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June 3, 2013 at 6:06 AM

Liquor privatization, Costco and consumers, one year on

Costco founder Jim Sinegal (Ellen M. Banner / The Seattle Times)

Costco founder Jim Sinegal
(Ellen M. Banner / The Seattle Times)

On  June 1, liquor privatization in Washington is one year old as this story says, and none of the really bad things that opponents of the Initiative 1183 used to scare voters have actually happened.

I said this last August in a column when the new regime was two and a half months old. I think it’s still generally true.

The TV ads against Initiative 1183 were blatant scare tactics and, in hindsight, mostly false. One ad said privatization “expands hard liquor sales to almost 1,000 mini-marts, dramatically increasing teen access to liquor, leading to more senseless deaths.”

Liquor retailing did go from 329 stores statewide to more than 1,400, but almost all of them are 10,000 square feet and above—a rule set in the law. Only a handful are minimarts. Liquor Control Board spokesman Mikhail Carpenter said these are owned by “people who bought the former state stores and relocated them.” The relocated store could be less than 10,000 square feet but had to be within one mile of the former state store.

The ads against 1183 said that private stores would more readily sell to minors. Not so. Compliance rates in private stores are above 90 percent — “similar to what the state stores were,” said Carpenter.

If there had been a jump in road deaths, we would have heard about it.

Average liquor prices are up. Under the old system, prices were the same in all 329 stores. Now we have different prices; if you want lower prices, go to big-box and discount stores. If you want convenient spirits, you’ll pay more. Volume is up about 8 percent over the year and estimated state liquor revenue for fiscal 2013 is $425 million, up 37.5 percent over two years ago. However, 1183’s tax on distributors falls from 10 percent to 5 percent next year, and the Department of Revenue is estimating fiscal 2014 state liquor revenue will drop to $369 million. That implies slightly lower prices after March 1, 2014.

The initiative’s sponsor, Costco Wholesale, has been making money, as The Times just reported. Some readers voted “no”  on 1183 because they didn’t want Costco and other big companies to have that business. One wrote on the Times web page under my August 15 column:

I opposed the elimination of the state liquor store jobs just so some “big box” stores could gain control of another industry and further expand their profits. I also never believed that doing so would lower costs to the consumers. The math is simple. As I recall Costco alone spent more than $20,000,000 in support of this legislation. Did anybody really believe this was done for the benefit of their customers or the state? Really?

Costco did spend almost that much. It was remarkable how much it spent. I argued in a column last year that much of the reason was that Costco CEO Jim Sinegal had wanted to get the state out of liquor retailing for years, he had tried a ballot measure the year before and failed, he was about to retire, and he wanted to get it done.

I think he and the other senior executives of Costco genuinely believed privatization would benefit their customers, and that they were right. Of course they expected Costco to make money. On Thursday The Times reported, “Costco’s profit soars.” The third-quarter profit of $459 million was not mostly from selling spirits in the state of Washington, which has fewer than 3o stores out of 627 Costcos worldwide (and not from selling $4.99 rotisserie chickens, either, as the story seemed to imply). Probably a bit of that $429 million was from selling Kirkland brand vodka in the Evergreen State.

One final note. Initiative 1183 also affected wine by deregulating wholesale pricing, giving volume sellers like Costco an advantage, and by increasing the competition for shelf space. For those reasons, some in the wine industry opposed it. One was Sean Sullivan of the Washington Wine Report. I asked him what he thinks now. He wrote in part:

The footprint for wine has been substantially decreased by the presence of spirits…Consumers are seeing a lot less selection in the grocery store… In terms of the effects on small retailers and the trickle down effects to distributors and wineries, I believe that this is still playing out… The big box stores (Costco, Total, and BevMo) are definitely putting a squeeze on.

Not everyone is ahead. “Putting the squeeze on” does imply, though, that some customers have been benefiting.

The change continues.



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