Saturday, September 11, 1999 
 
              Bill Passed to Ban Warehouse Sales of Foods, Drugs
 
                 Retailing: Groceries would be restricted at new 'big-box' stores
              such as Wal-Mart and Costco. Proponents contend the measure
              is intended to protect markets. 
              By MAX VANZI, Special to The Times
 
 
                   SACRAMENTO--In a last-minute
                         action that Wal-Mart and Costco
                   described as a crippling sneak attack
                   against warehouse retailers, the state
                   Legislature this week passed a bill that
                   would effectively prohibit sales of
                   groceries and prescription drugs in new
                   branches of such "big-box" stores. 
                        Although the measure would allow the
                   companies to maintain sales in existing
                   warehouse outlets, industry
                   representatives, hoping Gov. Gray Davis
                   will veto the bill, said the ban could
                   ultimately drive them out of California. A
                   spokesman for Davis said the governor
                   has not taken a position on the bill. 
                        The stores trade in high-volume items
                   for home and small-business consumers,
                   often at wholesale prices, and set aside
                   large sections for food shelves, fruit and
                   vegetable displays, meat cases and
                   pharmacies. 
                        Proponents said the bill's primary aim
                   was to protect neighborhood businesses,
                   including mom-and-pop Korean-owned
                   grocery stores in low-income sections of
                   Los Angeles, from being "devoured" by
                   big-box competitors. 
                     The bill's author, Assemblyman Dick Floyd
                   (D-Wilmington), who also had powerful support from
                   organized labor and supermarket chains including Safeway
                   and its subsidiary Vons, said the warehouse stores need to
                   be contained "before these bastards take over the whole
                   country." 
                       Costco Chairman Jeffrey Brotman, in a telephone
                   interview from company headquarters near Seattle,
                   countered that two-thirds of Costco's volume is sold
                   wholesale to small retail businesses. "We're not driving
                   Korean grocers out of business," he said. "We're helping
                   them stay in business." 
                        But, Floyd said, because of the expanding big-box
                   industry, "you can no longer find a clothing store, a
                   stationery store or a hardware store" catering to
                   neighborhood residents in low-income urban areas like his
                   southern Los Angeles County district. Brotman said Costco
                   intends to double its 85 stores in California in five to 10
                   years. But he said "if this bill [becomes law], we're out of
                   business" eventually in the state. Wal-Mart operates 110
                   stores and 24 similar Sam's Clubs in California. 
                        Specifically, the bill prohibits local governments from
                   granting business licenses to retail stores of more than
                   100,000 square feet if more than 15,000 square feet is used
                   for nontaxable items--that is, most foods and prescription
                   drugs. 
                        With plans to build units of up to 150,000 square feet,
                   said Costco Senior Vice President Joel Benoliel, Costco
                   could not profitably sell food and drugs in only 10% of that
                   floor space. 
                        He called the Floyd bill "the Pearl Harbor of legislation"
                   for its surprise attack on the industry. In classic late-session
                   fashion for special interests, the bill materialized suddenly
                   three days before the Legislature was to adjourn for the
                   year, then in 48 hours short-circuited a process that
                   normally takes weeks or months and passed in both houses
                   by bare majorities. 
                        The real powers behind the bill, industry opponents said,
                   were labor unions and conventional supermarkets politically
                   allied with the Democratic leaders of the two houses. 
                        Wal-Mart's 40,000 California employees are nonunion;
                   of Costco's 23,000 workers in California, 9,500 are
                   members of the Teamsters union, company officers said.