Liquor privatization draws distributor ire

OLYMPIA — The battle over Washington state’s two liquor privatization ballot measures has drawn millions of dollars from out of state, mostly from beer wholesalers opposed to efforts to shake up the current alcohol distribution system.

Initiatives 1100 and 1105 would both abolish the state’s current monopoly on liquor distribution and sales in favor of private businesses.

But I-1100 — backed by Costco Wholesale Corp. and other large retailers — goes further. It would eliminate price controls and other regulations, such as bans against volume discounts and paying on credit, that exist for beer and wine distribution and sales. Some of those have been in place since the 1930s.

Retailers with licenses to sell beer and wine would be eligible to add a liquor license, and they would gain the ability to buy beer, wine and spirits directly from manufacturers instead of going through distributors.

Those changes disrupt the current three-tier system — producers, distributors and retailers — in which retailers generally are required to use distributors.

Of the $8.4 million raised in opposition to I-1100 and 1105, more than $5.4 million has come from more than 30 other states, including many state beer or beer and wine wholesale groups. The two biggest donors, at $2.4 million a piece, come from the Washington, D.C.-based Beer Institute, and the Virginia-based National Beer Wholesalers Association.

The national wholesalers group represents about 25 distributors in Washington state, said Craig Purser, the group’s president.

The current three-tier system is necessary to promote a level playing field, he said.

“We see this as a really bad way to privatize,” Purser said. “There are a number of our companies and a number of our employees who are very, very concerned.”

If I-1100 passes in Washington, other states that have the initiative process — control and license states alike — could potentially face similar ballot measures that make changes to distribution laws.

“That is certainly a concern,” said Mike Lashbrook, president of the Michigan Beer &Wine Wholesalers Association, which has given $25,000 to the “no” campaign.

Ashley Bach, a spokesman for the Yes on I-1100 campaign, said retailers and wineries and breweries will likely still use distributors. But big stores like Costco that already have their own distribution system will no longer be required to pay for a service they don’t need.

“It’s going to transfer a little bit of the power away from the distributors,” he said, but “it’s not like distributors are going to go away.”

The distributors are joined by a wide coalition of groups that are fighting the privatization effort, saying that the measures will hurt everything from the state budget to public safety to small businesses, including the state’s wine and beer industry.

“This is really bad public policy,” said Sandeep Kaushik, a spokesman for the No on I-1100/1105 campaign. “They’re too risky and they go too far.”

Washington is among 18 so-called “control” or “monopoly” states that exercise broad powers over wholesale distribution of hard liquor. Of those states, 12 — including Washington — are also involved in retail alcohol sales through either state-run liquor stores, outlets operated by private contractors, or both.

I-1105, which is opposed by the I-1100 campaign, would keep in place state laws that protect beer and wine distributors — which are the main financial supporters of I-1105. The measure would also keep in place prohibitions on bulk discounts for beer and wine but would allow them for sales of hard liquor.

Bellevue-based Odom Southern Holdings and Los Angeles-based Youngs Market Co. have raised more than $2.2 million for the I-1105 campaign, but that effort spent most of its money qualifying for the ballot, and hasn’t raised any money since July. Both are members of the Washington Beer &Wine Wholesalers Association, which has given nearly $2 million to the No on I-1100/1105 campaign.

The I-1100 campaign has raised more than $3 million, with more than $1.3 million coming from Issaquah-based Costco. That campaign also has the support of the Washington Restaurant Association, the Northwest Grocery Association and the Association of Washington Business.

A coalition of several groups oppose the liquor privatization initiatives, including unions, the Washington state Council of Firefighters, and several craft breweries and wineries. A TV ad that the opposition group has been running raises concerns about public safety if the number of liquor stores in the state increase, showing crumpled cars and emergency responders.

Opponents — including Gov. Chris Gregoire — also stress the potential loss of revenue to state and local coffers, because of the elimination of the liquor markup imposed by the state. I-1105 would also remove all additional liquor taxes, which the Legislature would have to restore to reduce the financial hit to state and local governments.

While the liquor privatization debate hasn’t been able to gain traction in Washington state until this year’s initiative measures, the state Legislature has already made several changes to the three-tier system over the years, including allowing brewers and wineries to sell directly to consumers, and allowing retailers to buy directly from wineries and brewers.

Paul Beveridge, owner of Wilridge Winery in Seattle and president of Family Wineries of Washington, said he supports I-1100 because he’s tired of slowly having to get piecemeal changes done by the Legislature.

“Every time someone has a new idea about how to sell Washington wine, they need to go to the Legislature and ask for permission,” Beveridge said. “It’s limiting my economic growth.”

There’s a split in the state’s wine industry on the measures, with the Washington Wine Institute coming out strongly against I-1100 but taking no position on I-1105. The state’s largest winery, Chateau Ste. Michelle, has taken a neutral position in the debate.

Many craft breweries have come out against both initiatives. At a recent craft beer festival in Tacoma, several of the vendors had No on I-1100/1105 signs hanging at their booths.

Heather McClung, owner of Schooner Exact Brewing Company in Seattle and president of the Washington Brewer’s Guild, said the only consumers who will see price benefits for liquor and beer will be those who shop at Costco and other big box stores, because the smaller stores won’t be able to benefit from the volume discounts.

“If you look at the economic coalition, who is it really benefiting?” she asked.

Anne McGrath, a spokeswoman for the Washington Wine Institute, said such a sweeping change to the distribution laws was concerning to several wineries that don’t know how their bottom line will be affected under dramatic changes.

I-1100 goes further than any other wine-producing state, she said. “We hate to be an experiment.”

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