the debate on 1100 - pro and con

Friday, October 22, 2010

Based on the lively discussion on my Facebook page (see link above) as well as dozens of posts and numerous articles on other blogs and websites, I think I’ve been able to compile a pretty good list of arguments pro and con for 1100. I am going to focus on that initiative, as I believe it is the more important of the two, and also more likely to pass. If you are not yet clear about the language and intent of 1100, there are many sources other than this blog to find that information. The comments below are accurate quotes and have not been modified or altered in any way that affects their meaning. After each quote I’ll post my own (PG) response.

First, the arguments against 1100:

1) A massive expansion of liquor stores
2) A threat to jobs and small business
3) Increased risk of underage, DUI, and problem drinking
4) Harms police, schools and other services

PG: These headlines are taken from the website. They are amplified with such unsubstantiated claims as “perhaps as many as 5000 hard liquor retailers”; “Compliance with laws prohibiting sales to minors will drop”; “the odds of a minor buying hard liquor will go from 1 in 20 to 1 in 4.”

To me these seem to be fear-based speculations that side-step the actual issues – the perceived problems associated with state control of all liquor sales, and the proposed solutions to those problems. Putting out a list of possible threats, risks and consequences is a tried and true tactic when the actual debate is not, perhaps, going the way you want it to.

For example: when alternatives to cork became popular, primarily as a result of the continual failure of traditional cork closures, the cork industry responded with a campaign claiming that using other closures would destroy the cork forests, kill wildlife, eliminate jobs, etc. Instead, the industry should have focused on solving the actual problems – not putting up fearful messages about “possible” new ones. Personally, I react negatively to this sort of fear-mongering. I do not live a fear-based life.

5) Deregulation will give unfair advantages to large (read corporate) producers, and hurt small (read family-owned) wineries by ending the ban on quantity discounting, ending the requirement for immediate payment upon delivery of goods, and allowing retailers to charge for prime shelf space.

PG: Some of these practices, though technically illegal, already take place. But they will mostly impact volume sales to the big box and supermarket retailers. Those few supermarkets that have wine specialists and expansive wine departments will still want the variety and diversity that now exists. Boutique wineries will still have a broad range of wine shops, restaurants, and online retail outlets who are eager to offer thoughtfully chosen selections of wine. And in fact, many small wineries in this state are voting for the passage of 1100.

6) The state will lose revenues that will impact funding of schools, etc.

PG: I am still in the dark about the actual revenue consequences of this bill. A lot of conflicting claims are out there. But it's undeniable that the state will still be collecting taxes on all alcohol sales. How that money is distributed is a matter for the legislature to decide, is it not? So,how exactly will total revenues be diminished? The costs of running stores, paying employee salaries, health care and pensions will be shifted to the private sector. The “loss of revenue” argument is a lot like the “cost will go up” argument. No one really knows if the cost of booze will go up or down. But it seems more likely to go down, based on prices in other, non-control states.

And now, arguments in favor of 1100:

1) It’s good for restaurants, who are struggling in this economy. By extending credit, restaurants will be able to place larger orders, which means fewer deliveries, and a chance to discount prices on glass pours.

2) It’s good for craft distillers. Writes one Oregon distiller: “Small distillers with little traction in Washington are on special order. We can get in a pretty limited number of liquor stores. Generally, a bar or restaurant orders our product, the State liquor store brings in the case for them, often times without even stocking the item. We sell the largest volume to bars, because they make drinks all day, but the retail side is an important leg. I'm happy to provide my distributor the same margin I give the state, at least they try to make placements and give me depletion reports. We don't get paid for 90 days with our distributors in many cases as it is.”

3) If big stores like Bevmo and Spec’s set up shop in Washington, it will actually help the small wineries, not hurt them. Unlike Costco, which severely limits its SKUs, these big outlets want to offer customers as many choices as possible. One well-placed industry veteran writes that “if stores like BevMo, Spec's, and Total come in, the little guys will have a much better shot at survival then the way things are going now. Currently there are fewer and fewer wine shops, and more and more big box grocery stores who have a very limited selection. The specialty retailers can survive because with liquor they become a true destination and they can support well-trained staffs.”

4) It’s good for the state. It will resolve the inherent conflict in the state both selling and policing alcohol sales. If the state concentrates on regulating and policing licensed sellers, and does not have a role in actual sales, it will be able to do a better job of law enforcement. No one in the business of buying and selling alcohol disagrees with the importance of enforcement. Why not assume that with the passage of 1100, the state will be able to do a better job of it?

5) It’s good for consumers – offering more choice, and better pricing.
What is missing most often from these pro and con discussions is a look at the benefits to the consumer. There is a lot of speculation, but no real certainty. The system in place, conflicted and confusing as it is, is the system we know. It seems to me that those businesses on the pro side of 1100 are those who can see a certain benefit (restaurants in particular) or are willing to take their chances working out the kinks in a free market environment. Those on the con side are businesses who can see a definite risk (distributors and some small wineries) or those who are more comfortable with the system they already know and work within.

Summing up. Ultimately, I’m going to vote as a consumer on this one. As a consumer, do I fare better with a free market system, regulated and supervised but not controlled exclusively by the state? Do I have more or less choice? Higher or lower prices? More or less convenience? That is not just being selfish; that is how businesses operate in a free economy. The answers to those seemingly simple questions are what I think will ultimately decide the vote for me.


Anonymous said...

The difficult issue for me is the issue of loss of revenue based upon the loss of the retail profits, which you seem to have overlooked. Those profits will be privatized. In an ideal world, the state would never have been in the business to begin with and the state would have an alternate revenue source to meet the need now being served by this revenue stream. Unfortunately, in our current political climate, no one has the chutzpah, or at least few do, to say that taxes are necessary and government services are for the greater good. If this initiative provided for a clear method of making up the shortfall in revenue, I would be happy to support it. I would also be interested to know how votes might change if it included a new tax of some sort to make up for the shortfall in revenue. I have been puzzling over the arguments for weeks and will probably not know how I am going to vote until I fill out my ballot.

Anonymous said...

Paul,Sean & yourself have done a wonderful job of sharing facts, opinions. Thanks to both of you for a less political side to the issue. Well done, Merlotman

John Bell said...

A great synopsis and a clear statement of the issues, Paul. Great job! In a free-market-driven, mature industry, such as the wine industry in WA state, competition always trumps protectionism when viewed from a consumer's standpoint. Yes, there will be some adjustments in how we do business following passage of I-1100. However, the benefits for the consumers are well worth the "growing pains" the industry may experience. Also, the passage of I-1100 will not result in overnight changes to our industry. The effects will be staged over a significant period of time. Given the molasses-like processes of our government bureaucracy, I expect the issuance of liquor licenses to private stores to take a very long time, and we'll all have a chance to see how things are trending during that process. Don't forget that Initiative requirements can be modified after two years, well within the full migration period from state monopoly to free market for liquor sales in WA. Let's give it a try! 32 other states have and are operating just fine! We can tweak things later if needed. Yes on I-1100! Tell all your friends!

Anonymous said...

As anonymous #1 noted above, the big loss for the state is "mark-up". As a former WSLCB employee, I can say that most customers who complained about WA state liquor prices would complain about the taxes. They had no clue that there were taxes, and on top of that there was mark-up. A good deal of mark-up. Back in '09 when the state raised liquor prices by around 10%, that was actually an increase in mark-up by something like 30% if I recall. They insisted we tell customers that it was not an increase in taxes. (what's the dif to the customer?) Anyway, all retail business has to have mark-up, and that's what the state will be losing. Along with the loss of jobs to lots of good people and even more deadbeats.

Anonymous said...

The state is losing the revenue, but also shedding the cost of running the stores. Probably a push given the high wages and extraodinary benefits and pensions the state employees receive. It will be more than made up in license fees, new B&O tax receipts, etc.

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