Washington state's new liquor-privatization law is challenging thebasic idea that competition leads to lower prices. Less than a week after a historic change to liquor sales inWashington, many customers are complaining aboutbigger-than-expected prices, while retailers say the change hasbeen popular among others. In an informal, unscientific survey conducted online over the pastseveral days, The Seattle Times found that liquor prices on thewhole increased for 13 of the 20 most-popular brands in the state. Nearly 90 of 170 prices reported by Times readers were higher thanthey were at state liquor stores before privatization. |
Slightlyfewer prices — 82 — were lower. Although privatization has been in effect only since Friday, someconsumers say they already miss the old system of state-run liquorstores. Voters last fall approved Initiative 1183, leading the state togive up its control of liquor sales after 78 years. More than 1,600supermarkets, pharmacies and other private retailers have appliedfor liquor licenses, nearly four times the number of state-ownedand state-contracted liquor stores.
Lynnwood retiree Bill Jessberger, who voted for I-1183, says he nowwishes 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 — morethan double the rate for regular merchandise — plus a $3.77liter tax. That equals $2.83 for a 750-milliliter bottle or $6.60for 1.75 liters. While those taxes are the same as before I-1183, many shoppers wereunaware of them until now, because the state's stores included themin their list prices.
Supermarkets, by contrast, display pretax prices for virtuallyeverything they sell, including liquor, causing confusion amongcustomers accustomed to paying the advertised amount. "The prices are lower, but they're going to hit you with taxes atthe register," said David Elliott, 52, of Des Moines, browsing thenew 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-taxprice of $44, close to the actual price of $46.35. In any case, he passed on the vodka, noting, "I'm mainly here tosee what the prices are." Confusion occasionally has given way to anger, some of it evendirected at Washington's Liquor Control Board. "I've had some pretty nasty emails forwarded to me," boardspokesman Brian Smith said.
"I think people just assumed that itwas our fault that the costs went up when the private sector tookover." One explanation for why liquor prices may be higher under I-1183 isthat the law imposes a 17 percent fee on retailers and a 10 percentfee on distributors. (The distributor fee will drop to 5 percentafter two years, but the retailer fee will stay as is.) The law also requires distributors to make up the difference iftheir 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 notled to the price declines many people expected from an industry nolonger monopolized.
"In real terms, most retailers are charging more for the sameitems, and Costco is not," said Joel Benoliel, Costco senior vicepresident and chief legal counsel. "We're being very careful to charge less, including taxes, thanwhat people were paying in liquor stores. But we're sacrificingmargin to do that." Some retailers dispute the notion that the changeover has beenunpopular with customers. "We have signage that details the taxes applied so that they knowwhat's on the shelf tag isn't the final price," said MelindaMerrill, 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 thenew system," she said. "There still are pieces of the old systemthat cause prices to be higher, and they'll shake out over time." Another complaint is that private retailers don't offer as muchvariety as the state's liquor stores, which sold more than 1,000spirits products. Bill Stankus, 67, of Woodinville, said he has visited a half-dozensupermarkets in the past few days and was disappointed in theselection.
"I can get through the rest of my life and never have anotherdrink, but I enjoy making cocktails. I enjoy people going, 'Oh,this is tasty, and it's purple!' " Stankus said. "If thoseingredients are hard to find, we'll probably go back to gin andtonics." Costco's Benoliel predicted retailers will adjust their liquorstrategies to better appeal to customers. "We had a monopoly before.
Now we're going to have wide-opencompetition," he said. "People who are sitting on too high of aprice are going to have to adjust. ... The marketplace will correctitself." Amy Martinez: 206-464-2923 or firstname.lastname@example.org.
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