Texas law prohibits public companies from obtaining permits to sell liquor in retail stores, except for two companies that have exemptions.
One of those exemptions — which for decades was held by the San Antonio family that owned and operated liquor stores Gabriel’s Liquor and Don’s & Ben’s — now belongs to the family that owns Spec’s Wine, Spirits & Finer Foods.
John Rydman, chairman of Spec and one of the owners of the Houston-based chain, said it acquired the exemption through its purchase of Gabriel Investment Group on Jan. 1.
The purchase gives Spec’s the ability to sell the exemption to a public company in the future, Rydman said. But it also prevented a public company from acquiring the exemption and encroaching on Spec’s territory in Texas, where it is the largest distilled spirits retailer with more than 200 stores.
“Of course,” Rydman said when asked whether the foreclosure of potential competitors had any impact on the acquisition. “Where you go.”
He said he didn’t know if there were any other bidders. But it has been well documented that Walmart wanted to get into the retail liquor business in Texas.
“I never knew about it,” Rydman said. “I didn’t know who I was dealing with, other than the fact that we were negotiating to make a purchase.”
A Walmart spokesman said the company declined to comment. A representative of Blake-Wilder Companies, a St. Petersburg, Florida firm that owned a stake in Gabriel Investment Group, did not respond to a request for comment.
Rydman wouldn’t say how much he paid to acquire Gabriel, but confirmed it was more than $10 million.
Since the deal closed, Rydman said he’s been bombarded with the same question from industry players: What state is Spec expanding to?
“My statement is that we are still a Texas company,” he said. “There is so much good here in Texas and so much growth here in Texas that Texas can keep me very busy.”
Spec tried unsuccessfully to buy Gabriel more than 15 years ago, with negotiations that dragged on for four years before concluding around 2010, Rydman recalled.
But Gabriel hasn’t given up on looking for a buyer. For nearly a quarter century, he said in court filings in 2020, he marketed the business to other companies. In recent years, he added, those efforts have focused on Walmart.
“Johnny had always dreamed that he could sell at Walmart,” Rydman said. “It was his dream. He was going to cash out.”
Walmart, however, feared it might not get a release in a sale, Gabriel said in a 2020 court filing.
Around the time Walmart shared its reserves in 2019, Gabriel and four related entities went bankrupt.
The Gabriel family had been in the liquor business for more than seven decades before filing for bankruptcy, building a sizable share of the local market with dozens of stores. Annual revenue exceeded $100 million in 2012, a court filing showed.
Challenge to public prohibition
Gabriel’s rare status as a public company operating under a state “package store permit” has roots dating back to 1995.
That year, state legislators prohibited public companies from owning or holding a stake in a package store permit as a way to keep liquor stores under family ownership. However, the legislature exempted any public entities that already had permits or had pending permit applications as of that April.
A public company is defined as a legal entity that trades on a public stock exchange or has more than 35 people with ownership interests in the entity. Gabriel Investment Group met the definition of a public company because, although it was privately owned, it had more than 35 owners, so it received an exemption. The only other entity with that exemption is Solley’s Liquor, which operates seven stores in Beaumont and the surrounding area, a Texas Alcoholic Beverage Commission spokesman said.
Walmart has long sought to change the law and has unsuccessfully challenged the ban on public companies on at least a couple of occasions. In 2015, it sued TABC in federal court in Austin, describing itself in the lawsuit as the largest wine and beer retailer in Texas.
“Walmart would also like to sell distilled spirits at its Walmart and Sam’s Club locations in Texas for off-premise consumption,” the lawsuit said. “However, it is prohibited from doing so because Texas law irrationally prohibits any publicly traded company from owning or holding the permit necessary to do so, namely a ‘package shop permit.'”
The retailer asked the court to declare the public holding ban unconstitutional.
Spec’s filed a “friend of the court brief” in the case, arguing its support for the ban.
In 2018, U.S. District Judge Robert Pitman ruled the ban unconstitutional. The TABC appealed, and the U.S. Fifth Circuit Court of Appeals reversed Pitman’s ruling in 2019. Walmart asked the U.S. Supreme Court to review the appellate court’s ruling, but the high court he denied the claim in 2020. Walmart voluntarily dropped the case the following year.
Also in 2021, Walmart filed an amended complaint in Austin state District Court asking it to strike down the section of the TABC code that denies the retailer a package store permit unconstitutional. But Walmart voluntarily dropped that case in July.
Spec founders Carroll and Carolynn Jackson, Rydman’s in-laws, opened their first store in 1962 in Houston. The store got its name from Carroll Jackson’s nickname, which he earned for the glasses he wore.
Rydman met his wife, Lindy, and joined the company in 1971 after graduating from college. Their daughter, Lisa, went to work for Spec’s in 1995.
As part of the Gabriel buyout, Rydman allowed some Spec employees to buy shares in the company so that it would have more than 35 shareholders to be considered a public company under Texas law.
The buyout and his exemption give his family a lot of flexibility when it comes to their future plans, he said. This could include selling some or all of their interest in Spec’s to a public company.
“I’ve grown the company to a pretty big one,” he said. “And it was for us… to come out at some point, if the family decides it’s necessary. So, for the purposes of the property, it really gives me a cushion – it gives my family a cushion – to make the decision down the road if we ever need to.”