Odyssey Beverage Group

Initiatives 1100 and 1105 [merged privatization topics]

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http://seattlepi.nwsource.com/local/397 ... uor27.html

More liquor stores, more cash

But state plan to expand sales draws criticism

By LEVI PULKKINEN

P-I REPORTER

With an economy in shambles and state coffers running dry, lawmakers in Olympia appear ready to turn to drink for a little fiscal relief.

In her proposed budget, Gov. Chris Gregoire has requested approval for 10 new liquor stores and a change in law to allow the state-owned stores to sell additional products. That proposal, though, has met with a call from at least one senator and state grocery owners for the state to get out of the booze business.

Hard liquor in Washington is sold either at state-owned stores or, primarily in the state's rural areas, by small retailers operating under contract. All told, the system generated $322 million in fees and taxes paid to the state last year, with total sales rising 6 percent from 2007 to $825 million.

But Sen. Tim Sheldon, D-Potlatch, argues the state could retain that revenue without operating 161 stores staffed by state employees. Sheldon said he's preparing legislation that would see those stores replaced by private sellers while retaining the state monopoly on liquor distribution.

"It's an antiquated system," said Sheldon, whose previous attempts to privatize the stores failed. "Time has marched on. It's really way past time to let the private sector in."

Under Gregoire's proposed budget, the Liquor Control Board would add five state-owned stores and five contract stores, which business owners operate while paying a fee to the state. The liquor board retains price controls over those stores, keeping liquor prices uniform across the state.

While liquor remains heavily regulated when compared with the 32 states without state-owned stores, Washington has eased some restrictions on liquor sales in recent years. In the past three years, 91 stores have been given permission to open on Sundays.

Liquor board spokesman Brian Smith said the organization has requested that it be allowed to sell liquor-related items -- such as bar tools, wine openers and, possibly, ice -- at the state-owned stores to further increase revenue. Additional proposals would allow for increased lottery ticket sales and seasonal stores at shopping malls, all of which the state believes would create $21.2 million in additional sales by mid-2011.

The proposals, particularly increases in nonliquor sales at state-run stores, have drawn fire from grocers as an anti-competitive encroachment on private business. But Smith defended the increases as a needed response to tough economic times.

"We've tried to be open and transparent," Smith said. "This is just one area where we can go in and generate additional revenue."

Jan Gee, president of the Washington Food Industry, said the independent grocers belonging to her organization would be hurt by increases in the number of state-run liquor stores.

While grocers aren't allowed to sell liquor, most view beer and wine sales as a key revenue source, Gee said. But state-mandated price controls make it difficult for grocers to compete with the state-run stores, she said.

"We want them out of competition with us," Gee said. "We want them out of beer and wine, and we don't want them to even be considering an expansion into what they call bar products."

Still, Gee said, her members are split on whether the liquor stores should be privatized. While some support it, others worry that stocking liquor could lead to increased theft or robbery.

Sheldon's proposed elimination of the state-owned stores, which he said he expects to file later this week, likely will face a stiff challenge.

His previous efforts to privatize a portion of the state-owned stores have failed, in part because of pressure from the state employees union representing store workers. Sheldon said he believes today's stark economic situation could spur support for the change, which he asserts would both increase revenue to the state and stimulate small business.

"I think there's a lot of support in the business community, and I think there's very good support from the citizens I talk to," he said.

"It just seems like a governmental function we could easily shed in the current economic situation."

Sheldon's legislation likely will face its first test at the Senate Labor, Commerce and Consumer Protection Committee. Sen. Jeanne Kohl-Welles, a Seattle Democrat who is chairwoman of the committee, said she would not rule out some greater level of privatization but has not previously supported Sheldon's proposals.

"I have mixed thoughts on the issue of privatizing our state-owned liquor stores," Kohl-Welles said. "I'm very supportive of our state employees, and I think they do a great job. ... On the other hand, I don't believe that privatization is always a bad idea."

P-I reporter Levi Pulkkinen can be reached at 206-448-8348 or levipulkkinen@seattlepi.com.

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Thanks for the heads up. Of course, there are two other outlets for Sunday sales at this time, right Pacific and Dry Fly? Do you sell on Sundays and is that a notable source of income?

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We are closed Sunday.

Anyone who thinks the State will remove itself from the liquor business is crazy. 1300 union employees, a 400,000 square foot automated warehouse, and potential reduced revenue to the state are reasons this will not fly.

A control state has not moved to a three tier system in 50 plus years.

DGP

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Steven has excellent points. (Marc also - he posted after I wrote this!)

The consumer is being duped here to believe that the retail price of liquor will fall. Given the current tax rates, they will not. The mark-up will be sucked up by a distributor and a retailer. Prices could actually go up.

Control states are not all bad. It is 1000% easier to gain distribution given our state is control versus an open market state.

I'm not convinced in any way that this is a benefit to small distillers. A push, best case scenario. As someone who sells in some 25 plus states, I can tell you that what we have is probably more small distiller friendly than any private distribution scenario.

Remember that HUGE distillers will CONTROL distribution. Just as they control brokers now. At least with the WSLCB, no one controls them and every producer is treated equal.

They may make you work for the right to sell in Washington, but then they should. It shouldn't be automatic. You should earn distribution.

DGP

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My biggest concern about this proposal is the distribution part of the equation.

It's easier to see how the retail side of things would work.

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I too am concerned about any change to the current structure. Besides control of distribution by the big manufacturers, you would also have to penetrate the retail outlets. Does anyone here really want to try and sell their liquor through Walmart??? I would much prefer a situation that controls retail outlets. Dedicated liquor stores, unless part of a large conglomerate, might become extinct, forcing us to deal with mega-retail outlets. That is not a good fit with a small craft distillery. Unless you know how you're going to survive in a new climate with higher prices yet, I would advise opposing this initiative. However, it could work out well if local groceries get into liquor sales. I hate a crap shoot, especially just as I am about to start sales and marketing.

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As I read it, if it passes, you will be allowed to operate as both a retailer and distributor for your own production.

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I received the following message from DRAW today. If any of you have considered joining DRAW, friday might be a great time to show up with membership check in hand. You won't find any better source for info than attending this meeting.

John

Due to the recent initiative regarding privatization, we are requesting a special membership meeting on Friday, June 11, 2010 at 9:00 AM at Young’s Market Company.

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I finally got around to reading up on exactly how i1100 would impact distilleries.

post-5-130479534963_thumb.jpg

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Sorry for the delay in responding. Officially, DRAW is taking no position on the initiative because their large retail members support it. No one else does.

It is really a deregulation bill in privitization shroud that makes WA the most liberal state in the union and restores the uncontrolled market before prohibition. The cost to distribute liquor privately is higher than through the state liquor store. The bill eliminates the mark up the LCB places on liquor and distributes that between distribution and retail, about $225 million per year. $127 million currently goes to county and state governments. Another $25 million goes to liquor enforcement. The other $75 or so million runs the WSLCB and state liquor stores. Currently there is about 350 state liquor stores, the conservative estimate is that liquor retail outlets will grow to at least 5000 locations. Best guess is that the consumer will se little or no price reduction in liquor (most of the price is in state and federal liquor taxes) and may actually see prices increase.

My opinion? Care to guess where that shortfall might be recovered? My guess is increased liquor taxes, so we would end up with our liquor prices increasing another $2 or $3 dollars per bottle. I can't see anyone except Costco and Wallmart benefitting from this one. Even the small retailler association is opposing this initiative. Expect to see considerable objection from every county and city, labor, wine and beer distributors, prohibitionists, the rest of the distillery industry, and everyone who doesn't want to see a new $127 million financial hole in the state budget.

Although DRAW is officially neutral, all members at the meeting Friday expressed that they will be fighting this agressively. Items they most disliked are the emimination of the three-tier market for liquor with the ability for tied houses to control the production, distribution and sales of liquor; and the total dissolution of the liquor enforcement budget. If you like privitization, I suggest you study this bill carefully, because if it passes you'll actually have wholesale deregulation. Personally, I will be fighting it agressively.

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Thank you for your concise review. FWIW, I totally agree with you. If you want to know who is going to benefit from this law...follow the money.

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I have yet to make it through reading the initiative and I've been on the fence since this came up, but I was leaning toward support.

However after following this and other discussions, particular thanks to John for his summary,

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Went to the WSLCB Supplier meeting last Friday. What an experience. Basically it was just a dog-n-pony show for the big distributors. The session on priviatization was interesting. If either I-1100 or I-1105 pass our world will be change dramatically, and my money it won't get good for small producers for quite a while. But you can bet your last nickel, that if

I-1105 passes, it will be an unmitigated disaster for the small producer.

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