Note: Listen to KUOW’s Weekday Tuesday at 9am Pacific for a discussion of Initiative 1183. I will be discussing the wine related changes at about half past the hour.

This is part three of a series of posts on Initiative 1183. See Part I on Volume Discounting here, Part II on Central Warehousing here, and an overview of the changes proposed in the initiative here.

While Initiative 1183 is primarily about privatizing liquor sales and distribution along with changing laws to allow volume discounting and central warehousing, there are several other aspects of the initiative that bear mentioning. Some of these are not readily apparent without a close read of the initiative. Here I have listed several that stand out.

Retail-to-Retail Sales of Wine and Spirits

Initiative 1183 would allow retail-to-retail sales of wine and spirits for on-premise consumption. What this means is that restaurants would be able to go to a store, like Costco, and buy their wine and spirits if they desired to do so. They would then be able to sell this liquor at their restaurant. As many restaurants buy food from Costco, this provides added convenience. Of course, they would be paying Costco’s retail price, so this may not make economic sense unless this price is competitive with a distributors’ wholesale price. However, for Costco’s house brands, especially given volume discounting and central warehousing, it may well be. No single sale would be allowed to exceed 24 liters.

10,000-foot Floor Space Restriction

As has been widely publicized, Initiative 1183 restricts spirits from being sold at locations that have less than 10,000 square feet of floor space. The stated intent of this is to restrict spirits from being sold at convenience stores and gas stations. The initiative, however, does contain a provision that allows for stores of less than 10,000 feet if there is no other provider within a ‘trade area.’

It is worth noting that, while the 10,000 square foot restriction does eliminate most convenience stores and gas stations, it also prevents small, independent wine and beer stores from selling spirits unless they exceed the 10,000 square foot requirement or meet the trade area exception. This essentially means that Washingtonians will be able to buy liquor at private stores, but all of these stores are guaranteed to be large stores.

The graphic above from New Rules Project provides square footage comparisons of small to large businesses. Click on the graphic to enlarge the image.

Spirits Distributor Licensee Payments

By March 2013 companies with spirits distributor licenses must have paid $150M or more in spirits distributor license fees. If not, the Liquor Control Board must collect from licensees the difference based on the sales that they made during the 2012 calendar year. In this way, the state is guaranteed to make $150M. Some have argued that this may dissuade all but the largest distributors from entering the Washington market.

SB 5942

SB 5942, which would privatize the liquor distribution system but not sales, was passed by the state legislature earlier this year. According to reports, there are currently two bids to takeover distribution from the state. Many have argued (correctly in my opinion) that this long-term contract would just replace one monopoly with another.

Some conspiracy theorists out there have speculated that there will be an announcement about what company is awarded the contract in advance of Election Day in the interests of discouraging passage of 1183. If 1183 passes, SB 5942 is negated.

Next up on this issue, my own position on Initiative 1183.