SULTAN — You’d think one of the people pleased by voters kicking the state out of the booze business would be the manager of Sultan Liquor and Convenience.
But you’d be wrong.
“I was hoping it didn’t happen mainly because I feel like we traded one evil for another,” said manager Karen Walburn, who now contracts with the state to sell distilled spirits. “Who is going to supply us? How will it be delivered? And how do we compete with Kmart and Fred Meyer and Costco and other big stores?”
She’s not alone in her concerns over Tuesday’s passage of Initiative 1183, a measure conceived by Costco to end the state’s 77-year monopoly on the sale and distribution of hard liquor.
There are 162 independently owned contract liquor stores in Washington, and the initiative pushed a dark cloud over many of their futures.
While the measure contains language intended to let them continue selling liquor, they might be unable to do so come June 1 — the first day liquor can be sold in Costco, Safeway and other stores.
The big reason is money. Operators of contract stores need to come up with a ton of it to put product on their shelves. Right now, the state provides them with their inventory at no cost and takes its cut from the store’s liquor sales.
The cost of that inventory averages $125,000 per contract store, said Brian Smith, spokesman for the Washington State Liquor Control Board. The state must get rid of its booze stock by next June and will do so by selling it to stores or selling it back to suppliers, he said.
“My goal is to be open June 1. I don’t have a clue how we’re going to do it,” said Mary Bruders, manager of Granite Falls Liquor and Wine. “We’re all small businesses. It’s going to be hard for each individual store to afford this.”
Contract liquor stores are a unique feature of the state-run liquor system. The Legislature determines how many there will be, and the Washington State Liquor Control Board decides where they will go.
Typically, the board chooses an area it considers under-served, then invites companies to submit proposals for the contract. Bruders submitted a business plan and the state evaluated the financials before agreeing to grant her a contract which pays around 6 percent commission on monthly sales.
The contract cannot be transferred. If she sold the store, it would revert back to the state. She faces a similar situation under Initiative 1183.
The measure seeks to funnel the sale of booze through stores with at least 10,000 square feet of space. But in a nod to the existing privately run contract stores, it contains a grandfather clause allowing the small retailers to obtain a license to continue selling booze.
This clause doesn’t mean much to the store owners. The license can’t be auctioned or transferred. Nor does it resolve the challenge of buying inventory.
“A yes vote (Tuesday) could have put 162 small businesses out of business,” said Bruders who strongly opposed the measure. “But $22 million is a lot of money to fight against” — meaning the big money behind the approved initiative.
Walburn echoed the sentiment.
“I plan on staying in business. That means I’m going to have to come up with $150,000 to buy my inventory,” Walburn said. If a small business loan isn’t available, she joked, she might need to find a rich relative to provide some venture capital.
The two women suggested that form of help would require changing state law so liquor distributors could provide store owners with product on credit for a specified period.
“It would be something like 30 days as good as cash,” Bruders said.
If in place starting next June, store owners might not need as much money in hand to remain in the liquor-selling business. This issue is not covered in the initiative and thus needs action by the Legislature.
Even if a contract store makes the transition and figures out how to obtain inventory in the marketplace, over time its owners may find themselves paying higher prices than their big-box and grocery competitors, they said.
Distributors will offer discount prices for large quantity purchases and make up the loss by charging higher prices to small stores, they said.
Later this month, state liquor officials will meet with contract store owners around the state to discuss these issues.
That will come after meetings with employees of the 166 state-owned liquor stores, which must be closed by June 1. No decisions have been made on how to go about shutting down, then auctioning, the stores so they can reopen under new ownership.
The agency plans to keep the stores operating at full tilt through the end of the year — the holiday season is one of its busiest — and then in January begin to ramp down slowly.
“Our goal is to keep the stores open as long as we can,” Smith said, noting they produce revenue for the state.
Roughly 1,000 people will lose their jobs. This includes an estimated 950 people who work in the liquor stores and the Seattle liquor warehouse, and the agency staff who support them in personnel and finance.
Also under way is the creation of a new means of licensing distributors and retailers and writing rules for lifting price controls. With the number of retailers expected to increase from 328 to roughly 1,400, staff must be hired for additional fee collection and enforcement, he said.
All in all, there’s a lot of work ahead in the transition to privatization.
“Our goal is to be orderly, but we’re facing a chaotic situation,” Smith said.
Jerry Cornfield: 360-352-8623; jcornfield@heraldnet.com.
Liquor stores closure Q&A
Q: When can I start buying liquor in Costco and large grocery stores?
A: June 1, 2012.
Q: Why not sooner?
A: First, the election isn’t over and won’t be until Dec. 8, when the results are certified. Second, the state’s enjoyed its monopoly on the sale and distribution of distilled spirits for 77 years so it will take time to tear it down and install a new system serving the private sector.
Q: What has to be done?
A: A myriad of tasks large and small. Licenses must be created for retailers and distributors. Then you need a process for issuing them, collecting annual fees and making sure the right amount of money is paid for them. The state needs to figure out how to unload the 166 stores it owns and operates — and putting them on Craigslist is not a likely option. The Washington State Liquor Control Board lays out the transition on its website, www.liq.wa.gov
Q: When June 1 does arrive, will liquor prices fall?
A: Probably not. Initiative 1183 was written to prevent cities, counties and the state from getting any less revenue than they do now. To do this, excise taxes are preserved while retailers and distributors will be taxed on their gross receipts. Bottom line, you’ll get deals here and there but if you’re hoping prices will be cut in half you’ll be disappointed.
Q: Maybe the BevMo! discount liquor chain will come to shake things up.
A: It might. A state liquor official received calls Wednesday from two real estate agents on behalf of the company which operates 104 stores in California and 10 in Arizona. Those agents had questions about new rules and possible sites.
Q: What’s the difference between state-owned and contract liquor stores?
A: State-owned stores sell liquor and wine. You won’t find milk and eggs. Contract stores vary. Many are convenience stores and carry milk and munchies and other snack food. You won’t find a six-pack of Budweiser in a state liquor store, but there’s a good chance you will in a contract store.
Jerry Cornfield
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