Lion Liquor Retail Limited [2009] NZLLA 1238 (28 October 2009)

Last Updated: 29 January 2012

Decision No. PH1238/2009

IN THE MATTER of the Sale of Liquor Act 1989

AND

IN THE MATTER of an application by LION LIQUOR RETAIL LIMITED pursuant to s.41 of the Act for renewal of an off-licence in respect of premises situated at 254 Ponsonby Road, Ponsonby, Auckland, known as “Liquor King Ponsonby”

BEFORE THE LIQUOR LICENSING AUTHORITY

Chairman: District Court Judge E W Unwin
Member: Ms J D Moorhead

HEARING at AUCKLAND on 29 September 2009

APPEARANCES

Mr M R Crotty – for applicant
Mr A C Phillips – Auckland District Licensing Agency Inspector – in opposition
Sergeant J P Loye – NZ Police – in opposition

RESERVED DECISION OF THE AUTHORITY

Introduction

[1] Lion Liquor Retail Limited (hereafter called “the company”) has held an off-licence for premises at 254 Ponsonby Road in Ponsonby, Auckland for the past 19 years. During that time it has traded continuously under the “Liquor King” brand and name. The business is licensed as a bottle store with hours authorised for the sale of liquor between 8.00 am and 10.00 pm Monday to Saturday and from 9.00 am to 10.00 pm on Sundays. The record shows that there have been no reported incidents requiring intervention by the reporting agencies. The company is one of the retail trading arms of Lion Nathan New Zealand.

[2] The off-licence fell due for renewal on 29 May 2009. The company requested a modest increase in trading hours between 8.00 am and 11.00 pm daily. That amendment was not opposed. However, both the Police and the Agency Inspector reported that the business had progressively ‘morphed’ into a different style of business from that portrayed when the licence was first issued. They claimed that the introduction of a significant range of food in the nature of meats, smallgoods and delicatessen style foods had created a major change to the nature of the store.

[3] The company through its counsel, maintained that it was not in breach of its licence, and that the sale of liquor continued to be the principal business of the premises. Accordingly the application was required to be determined at a public hearing. The only issue relates to the proper interpretation of the Act. By way of background, we set out the facts leading up to the dispute. Such facts are based on the evidence that was given, as well as the submissions that were made, and our own considered view of the current business.

[4] Approximately two and a half years ago, Mr S A Mitchell was appointed to manage the store. His mission was to change the way that the company was operating the business in order to make it more profitable. He came to the view that one way of enticing customers into the store was to offer them a selection of gourmet foods. He referred to this as meeting consumer trends and demands.

[5] Having obtained approval for the scheme from his corporate superiors, Mr Mitchell invited a gourmet food company trading as “Nosh Metro” to enter into a business arrangement. “Nosh Metro” is apparently known for its quality culinary fare. It has other delicatessen style businesses in Auckland. They all have a distinctive and modern logo. The agreement with the company was apparently incorporated in a one-page document. “Nosh Metro” agreed to pay a proportion of its turnover in exchange for being able to stock and sell its products in the bottle store. The agreement was that “Nosh Metro” would employ its own staff and carry out its own buying. It would not sell liquor.

[6] When it opened for business in December 2007, “Nosh Metro” advertised in the “Times On-Line” and offered a $50 voucher to encourage interest in the new venture. The advertisement referred to a butchery offering award winning sausages, with its own dry aging room. In addition to meat and deli lines, the store offered fresh seafood, quality fruit, vegetables, and breads. In an unusual choice of wording, the advertisement noted that a modernised “Liquor King” was now incorporated into the complex with a large range of wines.

[7] It was argued that the delicatessen store takes up about 20 percent of the total floor space of the store. However, as will be pointed out, 50 percent of the available space is taken up with a warehouse type operation at the back of the store, offering bulk wine deals. The main retail store is very much a combined operation where the sale of gourmet foods is on equal terms with the sale of liquor in terms of floor space.

[8] The main entrance to the store is off Ponsonby Road, although there is a side entrance from a car park in O’Neill Street off Ponsonby Road. The perception is that the main entrance is for those wishing to purchase gourmet foods, and the side entrance is for patrons who are interested in buying liquor. The reality may well be that members of the public enter the store by the most convenient way and may well go there to purchase both product lines. What is clear is that the predominant advertising on Ponsonby Road is for the sale of gourmet foods.

[9] In addition to the introduction of this new business into the store, the company re-branded itself. Gone were the traditional blue and yellow colours. The building was painted black. “Nosh Metro” black. There are a few “LK” signs placed among the “Nosh Metro” signs. The significance of the signage was not readily apparent until we were able to compare the premises with other traditional “Liquor King” stores. There is a major difference.

[10] Mr Mitchell also changed the style of the bottle store operation. He changed the company’s focus to the sale of fine wines. As stated earlier, the company has devoted about half of the building to bulk sales of wine. This area had previously been subleased but the dividing wall has been removed. This part of the store was likened to the operation of a warehouse. Indeed the area is characterised by cartons of wine displayed in a variety of piles still sitting on pallets. There is no attempt to make the area particularly glamorous or enticing. It is simply a large bulk buying area at the rear of the store. It is quite different in appearance from the store containing “Nosh Metro” and the retail sale of beer, wines and spirits.

[11] From the company’s point of view, the results have been stunning. Wine sales have almost doubled since Mr Mitchell arrived. The focus of the business has changed to a premium quality store with a corresponding lift in retail prices. Mr Mitchell was very pleased with the results and considered that both lines complemented each other very well.

[12] When it filed its renewal application, the company produced some figures for the months of November and December 2008, and January and February 2009. These were the months described by Mr Mitchell as seasonally better for sales of liquor as opposed to the winter months. The figures were not easy to follow because they contained a moving annual total. What they purported to show was that as at the end of February 2009, the sale of gourmet foods represented 45.6 percent of total turnover. The company’s sales of liquor (including four percent for items such as cigarettes and tonic) were 54.4 percent of the total. The figures also showed that the percentage of food sales was going up each month compared with sales of liquor. Indeed over the three months from November 2008 (said to be the busiest time), sales of liquor rose by two percent. For the same period, sales of gourmet foods rose by 21.7 percent.

[13] The company did not produce any updated figures at the hearing and it may well be that it had a good reason not to do so. Mr Mitchell stated that on instructions, he was trying to drive liquor sales to 60 percent of total. He was unable to say how that was going to happen and there is nothing in the agreement between the company and “Nosh Metro” restricting the quantity of food it can sell.

[14] If the company is successful in obtaining renewal of its licence, it intends to re-brand existing liquor stores in Wellington and Christchurch and introduce gourmet food and delicatessen lines in the same way as the Ponsonby store.

The Applicant’s Submissions

[15] Mr M R Crotty appeared for the company. He had already filed submissions on the company’s behalf as part of the renewal process. These submissions contained Mr Crotty’s analysis of some of our previous decisions, although as he acknowledged, many of the decisions were not on point. He referred to our decision in Ground Limited LLA PH 1314/2007. However, he sought to have it distinguished because it was his view that the portrayal of the business in the Ground case was that of a delicatessen whereas the company was portraying its business as a bottle store.

[16] During the processing of the application, Mr Crotty was referred to our recent decision in Concord Liquor (2004) Limited LLA PH 668/2009. He argued that there were no parallels as the Concord business was more of a store within a store arrangement, whereas there was no distinct delicatessen or butchery at “Liquor King Ponsonby”. In other words, in the retail part of the business, the products are mixed up and not separated.

[17] In his supplementary submissions, he submitted that the application should be granted because:

• [a] The company’s principal business was the sale of liquor;
  
• [b] The business was not a delicatessen or a store within a store;
  
• [c] The format of the present business was consistent with the scheme and object of the Act; and
  
• [d] The business that had been developed was unique and therefore the grant of a renewal would not “open the floodgates” and increase the concentration or density of liquor stores.
  

[18] Mr Crotty appeared to base his primary argument on a quotation from the Authority’s decision in Caltex NZ Limited LLA PH 167/2001. He argued that the meaning of ‘principal’ was “first in rank or first in importance.” He also contended that as a matter of logic there can only be one principal business in any outlet. On that basis he submitted that the principal business would be the one that had the greatest turnover. It was his primary argument that with a turnover margin of over 50 percent, and with over 50 percent of the store’s space taken up with the display of liquor, and with over 50 percent of the staff employed by the company, then the principal business of the premises was the sale of liquor.

[19] Mr Crotty then argued that the business was not a delicatessen, nor did the outlet contain one. He contended that the present traditional approach of selling liquor with chips, nuts, and cocktail snacks, was outdated and inadequate. He seemed to be of the view that as it was not a separate store within a store scenario, then the position was somehow different. He relied on the innovative strategy behind the re-branding of the business. He made these comments:

“The outlet draws on a deliberate strategy to draw customers to the gourmet food offering with the ultimate goal that the gourmet food is sold alongside, and for the consumption together with the liquor sold in the store.”

[20] Mr Crotty further argued that the venture was in keeping with the Act’s objective, as well as the recent discussion document entitled “Alcohol in our Lives”, published by the Law Commission. His argument was that the combination of alcohol and food was consistent with international best practice in liquor retailing.

[21] Finally, Mr Crotty submitted that since the current venture was an original and unique retail concept, then granting the renewal of the off-licence would not “open the floodgates” for other applicants. In particular he suggested that other applicants would have difficulty in meeting the standards that the company had set. Even if he was wrong, Mr Crotty suggested that if other existing outlets copied the new format then the combination of selling liquor with food would further promote the Act’s objective.

[22] In the event that his arguments were not accepted, Mr Crotty requested a shorter renewal period so that the company could make a decision about its future.

The District Licensing Agency Inspector

[23] Mr A C Phillips produced a large number of photographs showing the types of food on display. These included speciality foods, fresh fruit, vegetables, and a “superb” meat selection. He submitted that with the addition of a delicatessen and butchery, the nature of the store had changed. He suggested that the public impression of the current store was a delicatessen providing a full range of liquor. He argued that it was now a blended store more suited to the grant of a grocery style off-licence. He contended that the company was presently enjoying a commercial advantage to which it was not entitled.

The Police

[24] Sergeant J P Loye represented the Police. He said that he was well aware of other premises attempting to add food lines and operate full off-licences in the same way as the company. He confirmed that the off-licence had been originally issued in respect of premises in which the principal business was the sale of liquor. He noted that the licence currently held a supervised designation. He accepted that apart from the company currently enjoying a commercial advantage that was not permitted by the Act, it was otherwise suitable to continue to hold the off-licence. He argued that since the last renewal the premises had gone though a transformation, both internally and externally. He submitted that more and more emphasis had been placed on the supply of fresh food products.

[25] Sergeant Loye also produced a series of photographs depicting the type of blended store that had been developed. He submitted that the great majority of the signage and presentation related to the food-market side of the business with a minor part having the “LK” branding. It was his view that the only difference between “Liquor King Ponsonby” and a supermarket was the lack of stock such as cleaning, packaging and personal hygiene products, as well of course, as the presence of spirits and RTDs. A member of the public had already asked the question how the latter items could be sold in such a scenario.

The Authority’s Conclusion and Reasons

[26] In considering the company’s application we are required to have regard to the criteria set out in s.45 of the Act. These criteria are:

• (a) The suitability of the licensee:

(b) The conditions attaching to the licence:
(c) The manner in which the licensee has conducted the sale and delivery of liquor pursuant to the licence:
(d) Any matters dealt with in any report made under section 43 of this Act.

[27] Three of the criteria are relevant. The company has the onus of establishing that it is suitable to continue to hold the licence, and that the conditions of the existing licence can continue without change (apart from its request to extend the trading hours). It must also respond appropriately to matters raised by the reporting agencies. It is common ground that the issue is whether the company can establish that the principal business is the sale of liquor.

[28] Because the issue is of some importance we set out the provisions of s.36 of the Act. This section describes the type of premises in respect of which off-licences may be granted. Of particular relevance are the subtle differences between the licensing of a supermarket, a grocery, a bottle store and a store that is allowed to sell liquor because it is an appropriate complement to the kinds of goods being sold in the store. The relevant parts of the section read as follows:

(1) Except as provided in subsections (2) to (5) of this section, an off-licence shall be granted only –

(a) To the holder of an on-licence in respect of a hotel or tavern, in respect of the premises conducted pursuant to that licence; or

(b) To the holder of a club licence, being a club that is entitled under paragraph (i) or paragraph (j) of section 30(1) of this Act to hold an off-licence, in respect of the premises conducted pursuant to that licence; or

(c) In respect of premises in which the principal business is the manufacture or sale of liquor; or

(d) In respect of –

(i) Any supermarket having a floor area of at least 1000 square metres (including any separate departments set aside for such foodstuffs as fresh meat, fresh fruit and vegetables, and delicatessen items); or

(ii) Any grocery store, where the Licensing Authority is satisfied that the principal business of the store is the sale of main order household foodstuff requirements

(2) The Licensing Authority or District Licensing Agency, as the case may be, may grant an off-licence in respect of other premises if the Licensing Authority or District Licensing Agency, as the case may be, is satisfied, in a particular case, -

(a) That, in the area in which the premises are situated, the sale of liquor in premises of a kind described in paragraph (c) or paragraph (d) of subsection (1) of this section would not be economic; or

That the sale of liquor would be an appropriate complement to the kind of goods sold in the premises.

(3) Nothing in subsection (1) or subsection (2) of this section shall authorise the grant of an off-licence in respect of –

(a) Any service station or other premises in which the principal business is the sale of petrol or other automotive fuels; or

(b) Any shop of a kind commonly known as a dairy.
(4) Nothing in subsection (2)(b) of this section shall authorise the grant of an off-licence in respect of any supermarket or grocery store, or any other premises on which the principal business is the sale of food or groceries.

• (5) This section applies subject to sections 51 and 52.
  

[29] This section has been the subject of considerable debate and case law. It may be helpful to set out some of the ways in which we, with assistance from the High Court, have tried to maintain a nationally consistent approach.

[30] When Parliament amended s.36 of the Act to allow supermarkets to sell liquor, it incorporated a number of checks and balances. At that time a number of delicatessens had received what were known as ‘complementary’ licences under s.36(2)(b) of the Act. In other words it was felt that the sale of liquor (of every variety) was an appropriate complement to the sale of speciality foods. However, Parliament wanted to ensure that supermarkets and groceries would not be able to sell liquor other than wine, mead and beer. Accordingly, s.36(4) of the Act was passed.

[31] In 2001 we heard a contested application for an off-licence for an up market delicatessen. The delicatessen was very much along the lines of “Nosh Metro’s” business. The application was filed pursuant to s.36(2)(b) of the Act. We granted the application because there were so many similar licences that had been granted. We made reference to the desirability of combining the consumption of liquor with good food. The decisions were appealed, and the High Court ruled that because the principal business of the delicatessen was the sale of food, the off-licences could not be granted as an appropriate complement (see the decision of Randerson J in Lopdell v Deli Holdings Ltd [2002] NZAR 227).

[32] Since that time a limited number of delicatessens have been granted an off-licence on the basis that they are grocery stores. This means of course, that they can only sell wine, mead and beer. However, in most cases, those were the only products that the delicatessens wished to sell.

[33] In August 2000, there was a successful attempt to obtain licences for convenience stores on the basis that these were grocery stores selling main order household foodstuffs. The decision was Caltex New Zealand Limited and anor LLA PH 1082-1083/2000. In making its decision, the Authority changed the way that the Act was to be interpreted in the future. It decided that convenience stores should be added to supermarkets and grocery stores as premises from which wine and beer could be sold.

[34] In October 2008, we effectively stated that the Caltex decision should no longer be regarded as good law. In other words it is a matter for Parliament and not the Authority to decide what types of premises should be allowed to sell liquor for consumption off the premises. We said:

“In summary therefore, and after careful consideration, we consider that the Authority’s earlier decisions to issue off-licences to convenience stores were contrary to the correct interpretation of the Act, and should no longer be regarded as good law. The current application illustrates the point that the Authority’s relaxed interpretation of a grocery store in 2001, has led to unrealistic expectations that inappropriate businesses could qualify for a grocery-style off-licence.

This ‘line in the sand’ decision means that no new off-licences will be issued where the business is plainly a convenience store and not a grocery (as in this case). It is time to return to a principled approach based on what is stated in the relevant section, and not on what commentators might think was intended by Parliament.”

[35] In 2007 we had an almost identical situation to the position that the company has reached. See Ground Limited supra. The applicant in that case had purchased an existing bottle store. The sale of liquor was the principal purpose of the premises. About a month after taking over the business, the applicant started to stock a selection of gourmet food products. This was said to complement the range of liquor supplied. Eventually the reporting agencies considered that the new business was trading more as a delicatessen. Accordingly the application for the new off-licence was opposed. The Authority was asked to provide clarity on the issue of off-licences for blended stores.

[36] At that hearing it was argued that 50 to 60 percent of the floor area was taken up with the display of liquor including wine, and that the sale of liquor made up 57 percent of the weekly sales turnover. Mr Crotty was wrong to suggest that the applicant portrayed itself as a delicatessen. That was our conclusion. In fact the applicant was very keen to retain its bottle store business. In our decision we made these comments:

“After due consideration, we believe that in order to establish that the principal business is the sale of liquor, then liquor sales should be no less than 80% of turnover. In every other case, it would be necessary for the blended store to have the matter debated before us prior to any off-licence being granted for the sale of an unrestricted range of liquor products.”

[37] The following comments from this decision are also pertinent to the ‘floodgates’ argument.

“We agree with Mr Jackson the sales of gourmet foods are not consistent with a stand-alone bottle store as such stores are commonly understood. In our view a bottle store might well be expected to sell items such as chips and cocktail nibbles, and even some hardware (such as bottle openers). There are a number of speciality food stores nation-wide that have been allowed a licence because they have been classified as groceries. Many of them would immediately apply to sell spirit items such as ‘soju’, ‘sake’, and Italian liquors if this application were to be granted.”

[38] We now turn to Mr Crotty’s arguments. As noted above he argued that the business was a bottle store because it was ranked first in rank or first in importance. This definition comes from the Caltex decision referred to previously in paragraph [18] above. In that case Mr A G Sherriff, a co-author of the textbook ‘Sale of Liquor’, was acting for a “Caltex Star Mart” seeking a grocery style off-licence in Auckland. The Authority as it was then constituted (Messrs R J S Munro and J W Thompson), made these comments:

“We find that “principal” in the context of s.36 means “mainly, first in rank or first in importance” rather than “total” or “almost all”, upholding Mr Sherriff’s submission.”

[39] Not unnaturally the quotation has some prominence in the textbook where Mr Crotty appears to have found it under the title ‘Principal Business’. But because it is in the textbook does not mean that it is correct. It certainly does not mean that this interpretation was what Parliament had intended when it passed the Act. Bearing in mind that the phrases were coined in an effort to obtain a licence for a convenience store, we do not find ourselves in any way bound to follow that particular wording.

[40] There are further flaws in Mr Crotty's argument. He argued that there could only be one principal business in any outlet. That argument suffers from the logical fallacy principle, that if the business is not one thing it must be the other. Not so. As will be explained later, if all one has to do to establish a principal business is achieve over 50 percent of turnover, then there will be dramatic consequences for the licensing regime. The issue is the nature of the store. A store can be blended (as in this case). These are issues of fact if not common sense.

[41] A blended store is not a bottle store. The principal business of a blended store of this nature is no longer the sale of liquor. It is a matter of balance. We accept that the test of what is the principal business for a grocery store may not be the same as the test for a bottle store. After all the grocery store is to become blended at any event.

[42] There is no doubt in our view that pursuant to s.36 of the Act, Parliament had no intention of allowing food to play a major role in a bottle store. After all, under s.35(1)(e) of the Act an applicant is required to disclose whether there are any other goods being sold besides liquor. If the company had disclosed that it intended to make a major change to the style of the store to incorporate a delicatessen, it would never have been granted a bottle store licence in the first place. That is the way that off-licence sales of liquor have always been regulated on a national and consistent basis.

[43] That is precisely what happened in Concord Liquor (2004) Limited (supra). The store in Dunedin had asked to be able to sell a small range of basic food items for the somewhat isolated local community. The request was granted but the company was asked to keep the items separate. Over time the food items had been significantly expanded and the separation became marginal. Renewal of the licence was opposed. Like the company in the present case, the store had achieved market support and did not wish to give it up. The Authority concluded that the store enjoyed a commercial advantage that Parliament had not intended. The company was given six weeks to have all the grocery and confectionery items removed.

[44] Mr Crotty may well be right that this business is not a delicatessen, but that is not the point. He even argued that the business did contain a delicatessen. Such a submission defies reality. The business is a blended store where the main part of the retail store consists of a mixture of gourmet foods as well as wines, beers and spirits. On looks alone, the food aspect seems to be dominant. However, that is not the issue. Neither is the percentage of sales nor the branding of the store. If the company wishes to be a bottle store selling spirits and RTDs, then it has to remove all food items, other than a very limited range of chips, cocktail nibbles and nuts.

[45] Mr Crotty may also be right that the sale of food and liquor is consistent with the object of the Act. However, in our view breaching the Act is inconsistent with the same objective. We have to say that we were surprised with the way the company has chosen to ignore or distinguish similar decisions such as Ground and Concord (supra). If the Act is breached in this way, it will inevitably lose its integrity. A law that is ignored creates uncertainty and disrespect. Once that happens then liquor abuse issues will surely follow.

[46] At the hearing, we tried unsuccessfully to explain what could happen if the application was granted. These are but some of the scenarios. It may be that some supermarkets already sell more liquor than all other products. On that basis they could apply for a bottle store licence and be in a position to sell spirits and RTDs. If not, they would of course be able to stock their separate off-licences (for example “Duffy & Finn’s” and “Henry’s”) with food items keeping sales below the 50 percent margin.

[47] Convenience stores would no longer have to prove that the principal business of the store was the sale of main order household foodstuffs. They could apply for bottle store licences, and keep the sale of food (and confectionery) below 50 percent. We had hoped to reduce the number of off-licences given our new policy on convenience stores. It is our view that granting the present application would turn the present system into a licensing nightmare.

[48] Mr Crotty suggested that the company’s business was more upmarket than convenience stores. He was advised that we are currently dealing with three or four similar style operations where bottle stores have morphed into blended stores to enhance profitability. If a bottle store decided to sell gourmet, organic fish and chips, provided the sale of the fish and chips did not exceed 50 percent of turnover, then according to Mr Crotty’s argument, the business would complement the Act’s objective, and would be consistent with international best practice in liquor retailing. It will be apparent that we do not agree with him.

[49] In summary, the company has fallen well short of establishing the criteria set out in the Act. Other competing bottle stores that have not sought market to bend the rules, will inevitably, have lost market share. If the company continues with the present set up then in our view it is not suitable to hold the licence. The company has failed to satisfy us that the licence should be renewed without a significant change to the conditions. It has not adequately addressed the reports from the Police and District Licensing Agency Inspector. We believe that the company is currently enjoying a commercial advantage to which it is not entitled. Accordingly, and subject to the following comments, the application will be refused.

[50] The date that the refusal will come into force will be 20 working days from the date of this decision. That is also the time provided by s.140 of the Act for the filing of a notice of appeal. It will be up to the company to obtain a stay from the High Court if it chooses to do so. Leave is granted to apply for further directions if for example, the company decides to have the “Nosh Metro” items removed, or amend its application to have the conditions altered consistent with a grocery style licence under s.36(1)(d)(ii) of the Act, or provide for two separate stores. In either of these situations the trading hours can then be reviewed as requested.

DATED at WELLINGTON this 28TH day of October 2009

Judge E W Unwin
Chairman

Liquor King.doc