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Originally published June 5, 2012 at 9:11 PM | Page modified June 6, 2012 at 6:14 PM

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Buyer's remorse over end of state stores as liquor prices rise

In an informal, unscientific survey conducted online over the past several days, The Seattle Times found that liquor prices on the whole increased for 13 of the 20 most-popular brands in the state. Nearly 90 of 170 prices reported by Times readers were higher than they were at state liquor stores before privatization. Slightly fewer prices — 82 — were lower.

Seattle Times business reporter

Don't forget the taxes

Unlike list prices at state-run liquor stores, most numbers on the shelves of private retailers do not include two taxes applied at checkout: Washington's 20.5 percent spirits sales tax and a $3.77 liter tax ($2.83 for a 750-milliliter bottle or $6.60 for 1.75 liters).
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Washington state's new liquor-privatization law is challenging the basic idea that competition leads to lower prices.

Less than a week after a historic change to liquor sales in Washington, many customers are complaining about bigger-than-expected prices, while retailers say the change has been popular among others.

In an informal, unscientific survey conducted online over the past several days, The Seattle Times found that liquor prices on the whole increased for 13 of the 20 most-popular brands in the state.

Nearly 90 of 170 prices reported by Times readers were higher than they were at state liquor stores before privatization. Slightly fewer prices — 82 — were lower.

Although privatization has been in effect only since Friday, some consumers say they already miss the old system of state-run liquor stores.

Voters last fall approved Initiative 1183, leading the state to give up its control of liquor sales after 78 years. More than 1,600 supermarkets, pharmacies and other private retailers have applied for liquor licenses, nearly four times the number of state-owned and state-contracted liquor stores.

Lynnwood retiree Bill Jessberger, who voted for I-1183, says he now wishes he hadn't.

"I was hoping to get cheaper prices, and they're not cheaper. They're more expensive," Jessberger said Tuesday. "Unfortunately, the initiative didn't do what I thought it would."

The state charges a spirits sales tax of 20.5 percent — more than double the rate for regular merchandise — plus a $3.77 liter tax. That equals $2.83 for a 750-milliliter bottle or $6.60 for 1.75 liters.

While those taxes are the same as before I-1183, many shoppers were unaware of them until now, because the state's stores included them in their list prices.

Supermarkets, by contrast, display pretax prices for virtually everything they sell, including liquor, causing confusion among customers accustomed to paying the advertised amount.

"The prices are lower, but they're going to hit you with taxes at the register," said David Elliott, 52, of Des Moines, browsing the new liquor section at Costco's Seattle store Friday.

Pointing to a 1.75-liter bottle of vodka advertised for $32.99, Elliott did some quick math in his head to estimate an after-tax price of $44, close to the actual price of $46.35.

In any case, he passed on the vodka, noting, "I'm mainly here to see what the prices are."

Confusion occasionally has given way to anger, some of it even directed at Washington's Liquor Control Board.

"I've had some pretty nasty emails forwarded to me," board spokesman Brian Smith said. "I think people just assumed that it was our fault that the costs went up when the private sector took over."

One explanation for why liquor prices may be higher under I-1183 is that the law imposes a 17 percent fee on retailers and a 10 percent fee on distributors. (The distributor fee will drop to 5 percent after two years, but the retailer fee will stay as is.)

The law also requires distributors to make up the difference if their fees do not total $150 million by early 2013.

"Theoretically, any retailer could absorb the costs of those fees, but they typically pass them on to the consumer," Smith said.

Costco, a main backer of I-1183, acknowledged the change has not led to the price declines many people expected from an industry no longer monopolized.

"In real terms, most retailers are charging more for the same items, and Costco is not," said Joel Benoliel, Costco senior vice president and chief legal counsel.

"We're being very careful to charge less, including taxes, than what people were paying in liquor stores. But we're sacrificing margin to do that."

Some retailers dispute the notion that the changeover has been unpopular with customers.

"We have signage that details the taxes applied so that they know what's on the shelf tag isn't the final price," said Melinda Merrill, a Fred Meyer spokeswoman. "It's been really good — positive comments and strong sales."

For those upset about price increases, Merrill urged patience.

"It's not just a black-and-white switch from the old system to the new system," she said. "There still are pieces of the old system that cause prices to be higher, and they'll shake out over time."

Another complaint is that private retailers don't offer as much variety as the state's liquor stores, which sold more than 1,000 spirits products.

Bill Stankus, 67, of Woodinville, said he has visited a half-dozen supermarkets in the past few days and was disappointed in the selection.

"I can get through the rest of my life and never have another drink, but I enjoy making cocktails. I enjoy people going, 'Oh, this is tasty, and it's purple!' " Stankus said. "If those ingredients are hard to find, we'll probably go back to gin and tonics."

Costco's Benoliel predicted retailers will adjust their liquor strategies to better appeal to customers.

"We had a monopoly before. Now we're going to have wide-open competition," he said. "People who are sitting on too high of a price are going to have to adjust. ... The marketplace will correct itself."

Amy Martinez: 206-464-2923

or amartinez@seattletimes.com

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