1183 passed – so now what?

Wednesday, November 09, 2011

I was up late last night on my Facebook page, which turned into a lively discussion forum following the announcement that Initiative 1183 – the so-called Costco Initiative – would pass. In a nutshell, it takes the state of Washington out of the business of buying and selling alcohol, while ramping up both enforcement rules and dollars.

The campaign was expensive and rife with misstatements and fear-based projections about the horrible consequences should the Initiative pass. Well, it passed, and with a solid 60% margin, so what happens next?

Here are links to two editorials from today’s Seattle Times, for whom I write a weekly wine column. The Times was an early proponent; these provide some interesting historical background as well as a look at the personal agenda that may have powered the Costco effort. Historical background

Personal agenda?

Many questions remain, and I do not have all the answers. No one does. So let’s look at them, and I’ll take a swing at what I believe will happen.

Will there be additional, steep taxes on liquor that restaurants must pay?

No – the way it shakes out is certain markups go away, and others replace them. Net net things should remain about the same, or slightly lower at wholesale.

Will there be a proliferation of mini-mart outlets due to the vagueness of the new law?

No – the vagueness was intentional, so that the Liquor Control Board can decide how best to regulate and continue to serve rural areas where there is no big box store or supermarket.

Will the ability for large purchasers to squeeze distributors for case (and multi-case) discounts on wine mean that small retailers will not be able to compete?

Yes and no. For certain brands, Costco and the supermarkets will beat the prices offered by wine shop specialists. But that represents a very small percentage of the total number of wine brands available. And honestly, it does not seem like much of a change. Costco prices are already a bit lower on most wines they sell (a very limited number of SKUS, and likely to shrink to make room for the booze), because they have lower margins.

Is it fair that existing small retailers (notably wine shops) are excluded from selling spirits?

No, it is not fair. It is probably the worst aspect of 1183 as written. It is the result of the screams from the no-sayers last year that deregulation would allow thousands of mini-marts to sell booze. (No matter that they already do! You can get just as drunk on beer and wine as you can on hard liquor, and it doesn’t take a whole lot longer. But rational thinking was not the forté of the opposition here.) In any event, I believe that anyone with an existing license to sell wine from a dedicated wine shop should be able to bring in spirits as well. I hope that the Legislature will make that adjustment.

What about all the workers who will now be out of a job?

Sorry, but this is more boo-hoo’ing without any real validity. When there are more liquor outlets, anyone with liquor selling experience should be able to find work, and quite possibly in the exact same location where they are today. All that is asked is that they know their products, and do a good job selling them. For some, that will be a big stretch!

Does the passage of this initiative modify the rules around direct shipments of spirits to private consumers from out of state retailers?

I think that one falls in the “we don’t know” category. I’ll keep posting as things come into focus.

My favorite comment was this one from a recent graduate of the Walla Walla Community College Viticulture & Enology program: “Having been all over this country I have seen this happen a couple times. It is not the end of the world. It is likely more liquor stores will open hiring more people. Other stores stocking shelves will need reps. Distributors will need more feet to cover more ground. And, I'm sorry, but to say this will cause a winery to fail sounds to me like an excuse to blame someone. Like a marriage if it is doomed to fail it will fail anyways. Stay smart, work hard, and keep people coming to see you. A winery is a destination most of the time. Give them what they like when they get there and you will be fine.”


PaulG said...

From winemaker Jamie Brown (re-posted with permission): "I like to think I'm as stubborn and supportive as it gets when it comes to holding my ground on issues pertaining to being a small producer. I voted yes on this bill and I run 3 small boutique wineries...for the simple reason that I want to conduct business how I see fit with customers that appreciate and buy my wine. Buying power can mean as little as a glass pour at a restaurant or an end stacker at a retailer, instead of a shelf space, and I want to have the ability to give incentives to those buyers. In that regard, I think small shops and restaurants are better situated to take advantage of smaller volume buying power with small wineries. I don't shop, or sell at Costco, and never will, and the only time I've bought a bottle of wine at 10,000 plus square foot Grocers in the last decade, is when I've needed a late night bottle of bubbly, and that's not changing, and I think most boutique supporters feel that way. The only real competive disadvantage I see, was already there, in that big retailers like Costco work on the likes of 13% margins (instead of 25-30%), and it always has and always will be like that, so small shops have always had to offer something more, or different than pricing. I'll continue to shop (and hopefully sell) to knowledgable, diverse, supportive, unique, relationship oriented and friendly bottle shops and restaurants because thats what makes them (and us) unique from corporate volume dealers. The big boys can duke it out for Costco's, or Safeways etc...space and cash...I could care less. Two other things of note, this permantly abolishes the requirement for the cumbersome and time consuming, price posting. Two years ago, before the "Costco" lawsuit, we had to price post 2 months before we could make our poroduct available to our distributor, then the distributor had to post at least 30 days before the first of the next month to be able to sell that wine. Yet another hurdle in access to cash flow...for everyone. Lastly, I find it remarkable that this is considered a Costco only driven initiatve and no ones brings to mind who might be behind Costco...Maybe the folks that Costco will be buying their liquor and the majority of their wine from? It seems to me that Costco is only the clout heavy Washington State horse the liquor purveyors and distributors could align themselves with as Costco had the up front money to initiate and sustain the lawsuit, but you can bet your ass the giants behind them will be making it up on the back end. Thats the only real new potential negative that I see, is that Southern wine and Spirits or Glazer, or whomever massive distributor ends up cornering the spirits market in our state, will muscle in and influence lazy buyers, by offering them free or heavily discounted spirits to influence their wine lists...A legitimate concern I see from my travels around the country."

Rand Sealey said...

This came about because of the state legislature's failure to act on this issue, abdicating its responsibility. If the legislature had acted, fairer legislation might have been enacted. There was a bipartisan bill in the last session that would have privatized spirits sales, yet keep the three tier system intact. But the powers that be let that bill die in committee. If the wholesalers had supported that legislation, they would be a lot better off than they are now. By opposing 1183 in the guise of "Protect our Communities" (really "Protect our Jobs"), the wine and spirits wholesalers showed total hypocrisy. They deserve what they got.

Anonymous said...

Why the broken link re: personal agenda?

PaulG said...

Link now fixed, thanks for noting it!

Gail P. said...

There is one question you didn't address. Where is all the booze going to come from? I was talking to Brad from Gasperetti's Restaurant in Yakima. He liked the 'one-stop shopping' to pick up all his hard liquor. There are literally hundreds of brands out there that distributors are going to have to pick up.Will the distributors step up? The big brands will go fast, but what about some of the obscure brands that WSLCB carried. My point, you probably won't be able to buy Campari in Walla Walla, but then you probably don't like Compari and soda anyway.

PaulG said...

Gail, actually I'm quite fond of Campari and soda, but I've moved on to Amaro - my new true love. My understanding is that producers will be able to sell liquor direct to retailers, which, if it is true, would answer your concerns. If someone knows differently, please set me straight.

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