State begins auction of its liquor stores

YAKIMA, Wash. — Washington state opened a public auction online Thursday of its state-run liquor stores, beginning the process of privatizing a booze industry the state has tightly controlled since the end of Prohibition.

Within hours, more than 30 bidders had entered the fray. Nearly a dozen offered to buy rights to all of the stores, though most bid on individual store locations.

The minimum bid: $1,000.

Venturing into store ownership isn’t without its risks, given the current upheaval in the state’s liquor industry. Big-box stores will be entering the market for the first time under the voter-approved initiative kicking the state out of the business, and two lawsuits seeking to overturn the measure could derail efforts to implement it June 1.

Successful bidders also still must negotiate a lease — the state doesn’t own the properties the stores are on — apply and qualify for a retail liquor license and stock their stores.

But Washington officials said state stores that carry more than 1,400 products, including locally produced wine and spirits, could be a golden chance for entrepreneurs looking to serve a niche market.

The state’s spirits industry is growing, with more than 20 distillers producing gin, whiskey and vodkas distilled from Washington wheat or potatoes. Washington wineries now top 700.

State stores also carry leading brands of everything from cognac to rum.

“Our customers here in the state of Washington have grown to experience a very diverse portfolio of spirit products, and that portfolio won’t be available by the general big-box stores,” said Pat McLaughlin, director of business enterprise for the Washington Liquor Control Board. “This is a unique opportunity.”

Nearly 20 states control the retail or wholesale liquor business. Some, such as Iowa and West Virginia, have relinquished partial control in recent years, but Washington would be the first in that group to abandon the liquor business entirely.

Voters, anticipating lower prices with private industry, required the state to dismantle its liquor business when they approved Initiative 1183 last fall in what was the costliest initiative campaign in state history. Backed by membership warehouse giant Costco, the measure allows stores larger than 10,000 square feet to sell liquor, and smaller stores could only be allowed if there are no other outlets in a trade area.

The exception to that rule is Washington’s 167 state-run and 163 contract liquor stores. Contract stores, which are run by private individuals, will be allowed to continue to operate. The state-run stores are the subject of the auction, with successful bidders winning the exclusive right for a liquor store at that location. In addition, the license would be exempt from approval requirements of local officials, as is usually the case.

The auction ends April 19.

Successful bidders also will have the opportunity to purchase the state’s leftover stock.

Bob Enloe, of Shoreline, intends to be one of those bidders.

A retired sales manager for Hood River Distillers of Hood River, Ore., Enloe, 63, didn’t plan on going back to work, but he and his partner — also from the liquor business — didn’t want to pass up this opportunity.

“It’s just something we really think we could make work, and we have the opportunity now,” Enloe said. “We’ll be looking to get in on the auction.”

Grocery stores that sell liquor typically sell only about 300 products, McLaughlin said, and those tend to be the best-selling brands offered at lower prices. To compete, smaller stores will have to offer unique products.

The $1,000 minimum bid was high enough to weed out those who weren’t serious but low enough to attract enough qualified bidders, McLaughlin said. He declined to comment on how high the bids could go.

“The reality is that we expect the true market value to be higher than that,” he said. “The market will take the bid where it belongs.”

In the early 1990s, West Virginia privatized the retail side of its liquor business, auctioning off the rights to sell liquor for 10 years. Bids averaged $220,000 each, bringing the state a total of $15.3 million. Most were bought by the drugstore chain Rite-Aid Corp. and the Southland Corp., which operated 7-Eleven convenience stores.

But those outlets were the only stores allowed to sell liquor, said Steve Schmitt of the National Alcohol Beverage Control Association, the national group representing alcohol control states.

That won’t be the case in Washington, where more than 1,000 entities, including Target and large beverage retailer BevMo!, have already applied to sell liquor beginning June 1.

“The reality is there’s a new competitive landscape. The big-box stores are entering a market where they haven’t been before,” Schmitt said. “The fact that you’re going to have that many more entities involved in the sale of product, I think, would keep the value of (state) stores probably somewhat limited.”

In addition, opponents of the initiative have filed suit in court, arguing that it violates state rules requiring initiatives to address only one subject because it includes a provision for public safety funding. A judge has scheduled a hearing for March 19 to determine whether voters would have approved the initiative without the provision.

The entire measure would be nullified if the court determines that voters would have rejected the initiative without it — a potential setback that could discourage bidders.

Regardless, McLaughlin said he expects to see interest from both individual entrepreneurs and big businesses that might bid to buy them all.

He also said preference will go to bids that save the state the most money, which could include an offer to employ current workers in state stores.

“Our intention is to show that our selection, in terms of total financial impact, is in the best interest of the state,” he said. “That’s what we’ve been delegated to do.”

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Online:

Liquor Control Board: http://www.liq.wa.gov