SEATLLE – Residents and business owners in Washington are voicing a lingering ambivalence when it comes to adapting to the state’s pullout from the liquor business two years ago. Since privatization of liquor sales has gone into effect, prices have increased along with convenience of access.
According to the Seattle Times, many saw the privatization as a win for business, government and the public. Retailers and distributors would inherit a lucrative niche. The state would get more revenue from newly imposed fees. And consumers would get cheaper, more widely available booze.
In fact, most of that happened: A nearly $1?billion business is now in private hands, the state has enjoyed a short-term revenue windfall and liquor is ubiquitous. But on average it’s not cheaper and certainly not perceived as such by consumers.
The dust hasn’t settled after the disruption created by ballot Initiative 1183, which took effect in June 2012. It left plenty of grievances in its wake, from small entrepreneurs who bought the rights to run state-owned stores to retailers arguing over fees, including Costco (who led the push to privatize sales), which ended up with 10 percent of the state’s spirits markets, according to its executives.
Proponents of a limited role for state government say privatization has been only a qualified success because it has come at the expense of liquor buyers. “Clearly, the taxation element is one that still leaves a bad taste in consumers’ mouths,” Leonard Gilroy, director of government reform for the Reason Foundation, told the Seattle Times.
Gilroy added that from a national perspective, the state’s move to get out of the liquor business “was pretty significant,” as it was the first state to do so since Prohibition ended. The effort has been closely watched by 17 states who have yet to privatize liquor sales.
Privatization scattered Washington’s sales of spirits, which had been previously concentrated in 329 stores owned or contracted by the state, to more than 1,400 outlets, from sprawling warehouse clubs to grocery stores and pharmacies. That doesn’t mean sales of liquor have increased dramatically: they rose 6% in the first year, a bit less than state forecasters had expected, and far less than what critics feared. And the most recent data point to volumes being relatively flat from last year.
Meanwhile, state government has enjoyed a bounty despite giving up the business. According to the state Office of Financial Management, revenue from spirits reached $521?million in the fiscal year ended in June 2013, about $73?million more than in the same period two years prior, which was the last full year under the state system. But that windfall is past its peak, as the figure for fiscal 2013 included a one-time $105?million fee paid by distributors.
What’s certain is that many consumers are feeling pinched. The average liquor price per liter, after taxes, from June 2013 to April 2014 was $24.39, about 11% higher than in the same period two years prior, before privatization.
Many entrepreneurs thought the stores would fill a unique niche in the new landscape. Small neighborhood locations with established clients and no competition from other small businesses would benefit because the new law would allow spirits sales only in stores larger than 10,000 square feet, with few exceptions. But some owners were crowded out by neighboring grocery stores, which have more wiggle room for liquor prices because they make their profit on other items.
Many were saddled with leases for more space than they needed as a big part of their sales disappeared. Brian Smith, a spokesman for the liquor board, told the Seattle Times that it’s the fault of the invisible hand. “The market went from a controlled one where costs were equal to a free-market system where they are unequal,” giving larger players an edge.
Some local distillers are also feeling pinched, both by higher fees, which prompt consumers to buy less or to prefer cheaper products, and by competition from big liquor manufacturers that can better afford discounts.