Washington’s I-1183: A Win-Win For Almost Everyone



By John ~ November 28th, 2011.

There is no such thing as a perfect initiative, but I-1183 is a huge step in the right direction. Wine Peeps supported this initiative from the get-go so we were thrilled to see it pass. We finally got the state out of the liquor business (the 43rd state to do so) and defeated the Wine and Spirits Wholesalers disingenuous campaign to maintain their Depression-era monopoly on the sale of alcohol in Washington State. Jim Senegal of Costco, speaking about their support of I-1183, “It was a matter of principle against monopoly and for the consumer.” As a result of I-1183, wine sales’ restrictions are relaxed, spirits sales are privatized, and beer sales are basically left alone.

If you believe in our free enterprise system, you had to support I-1183 despite it’s imperfections. Anyone under the illusion that if we gave them a little more time, our legislature would have solved these problems is very naïve about politics in our state. Our legislature has had over 50 years to take care of this and has done nothing. They never even got a bill out of committee. And that wasn’t going to change any time soon. As Mike Veseth of The Wine Economist, said, “Washington voters are usually suspicious of initiatives, but in this political environment some ballot issues are seen as a lesser evil to grid-locked legislation.”

If there is a loser after I-1183, it’s the wholesalers’ lobby, and they deserve it for the way they lied their way through both of the campaigns on this issue, last year and this year. As fellow blogger, former Esquin Wine Merchants owner, and excellent Washington wine historian Rand Sealey said in his Review of Washington Wines, “If the wholesalers had supported the legislation that was in committee last year, they would be a lot better off than they are now. By opposing I-1183 in the guise of “Protect our Communities” (really “Protect our jobs”), the wine and spirits wholesalers showed total hypocrisy. They deserve what they got.”

I believe everyone else is a winner to one degree or another:

Consumers should get slightly lower prices as well as seeing wine, spirits, and specialty superstores like Beverages and More (BevMo) or the equivalent come into Washington State. Having shopped in this type of store in other states, I’m looking forward to them coming to our state. It’s long overdue. In Seattle, I expect that over time, Wine World Warehouse and maybe Esquin Wine Merchants and others will expand to compete at that level.

Public Safety was a bogus concern promoted by the wholesalers’ lobby. There is no evidence to suggest that state-controlled states are safer than non-control states. And there is not going to be a proliferation of mini-marts selling spirits because of the square-footage provision. It creates tougher fines and doubles the penalties for selling liquor to minors.

The State of Washington gets out of the liquor business from a sales standpoint but continues to license, set fees, and enforce liquor laws. Being an enforcer and seller at the same time was a clear conflict of interest, like the rooster guarding the henhouse. From a fiscal standpoint, projections show the state gaining $400 million in additional revenue from I-1183 over the next six years, and not at the consumer’s expense.

The big retailers, who can now get volume discounts on wine, will not squeeze Smaller Wine Retailers out of business. Yes, for certain national brands, Costco, other big box retailers, and grocery store chains like Safeway will be in a position to offer lower prices. However, that represents a very limited number of SKUs, and some retailers believe they will even be offering a smaller selection of wine as they use shelf space for spirits.

My family has been a small business retailer for several generations in several different industries, and my dad told me about similar fears when shopping malls first came in and then later when Wal-Mart arrived on the scene. The reality was that we as small retailers had never competed on price. Our advantages were selection, customer service, and good advice, and those advantages for small retailers remain today. If a small wine shop follows this model, they will not only survive but also thrive.

Andy Perdue of Wine Press Northwest recently interviewed Doug Charles of Compass Wines, a long-time veteran of wine retailing in Washington, where he said that he was generally positive from the perspective of both small wineries and retailers. He said that he believes their shop will be now able to retail to other retailers and restaurants, and this will help small wineries from across the state sell their wines. Furthermore, he echoed the comment I made earlier that large grocery-type stores in his trade area won’t have as much space for wine because of adding spirits space, so he’ll get some of the wine business they used to get. Finally, he believes that his store will be more competitive than they were when state liquor stores could buy cheaper than him, which was really in violation of their own fixed price rules.

I will concede that the worst part of this initiative is the square footage minimum to sell spirits. It was necessary to allay fears of every mini-mart selling spirits. I believe it would be relatively simple for the legislature to remedy this situation, and, in fact, Tom Wark of Fermentation has a suggested remedy to get the discussion going.

Large Wineries, of which you can count on one hand in Washington, will undoubtedly take advantage of the opportunity to offer volume discounts to Costco and others. If Ste. Michelle Wine Estates, by far the biggest wine player in Washington, thought they would be a loser in this, we would have heard from them and seen them lobbying against I-1183.

Small Wineries such as the Family Winemakers of Washington were pro-I-1183, although some small wineries have expressed concerns. For the same reasons I shared earlier that the small retailers who focus on selection, customer service, and good advice will survive, small wineries that have a good product, stay close to their customers, are great hosts to their visitors, and give excellent service will survive. And retailers like Doug Charles will provide another distribution channel for small wineries. A successful small winery business model is not based on being the low-cost provider in the first place. As winemaker Jamie Brown, who runs three small boutique wineries and voted “yes” on I-1183, was quoted by Paul Gregutt as saying “Let the big boys duke it out with the Costco’s or Safeway’s… space and cash. I could care less.”

Restaurants, through their state association, were big supporters of I-1183. Most believe they will benefit from lower prices through volume discounts. As Anthony Anton, President of the Washington Restaurant Association said, “Allowing competition in the distribution of liquor and wine will bring about efficiencies, better product availability, more choices for consumers, and lower liquor and wine prices….”

Costco and other big-box retailers will quickly get into the spirits business as a result of the initiative’s passage. They will also benefit from volume discounts and central warehousing. Jim Senegal of Costco, in an interview with Bruce Ramsey, said, “Costco will have lower price on liquor than the state stores, but liquor taxes will prevent prices from dropping too much. The big drop will be in prices for wine, which was also the subject of I-1183. Costco already sells wine in Washington, but it has operated under a state rule forbidding quantity discounts.”

Workers losing their jobs was another bogus issue from the “no” on I-1183 crowd. Sure, the state liquor stores will close, but more liquor outlets will open and those outlets will need workers. Anyone with industry experience and a good work ethic should have no trouble finding work. In fact, Costco has said it will accept applications from everyone losing their job in the state system.

In sum, the result of I-1183 should be win-win for almost everyone, and finally bring Washington State into the 21st century on liquor regulations. And, if we can get the legislature to amend the square footage rules to accommodate more existing wine sellers, it would be almost perfect.

Cheers!


Filed under: American Wine, Miscellaneous, Washington State Wine

Reader's Comments

  1. AJP | November 28th, 2011 at 11:31 am

    John,
    How will this affect small wine wholesalers? How will small family wineries get their product to restaurants & grocers?

  2. John | November 28th, 2011 at 3:13 pm

    Thanks for your comment. I don’t think the effect will be much different for small wholesalers than it is for small retailers or wineries. Those that stay close to their customers will do fine. Those that don’t will have problems.
    Read the excerpts of the Andy Perdue interview with Doug Charles in the post for answers to your other question about small wineries getting their product to restaurants, etc.

  3. AJP | November 28th, 2011 at 3:25 pm

    Thanks for clarifying John!

  4. kle | November 28th, 2011 at 9:33 pm

    What about the selection of hard liquor? There already exists small wine shops and grocery stores that sell wine, but now only the large stores (Costco, Safeway, Fred Meyers, etc.) can sell liquor based on the square footage requirements. What will this do to their selection? Will they only sell well known brands or will they sell local spirits? Lately there has been an abundance of local spirits being produced. I don’t like the fact that the state was controlling everything but the limiations on the size of the retailer seems limiting.

  5. Michael Good | November 28th, 2011 at 10:45 pm

    “Consumers should get slightly lower prices as well as seeing wine, spirits, and specialty superstores like Beverages and More (BevMo) or the equivalent come into Washington State.” This is pretty much wishful thinking in as much as the per liter tax remains $3.59 and retailers will be paying the State a further 17% of their gross sales, not to mention that the wholesalers who sell to the retailers will be paying the State 10% of their gross sales. Who ultimately will be paying the freight?
    “From a fiscal standpoint, projections show the state gaining $400 million in additional revenue from I-1183 over the next six years, and not at the consumer’s expense.” Please explain this to me, the naive undereducated consumer. Who is providing the added income to the State?
    I would love to go on and on about your post election article but it truly suffices to say that it strikes me as odd that, after the fact of I=1183 passing, you find it necessary to publish an “it’s going to be alright” article.
    By the way, I too have been a small retailer, and we do compete on price and we now deal with consumers who have little or no loyalty. They now shop with apps and will camp out for deals. I listened to consumers at Costco who were so ill informed about the initiative for which they voted that they were asking me “now that the initiative has passed when are we going to taste the wine you are promoting?”
    The lies were on both sides of the issue. As for Jim Senegal, what principle? I have negotiated with Costco in the past and their concern is not a “partnership” but complete control and obedience.
    Monoply? Say goodbye to the old boss; say hello to the new boss!
    I truly believe that as a participant in a wine blog proported to be concerned with the issues and furtherance of the wine industry, you will rue the day that you spoke out in favor of this change in monoply. There are a ton of wineries out there who will have to revamp their business plans in the hope of surviving and they will have to do that for no good reason except that a gluttonous corporate entity (aided by a Supreme Court decision) was able to write and finance a law for their own profit.
    One last thought, free enterprise is NOT synonymous with freedom and democracy as some people espouse. It is an economic system for which the jury is still out. Free enterprise over the recent decades has shown no moral restraint and is often run by persons with no interest in social mores.

  6. John | November 29th, 2011 at 7:23 am

    kle,
    Thanks for your comment. As we said in the post, the square footage requirement was the worst part of this initiative, but probably necessary to get it passed (because it eliminated the effectiveness of the anti-ads that were trying to claim that every mini-mart would be selling hard liquor). Hopefully, as we stated in our closing paragraph, if we can now get the square footage requirements amended, it would be almost perfect.

    Michael,
    I started to address each of your comments as I usually do, but decided against it when I read your last thought questioning the validity of our free enterprise system. With that schism in our beliefs system, it would serve no purpose. We’ll just have to agree to disagree.

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