Legislature likely to take up liquor control

YAKIMA — Paul Beveridge envisions a free market for beer and wine.

Sure, he freely acknowledges that he’s biased as the owner of a small winery with tasting rooms in Seattle’s Pike Place Market and just outside of Yakima. But he says Washington’s post- Prohibition regulations offer too many protections for large wineries and breweries, not to mention distributors and retailers, artificially boosting prices for consumers.

Not surprisingly, others in the beer and wine industry disagree. The friction marks a small split in the state’s booming wine industry, now boasting some 600 wineries statewide. But the issues goes far beyond wine, with everyone from grocery stores to small brewers working to negotiate some compromises in the past year and lawmakers likely to settle the differences in the upcoming legislative session.

Beveridge, owner of Wilridge Winery and president of the new industry group Family Wineries of Washington State, plans to turn his lobbyist loose.

“We’ll see what happens,” he said. “We say we’re the perfect climate for wine in Washington, but we need to have the perfect legal climate for wine, too.”

Since the post-Prohibition days, Washington has had a three-tiered system for distributing beer and wine. Breweries and wineries sell to wholesalers at a minimum markup of 10 percent, and wholesalers sell to retailers, again at a minimum markup of 10 percent. Parties in one tier have generally been barred from having a financial stake in another.

Quantity discounts are banned, as is buying on credit and central warehousing of products. Merchandising and advertising to retailers is limited.

Some might argue that the laws are archaic and need to be changed, said Rick Garza, deputy director of the state Liquor Control Board.

“The reality is those laws are set there to create a level playing field,” he said. “And those pricing regulations are there to raise the price of alcohol to deter people from consuming too much alcohol.”

The state’s laws have been changed piecemeal over the years as industry leaders brought forward suggested changes.

In 2004, Costco Wholesale Corp. sued the state, arguing that the many rules blocked the company from using its vast buying power to make beer and wine cheaper for Washington customers. An appeals court upheld most of the rules.

However, that decision — and the numerous bills brought before the Legislature each year — sparked a review of the state’s beer and wine laws by a committee of lawmakers, with input from several industry groups.

Lawmakers already have created exceptions to the law banning ownership in more than one tier of the system. Wineries and breweries may now sell from their tasting rooms and open restaurants, but industry groups agree that more changes to that rule could be on the horizon.

“The three-tier system is still important and the tiers need to be independent, but you can protect the independence of that without barring ownership,” said John Guadnola, executive director of the Washington Beer and Wine Wholesalers Association, which supports a proposal to allow ownership in more than one tier.

The group’s roughly 50 members distribute 95 percent of beer and wine sold in Washington.

Industry leaders also agreed to a proposal to reduce or eliminate the minimum markup of 10 percent, as well as allowing breweries and wineries to give advertising items of nominal value to retailers to promote their brands.

Other businesses and groups are likely to bring forward proposals of their own.

Costco continues to support quantity discounts, but other groups oppose the idea.

“We think it’s really bad from a regulatory point of view. It doesn’t preserve uniform pricing systems and opens up all kinds of problems,” Guadnola said.

Online retailer wine.com proposed allowing out-of-state online retailers to sell beer and wine directly to Washington consumers.

The state already allows out-of-state shipments by wineries to in-state consumers.

Jean Leonard of the Washington wine industry’s lobbying group Washington Wine Institute says she’s unsure where the latest proposal will go in the Legislature.

“We’re looking at ways to continue to encourage sales direct to consumers, but also not to disadvantage our in-state retailers,” she said. “We just don’t know what the solution is at this point.”

Then there’s Beveridge, who’s pushing what he calls a “wine law modernization act.”

“All the police powers, all the public safety protections need to stay, but every other protection needs to go,” he said. “The price of wine is artificially inflated, and ultimately, the producer pays for it.”

If he can’t win on that bill, Beveridge is at least pushing for relaxation of some rules for small wineries that produce 250,000 gallons or less annually.

“We’re political realists,” he said. “Let’s say we try small wineries getting a free market. That can be a test case. People can see the sky didn’t fall.”

Leonard doesn’t see Beveridge’s case as a split in the wine industry, even though she doesn’t support his ideas.

“The Washington Wine Institute has always represented wineries large, medium-size and small, and we’re going to continue to do that,” she said.

State regulations haven’t exactly impeded the industry’s tremendous growth in recent years either, she said.

“We’re just going to keep doing what we always have, which we’ve done very successfully,” she said.

The state’s deepening budget crisis will certainly draw lawmakers’ attention this session.

But the Liquor Control Board could support some changes to state laws, within reason, Garza said.

“Many of these businesses have learned over the years to live within these regulations,” he said. “They’ve built their systems around these regulations, and now they might be most resistant to change.”