Dec. 12, 2018

Sioux Falls liquor stores had to make a fast change to longtime customer loyalty programs after the South Dakota Department of Revenue told them they risked losing their licenses.

The move follows a complaint by a retailer about discounts offered when customers buy quantities of alcohol.

“All of a sudden, it’s illegal,” said Tom Slattery, owner of JJ’s Wine, Spirits & Cigars.

State administrative rules preclude offerings that induce people to buy alcohol. Typically, that has meant no “buy one get one free” deals. Businesses couldn’t offer free ice with a beer purchase or similar deals.

“This new interpretation is that a quantity discount is determined to be an item,” Slattery said. “So they’re saying we have to cease and desist any mix-and-match offering that allows.”

At JJ’s, customers who sign up for the free VIP program receive discounts on their purchases that get better with quantity. They also accrue points in a loyalty program that can be redeemed for purchases.

“It’s extremely important to our business model,” Slattery said. “It’s our way of engaging customers. We’re able to offer a benefit in return for information like their name, email and ZIP code, which then allows us to do creative marketing to gain their interest and maintain their loyalty.”

His VIP program has grown to 12,000 members and become a critical element of his business model, he said.

With the recent information from the Revenue Department, he has had to adjust the program to offer the same across-the-board discount to all members on all purchases regardless of quantity. Now, the rewards program will accrue points on nonalcohol items and can be used to redeem for nonalcohol items until further notice.

“When we started this 10 years ago, we told the Department of Revenue what we were planning to do because I wanted to make sure we were not violating this specific rule,” Slattery said. “The response to me was as long as we’re collecting reward points on everything and not just alcoholic beverages and redeeming on everything, we were within the interpretation of the rule at that time.”

Booze Boys Discount Wine & Liquor also got notice its discounts had to stop. Customers who bought six or 12 bottles of wine, which could be different varieties used to get a percentage off.

“We just had to tell everybody they couldn’t get the discount,” owner Robert Wentz said.

“They have to be full cases and uncut.”

Booze Boys will continue to offer 10 percent off on those cases.

The Department of Revenue issued a statement on the issue: “It’s our practice to provide guidance when asked. In this instance, we received a complaint. We investigated the complaint and issued guidance to the business.”

Slattery said the rules need to be adjusted.

“It does need to change. It minimizes the ability of people who purvey adult beverages to use more creative marketing techniques like loyalty programs. The rule of brick-and-mortar retail is you have to have a loyalty or customer incentive program to maintain business. What’s the problem with giving ice away with beer once in awhile?”