This is the second of two posts detailing the thoughts of individuals in each of the three tiers on Initiative 1100 and how they believe it might affect their businesses and consumers. Here, I look at how the changes might affect distributors, retailers, and restaurants giving representative quotes from each group. Read part I here.
The quotes below represent thoughts from small to mid-sized distributors. While I attempted to solicit opinions from some of the state’s larger distributors, I did not receive a response. Note that I also did not receive any ‘for’ responses for Initiative 1100, which is not to say that they don’t exist within this sector.
Small to mid-sized distributors are likely to feel the squeeze if Initiative 1100 passes, as large retailers like Costco would be able to go around them to distribute liquor. Some people I spoke with saw Initiative 1100 as a direct threat to their business. Others felt that it would simply change their business. All thought that the distribution system overall would survive because it is necessary. Many felt that there would be significant consolidation of small to mid-sized players. There were varying thoughts about what the effect might be on consumers.
One small distributor I spoke with, who preferred to remain anonymous, is against Initiative 1100. He expressed particular concern about eliminating Cash on Delivery (COD) and allowing volume discounting. He says, “I cannot offer either and can’t compete on that level with those that do.” He said that he has had several retailers tell him that if he cannot offer volume discounts if 1100 passes, they will go directly to the winery to try to receive these discounts. He expects that this would effectively put him and his employees out of business.
Lisa Wareham, CEO Ledbetter Distributing which focuses on craft beer (she is also co-owner of Waterville Wine Company), is against Initiative 1100. She says, “It is hard enough to fight for shelf space that is ‘owned’ by the larger distributors already. They choose what products go in those coolers just as much as the storeowner does. It’s not legal but it happens. My products are constantly moved to lower shelves and such my fear is it will only get worse.”
Peter Dow, President of Cavatappi, is also against Initiative 1100. He believes issuing credit to retailers will increase the cost of business and that this cost will subsequently be passed on to consumers.
Michael de Maar, President of Vinum, is also against 1100. He believes that there should be reform of the industry but that the changes should be driven through the legislature. De Maar believes that several of the provisions in Initiative 1100 will limit the variety of wines consumers see. De Maar says, “It (1100) will probably make the wine environment much more generic. You’re going to see the same wines everywhere. We’re already seeing situations where the buyers at some places have limited or no personal discretion. The local buyer has increasingly limited ability to do anything other than that which is mandated corporately.”
De Maar also has concerns about the effects of removing COD. He says, “Talking to a distributor in the California market, their biggest account has one hundred fifty day terms. He doesn’t have a choice. If he doesn’t do it he’ll lose them. Small to mid sized players in the game can’t do that.” De Maar noted that other states that do not require COD have protections written into the laws if retailers don’t pay distributors promptly, such as not allowing the retailer to continue to purchase from other distributors. No such language exists in Initiative 1100.
The landscape for retailers would change dramatically. They would be able to sell spirits (assuming they obtained the proper licenses) and they would be able to ask for promotional material, volume discounts, and credit.
Here, I quote at length two Washington retailers who sent their customers position pieces on these initiatives (both quoted by permission). One is against Initiative 1100; one is for.
West Seattle Wine Cellars is against Initiatives 1100. In a message to their customers, proprietors Tom DiStefano and Jan Martindale write, “We believe that the passage of (Initiatives 1100 or 1105) would severely and negatively impact small wineries and wine retailers in the state.” They continue, “Our concern is not about whether or not to allow liquor to be sold in grocery stores and we have no way of knowing what the broader implications might be on state revenue. What worries us, and many small winemakers throughout the state, is the radical deregulation that is included in these two initiatives. Both are geared towards the success of massive companies whose business model is based on deep discounts, designed to drive small competitors out of business. The consumer might benefit if it means lower costs, but favoring mass-market production and sales would eliminate choice in the marketplace.” They finish by saying, “small wine shops like ours foresee being unable to survive if we are no longer able to buy wine at the same price as places like Costco and Wal-Mart (sponsors of I-1100). The concentration of distribution would greatly reduce the number of wines available to us.”
Doug Charles of Compass Wines in Anacortes supports Initiative 1100. In a message to his customers he writes, “By offering bulk discounts to larger retail concerns with centralized warehousing, large brands with the ability to provide steep volume discounts will be the primary focus as ‘discount’ brands, removing them from the ‘premium’ brand category. Those consumers who specifically target inexpensive wine at these large box stores will find fewer selections there at cheaper prices, but they will not find as great a selection of premium brands as before. Those looking for premium brands will be forced to shop elsewhere to find the wines that they are accustomed to purchasing. Other retailers are less apt to carry the discount brands as they will no longer be competitive on these labels, and will broaden their selection of other wines to remain competitive as a whole. This will provide greater selection to the consumer in these outlets.”
Charles continues, “Perhaps the most compelling argument is that quality products will always be in demand. Wine is a product that is not driven specifically by price. As bulk pricing, centralized warehousing, and joint advertising were implemented in California years ago, we have yet to see any negative impact on small, boutique wineries. As long as the product is of high enough quality to demand respect by consumers, there will be a market for it. As the laws are now written, we are under no obligation to buy small wineries products, but choose to do so due to quality, diversification and to separate us from other retailers regardless of price. I-1100 will not change this practice at all.”
Restaurants stand to be significantly affected in Initiative 1100 passes. At present, they must purchase spirits from the state. This would no longer be the case. Additionally, they would be able to negotiate volume discounts, promotional items, and credit terms. Those I spoke with supported Initiative 1100. This is not to say that there are not those who are opposed.
Jake Kosseff, Company Wine Director of Wild Ginger and The Triple Door, is for Initiative 1100. Kosseff says, “The state does a horrible job of selling liquor. We (restaurants buying wholesale) pay some of the highest prices in the country, the state doesn’t deliver (we have to hire another company to deliver the liquor for us), and the selection and supply are beyond poor. The state has no motivation to improve because they have no competitors. Letting suppliers sell us liquor would improve prices, service, and selection. The same would be true of letting independent stores sell liquor to consumers.”
Kosseff also believes that restrictions in the way alcohol is sold should be removed. “It is absolutely a given in any other business that a customer can negotiate with a supplier, and there is no reason why this shouldn’t be the case in wine, beer and spirits. This would be good for suppliers at all levels including small producers,” he says.
Kosseff does have one concern however. “The one legitimate concern with 1100 is that it allows retailers to purchase wine, beer and spirits on credit. This could harm some small wineries and brewers who count on the cash flow of COD purchases. However, 1100 doesn’t require anyone to sell on credit, and good wineries and breweries will still be able to sell wine and beer however they like. This is no different from selling to a distributor, which has always been done with credit. Credit will also allow restaurants and retailers to buy more, which will be good for the small guys in the long run.”
Chad Mackay, President and COO of Mackay Restaurants (El Gaucho, Waterfront Seafood Grill, Inn at El Gaucho) is also for 1100. Mackay says, “The current rules are setup for the benefit of the incumbents. Competition in a diverse market place has room for many more startups and choices than we have now.” Mackay says it’s time to “get rid on the monopolies imposed by the three tier system.”
Tomorrow, my final thoughts on Initiatives 1100 and 1105. Read previous posts on both initiatives here.