Costco wants to change liquor rules in Wash. state; voters will decide in November

Costco sees opportunity in Wash. booze initiative

OLYMPIA, Wash. — The cavernous stores in Costco’s home state lack something you can find in its warehouses in California, Alaska and many other places: bottles of Maker’s Mark, Absolut vodka and other popular brands of hard liquor.

But two ballot measures on the November ballot — one heavily backed by Issaquah-based Costco Wholesale Corp. — would largely sweep away Washington’s post-Prohibition restrictions on liquor.

Initiative 1100 would abolish the state liquor distribution and sales system in favor of private businesses. It would also eliminate beer and wine price controls and bans against volume discounts which 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 directly from manufacturers.

Currently, beer and wine are sold in thousands of grocery and convenience stores, but customers can only buy hard liquor by the bottle in the 315 state and contract stores.

“It’s a matter of convenience,” said Costco spokesman John Sullivan. “People who move up from California really scratch their heads over this system.”

Washington is among 18 so-called “control” or “monopoly” states that exercise broad powers over wholesale liquor distribution. Of those states, 13 — including Washington — are also involved in retail alcohol sales through either state-run liquor stores, outlets operated by private contractors, or both. Opponents argue that I-1100 goes too far by eliminating the three-tier system — producers, distributors and retailers — basically allowing Costco to cut out the middle man distributor.

“It destroys the entire system,” said Craig Wolf, president and CEO of Washington, D.C.-based Wine & Spirits Wholesalers of America, which is opposed to I-1100 but has taken no stand on the competing Initiative 1105, which keeps the tier system in place.

Costco has poured money into the I-1100 campaign, giving more than $800,000 in contributions and an additional $380,000 in in-kind contributions that include gathering signatures that helped qualify it for the ballot, Web ads and staff support.

Sullivan argues that Washington state has already done away with the most substantial elements of the three-tier system through changes made in recent years by the state Legislature, including allowing brewers and wineries to sell direct to consumers, and allowing retailers to buy directly from wineries and brewers.

“Why should the rules be different for spirits than for beer and wine?” he asked.

National wholesaler and liquor distributor groups are closely watching the outcome of the campaign, with some saying that it could be the first step for Costco to try and change the system in other states.

“They’ll try to replicate the rules in Washington state across the country,” Wolf said.

Costco officials said that they currently have no plans to pursue similar efforts in other states.

The company has long sought the changes that the initiative seeks to make. In 2004, the bulk retailer sued Washington state, arguing that the state’s 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.

Complicating this election for Costco and other big box stores is another liquor privatization initiative that will also appear on the ballot.

I-1105 would also privatize the liquor retail system but keep in place state laws that protect liquor distributors — which are the main financial supporters of I-1105. I-1105 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 million for the I-1105 campaign. Neither company returned calls for comment.

While both I-1100 and I-1105 would remove the liquor markup imposed by the state, I-1105 would also remove all additional liquor taxes. The markup and taxes bring in more than $360 million in revenue to Washington each year. The Liquor Control Board would be required to recommend new taxes to the Legislature under the measure, but the Legislature wouldn’t have to act.

The governor’s budget office has estimated that the state would lose up to $85 million a year under I-1100, and due to the loss of tax income, would lose up to $520 million in revenue under I-1105. Local governments are also dependent on liquor sales and the state estimates they will lose revenue as well.

Democratic Gov. Chris Gregoire is opposed to both measures, saying the state is already facing a $3 billion budget shortfall heading into the next two-year budget cycle.

A union-backed “no” campaign has formed to oppose both privatization measures, saying the initiatives will increase liquor sales and put much-needed revenue at risk.

The no campaign is also backed by the United Food and Commercial Workers union, which represents about 800 state liquor store workers who stand to lose their jobs under the initiatives.

The State Council of Firefighters, the Children’s Alliance and other groups are also involved in the “no” campaign, which has raised more than $2.7 million. The biggest contributors, at $1 million each, are the National Beer Wholesalers and the Washington Beer and Wine Wholesalers.

“With these initiatives, either we’re going to see sharp reductions in important services, or tax increases, or both,” said Sandeep Kaushik, a spokesman for the “no” campaign.

Costco shopper Ed Matsuwaka said he supports the idea of privatization, but he’s worried about how smaller businesses will fare under I-1100, even though that’s the initiative he is leaning toward.

He said he believes Costco is trying to get the lowest prices for consumers.

“They will probably achieve it, but at what cost?” he asked.

I-1105 spokeswoman Charla Neuman said the best scenario would be for both initiatives to pass.

“The best of both could be merged,” she said, saying that while I-1105 supporters want to keep the current three-tier system, the main point is to get an affirmative vote on privatization.

The secretary of state’s office said that if both pass, the Legislature may have to decide how to remedy the situation, or it could end up directly in the courts.

Online:

www.modernizewa.com

www.liquorreform.org

protectourcommunities.com