Some costs going up Friday as private retailers take over liquor sales
Starting Friday, private retailers will begin to sell liquor instead of the state.
Seattle Times business reporter
Consumers will pay more for many types of liquor beginning Friday, when private retailers can sell spirits in Washington for the first time since Prohibition ended.
The price hike, which a wholesalers trade group says could be 15 to 35 percent, comes as a shock to retailers and restaurateurs. But wholesalers say they need to cover increased costs and new investments.
Dick Montoya, owner of Señor Frog's restaurant and bar in Lake Chelan, is stocking up on liquor from his local state store to avoid the large price increase he is facing from a wholesaler.
"Now that the government is out of the business, what have we created? Something worse," he said. Costco Wholesale, the main sponsor of Initiative 1183, the voter measure that privatizes the state's liquor business, indicated its prices will be about 5 percent below the state's on items such as a 1.75-liter bottle of Jack Daniels ($48 after taxes) and Grey Goose vodka ($61).
But, because of its buying power, Costco's prices are not typical, and its 27 Washington warehouses will carry only about 70 liquor products.
About 1,500 retailers have applied to sell liquor in Washington — up from roughly 350 state-owned or state-contracted liquor stores before June 1.
Retailers and wholesalers are bickering about the expected price increases almost as fiercely as they debated the voter initiative last fall. Still, prices are expected to drop as the market settles and the charges that wholesalers must pay the state decrease.
"(Wholesalers) know this is their time to price gouge because competition in the marketplace is going to force prices down," said Joe Gilliam, president of the Northwest Grocery Association, which represents Costco and other grocery stores.
Wholesalers, which fought the voter measure, say the increases are necessary to cover the cost of new fees on them and retailers.
"(Gilliam) is wrong, and if I were you, I'd insist on some hard evidence before passing on that kind of remark," said John Guadnola, executive director of the Washington Beer & Wine Distributors Association.
He hears prices could jump by up to 15 to 35 percent.
"Go back to the (state's Office of Financial Management) report from before the last election to see their estimates of how the initiative will affect prices," he said. "They said markups could well go as high as 72 percent."
That estimate included 27 percent in fees the voter measure imposes on wholesalers and retailers to make up for the state closing its lucrative liquor business. (The wholesalers' fee will decrease in 2014.)
The state estimated retailer and wholesaler markups together might total 25 to 45 percent at first. The effect on a bottle of liquor would vary widely depending on its base cost, but one example shows a 25 percent markup on a bottle that now costs $15.95, resulting in a 10-cent price decrease.
Guadnola said such a low markup — 25 percent — would not give retailers or wholesalers enough money to cover their new fees, not to mention the more than $100 million wholesalers have invested to sell, warehouse and deliver spirits. They've also added more than 550 full-time jobs, he said.
Montoya, who has owned Señor Frog's since 1978, said prices to restaurants and bars from one major distributor, Southern Wine & Spirits, are about 17 percent higher than the state's, and considerably more in some cases. For example, a 1.75-liter bottle of Silver Patrón tequila, he said, is going from $80 to $105.
"People in the restaurant business are either going to have to take the brunt of it or raise the price," he said. "I don't think that's right, especially because the citizens of this state I think believed that getting the state out of the business and making it, quote, 'competitive' in the private sector would've brought the price down."
Southern officials did not return calls.
Young's Market, the state's other major wholesaler, also declined to talk but provided examples of its prices to restaurants on four popular products, and three of them — 750-milliliter bottles of Bacardi Superior, Seagram's Vodka and Jack Daniels — are lower than the state's prices.
It's hard to know if that's representative, but it does not mesh with what restaurant owners are saying about overall pricing.
Bruce Beckett, head of government affairs for the Washington Restaurant Association, which lobbied with Costco for the voter measure, said some restaurants are considering alternatives to the two major wholesalers and their top name brands.
He declined to name them, but said "really big restaurant chains are turning to the craft distilleries now."
So are smaller grocery chains such as Metropolitan Market, which figures at least 70 percent of the liquor on its shelves will not be available in large chain stores.
"The good news is, the state will make more money per bottle than they do today because they're losing all their overhead," said Darrell Vannoy, Metropolitan's vice president of sales and merchandising. He plans to post signs showing customers where their liquor dollars are going.
Costco Executive Vice President John McKay expects the competition among distilleries to drive down prices over the next few months.
He speculated that by charging higher prices, wholesalers are trying to make enough money upfront to compensate for a big payment they could owe the state next year; the liquor initiative established that if wholesalers' 10 percent fees do not equal $150 million by March 2013, the industry must make up the difference.
"We think we know what they're paying, and their markup seems very, very high. I can only guess they're trying to pay for the $150 million on the front side," McKay said.
Solomon Seyoum, of Lynnwood, who has prepared business plans for several would-be owners of the state's existing small liquor stores, said he doesn't understand why wholesalers do not absorb more of their startup costs.
"Their business is quadrupling from 300 to 1,400 retailers. They could easily absorb (the new costs)," Seyoum said.
At a recent meeting with Young's Market, Seyoum asked why prices have to go up so much.
He said the reply from a Young's official was: "Consumers voted for it."
Melissa Allison: 206-464-3312 or firstname.lastname@example.org. On Twitter @AllisonSeattle.
Seattle Times staff reporter Justin Mayo contributed to this report.