Privatizing Liquor Sales – Is Oregon Next?

Washington voters said they want to buy booze in grocery stores. Will Oregon be next?Expect politicking to begin in Oregon following Washington voter approval Tuesday of a Costco-bankrolled ballot measure to privatize state-run liquor stores and allow consumers to buy booze in grocery outlets.

Oregon has a similar liquor monopoly that purchases, distributes and sells distilled spirits. Despite grumbling and enterprising residents who pick up a trunk load of their favorite liquors in California or Nevada, there hasn't been much effort to remove the state monopoly. With the victory in Washington, don't be surprised to see that grumbling bubble to the surface in either significant legislation or a like-kind ballot measure.

Costco, which is based in Issaquah, Washington, dropped the lion's share of the $23 million contributed to pass Initiative 1183. It hasn't given any indication it will look to Oregon next, but most observers think it is logical to assume it would so it can consolidate purchasing for all of its West Coast outlets.

Joe Giliam, president of the Northwest Grocery Association, attributed the success of the initiative to convenience. "The voters would really like to have this convenience," Gilliam said.

Convenience is the reason why the Oregon Liquor Control Commission has experimented with placing state-run liquor stores inside grocery stores. OLCC has expressed interest in broadening the experiment, and the Washington vote on I-1183 probably provides additional impetus.

Passage of the Washington ballot measure may not be the last word. Washington operates 328 liquor outlets, about half run by state employees and the rest through contractors. State officials must close 164 state-owned stores and lay off more than 900 employees, who are members of a union. The 159 stores managed by private contractors may compete for licenses to continue to operate.

The Washington State Liquor Control Board will stop selling liquor by June 1, 2012, which will set off a scramble to open 1,100 additional stores, each with at least 10,000 square feet of retail space, as per provisions of I-1183.

The board will remain in place, but its role restricted to preventing alcohol abuse, especially sales of liquor to minors. State officials noted in the campaign over I-1183 that state-run liquor stores have 94 percent compliance rate for selling to minors compared with just 77 percent in alcohol sales at retail outlets and restaurants.

Chances are good the dust will settle enough for the issue of privatizing Oregon's liquor monopoly to arise in the 2013 legislative session. Failure to win legislative approval then could lead to an initiative drive.

In addition to the concerns over increased access to liquor by minors, Oregon policymakers must weigh the profit the state generates by being in the liquor business, especially as younger adults have switched from beer to cocktails. A recent OLCC document notes during fiscal year 2010-2011 it turned over $101.3 million to the state's General Fund, almost $70 million to cities and counties and $8 million to community mental health and substance abuse programs.

Privatization of liquor sales also presents repercussions within the alcohol industry. How will it affect distributors who now focus on beer and wine? Where will the shelf space come from in grocery stores for distilled spirits and will it shrink available space for beer and wine? Will privatization attract high-volume, price-sensitive alcohol retailers that could cut into sales for, among others, wine shops that offer a wide range of varietals and labels?

For Oregon, one of the more intriguing potential impacts of privatization is on the growing number of local distilleries. Will there be enough space for them on shelves or will they be overwhelmed by the better known brands?

Oregonians can expect the debate to show up at a grocery aisle near them very soon.