Privatizing liquor sales in the US....let's discuss

There is an interesting article here in the Wine Economist blog that discusses an initiative to privatize liquor sales in the US and to take control away from the states.

Unfortunately, this proposal is being brought forward by Costco and Safeway - two wholesale goods retailers. Even Wal-Mart has given this its backing....

I would take this initiative much more seriously if it wasn't brought forward by wholesale goods retailers as there definitely is a clear commercial interest bringing this forward. If this initiative was to somehow go through and be passed as law all the spirits sales would just coming to the wal-marts, sam's clubs, and grocery chains. In my opinion this would nearly eliminate the liquor store industry and the last thing the US needs is more jobs lost.

I do believe however, that shipping regulations need to be lessened. As we already know the regulations are quite strict in regards to the mobilization of liquor or wine across state borders. I really do think a reduction in these regulations here could give some local wineries a great opportunity to expand their customer base and add some competition which I think could only improve the quality of US wines down the road. As well, I think it would likely improve the imports and exports of wines into and out of the US allowing us to try some wines we've never had before due to the decrease in shipping costs.

Any opinions on this matter? And please.....as tempting as it is let's try to leave our opinions of current politics at the door. Let's just keep this to the wine industry.

Explain to me why the state level is a useful/relevant level for determining (wine) regulations?

The history is obvious.

But in the contemporary US, cultural preferences and economic markets vary so much within states and are so often connected across states that I don't find states a very useful way of dividing regulations/policies. (And sorry, this goes far beyond wine).

I do agree that economic markets vary within each state, at the same time each state is within the United States, a single entity. Therefore, I believe all single industries, no matter what state they are in, should be supported the same no matter where. In the case of wine, let's say that one winery does well in its own state, then finally has enough finances to begin shipping out-of-state, if that winery does well then it is indirectly giving money to the new state in which it is now sold and in effect helping their economy.

I know alcohol can be dangerous and many groups, wherever they are, have their beliefs about it but we should not fault the wine producers for trying to make a living for themselves. Every winery, no matter what state or country they grow their grapes, should get a fair shake trying the make the most business, no matter where it is, they can. Differing strict regulations between states only make it more difficult for wineries to reap any possible reward for the hard work they put into their wine.

guys, guys - these are the 50 DISunited states. nearly every type of law you can think of varies from state to state: child adoption, traffic, marriage/divorce, and esp. alcohol. making alcohol laws a thing for each state is in the constitution - lots of luck changing that. AND so far as i know this privatizing issue is only current in 2 state: washington and virginia. as for the other states, some are state controlled(PA for example), some are partially state controlled(MI for example) and all are state regulated. but in most of the cases, the laws regulate the activities of private licensees - i.e. most states are already 'priviatized'. privatizing does not necessarily allow walmart or costco or sams to act as 'wholesalers'. no state allows this so far and in fact i don't believe the current washington initiative would do so. the sky is NOT falling - not yet.

guys, guys - these are the 50 DISunited states. nearly every type of law you can think of varies from state to state

And you wonder why every state has budget problems.

I don't believe that either of the two initiatives in WA STate, 1100 and 1105, would "nearly eliminate the liquor stores." Actually, in our state there are now no private "liquor" stores but only private wine stores and state and state contracted wine and hard liquor stores. The selection at the state stores is currently poor and prices are set much to the distributors' advantage, and both wine retailers and restaurant and winery owners express disatisfaction with the present system, although here I am simplifying things considerably. I have heard from only one of my wine store. winery owner, and distributor contacts on this (a retailer; he favors 1100) and hope to hear from more on this board as they are the ones who have the biggest stake in the referendum and no doubt have studied the issue more deeply than most of the rest of us have.

Clint, as a fellow Washington resident, I have mixed emotions about these initiatives, although I have to admit I haven't looked into them enough to figure out what exactly is in which of the pair. On the one hand, I'm not sure why the state is in the liquor business. Also, state liquor stores are often pretty grim places, especially the contract ones, and many of them would not be missed. Nobody I know of shops for wine there anyway, though, with the average grocery store offering a better selection let alone a real wine store. On liquor, I'm not sure I'd count any big price break with privatization - prices I've checked on single malt scotches aren't that different now than, say, California.

On wine pricing, I understand one of these measures would do away with a regulation that forbids quantity discounts on wine. Clearly, that rule has the effect of raising retail prices and normally I'd be all for a change that would result in lower prices. But effect of that law is also to make small local wine stores competitive. I'm concerned that if the likes of Costco and the grocery store chains get discounts and drive down prices my small local store with the interesting selection will suffer. If they go out of business, my choices will be limited. I realize I can't have it both ways and I haven't yet figured out which side of this I'm on.

Mark, in your second line of your second paragraph you write that the initiative would have "the effect of raising retail prices." Is that a typo? Did you mean to write "lowering" retail prices. Initiative 1100 as I understand it is sponsored by Costco and is motivated to a large extent by their desire to obtain quantity discounts from distributors.

Hi Clint, no typo but your interpretation is correct, I think. What I wrote (or tried to write ) is that the current rule forbidding quantity discounts has the effect of raising retail prices, so of course passage of an initiative removing the rule would lower those prices. Two sides of the same coin. What I've yet to decide is whether I'd rather have lower prices or slightly higher prices and more choices.

Mark, hard liquor choices currently are very limited by the standards of states that have privately owned liquor stores, so I would assume there should be greater choice in that department. (The few restaurant people I've talked to here believe so.) But, yeah, I'm not that comfortable about prospects for the variety of wine choices. I'm hoping some ITB types will tell us what they think.

If the current 'three tier' system was changed to a more rational free market system, the major losers would be the big wholesalers; do we suppose the big retailers would do business with them if they didn't have to?

Speaking as a wholesaler, I would love the system to reward only those people who serve a useful function. It seems to me that specialty wine shops serve a very useful function.

so, what IF large retailers could deal directly with suppliers without wholesalers. well, to some extent this does happen. trader joes for instance find a cooperating wholesaler who will bring in their exclusive products for far below their normal markup - basically 'clear' the merchandise. both are benefited. trader joes deals directly with the suplier and coordinates the shipment with the wholesaler.

would large retailers even deal with wholesalers if they were permitted to bypass them. well, probably. firstly not all suppliers would choose to work directly with each and every large retailer in, say, CA or NY. would it be worth a suppliers while not to have their products represented in any except the largest retailers. could Gallo do this? but would distributors carry their product for the smaller accounts if Gallo dealt directly with the large ones. probably not. wholesalers would still have a role - and they would have to perform it better than they do. smaller suppliers would benefit by dealing directly with a few retailers; but its not so certain re the larger ones.

Clearing merchandise through an importer/distributor is entirely within the 3-tier system.

Perhaps half of all groceries are sold through 'big box' chains. Those chains don't buy eg Scott Paper products or Procter and Gamble products through distributors, they buy them from the manufacturers, and there is every reason to suppose that that would happen with alcohol if it were legal. This is the reason that the trade groups oppose direct shipping whenever they have the opportunity; it's not a few geeks buying Harlan, it's everyone buying Constellation brands through Safeway or Sam's Club without the intercession of the big wholesalers.

I'm a wholesaler and I think it's ridiculous.

buying directly from constellation is one thing; other licensees buying from sam's etc is another. a law could allow either without allowing the other. in fact in arkansas i think restaurants must do the latter.