The 'Fresh & Easy' Writ: California Grocers Association Files Lawsuit Over Self-Service Checkout Booze Ban Law

News/Analysis/Commentary

An interesting new twist has developed regarding California's new law to ban sales of alcoholic beverages at self-service checkouts in retail stores, which is set to take effect January 1 2012.

On December 8 we published this piece - Bad Timing With New Law Effective January 1, 2012: Fontana, California Fresh & Easy Store Cited For Allegedly Selling Alcohol to Minors - in which we pointed out among other things that the language of the new law to ban booze sales at self-service checkouts in California set to take effect in four days is somewhat ambiguous regarding how at least one grocery chain, Fresh & Easy Neighborhood Market, should comply with the new law, although the law's intend is clear, which is that alcoholic beverage sales transactions take place at full-service checkouts.

Fresh & Easy is the only grocer in California that has self-service checkout only in its stores, which is why it's a special case.

In apparent agreement with the ambiguity portion of our December 8 story, On December 23 the California Alcoholic Beverage Control Department (ABC) issued an industry advisory notice in which it attempted to clarify how retailers are to comply with the law when it takes effect January 1, 2012.

Here's (in italics below) what the ABC said in its December 23 advisory notice to California retailers:

On January 1, 2012, Section 23394.7 of the Business and Professions Code goes into effect. This new provision was added to the ABC Act by Assembly Bill 183 (Ma) and regulates the sale of alcoholic beverages through the use of "customer-operated" checkouts at off-sale licensed premises. The section reads as follows:

23394.7. No privileges under an off-sale license shall be exercised by the licensee at any customer-operated checkout stand located on the licensee’s physical premises.

The purposes behind this law include preventing minors from purchasing alcoholic beverages, denying obviously-intoxicated patrons from buying alcoholic beverages, and preventing the theft of alcoholic beverages, by ensuring that alcoholic beverages are sold only in circumstances in which substantial interaction between the purchaser and a sales clerk occurs.

It is clear that a "customer-operated checkout stand" means a checkout stand or station that is designated for operation by the customer. Such checkout stands are commonly referred to as "self serve" or "self service" checkout stands. While retailers do monitor these customer-operated checkout stands and provide assistance to the customer as necessary to conclude any given transaction, including the purchase of alcoholic beverages, such monitoring or oversight does not satisfy the language and intent of the statute. Accordingly, no alcoholic beverages may be sold through any checkout stand that is enabled to allow operation by the customer at the time the customer’s check-out transaction commences or at any point during the check-out process.

The Department recognizes that customers do engage in certain aspects of the point-of-sale procedures even at checkout stands fully staffed and operated by store employees, such as swiping credit or debit cards and authorizing payment, or bagging their own groceries. The Department does not believe such involvement by the customer at a fully staffed checkout stand falls within the scope of customer-operated checkout stand.

The key portion in the ABC advisory notice is paragraph four above. Basically what the ABC is saying, and this is most applicable to Fresh & Easy Neighborhood Market due to its all self-service checkout system, is that all customer transactions that involve alcoholic beverage purchases must be conducted from start to finish by a store employee in a face-to-face manner.

Additionally, and most importantly, the advisory says alcohol sales cannot take place at an existing self-service checkout located on the physical premises (store) of a retailer that holds a California alcoholic beverage license.

What this essentially means in English is that any retailer - read Tesco's Fresh & Easy because all other retailers in California have both full and self-service checkouts in their stores - which has self-service checkouts only has to convert at least one of those self-service checkouts into a full-service checkout if it wants to sell alcoholic beverages in its stores effective January 1, 2012, or else it will not be in compliance with the law.

In other words, the ABC Advisory appears to reinforce our original interpretation of AB 183 vis-a-vis Fresh & Easy, which is that the grocer is going to have to convert at least one self-service checkout in all of its stores in California to full-service in order to satisfy the requirements of AB 183.

Interestingly, note how the ABC advisory mentions satisfying both the language and intend of AB 183. The reason this is interesting is because we addressed both the language, which is ambiguous, and the intent, which is what the ABC is backing up in its advisory, in our December 8 piece. Someone at the ABC must be reading Fresh & Easy Buzz.

Fresh & Easy Neighborhood Market has two types of self-service checkout systems in its stores. Read the full explanation and discussion in our December 8 story linked at top. Pictured above is one of the two versions, the longer checkstand system. These self-service checkouts, which have a conveyor belt, are monitored regularly by store employees, as opposed to the shorter checkstands (version two), which are monitored less frequently. It's these checkouts we suggest Fresh & Easy could modify and use as full-service to comply with the new California law. [Photo Credit: Fresh & Easy Buzz, December 2011.]

The ABC's last minute advisory, just 10 days before AB 183 takes effect, isn't the only new twist to the self-service checkout booze ban law.

Yesterday the California Grocers Association (CGA) filed a petition for a writ of mandate with the California Third District Court of Appeal to stay the December 23 California Alcoholic Beverage Control Industry advisory notice which the grocer's association argues in the lawsuit "attempts to provide guidance in complying with a new state law to regulate alcoholic beverage sales at assisted self-checkout terminals."

Notice the use by the CGA of the term "assisted" self-checkout terminals. Remember, Fresh & Easy is the only grocer in California with all self/assisted checkout in its stores.

In its lawsuit, the CGA claims the ABC's advisory notice is inconsistent with the statute, unenforceable, and in violation of the California Administrative Procedure Act (APA).

CGA notes this: "The new law, Business and Professions Code Section 23394.7, takes effect January 1, 2012. The law provides that 'no privileges under an off-sale license shall be exercised by the licensee at any customer-operated checkout stand located on the licensee's physical premises.'"

This is the key provision we detailed above, which essentially means Fresh & Easy will have to convert at least one self-service checkout to full-service to satisfy the new law, based on the ABC's advisory notice, which communicates how it will enforce the new law.

The advisory can be viewed as an enforcement document from the ABC, meaning that if what is stated in it isn't carried out by retailers in following the new law they could be cited.

Explaining why its filed the writ, CGA president Ron Fong says: "The Advisory attempts to provide grocery retailers guidance on how to comply with the new law, by defining one of the law's key provisions. But the definition is vague and the advisory is an illegal underground regulation. The advisory is as unclear as the law itself. To protect our members, CGA was forced to file this writ."

Rather than issue the advisory, Fong says, the ABC should follow standard procedure and promulgate regulations through the California Administrative Procedure Act.

"We strongly disagree with the ABC's attempted interpretation of the new law," Fong says, adding CGA met with ABC officials to discuss the new law. "What was discussed in our meetings was significantly different than the Industry Advisory released last week."

In addition to requesting the advisory be withdrawn, CGA requested the court immediately issue an alternative writ of mandate that stays the effectiveness of the advisory pending a final ruling by the Court.

As of today the appeals court hasn't issued a decision on the grocery association's writ.

In our opinion the advisory issued two days before Christmas by the ABC is clearly meant as an attempt to clarify what as we've said,  including most recently in our December 8 story, is ambiguous language in AB 183.

For example, based on our reading of the language of the law, before the ABC issued the advisory, it's our opinion Fresh & Easy might be able do the following and be in compliance with the legal language (but not the intent) of AB 183.

1. Post signs throughout the checkout area in its stores in California directing customers that if purchasing alcoholic beverages they must use one or more specially designated checkouts.

2. Those specially designated checkouts would be one or more of the type we discuss in our December 8, 2011 story here.

3. Store clerks would then conduct the entire transaction with customers at these designated checkouts; start to finish and face-to-face.

We stress this is merely our analysis and opinion. It isn't an attempt to make a legal determination regarding AB 183 in any way, shape or form.

Additionally, we aren't suggesting Tesco's Fresh & Easy Neighborhood Market plans or had planned to use a version of the system we've outlined above.

The December 23 ABC advisory clearly makes our above scenario moot however (if the CGA doesn't prevail), as it essentially says compliance with the law requires any holder of a California alcoholic beverage license to provide at least one self-service checkout in its store or stores in order to comply with the law effected January 1.

The ABC advisory shouldn't have any effect on any other grocer in California besides Fresh & Easy though, since all the state's other chains and independents either offer full-service checkout only, or in stores with self-service, offer both types of checkout.

These retailers and others only need to instruct customers that if they have alcoholic beverages they must use a full-service checkout lane.

As we've reported previously, Tesco's Fresh & Easy would like to keep its current self service/assisted service checkout system, with as little modification as possible, to comply with AB 183.

With just four days until the self-service checkout booze ban law takes effect, it now appears the grocery chain, which has all but 49 of its 184 stores in California, is placing its hopes to be able to do so on the success of the CGA's lawsuit. The other stores are in Nevada (21 units) and Arizona (28 units.)

From where we sit we find the ongoing saga behind AB 183 surrealistic in the extreme for two reasons.

First, as it pertains to AB 183, it basically will do little if anything to curb underage drinking, which is its primary stated intent, in our analysis.

Most teenagers, for example, obtain alcohol by getting an adult to buy it for them, not by purchasing is at self-service checkouts in retail stores. And while they're are cases of minors gaming self-checkout systems, the percentage is small.

Second, based on four years' of extensive research and reporting on Tesco's Fresh & Easy, which has lost nearly $1 billion since the first stores were opened in November 2007, its our analysis the grocer is missing out on a significant amount of business because numerous shoppers, particularly consumers who are in the 50-plus age segment, do not like the all self/assisted checkout system in the stores, as we've previously detailed in the blog.

As many consumers we've interviewed have told us, 'Why should I scan and bag my own groceries at Fresh & Easy when I can get the same items at numerous other stores for the same price or less and get waited on.'

We've also interviewed numerous consumers who've tried Fresh & Easy but specifically haven't gone back because they don't like scanning their own purchases, nor do they like to ask for help from store workers.

Many shoppers like Fresh & Easy's self-serve checkout. But in the competitive grocery retailing business it makes little sense to exclude the many consumers who dislike it, which is why all of Fresh & Easy Neighborhood Market's competitors offer either full-service checkout or a combination of full and self-service checkout.

For example, Walmart Stores' U.S. division, which is the leading retailer of food and groceries in the U.S. by market share, has studied the utility and feasibility of offering self-service checkout exclusively in some stores but has decided against doing so for reasons of shopper choice and common retailer savvy. All its stores with self-service checkout lanes also offer full-service as not only an option but as a majority offering.

There are only four days until AB 183 becomes law on January 1, 2012. Stay tuned here.

[Readers: Click here to view our extensive past coverage, reporting and analysis of California's new law that bans acoholic beverage sales at self-service checkouts in retail stores effective January 1, 2012.]