Fans and critics of the 2012 law that allowed private firms to take over liquor sales can agree on one thing: Like it or not, Washington’s retail spirits industry is heading in the direction of the hard-fought, highly competitive liquor landscape consumers have in California.
Six months after Initiative 1183 went into effect, many in Washington’s liquor industry say consumers will continue seeing competitive pricing, more marketing from out-of-state large chains entering the picture, and increased focus by small retailers on customer service and convenience.
If Washington does follow in the retail liquor footsteps of California, residents here will see a steady shift in sales away from smaller retailers, as large liquor chain stores and the bigger grocery chains like Safeway and Fred Meyer look for ways to attract consumers.
Washington residents also will see intense liquor marketing from mass-merchandise retailers Costco and Wal-Mart, according to distributors tracking the shift to private sales.
California serves as Washington’s model in liquor sales because regional and national beverage producers and retailers have focused on that state, realizing that the dollars spent there per capita are far above the national average.
The nation’s largest beverage retailer, Maryland-based Total Wine, entered the California market in 2007. Since then it’s gone toe-to-toe with other large chain retailers and has continued to build new stores there and gain new customers.
Total Wine, has opened three stores since June 1 in Washington, including a location in north Spokane.
During a visit to the new store in Spokane, Total Wine President David Trone said, “We’re Costco’s worst nightmare.” Total Wine’s huge national footprint, selling in 14 states, and its relationships with distillers give it the clout to outdo Costco, Wal-Mart and regional grocery chains, Trone said.
Trone said Washington’s market for spirits and wine has a Wild West feeling, resembling California with thousands of retailers trying to find a competitive edge and with plenty of profits to be made.
Liquor sales nationwide are extremely important for many retailers because profit margins on spirits and wine typically far exceed those of food items.
Another multistate retailer, California-based BevMo, is also planting its flag in Washington. The company opened five stores on the West Side and is looking to add locations in other areas of the state.
Despite the large push by liquor chains in California, the one sector of liquor retailers there making the biggest gains over the past year has been larger grocery chains, said Daniel Grunbeck, a vice president with Young’s Market, a Los Angeles-based distributor.
Young’s Market is the second-largest California liquor distributor and is nearly the largest in Washington, contending for the top spot with Southern Wine and Spirits.
The grocery-store group of liquor sellers has seen an 11 percent gain in its share of Young’s’ chain store sales in California, Grunbeck said. That group excludes the smaller neighborhood liquor retailers and specialty shops. Big grocery chains including Albertsons, Ralphs, Stater Brothers, Trader Joe’s and Safeway now account for more than half of all the chain-store liquor sales that Young’s has in California, Grunbeck said.
Each of those chains is working on ways to win new customers, Grunbeck said. The Kroger-owned Ralphs chain in California has introduced 30 percent discounts on purchases of six bottles of wine.
Fred Meyer, the Oregon-based Kroger brand, offers a 10 percent cut on orders of six or more bottles.
Grunbeck said he expects Washington grocery chains to follow the pattern in California of expanding shelf space for liquor and wine and telling customers it is more convenient to buy alcohol along with groceries than shopping for booze elsewhere.
Young’s CEO Christopher Underwood said he expects Washington consumers will see price cutting and discounts for the next few years, especially from larger grocers like Fred Meyer, chains such as Total Wine and big-box retailers like Wal-Mart.
Those large, multistate retailers can reduce their shelf prices because they can buy directly from producers in large volume. Even though Washington’s liquor prices are inflated by an added distributor tax, that doesn’t change the result because the largest retailers can keep their prices lower than most smaller sellers, Underwood said.
Washington’s new law makes it even easier for large retailers to gain advantages over smaller sellers, Underwood added. Washington law allows retailers like Costco or Wal-Mart to save expenses by buying directly from a producer without having to go through distributors. The ability to buy direct leads to deals such as BevMo’s offer of a second bottle of liquor for a nickel after buying one bottle at regular price, Grunbeck said.
California’s pattern doesn’t suggest the big retailers will run the smaller, specialty shops out of business, Grunbeck said.
As big retailers use wine and spirits to attract consumers to their stores, the wine-only and spirits-only stores run by local owners will have to respond with more customer service, careful selection and a positive shopping experience, Grunbeck said.
Ted Eaton, who manages four new Good Spirits liquor stores in Eastern Washington, including two in Spokane, agreed that attracting and retaining customers is the main focus of the company. Good Spirits took over the former state-run store at Third Avenue and Cedar Street in downtown Spokane and opened a new store in a Five Mile shopping center.
Both stores are slowly gaining customers in large part because Good Spirits hired former state liquor employees to run the locations. The Cedar store in particular was hit hard by the law because large restaurants and hotels now can buy directly from distributors. The change means the Davenport Hotel no longer buys booze from the Cedar store, Eaton said. The store is operating at roughly a third of the sales it had in 2011, he added.
Vino, one of Spokane’s long-lasting wine specialty stores, is also bracing for the large-retailer onslaught, co-owner John Allen said.
Allen said Vino can’t always compete on price with Total Wine and Costco, but the store counters by having a smarter selection of wines and offering strong customer support.
The Vino goal is to help experienced and novice consumers feel good about shopping at the store, Allen said.
“We want to offer a unique, personal experience. For a lot of people, the other customers they meet are like friends. We want to make wine tasting and buying a social experience,” Allen said.