Liquor Privatization: The Fallout
The unintended (and intended) consequences of privatizing Washington state liquor sales.
Be careful what you wish for. On November 8, 2011, after a $22 million campaign financed primarily by Costco, Washington residents voted overwhelmingly to privatize the state’s liquor sales and distribution system. On June 1, after a series of thwarted lawsuits by privatization opponents including the Washington Association for Substance Abuse and Violence Prevention, hundreds of new, privately run stores opened their doors across the state.
Proponents of privatized liquor sales argued that the switch would generate hundreds of millions in new tax revenue, promote competition and lower prices, and increase access to liquor of all kinds, including high-end specialty brands. Opponents, meanwhile, argued that private booze sales would incite a flood of underage drinking, drive prices up, reduce consumer choices, and harm Washington state’s homegrown wine, beer, and craft-distillery industries.
While it’s still too early to say what the ultimate outcome from liquor privatization will be, a number of consequences—intended and unintended—have become clear. Here’s a look at the fallout so far for consumers, big-box retailers, small wine distributors, and some 1,000 union workers who used to staff the state’s 328 public liquor stores.
Although detractors predicted a Costco monopoly (1183 restricted liquor sales to stores larger than 10,000 square feet and gave Costco the exclusive right to serve as its own distributor), it hasn’t exactly worked out that way. In addition to new liquor megamarts like Total Wine and More in Bellevue, booze is popping up in stores large and small(ish) across the state—from chains like Bartell Drugs and Target to minimarts like the Village Store in Port Ludlow, the Getchell Gas Station in Lake Stevens, and the 405 Express Mart in Renton. Out of 1,652 applications for spirits licenses statewide, Costco has filed only 29.
Don’t pull out your hanky for the big-box stores just yet, though. According to Joe Gilliam, president of the Northwest Grocery Association (which represents big grocery chains like Albertson’s, Safeway, and Costco), liquor sales at the stores he represents are “exceeding expectations,” especially among customers who wouldn’t ordinarily shop at liquor stores—a group Gilliam identifies, bluntly, as “moms.”
“There were a lot of moms who, before, would not go into a liquor store because they had their kids with them or because liquor stores were horrible to go into. They are now shopping for liquor with their regular shopping.”
Liquor consumers who voted for privatization on the assumption that it would mean cheaper booze and a better selection have had a rough awakening.
Whoops. Far from dropping, prices have actually increased across the board, thanks to the magic of the private market (shop owners can set prices as high as the market will allow) as well as new fees imposed under 1183.
The new fees have induced sticker shock among many liquor consumers, who apparently didn’t read the fine print when they voted for 1183. As a concession to the state, which didn’t want to lose its lucrative liquor taxes, 1183 supporters tacked on a 10 percent fee on distributors and a 17 percent fee at the cash register, ensuring that liquor privatization would be “revenue neutral” (whether it works out that way, of course, remains to be seen). Brendan Williams, a former state legislator who campaigned against the privatization measure, says 1183 assumed that liquor would have to get more expensive.
Recent news reports have also indicated that Washington state residents, particularly those who live near Oregon and Idaho, are crossing state lines to take advantage of lower liquor prices. In June alone, liquor sales at some stores just over the Oregon border surged 35 percent. But Gilliam doesn’t expect the trend to last. “The story that came out about that was based on June’s numbers,” the first month of privatized liquor sales. “Oregon has always had less expensive liquor than Washington. The average bottle in Oregon prior to privatization was almost $2 less than the average bottle in Washington. I think you’re going to see [runs for the border] dissipate.”
When the state’s 328 public liquor stores closed down, some 1,000 unionized state workers lost their jobs, along with their health care and, in some cases, pension plans. Since then, Washington State Labor Council member Bill Messenger says, he’s heard anecdotally that many of those workers are having trouble finding new employment or are working in retail jobs that pay less, include fewer benefits, or offer fewer hours than their previous state positions. Prior to privatization, state liquor store clerks made between $11 and $14 an hour. At one state-turned-private store in the Tri-Cities, Messenger says, laid-off state workers were offered their old jobs back—at 20 percent less pay, and with no health care benefits. “The big thing in today’s economy is that health care kills you,” Messenger says.
The General Public
During the 1183 campaign, opponents claimed that privatized liquor sales would be a straight line to underage drinking, juvenile crime, drunk driving, and general disorder. While crime stats aren’t yet available, according to anecdotal reports, shoplifting of liquor and underage consumption have gone up, though it’s unclear how much. “Anytime you increase the number of outlets that sell liquor, drinking and consumption goes up considerably,” says Brian Smith, communications director for the Washington State Liquor Control Board. And Gilliam—a firm supporter of privatization—offers this anecdote: “We ran into a few stores where people went into the state stores right before they closed and bought bottles that they tried to return the next day after they opened,” in the belief that they’d get a windfall returning bottles to the more-expensive privatized store. “Well, you can return liquor, but you have to have a receipt” from the new store. “That kind of squashed the whole thing. They didn’t have a receipt, so the response was, ‘Well, it looks like you own whatever you bought there.’”
The Little Guys
Small beer and wine producers and distributors, craft distilleries, and neighborhood wine shops opposed 1183, arguing that privatization would lead stores to pursue the lowest common denominator and name brands such as Gallo and Absolut would edge out costlier local products.
Williams, the former state legislator, contends that that’s exactly what has happened. “Washington wines have been squeezed off the shelves,” Williams says. “You can do volume discounting and you can do pay-to-play when it comes to shelving. You can pay a grocery store to shelve your products and give them prominent shelf space, and that operates to the detriment of your competitors.”
“It’s the perfect storm of high prices and reduced consumer choices.”
Gilliam, the big-box lobbyist, sees reduced selection as the inevitable result of supply and demand. Under the state-run system, he says, “they would put a lot of things on the shelf that would just sit there. What the private market is going to do is find out what the customers want, and they aren’t going to carry everything.”
Liquor Control Board spokesman Smith agrees that privatization has, so far at least, decreased the selection available to consumers. Smith says state liquor stores typically stocked around 1,500 items. “I’m seeing much less than that at your typical grocery store,” Smith says. “Some of the former liquor stores and the contract stores are really trying to amp up their selections, and stores like BevMo! and other superstores can carry a lot more.”
But that, Williams counters, is part of the problem: Big cities like Seattle and Bellevue have gained access to liquor superstores, including not just BevMo! in Tacoma and Silverdale but Total Wine and More in Bellevue and Wine World and Spirits in Wallingford (see Washington's New Liquor Superstores). But smaller towns and rural areas have lost access to the diversity of products state liquor stores provided. “In Seattle, you’ll have all sorts of choices—that’s great—but if you live in a rural community or a smaller community that’s only served by grocery stores, you’re not going to have many options,” Williams says.
Meanwhile, some smaller wine stores are adapting to survive. Alisha Gosline, marketing director for Esquin Wine and Spirits in SoDo, explains Esquin’s “If you can’t beat ’em, join ’em” response
to privatization this way: “We expanded. We were not quite 10,000 square feet.” So to meet the minimum size required to sell spirits, “we expanded our retail space so that we can accommodate liquor.” Gosline says Esquin is trying to carry as much local and craft liquor as possible, “because the grocery stores aren’t going there.” Although Esquin’s wine sales have dipped slightly, Gosline attributes the drop-off to the “novelty” factor of liquor in a wine shop. “Our liquor sales are higher than we thought they would be,” Gosline says. “People are like, ‘Oh, well, here’s liquor! We should buy some liquor because we can.’”
Jan Gee, president and CEO of the Washington Food Industry Association, which represents small and midsize independent grocery stores, says her members have scaled back the amount of space they dedicate to wine. “Because our stores have to provide some space for spirits, they have started to shrink their wine inventory,” Gee says.
Gilliam, the lobbyist for big grocery stores, says consumers who want more options should ask their grocery manager to stock the items they want. “If someone is looking for a Walla Walla wine from some small winery, all they have to do is ask,” he says. “Stores are going to find out what their customers want” and act accordingly.
That’s a comforting thought—supply and demand will balance out, and the wisdom of the market will prevail. For now, though, the biggest winners appear to be the big-box stores that can buy and sell high-volume, popular bottles at a discount, while the smaller stores, and consumers, find themselves getting less and paying more.