The initiative in the state of Washington, called I-1183, seeks to “get state government out of the liquor business.”

I find the Control State situation a tough one to deal with in developing a point of view. Opponents say that it’s an anachronism reflecting prohibition-based values; government doesn’t belong in private enterprise; the world has changed in the 75 years since prohibition and there are ample other regulatory means to control the sale of alcohol; and on and on.

I feel differently about Washington.

First, I-1183 gets the state out of the liquor business and opens it up to stores measuring at least 10,000 square feet. The exceptions would be underserved areas and existing state run stores. But small boutique/specialty liquor stores will not exist.

Second, the initiative would make Washington the only state to allow retailers to buy directly from the distillers. In effect, the wholesaler role in the mandatory 3-tier system would change if not end. Guess who is pushing I-1183 and spending millions to promote it? Costco. (Their headquarters are in the state of Washington.)

That’s what bothers me. Don’t get me wrong, we love to shop at Costco and get all those juicy bargains. And, who knows, maybe one day in this decade we’ll finally use up the paper products that live in our spare bedroom. But Costco in the booze business isn’t all good.

Sure, the prices are terrific, so long as you buy what they want to sell in 1.75 liters (half gallon sizes). You don’t go to Costco for selection. Often, you don’t get the same brand twice. It depends on how badly they beat up the distiller in that time period. When I was at Seagram, we didn’t mind the abuse by Costco’s buyers, we got to move a lot of volume and even a few closeouts.

If Costco dominates the state’s liquor business what happens to the smaller brands? The northwest is the spiritual home of artisanal alcohol products. Small distillers in Washington are growing and their local liquor stores have a great selection of spirits. I would expect that to end if Costco starts running the show in the state.

Ironically, the initiative in Washington replaces the monopoly of state run stores with the oligopoly of the large distillers and the power and clout of Costco. I don’t think that’s a good thing.

Here we go again.

The press about initiatives concerning the privatization of alcohol sales has started to heat up once more. Looks like the Washington initiative will be back on the ballot; Ohio is pushing across the board privatization, not just alcohol; and Pennsylvania lawmakers are expected to file legislation that would auction off the state’s wine and spirits wholesale operations and liquor stores to private vendors.

But wait a minute… Didn’t I just read that the Pennsylvania Liquor Control Board  (PLCB) just reported record sales and contributions to the state treasury?

In fact, the control board hit $1.9 billion in sales (up 4%) and claims to be the largest buyer of wine and spirits in the US. The sales volume generated some $500 million in sales tax and profit transfers.

It seems to me that, in addition to being a monopoly, they have tried to use marketing efforts more like a private enterprise than government. They run ads (print, billboards and even radio); lots of price promotions; and have initiatives like an online store and supermarket wine and spirits kiosks.

But it’s a government enterprise and, as such, I’m not sure they speak marketing. Their ads are okay but hardly comparable to those run by large private enterprise retailers. Despite the blasé nature of their communication, the PLCB still gets criticized for running ads. Imagine how much louder the criticism would be if the ads were compelling.

Their retail initiatives are worth applauding even if Wegmans ultimately rejected the kiosk idea because of customer complaints.  According to Bloomberg Business Week, “customers who use the kiosks insert their identification, and a state worker at a remote location verifies it. The wine buyer must then use a breath machine to prove their blood-alcohol level is below 0.02.”

Where I come from all of this is referred to as “close, but no cigars.”

I don’t mean to be harsh, but government running a private enterprise – no matter how well intentioned and creative the employees are – just doesn’t measure up. The obstacles are too numerous and strong.

I read an article today that the wineries in New York have appealed to Sen. Schumer because the federal government is hurting business by taking too long to approve new labels for wine bottles. Schumer said, “Often, when wineries finally do receive feedback, it is with a rejected label and the necessary corrections. And, at that point, labels must be resubmitted and the process must begin again.” He went on to point out that delayed label approval means delayed sales that in turn means less tax dollars.

Maybe the folks in Pennsylvania should work for the federal Alcohol and Tobacco Tax and Trade Bureau (TTB).

There has been lots of press on the subject of privatization of state run stores with the focus on the state of Washington. For those of you who are unaware, there will be two conflicting initiatives on the ballot, one of which seeks to end the state stores. Here’s the way a local news blog described it.

There’s big money behind two efforts to privatize state liquor sales in Washington. Defenders of the status quo say the measures could end up costing the state hundreds of millions of dollars in lost tax revenue. Nonsense, say privateers.

Most of the comments to the blog seemed to support privatization.

The general and trade press has been all over this. Not surprising since many control states (not to mention suppliers and distributors) are looking at this closely.

But, what about the consumer? What does the alcohol shopper think of all this? Do they favor or oppose state run liquor stores?

The only pulse taking I’ve seen on the subject is a poll run by a research center at the University of Washington. Here’s the question they asked in the May, 2010 poll:

Another initiative that could be on the ballot in November would privatize alcohol sales. Currently hard alcohol can only be sold by the Washington State Liquor Control Board, but this initiative would allow alcohol to be sold at grocery stores and other places where beer and wine are already sold. Will you vote yes or no on the alcohol privatization initiative?

More than half (52%) of those polled said yes; 37% said no with the remainder presumably undecided. Interestingly, this spread of 15% among all voters turned out to be 21% among Republicans – 57% indicated yes and 36% said no.

I haven’t seen or conducted in-depth research on the subject but I would hypothesize that the consumer is indeed more in favor of privatization than the status quo. Obviously, attitudes will vary from state to state but in general, there are some consumer-based reasons that might be in favor of privatization:

• Convenience and the need for one stop shopping
• The perception that the overhead to run state stores can give way to more tax dollars
• Desire for less government involvement (see the Republican support mentioned above)
• Competition and better prices
• Belief that 70 years since the end of prohibition means less need for government to exert day to day control of sales

No value judgments here but I would guess that privatization, slowly but surely, will take over. Control States need to do a better job of telling their story and justifying their role in the booze business if they are to survive.

Have you been following the press about privatization of some Control States?

In case you haven’t, Wine and Spirits Daily (June 7^th edition) has a great score card on what’s been happening.

NABCA has issued a resolution in support of Control States. No surprise but people I’ve talked with have wondered why they didn’t do this some time ago. WSD reports that 4 states (NC, PA, WA and VA) are looking closely at privatization. So the debate must be getting serious.

I’m not sure I know how I feel about privatization.

Those who want to keep government involvement argue about jobs and the need for industry regulation or control in their jurisdiction. But the NABCA resolution states, “there is irrefutable proof that alcohol control systems have a positive public health and safety impact on their communities.” Does this mean that the 32 open states are not doing a good job in protecting health and safety? Or, that the industry, unless governed by state officials, will behave badly?

Follow the money. As WSD points out, in tough economic times, states will look to a range of resources to increase revenue including taxes, fees and privatization.

Hey, look at California – on the ballot this November is a voter initiative to legalize marijuana. The tax revenue from sales is seen as a way to help the state’s budget difficulties.

Interesting that the economic climate has created change in government’s involvement in the social climate. But I guess it’s always been that way.

Here’s a thought if you’re working in a state store that gets privatized – think about moving to California.