Thursday, June 14, 2012

Washington State Liquor Sales: A Perspective on Privatization

Liquor for thought: Wasn't it all about removing state control?

No, not in this case. Knowing what the market looks like at this point in time; who did this legislation really benefit? Customers? At present, there is less selection and a horizon of relatively higher prices for the forseeable future. Retailers? A business opportunity for sure, but with the 10% distributor fee and 17% retailer fee in addition to state taxes, who profits? Liquor Corporations? Yeah...probably not. So, if "we" aren't to benefit significantly from Initiative 1183, then who?

Consider this scenario: Washington State wanted more money from a liquor business without the responsibility of maintaining their current operating expenses, employee-driven health care costs and the growing headache of dealing with customer complaints. Washington State's population wanted what only a private liquor market could offer; "real" accountability, competition, quality service and more options at their time, their price and suited to their needs. It just so happened that a private business named Costco wanted the opportunity to sell liquor with pockets deep enough to afford it. Here, is the opportunity. The state, seeing a similar end to their control in mind, fosters this business's plans in pursuit of their own agenda. By passively supporting this plan, the state sheds the responsibility of its expenses without expense. It also implements a new group of taxes, called "fees" to fit a newly created private market like a glove. If the existing state liquor store's net profits weren't enough, then step it up by substituting private stores and add a little growth factor. In effect, allowing private businesses to retail liquor cures their headache while giving rise to the opportunity for the number of store's selling liquor to increase by 100 fold. More importantly, the potential for each new retailer's sales to yield big returns imposed by the new taxes, I mean "fees" should increase as well. Cha-ching! The state satisfies the need for privatization of their voting population and, at the same time, passively absolve themselves from their current role in the relationship, selling liquor to the consumer. To achieve this, the state, without too much arm tugging, allows its public advocate for the plan, Costco, to be the face that sells the idea to the consumer via an initiative. Sold! I-1183 passed and privatization is here. So, who did this legislation really benefit? If this scenario is true, Washington State is pretty damn clever if you ask me.

Washington State Liquor Sales: A Field Guide to Privatization

The unanimous vote approving Initiative 1183 is in full effect. Private liquor sales commenced at midnight back on June 1st, 2012 and after being controlled for decades by Washington State, are now being cared for by private businesses. Even if you haven't followed the transition closely, by now, you probably have noticed the signs or shelving displays at your local grocery store or pharmacy showing off their new liquid merchandise. Perhaps you have already taken advantage of this new spirited convenience with a bottle or two. Or, maybe you haven't due to media reports about taxes and high prices. For those who have a few unanswered questions like: Who, exactly, is selling spirits now? Are the prices and selection that different between stores? What's up with the taxes? Why are the prices so high? then read on. To understand this brave new world of privatized liquor sales (at least the first two weeks of it), Seattle area grocery stores, department stores, pharmacies, wholesalers and small retailers were visited to get the details. The goal of sharing these notes from the field, is, at least, to confirm what you may already know, and, at most, assist you in making your next purchase of rum or otherwise an informed one. Knowing a little about the new landscape may get you to the first sip of your favorite bottle with minimal casualties. Aye Mate!

So, who's selling liquor now? You will find liquor for sale at all the likely suspects with sizable locations; that is, those 10,000 square feet or above. Well, how big is 10,000 sq. ft.? Think about a square box 100 feet wide x 100 feet long. Got it? Good. The majority of the liquor sellers now are chain grocery stores (Albertsons, Metropolitan Market, QFC, Safeway) and pharmacies (Bartell Drugs, Rite Aid, Walgreens) followed by department stores (Walmart, Fred Meyer, Kmart) and private club wholesalers (Costco, Sams Club). You may also find smaller businesses like wine merchants (Esquin, Wine World) have started selling liquor. What about the previous WSLCB state store locations you say? The majority were taken over by private owners via the state's auctions and many have yet to reopen their doors. A few WSLCB contract stores closed and are no longer. Its early yet, but expect to see more and more of the previous state stores open with new owners in the next few months.

What are they selling? Don't expect to find the same selection that existed in the state stores. In fact don't expect to find more than 60% of what was available at most state stores. The liquor selection (brands and sizes) is going to be very similar at grocery stores like Safeway and QFC. I am told most stores within each chain carry similar inventory with few exceptions. For example, in select locations where the demand is greater, high end products are available in closed cabinets. Standard categories (rum, whiskey, tequila etc.) featuring the most popular brands is more or less what you should expect to find. The variety of choices decrease when going to smaller sized chain pharmacies like Rite Aid, Bartell Drugs and is even thinner (less than 20 options) at Walgreens. Not the news you were expecting? Well, thankfully there are businesses who buck this unfortunate trend. A few retailers offer wider selections including, many Northwest products, a more robust scotch and liqueur display as well as a few premium options. Noteworthy for their selections are the QFC Liquor Store (U-Village), Metropolitan Market (Queen Anne) and Esquin (SODO). The majority of liquor sellers carry both 750ml and 1.75L bottles size options, however other smaller sizes like 375ml and 50ml (minis) are not easily found. Unlike the access to smaller bottle sizes found in previous state stores, today's retailers carry the smaller bottles locked in cabinets and behind the registers. Size is another point to consider if buying liquor from Costco. Like most stores, Costco carries a typical selection of popular brands but only by the handle (1.75L) in most cases. So if you looking for a fifth of this and a fifth of that, Costco may not be your best choice. What if you can't find what you are looking for? Speak up! Certain grocery stores are taking recommendations and requests for items, however, no special order forms or catalogues exist yet.

What's up with the price tags? Taxes haven't changed. In fact, Washington State's Spirits Sales & Liter Taxes haven't changed in the past few years. Sales and Liter Tax for liquor remains at 20.5% plus $3.77/liter respectively. What has changed is private retailers' price tags. In the previous state-controlled system, these taxes were included in the list price below the bottle. Today, you see the list price and then at the register you see the final price when taxes are added, just as sales tax is added for other items. Got a calculator on that smart phone? You may want to become familiar it. Bartell Drugs, however, is one exception where you will see they list both the price before and after taxes on their tag below the bottle. Nice! Why did price tags change? One reason is that the state mandated that retailer's price tags have the taxes be listed near the bottle price to inform consumers. Another potentially confusing point to clarify is many grocery stores have a regular price with a "club" price below it. Readers note, the price differences between them can be significant so if you are buying liquor at a Safeway, make sure you are part of their "club" when you get to the cash register.

We voted for a private marketplace and the liquor prices are higher? Yes, yes we did. If the taxes didn't change and the competitive forces in this private system should lower prices, then why are the prices higher. There are two reasons that explain this. First, is the two new state "fees" included in the price; a 10% distributor fee and a 17% retailer fee. A dynamic duo; both payable to the state. This 27% burden to the bottle's pre-tax price is the major culprit. These new fees will be passed on to the consumer by most retailers until legislation is created to reduce or remove them. Hint, hint...The other explanation is that we are only in the second week or privatization and competitive forces, let alone awareness of competitor's prices, has yet to begin impacting the pricing. Let's help start that now, shall we?

Here is a snapshot of a few rum prices from the first week of privatization:

Metropolitan Market
Bartell Drugs
Bacardi Superior
Sailor Jerry
Ron Zacapa
x = not available; sizes = 750ml / 1.75L
Prices do not include State Sales Tax 20.5% or State Liter Tax $3.77/L (or $2.83 for 750ml, etc.)

Price Example: So, if you purchased a bottle of Ron Zacapa from Safeway and added your Sales and Liter Taxes, your total price would be calculated as follows: $51.99 + ($51.99 x .205) + $2.83 = $65.48

To put this in perspective, here is the price of what our neighbors to the north pay: 
Ron Zacapa ~ $79.99 - Vancouver, BC (BC Liquor Stores)

Also, please note that the above prices may not reflect the prices this week or next as many grocery stores' liquor prices change regularly. Sale items and specials occur weekly to bi-weekly unlike the once monthly Temporary Price Reductions offered previously by state run stores. Check your weekly newspaper fliers and online promotions for the latest sales!

This private market of liquor sales is still in its infancy and the past two weeks may not look like those ahead, so...

Stay calm and drink rum!