Will Washington Privatize Wine Sales?

Costco-backed November ballot initiative will revisit restrictive state laws

by Peter Mitham
washington liquor
Washington Initiative 1183 would close state liquor stores and sell their assets. Voters will decide the future of the ballot item Nov. 8.
Olympia, Wash.—Washington state residents will have another chance to vote for reform of the state’s liquor regulations when they go to the polls Nov. 8. The ballot will include Initiative 1183, a sequel to last year’s unsuccessful Initiative 1100, which also had been spearheaded by Costco Wholesale Corp., the leading proponent of I-1183. Voters rejected I-1100 with 53.47% opposed and 46.57% in favor.

Voter opinion will be tested this fall with I-1183, which “would close state liquor stores and sell their assets, license private parties to sell and distribute spirits, set license fees based on sales, regulate licensees and change regulation of wine distribution.”

The wording is simpler than I-1100, which aimed to end the state’s “Prohibition-era monopoly” on sales of distilled spirits, as well as its sales of beer and wine. According to the Washington Wine Institute (WWI), I-1100 would have repealed all “of the equal-access-to-market provisions in our current laws and goes further than any other state in the country to deregulate wine distribution.”

Critics claimed it attempted to do too much, and when put to the voters, the initiative went nowhere. Or, as Wines & Vines’ Headline read the day after the vote: “State of Washington Wine Industry: The Same.”

“It literally red-lined the statute,” said Marty Clubb, president of the institute and owner of 36,000-case L’Ecole No. 41 in Walla Walla. “This time (the initiative) is very specific.”

What would I-1183 do?
The new initiative would preserve many of the refinements to liquor retailing legislation that the WWI has sought over the years. Terms for wine sales would remain cash on delivery, and tied-house laws be preserved.

The most controversial points are provisions for volume discounts and central warehousing.

I-1183 would eliminate uniform pricing and allow discounts under any number of circumstances, including “competitive conditions, costs of servicing a purchaser's account, efficiencies in handling goods” and other factors.

“Many smaller wineries don’t like that, for understandable reasons,” Clubb told Wines & Vines, it’s a situation that already exists in many jurisdictions.

“It’s almost become a fact of life in some marketplaces,” he said. “I think the comfort level with some of this depends upon your business model.”

Retailers would also have the right to accept wine deliveries at the shop or at one or more registered warehouses in the state. The regulations governing warehouses would give out-of-state wineries direct access to the Washington market.

Clubb said the fear is that such centralized warehouses would diminish the number of products some retailers carry, increasing competitive pressure to access fewer retail channels. He conceded the concern is understandable in a market where economic uncertainties have raised the specter of a double-dip recession.

“The competitive financial pressures are very large today,” he said. “We’ve had wineries go out of business under the rules that are currently on the playing field, and more competitive rules are going to make that challenging for small brands.”

Family wineries vulnerable
Clubb said the “smaller artisan family winery” is most vulnerable to greater competitive pressure, but the Family Wineries of Washington State, which champions a liberalized business environment for wineries in the state, has signed a statement in favor of the initiative. The key opponent of the initiative is Protect Our Communities, which also opposed last year’s privatization initiatives.

The initiative follows the industry’s success in preventing direct shipping by out-of-state retailers, wholesalers and important to Washington state consumers. “The bill would allow virtually anyone to ship wine: out-of-state distributors, retailers, importers, wineries—anyone with a liquor license in any state,” Clubb told legislators this spring. “This would put Washington retailers and distributors that currently follow Washington laws at an unfair economic disadvantage.”

Canada considers interprovincial shipments
Meanwhile this week, Canada made its own move toward liberalizing rules governing interprovincial movement of wine. Bill C-311, introduced by Okanagan-Coquihalla member of Parliament Dan Albas, would amend Canada’s existing Importation of Intoxicating Liquors Act and allow consumers to transport or import wine from other provinces as long as the wine is for personal consumption rather than resale or any other commercial purpose.

Canada’s prohibition on interprovincial movement of liquor has attracted much attention in recent years with the development of a vibrant domestic wine industry and the rise of online marketing and sales channels. The issue was a hot topic prior to Canada’s federal election in May, which saw Albas elected to parliament for the first time (see “Canada’s Wine Industry Wants a Vote,” April 4, 2011).

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