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Tuesday, December 11, 2018  Spokane, Washington  Est. May 19, 1883
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5 years after privatization, Washington liquor sales are up despite price increase

When he was a student at Gonzaga University, Ryan Hand and his friends routinely spent about an hour on the road to buy booze for game-day house parties.

“We’d drive out to Post Falls, right there on the border,” Hand said. “And we would stock up, and we would usually spend a pretty good amount of money.”

The 25-year-old, who grew up in Boise and graduated from Gonzaga in 2015, said it was common knowledge among his peers that the place to go for affordable liquor was not the Safeway across the street from campus. Idaho’s state-owned and state-managed liquor stores had not only lower prices but also a wider selection, he said.

Cross-border sales are one lasting effect of the privatization of liquor sales in Washington. More than six years after voters passed Initiative 1183, forcing the government to relinquish its Prohibition-era monopoly on sales of spirits, many continue to feel pinched by higher prices – and some still look for deals out of state.

Yet sales in Washington have been climbing, too. As backers of the initiative promised – notably Costco, which shelled out a record-breaking $22 million in support of the measure – there are more places than ever to buy liquor in the Evergreen State.

Privatization has enabled many distributors and retailers, such as California-based BevMo! and Maryland-based Total Wine & More, to capture significant shares of the Washington market, and top brands can be found on the shelves at any grocery store.

But the competition has not been kind to mom-and-pop liquor shops, especially those formerly overseen by the state.

“It’s hard for us little guys to stay in business,” said Diane Egger, the owner of Egger’s South Hill Liquor at 57th Avenue and Perry Street.

If it weren’t for loyal customers, a wide selection and promotions including free weekly tastings, Egger said, “we wouldn’t be here.”

Prices, sales climbing

Before privatization, Washington had nearly 330 liquor stores owned or operated by the government. Now there are more than 1,600 retailers across the state, and gone are the strict limitations on when liquor can be sold.

The increased availability has enabled liquor sales to spike and then continue on an upward trajectory, despite rising prices.

According to Washington’s Department of Revenue, retailers in the state sold more than 34 million liters in the fiscal year that ended in June, a 22 percent increase from fiscal 2012, before privatization.

A study published last year by the Alcohol Research Group in Emeryville, California, found that the average price of a 750-milliliter bottle in Washington had risen 15.5 percent. For 1.75-liter bottles, the study found, the average price rose 4.7 percent.

The average price of a liter of liquor in fiscal 2017, taxes included, was $25.85, according to the Department of Revenue. But the Alcohol Research Group study noted that prices vary widely by outlet, with some of the best deals found at superstores such as Costco and Walmart. Researchers concluded that “persistent drinkers looking for low prices will be able to find them in certain stores.”

Even before privatization, no state taxed liquor at a higher rate than Washington, according to the Tax Foundation, a think tank based in Washington, D.C.

That’s still true today because of provisions in the initiative designed to keep the state whole, including a 10 percent fee paid by distributors, which dropped by half in 2014, and a 17 percent fee paid by retailers. Those fees are effectively “built in” to the shelf price of liquor. Consumers also pay a 20.5 percent retail sales tax, or a 13.7 percent sales tax at bars and restaurants.

In fiscal 2017, Washington’s liquor taxes and fees added up to $31.48 per gallon, down from a peak of $35.22 per gallon three years prior, according to the Tax Foundation. In a distant second place this year was Oregon, where the liquor market is still tightly controlled, with a tax rate of $22.78 per gallon. Idaho, which also maintains a government monopoly, taxed $10.98 per gallon.

The high tax rate has resulted in a windfall for Washington’s government, even if it’s slightly less than state officials forecasted. In fiscal 2017, retail consumers spent nearly $879 million on spirits, and nearly $256 million of that is taxes due to the state, according to the Department of Revenue.

While good from a certain economic standpoint, increased sales have fueled concerns about minors’ access to alcohol, although the most recent Washington State Healthy Youth Survey, completed in 2016, indicates drinking among middle school and high school students has continued on a downward trend.

‘Washington effect’

Bargain seekers were visiting Oregon and Idaho for cheaper liquor long before Washington privatized its market.

But Jeff Anderson, the director of the Idaho State Liquor Division, said his state saw a dramatic spike in business after I-1183 took effect in 2012. In a presentation to Idaho lawmakers last year, he dubbed it “the Washington effect.”

While that spike has leveled off, Anderson said roughly 7 percent of Idaho’s spirit sales can still be attributed to customers from out of state. And that number is far higher at stores near the Washington border. A clerk at a state store in Moscow, for example, estimated 50 percent of its customers now come from Pullman and Colfax.

Keith Peterson, who’s run the Greenacres Liquor Store at 18309 E. Appleway Ave. for more than 30 years, said privatization decimated his business. His annual revenue once ranged from $5 million to $7 million, Peterson said, and now he’s lucky to take in $600,000 a year. He believes his proximity to the Idaho border – not competition from nearby supermarkets – is to blame.

“My (distribution) reps tell me I buy more alcohol than any of the grocery stores in the area,” Peterson said.

Plus, he said, his regulars won’t tolerate busy parking lots and long checkout lines if they can pick their spirits at his store and be on their way in a minute or two. That ritual played out several times one recent afternoon, with Peterson greeting several customers by name.

Many patrons who did abandon him for Idaho have since returned, Peterson said. Now that many rules have gone away and he doesn’t have to fill out inventory reports to the state, he said he has more leeway to help customers on an individual basis.

“We special-order a lot of stuff for people,” he said, adding, “Knowledge about what you’re selling is a major thing.”

Fee complaints

The real killer, Peterson said, has been the fee on retail sales, which he prefers to call a tax.

“None of us have been able to make ends meet with that 17 percent,” he said.

Egger, from the South Hill liquor store, agreed. She said the fee disproportionately affects small stores, which have less buying power when stocking their shelves.

“If I could bring in truckloads of product, I would do way better,” she said.

Egger added she’d rather pay a higher flat fee when renewing her liquor license each year. That way, at least, the amount she pays to the state wouldn’t change based on her sales.

Egger’s and Peterson’s stores, along with a third location in Medical Lake, are the only former state stores in Spokane County that still sell primarily liquor. Peterson said state stores in Liberty Lake and Millwood were quickly forced out of business after privatization.

After the state stores were auctioned off, the initiative allowed them to continue operating as long as they could. But new liquor retail stores must be at least 10,000 square feet, about the size of many Trader Joe’s locations.

To compete in this environment, Egger said she’s expanded her selection of fine bourbons, flavored bitters and hard-to-find liqueurs, all which have been in demand with the renewed popularity of craft cocktails.

“Our selection is what keeps us here,” said Carolyn Seim, Egger’s store manager.

Bars and restaurants still buy certain products from Egger’s, rather than from distributors. But to keep people coming in the door, she offers free samples of select spirits each Thursday and Friday from 4 p.m. to 7 p.m.

The fees are also a source of friction for distributors. Nathan Kaiser, the vice president of the Washington Distillers Guild, said it’s been tough for some distillers to get started in Washington.

“The trend is definitely going toward more craft and hand-crafted spirits,” said Kaiser, who in 2012 founded 2bar Sprits, a bourbon distillery in Seattle. “However, we can’t produce at a volume like the big guys. We make in a year what Jack Daniels or Jim Beam make in an hour.”

On the whole, however, privatization is a good thing, Kaiser said. It’s what allowed his business to flourish and sell bourbon across Washington (and also in Oregon and Idaho).

Hand, the Gonzaga alumnus, said he’s watched the effects of privatization with mixed feelings.

“It certainly makes things more convenient,” he said, “but it definitely has crunched a lot of people from a financial standpoint.”


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