Washington in a liquor privatization hangover

More than four years after the state stopped selling the hard stuff, clear winners and losers have emerged

By Brooks Johnson, Columbian Business Reporter

Published:

 

By the numbers

328: The number of stores selling liquor in 2011.

1,500: The number of stores selling liquor today.

15.5: Percent increase of 750 ml of liquor after privatization.

$35.22: State tax per gallon of liquor in Washington, No. 1 in the country

$22.72: State tax per gallon of liquor in Oregon, No. 2 in the country

The next time you pick up a bottle of whiskey from the grocery store, thank the voice on the TV for making such a convincing case for your convenience.

“It gets our state out of the liquor business, strengthens enforcement and provides more funds for vital public services,” the anonymous voice intoned in a costly campaign, heavily financed by Costco, in support of privatized liquor sales.

Though the boozy brawl over the state’s liquor market is more than four years past, a sober analysis shows there are clear winners and losers.

Taking first place in the aftermath of liquor privatization are big retailers, big liquor companies, state coffers and, in some ways, consumers.

“Sales are very, very strong, and it has allowed us to feature local distilleries, just as we have always done with local beer and wine,” said Fred Meyer spokeswoman Melinda Merrill.

In last place are small liquor retailers, small distillers and, in some ways, consumers.

“The people who won were big-box stores and under-age drinkers,” said Jason Parker, president of the Washington Distillers Guild. “The people who lost were consumers, because they can’t find what they’re looking for.”

As for the claims made by supporters of Initiative 1183, which led to privatization and was approved by nearly 60 percent of voters: The state is out of the liquor business, yes, but under-age sales are similar or slightly worse, and tax disbursements to cities and counties are only now starting to climb above pre-privatization levels.

And what happened to consumers after privatization did away with what its backers called the “outdated, inefficient and costly” state monopoly?

“It gave the consumer less choices at a higher price but more availability of the fewer choices,” said Paul Romain, attorney for the Oregon Beer & Wine Distributors Association, who has tracked privatization proposals floated in the Oregon Legislature. “It was the industry that put this through — the big grocers are the ones who drafted the initiative, and they’re the ones who set the tax rates.”

Paying the tab

In 2011,Washington had 328 state-owned and state-contracted liquor stores. Today, liquor is sold in more than 1,500 places in the state.

So there’s no question it’s easier than ever to find liquor, and to do so conveniently — gone are strict limitations on when, not just where, liquor can be sold.

But as availability has increased, so, too, have prices.

“Liquor prices in Washington increased substantially after privatization,” reads a study published in June by the Alcohol Research Group.

The study found prices rose an average of 15.5 percent for 750 ml packages and 4.7 percent for 1.75-liter bottles.

“However,” wrote researchers William Kerr, Edwina Williams and Thomas Greenfield, “persistent drinkers looking for low prices will be able to find them in certain stores.”

The best bet for low prices? Researchers pointed to wholesalers — like Costco — and liquor superstores.

Yet despite shelling out more than $20 million to support privatization efforts, Costco is mum on the subject today. The Issaquah-based company declined to comment for this story.

Still, only two of Clark County’s 72 stores that sell liquor are Costcos. Most are chain grocery and drug stores such as Safeway, Fred Meyer and Walgreens. Other outlets that moved into the new market are specialty liquor stores like BevMo! and Total Wine & More. Those two companies also did not comment for this story.

If those stores created jobs, it may have been at the expense of formerly state-owned and contracted stores. More than a third of those small retailers have closed in the state, and the only new stores allowed to sell liquor must be 10,000 square feet or bigger.

“If all you drink is a particular, very popular brand, you can probably find it at more locations, which is more convenient for you,” said Romain, the Oregon lawyer and lobbyist, “but it definitely didn’t go down in price.”

Though taxes didn’t rise, new fees are built into the price of liquor. Private distributors are also taking a cut, a change from the old system in which the state was the sole distributor and retailer.

“We didn’t actually raise the taxes — what we did instead was add new fees and a middleman,” said Parker, of the Washington Distillers Guild.

Washington state has, by far, the nation’s highest liquor taxes, according to the Tax Foundation in Washington, D.C. The group found that liquor taxes and fees here total $35.22 a gallon.

Coming in a distant second place is Oregon, which taxes booze at $22.72 per gallon.

Parker has a bone to pick with privatization, as the “middleman” in liquor sales used to be the state, which guaranteed access to retailers and space on shelves.

“Now we have 1,500 places we can be in,” Parker said, “but most aren’t interested in any of the brands except for the top 50.”

At the same time, privatization opened up tasting rooms for distilleries. They can also self-distribute to get their products on shelves and in bars themselves — which Parker says works fine for small areas but is not feasible statewide.

“The beer and wine commissions and Distilled Spirits Guild are all very interested in things we can do to decrease the pain and increase the market access,” he said.

State getting paid

It seems whatever happens to the state’s liquor market, the state is going to continue getting paid.

Tax revenues following privatization have only increased, according to Department of Revenue data. The state took in about $240 million the year before privatization, and in the fiscal year that ended June 2015, the state saw an estimated $270 million.

But during that time, it’s been a bumpy ride for cities and counties who count on a cut of that money.

The tax on liquor ” has been a reliable source of revenue for the cities,” said Natasha Ramras, Vancouver’s deputy finance director.

But while revenue to local governments was stable before privatization, she said legislative tweaking has seen liquor money for the city drop below pre-privatization levels.

The state for two years decided to take more of the liquor taxes for itself, but has since returned to its usual payout, Ramras said.

“Last year was the first year when we got more money than before,” she said, “and 2016 is looking up. It’s getting better and better.”

Ramras said the city most recently used the liquor money to pay for 19 public safety positions that were previously funded by grants.

Counties also get a cut of liquor taxes, though much less than cities. Clark County, like Vancouver, has seen its spirits revenue dip and slowly recover. In the past five years, the county has received an average of $1 million from state liquor taxes and fees.

“A couple hundred thousand (dollars) in the big picture of a $300 million budget is not that big,” said Clark County Budget Director Adriana Prata. “It’s an important revenue, and it can be volatile one year to the other. Overall, it doesn’t affect us all that much.”

Unless the Legislature acts, there aren’t any more changes on the horizon that would upset disbursements again.

“There is nothing assumed to be changing (in taxes or fees) in the economic forecast by the state,” said state Liquor and Cannabis Board spokesman Brian E. Smith.

‘Washington Effect’

While the state enjoys its steadily rising revenue, Oregon and Idaho are also seeing a bigger return on liquor taxes thanks to Washington’s privatization. They can thank what many call the “Washington Effect.”

“Border Oregon stores love Washington,” Romain said.

Since 2010, the liquor store at Jantzen Beach has seen sales increase 50 percent, according to Oregon state data, while other Portland stores near the border have also seen sales jumps that coincided with privatization.

Idaho Gov. C.L. “Butch” Otter wrote in a 2015 liquor report that 7 percent of the state’s sales are attributable to Washington shoppers.

Though it’s hard to know how much business Washington loses to its neighbors, Parker with the distillers guild estimated it’s about $10 million per year.

There’s also the loss experienced through theft, the extent of which the Alcohol Research Group study said is “unknown.”

“The availability of liquor in grocery and drug stores, which have less control over theft and allow unaccompanied minors on premise,” could contribute to that, according to the study.

Fred Meyer spokeswoman Merrill said any problems with theft were addressed as privatization began.

“Security/theft issues were learned from and dealt with very early on,” she said. “You’ll find that some of it is locked up; we do not build displays of it near the front of the store where it’s easy to grab, and we have well-trained security in all our stores.”

As some grocery stores and others in Oregon try to raise the possibility of privatization, Romain said it isn’t finding traction.

“It still suffers from the big guy trying to control the market at the expense of the little guy,” he said of Oregon’s privatization efforts.

And for that, he had one thing to say:

“Thanks, Washington.”

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