Most people voted for Initiative 1183 because they wanted three things: more access, more selection and cheaper prices. At this point, the only thing they are getting is more access.
Before — when hard liquor was sold in state-run liquor stores — there was approximately 200 stores statewide. Now, there is pushing 2,000 outlets where hard liquor is available. The majority of these stores are stocking a small selection of the popular liquors. Shelf space is at a premium in at such grocery stores as QFC and Safeway so they had to reduce their wine inventory and shelf space to make room for the hard liquor.
So what wines do you think got moved out? The slow-selling wines, of course. Stores buyers are given “flex” space by their corporate-buying departments. That space has gone from an average of 30 percent of their wine (and now spirits) department to approximately 5 percent. Due to that reduction, there is no longer space for smaller, interesting, boutique items, both in the wine and spirits arena. The store is busy placing Grey Goose and Tanqueray, which have more name recognition than some lovely, little wine from a new Washington producer.
Adding up the taxes
The state was guaranteed it would not lose money by getting out of the business — based on the way Costco wrote the initiative to make sure people would vote for it.
Costco spent about $22 million to help the initiative get passed. I think, for Costco, this was the best investment it ever made. Unfortunately, the people got what they asked for.
To their surprise, this is expensive. The estimate of what needed to be replaced in the state budget was $150 million, and this is being accomplished in a few ways. Distributors pay 10 percent on all sales to the state. (Stores pay a 17-percent fee on sales to the Washington State Liquor Control Board for enforcement budgets — Costco put that in to make it seem “safer” so people who vote for this Initiative.) Plus, the customer (who ultimately pays for those two fees) pays a 20.5-percent Spirits Sales Tax at the till, as well as flat fee per bottle (depending on the size of the bottle), called the Spirits Liter Tax. This fee is $2.83 per 750 milliliters (a standard-size bottle).
If the taxes don’t add up to the $150 million promised the state, the distributors need to pitch in according to their market share and pay the balance owed the state for the first two years.
Ultimately, shelf prices may look slightly higher, but they will be approximately 22- to 25-percent higher when customers get to the register because of the extra taxes — except when stores will occasionally sell products at cost as a “loss leader” to get people into their stores who will also buy dish soap, coffee and other items.
Limiting inventory?
So why am I, a wine guy, going on and on about spirits? I saw the handwriting on the wall when it came to the fees and lack of shelf space. Some distributors will start charging more for wine, as well — it’s all about the case discount.
The smaller restaurants don’t want to wrap all their money into wine inventory so they will either pay more for a bottle or buy their wine by the case and reduce inventory. Once again, it will hurt the smaller places that don’t go through a large amount of inventory.
Obviously, everyone is still in the learning phase with the new law. I am cautiously optimistic that the smaller, boutique wineries and craft distilleries will make it through this incredible change relatively unscathed.
David LeClaire, founder and owner of Wine World & Spirits in Wallingford, said, “Just seeing just the products from the 30 local distilleries currently available will pique peoples’ curiosity…and get them interested in trying new spirits just like they do with the array of wineries in our state. Local distilleries are the new rage, with over 85 now licensed and 35 producing spirits already.”
JEFFREY DORGAN, the Washington Wine Commission’s 2009 Sommelier of the Year, is the wine director at Sullivan’s in Downtown Seattle. He previously worked at Willow’s Lodge/Barking Frog in Woodinville and at the Space Needle. He also co-owned Smash Wine Bar & Bistro in Wallingford and is a Capitol Hill resident.