Does your jurisdiction have a Trader Joe’s exemption?

Trader Joe's coming soon bannerTrade Joe’s is so popular that laws are drafted to accommodate them while keeping out competitors, and communities swoon to receive them while staunchly opposing other businesses selling the same types of goods. 

Trader Joe’s is the most popular grocery store in the U.S.  It is also the country’s most profitable.  The average Trader Joe’s gets as much revenue from one its stores as the top 10% of supermarkets generate from stores that average nearly four times the square footage of a Trader Joe’s, according to business insiders.  Yet they are so popular that despite their high profitability, they are also able to exact rent concessions from developers and property owners that are unavailable to  larger less profitable businesses.  Thus Trader Joe’s is able to reverse the normal quantity discount applicable to renting more square footage.

These concessions don’t stop with developers and property owners.  They also are made by community groups and public agencies.  Almost every community without a Trader Joe’s within a convenient distance asks “How do we attract a Trader Joe’s?”

Alcoholic beverage sales have always been a prominent feature and profit center of Trader Joe’s – more prominent than most super market  chains or other grocery stores.  Trader Joe’s even sells many alcoholic beverages under its own labels, e.g.,  Charles Shaw wine, popularly referred to as “Two Buck Chuck” for its $1.99 price per bottle.  It now costs more but the nickname has stuck.  Alcoholic beverages sales are highly regulated and often form a basis for prohibiting or opposing new outlets.  Many municipalities seek to bar new businesses that include alcoholic beverage sales for “off-premises consumption,” while seeking to exempt super-markets.  In other words, convenience stores and small or independent grocers are viewed as undesirable but super-markets are viewed as necessary.  It is understood by these municipalities that a business reality for both categories of stores is that alcoholic beverage sales are an indispensable part of their product mix, the elimination of which will generally make the business unfeasible or unwilling to open a new location.

Thus, exemptions are created in municipal law based on square footage.  All alcohol selling businesses over the designated square footage amount are exempt and those under the amount must either go through a difficult and expensive conditional use permit process or outright barred.   Were it only for super-markets, it would be relatively simple to set this square footage exemption bottom amount since super-markets are typically in the 40,000 square foot range and convenience stores, small grocers, and specialty stores are typically in 1,500 to  15,000 square foot range.  Enter Trader Joe’s with many stores at around 12,500 s.f.  I have been part of several pre-legislative workshops where the discussion centers around determining the highest square footage that still allows a Trader Joe’s to take advantage of the exemption.  In other words, the minimum square footage of these regulatory exemptions is set not for super-markets but specifically for Trader Joe’s.

However, even in jurisdictions in which an exemption does not apply, or where the community is adamantly opposed to any businesses that sell alcoholic beverages, or which have moratoriums in place for any new alcoholic beverage outlets, the seas magically part for Trader Joe’s.

Theoretically, it seems hard to justify exempting any alcohol sales businesses from a conditional use permit (CUP) process and its fees and discretionary analysis simply because they are large.  If they are truly a desirable or necessary part of the community, that is exactly what a CUP process is meant to determine.  As a result of these exemptions, the smallest businesses pay the highest fees and go through the most difficult and time consuming permit processes, while large corporate chains get streamlined and discounted approvals.

It also seems bad urban planning policy to discourage or eliminate businesses that have small square footages.  Jane Jacobs would say that this is a recipe for eliminating diversity of uses, and ultimately the economic failure of an area.  Entrepreneurship is incredibly dynamic with new concepts constantly coming into and going out of vogue.  In the 1990s, high-end billiard parlors helped to reinvigorated blighted business districts but were banned in many places because of old notions of “pool halls,” betting, and organized crime.  Now, craft and artisan breweries have have become the pride of many cities, so much so that municipalities with regulations that bar them have tried to enact emergency amendments to accommodate and attract them, often with the ineptitude inherent in rushed legislation.  Governing by eliminating broad categories of uses, accompanied by exemptions, rather than focusing the regulations on the negative behavior itself, is fundamentally a poor way to legislate.

Other than this fact, is there a useful lesson to be gained from this strange circumstance?  Or is this article just a bit of interesting trivia? Or worse, a waste of your time if you have read this far?  The answer to this question in uncertain.  Perhaps, a business can take advantage of a “Trader Joe’s” minimum square footage exemption, or use the recent entry of a Trader Joe’s into an area as precedent for its own business plans.  Perhaps a community desiring to attract a Trader Joe’s but not other alcohol outlets can look to what other municipalities have done with the square footage exemption to expedite the permitting process for a Trader Joe’s.  Perhaps a municipality considering a ban/exemption style of regulation can reconsider the downsides thereof.


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About William Adams

Attorney at Norton, Moore, & Adams, LLP.
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