City's bottle tax a big burden for small retailers, grocery experts say

Santoni's Supermarket blames tax for pending closure

9:07 a.m. EDT, October 15, 2013 | By Eileen Ambrose, The Baltimore Sun

An independent grocer's profit margin is so slim that Baltimore's bottled-beverage tax may be to blame for the pending demise of Santoni's Supermarket, industry experts said Monday.

"It was, in my opinion, a prime factor" said Jeff Metzger, publisher of Food World, a regional grocery industry newspaper based in Columbia. "Of all the retailers doing business in the city, their No. 1 issue would be the unfairness of the bottle tax."

Santoni's, a Highlandtown grocer, announced Sunday that it would close its doors at the end of this month solely because of the city's bottled-beverage tax. That tax, according to chief financial officer Rob Santoni Jr., reduced the East Lombard Street store's sales by about 18 percent since its adoption in July 2010.

The retailer was founded in the early 1930s and at one time had as many as a dozen locations under its name. Twenty-two years ago, it was ranked as one of the top 10 chains in the Baltimore area by Food World. Over the years, the retailer sold off locations and has operated a single store in Highlandtown since 1997.

Santoni's Marketplace & Catering in Glyndon is a separate company run by other members of the family and remains open.

While Santoni's may blame the bottle tax for finally closing its doors, increased competition also likely contributed to the retailer's closure, industry experts said.

"The slice of the supermarket dollar has gotten smaller and smaller," said Jeremy Diamond, managing director of the Diamond Group, a Baltimore consulting firm. "When you have all those guys going for the same dollar, something has to give. Unfortunately, Santoni's is the one."

In the past six years, Giant and Safeway increased their presence in Baltimore, Metzger said.

Harris Teeter also entered the marketplace and will be opening a new store in Canton early next year. Plenty of other retailers, such as drug stores and mass discounters, are expanding their food options. One of them Target opened a store in Canton last week.

"All the other channels Walmart, Target, dollar stores and club stores are growing four times the rate of supermarkets nationally," Metzger said.

But Santoni believes the supermarket lost sales to stores in Baltimore County that are unencumbered by the bottle tax.

The city levied a 2-cent tax on bottled beverages in July 2010 to help offset the city's budget deficit. The tax jumped to 5 cents in July to help pay for school construction.

Mayor Stephanie Rawlings-Blake said in a statement Sunday that Santoni's had been struggling financially in recent years and that blaming the closure on the tax "doesn't square with the facts."

The mayor scheduled a news conference for Tuesday morning to discuss the positive impacts of the bottle tax.

A year before the bottle tax took effect, Santoni said, he was complaining to the mayor about the potential impact on retailers like his that operate on razor-thin margins.

"What does she know about selling peas?" Santoni said.

"She can't even control her own budget. She can't collect water bills. She can't even properly collect property taxes from large developers or control red-light cameras," Santoni said. "There are some major missteps along the way for her that could have meant money in the bank."

Santoni said the supermarket lost an average of 2,500 to 3,000 customers a week because of the tax, which, in turn, led to a loss of more than $4 million in sales in the past three years.

In August, Coastal Sunbelt Produce Co. sued Santoni's to collect $18,654 in unpaid bills. Santoni said when sales fell, the store fell behind with vendors.

He's not the only city grocer unhappy with the bottle tax.

The Markets at Highlandtown, a few blocks away on Eastern Avenue, has seen a 40 percent drop in water and soft drink sales since the bottle tax jumped to 5 cents in July, said owner Avi Hershkovitz. A case of water at his store, for instance, costs $1.20 more than in nearby Baltimore County.

"The bottle tax is an unfair tax. It's only in the city," Hershkovitz said. "It should have been statewide. Being only in the city puts us at a competitive disadvantage with the county, which is only 1 mile away."

The bottle tax has had no effect on Eddie's Market in Charles Village, said owner Jerry Gordon, but he acknowledged that's because he's nowhere near the county border.

Eddie's customers make a trip to the store on Saint Paul Street near the Johns Hopkins University once a day or more, Gordon said. Even if they buy a beverage, a nickel more isn't enough to make them shop elsewhere, he said.

But Santoni's customers buy in larger quantities, and a 12-pack of soda becomes 60 cents more in the city than in nearby Baltimore County, Gordon said. That's enough for people to get in their car and shop in the county, he said.

When Santoni's shuts its doors, more than 80 of its workers will be laid off, the retailer said.

"Those jobs aren't coming back to the neighborhood," said Burt P. Flickinger III, managing director of Strategic Resource Group, a New York grocery consulting firm. And "there will be just as many jobs lost in the vendor community."

An earlier version of this story misstated the location of a nearby Shoppers. The Sun regrets the error.