Looks like liquor prices to go up, over fees from Initiative 1183
The prospect of higher liquor prices after Initiative 1183 has distillers and distributors worried about making a profit while not driving away customers under the new system.
Seattle Times business reporter
One month before distributors start selling liquor to restaurants and bars in Washington, 15 companies have applied for licenses to distribute the spirits — and their discussions with distilleries indicate prices on liquor in Washington may climb.
Applicants range from a tiny beer and wine importer in Everett to some of the country's largest distributors, according to a list from the Washington State Liquor Control Board. Some, including Young's Market and Odom Southern, already warehouse liquor in Washington and supply it to the state's liquor-distribution center in Seattle.
Under voter-approved Initiative 1183, restaurants and bars can buy liquor directly from distilleries and distributors beginning March 1, and consumers will be able to buy it from private retailers starting June 1.
Because of fees mandated by the new law, distributors may charge such high liquor prices that some restaurants will continue buying from the state until its stores close, said Rick Steckler, president and co-owner of the Seattle-based beer and wine distributor Click Wholesale Distributing.
Although Click and other distributors plan to offer the convenience of delivering spirits along with wine and beer to a restaurant's door — something the state does not do — their prices could be higher than the state's by a couple dollars a bottle because of the 10 percent distributor fee imposed by I-1183, he said.
A 17 percent fee for retailers could contribute to an even bigger hike in liquor prices for consumers, he said. Washington already assesses higher taxes on liquor sales to consumers than to restaurants and bars.
When Costco Wholesale wrote I-1183, it added the 10 and 17 percent fees to help compensate the state and local governments for losing the state's liquor profits.
The prospect of higher prices has distillers and distributors worried about making a profit while not driving away customers under the new system.
"Distillers are afraid that if prices go up too much, they won't sell as much or people will trade down to less expensive items," Steckler said. "So they're looking at it every way they can to see how lean everybody can work."
Distributors could struggle for the first two years, after which their fee drops to 5 percent. But I-1183 also says that if distributor fees do not total $150 million by March 31, 2013, they must make up the difference.
The state's Office of Financial Management forecast the shortfall would be roughly $90 million, but that could vary depending on several factors, including whether distillers' fees are added to the pool when they sell spirits directly to retailers.
Dan Cho, who owns Co-Ho Imports in Everett, is concerned whether his tiny company can afford the costs, but figures the profit from distributing an Asian vodka-style drink called shochu will be worth it.
Because distributors will contribute to the shortfall in proportion to the liquor sales, he could be right.
Steckler, whose Click Wholesale is midsized, said, "If you can remain standing after the first couple years, you should be OK."
Like distributors nationwide, he opposed I-1183, but is now making the best of it.
He expects to lose wine and beer sales as those products are forced to compete with liquor on grocery shelves and in ads. Some of the small brands he represents also could be hurt because of the volume discounting that I-1183 allows.
"By getting into spirits, we can mitigate the losses we might be seeing on the wine and beer side of equation," Steckler said.
Melissa Allison: 206-464-3312 or firstname.lastname@example.org. On Twitter @AllisonSeattle.