Steve Chan

August 21, 2018 

A Lost Decade on West 19th Street

It has been a great economic run since the great Recession of 2008. Ten years later, the economy gears ever higher. But not here on West 19th Street, one of the few commercial corridors in Costa Mesa's Voting District 4.

Harming the Community

This is the true story of Smart & Final's unlawful operations that resulted in economic harm against the smallest to the largest mom & pop owned markets serving the predominately Latino District 4 neighborhoods.

Until September 2018, Smart & Final was never licensed to sell alcohol products after 7 PM

When the Smart & Final location was originally licensed to sell alcohol, the presence of the Costa Mesa Senior Center and 8 neighboring houses, by law, triggered the Alcoholic Beverage Control to impose conditions upon the licensed premises to protect the neighborhood properties and ensure the residents quiet enjoyment.

(The California Department of Alcoholic Beverage Control, commonly known as the ABC, is statutorily obligated to issue "Conditional Licenses" such as the one Smart & Final has at the Costa Mesa location, when one or more of the following three factors are present: a) a high concentration of ABC licenses, b) high crime rate in the area, and c) residential structures within 100 feet of the area under the control of the licensee. In many instances, the presence of these factors indicate a "disadvantaged" area. Other "interest points" such as schools, churches, and even Senior Centers will trigger imposition of protective conditions on a liquor license. The factors triggering the imposition of conditions are spelled out upon the license.)

The original licensing may have issued in the 1990's. The license we have examined is dated August 2007.

The 19th Street Smart & Final liquor license states the privileges of selling alcohol at the premises stop at 7:00 PM. Smart & Final opted to stop abiding by this rule sometime in the far distant past resulting in a Lost Decade for 19th Street mom & pop markets.

For years, the unlawful behavior went unnoticed, by the community. Until 2012, Smart & Final's business model was more club market than grocer to the neighborhood. The bulk quantities in the mini-warehouse store were marketed to food truck operators and restaurateurs. Smart & Final's closing hours slowly incremented later and later at night, first to 8:00 PM in 2009, and by 2011, the store was closing at 9:00. Still, the community raised no alarms about the bootlegging activities.

In 2012, Smart & Final started migrating their business model to a business to consumer or B2C model. This would put them squarely in competition with the smallest to the largest neighboring mom and pop markets catering to the Latino Westside. It also put them in competition with Vons, Albertsons, Ralphs and other mainstream grocers. To achieve their ends, Smart & Final remodeled the interior and made minor exterior improvements with a fresh paint job on the outside of the store.

They also extended their store closing time to 11:00 PM.

When the 2012 changes were rolled into the marketplace, Smart & Final

  • Had a much smaller backroom than traditional markets (usually around 10-15% of the total building area, the Smart & Final backroom appears to be 1/3 of this rule.)
  • Had a huge alcohol retail sales area within the store with pallets of beer displayed along with extensive shelf space devoted to alcohol products display.
  • Had an outdoor warehouse unlike any other grocer - since the backroom was minuscule and the retail space devoted to alcohol products was so huge, the outdoor working warehouse was born and continues to store from 30-60 or more pallets of merchandise outdoors. Neighbors view pallets of drinking water, beer, and foodstuffs of all kinds, sitting in the sun for days at a time.
  • Was able to use the lure of cheap alcohol to take food market customers away from neighboring honest small and large mom & pops over an extended and lengthy period up to 10 or more years. Doing this, they gained market power unlawfully.
  • Had 4 hours per day of unlawful alcohol sales, during the prime selling time of 7-11PM seven days a week.
  • Achieved the ability to rake in millions of dollars in illegal alcohol sales, while taking in much more than that in grocery revenue with captured customers.

    • Smart & Final's Abuse of Liquor License Conditions Occurred at Locations throughout California

After illegally sucking millions of dollars from the local West 19th Street economy over a very long period, they were caught red-handed (and stopped) in the fall of 2017 by Steve Chan. His investigation revealed that Smart & Final was abusing its alcohol sales privileges in disadvantaged neighborhoods at 22 or more other California locations.

Smart & Final's Abuse of Liquor License Conditions Harmed our Latino Community's Mom & Pop Markets as the City Stood By

The fallout from these business practices on local markets accelerated after 2012. Since 2012, Market A lost 60% of their business volume, Market B lost 30%, Market C and D acknowledges unstated losses, and Market E, the largest ethnic grocery in Costa Mesa serving the largest ethnicity in the city, is severely impaired. Our estimate is that Market E lost up to half or more of it's grocery retail sales, while Smart & Final lured its customers in with cheap, and unlawful alcohol sales.

The residential neighbors along 19th Street continue to fight Smart & Final's actions. Since the Spring of 2018, residents led by Steve Chan have continuously opposed their Petition to the ABC to allow them to legally do what they have illegally done for ten years. It's time for Smart & Final to show corporate social responsibility and recognize their role in the Lost Decade on 19th Street.

The ABC Granted Smart & Final's January 2018 Petition to Modify Condition in Late September 2018. City Hall did not Oppose the Petition.