with an off-licence for many years. Its application to renew that licence showed 34.22% of its gross sales revenue was from the sale of tobacco. This fractionally outranked the sale of food products.
In this case, the applicant argued that the overall number of tobacco products it sold had not changed. It provided evidence showing that, since 2013, tobacco sales had accounted for between 29% and 30% of annual sales revenue; all that had changed was the cost of tobacco, thanks to Government taxes.
The Auckland District Licensing Committee acknowledged the applicant’s position but nevertheless refused to grant the renewal:
The committee records that this is an unfortunate result for the applicant which is otherwise worthy of gaining a renewal of its off-licence. It is a result that has occurred because of the requirement to apply a strictly mathematical formula…
There are some subtle differences if you’ve recently purchased a business – even an existing one – in that you can project your first year’s annual sales revenue, but this does not make first-time applicants immune from the requirement to produce information on annual sales.
These recent decisions have emboldened agencies like the Medical Officer of Health to challenge applications where there is even a suspicion the sale of food products may not be the principal business, putting applicants to the cost and time of proving their case before a public hearing.
These decisions also show that getting good advice long before an application is filed becomes essential, as even existing licensed premises applying to renew their licences may lose the ability to sell alcohol because of factors outside of their control, like Government-imposed taxes.
So – are you really a grocery store? If you have a licence currently but are worried whether your shop’s principal business is still the sale of food products, why not speak with one of our specialists today?
Published: 19 October 2018