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News & ArtsFriday, June 22, 2012
Booze The Clash of the Middlemen Continues: Costco Sues the State Liquor Control Board
Posted by Brendan Kiley on Fri, Jun 22, 2012 at 10:36 AM
This morning, the I-1183 coalition (Costco, the Washington Restaurant Association, and the Northwest Grocery Association) announced it had filed suit against the Washington State Liquor Control Board over a rule the WSLCB adopted on May 30.
The rule sounds a little wonky—retail-to-retail sales are restricted to 24 liters per day—but it has big implications for how much you'll be paying for liquor at your local bar. From a story on 1183 we ran back in March:
The biggest fight at the moment, according to pretty much everyone paying attention, is over an ambiguous phrase in the initiative that restricts the volume of sales from one retailer to another. That is, it would limit businesses like Costco from selling more than three cases of liquor at a time to a bar or restaurant, which is partly what they raised $22.5 million hoping to do. According to the initiative, "no single sale" from one retailer to another "may exceed twenty-four liters" (three cases).
Now the three members of the Washington State Liquor Control Board (WSLCB) are trying to decide what a "single sale" means. Costco argues the rule should stand as written—a "single sale" is a single sale, and on any visit to Costco, a bar may make as many three-case, retail-to-retail purchases as it likes.
Meanwhile, the two big liquor distributors, Young's Market Company and Southern Wine & Spirits, are lobbying the WSLCB to rule that "single sale" means one sale per day, effectively shutting Costco out.
On May 30, the WSLCB decided on the latter interpretation, meaning Costco can't sell more than three cases of liquor per day to bars and restaurants. That's made Southern and Young's happy, Costco got pissed, and now they've filed suit.
A spokesman for the WSLCB said he couldn't comment on the issue since it was now in litigation. "It's a touchy issue for everyone," said Steven Stone of Sound Spirits Distillery. (He's also president of the state distiller's guild.)
"Costco would like to be a distributor and if they can deal directly to bars and restaurants. They have direct relationships with suppliers, that would allow them to pass savings onto bars and restaurants... On the other side of the fence are the distributors. In all other states, they have a three-tier system: manufacturers, distributors, and retailers. They have to be separate businesses and one tier can't move into another tier's world."
But adding a second tier—the distributors as middlemen—always adds one level of markup, which increases prices to bars and restaurants, which will probably be forced to raise their drink prices.
If Costco—I mean, the 1183 coalition—wins the suit, it will be basically be in the distribution game, competing with Southern and Youngs. If it loses, Southern and Young's will continue to enjoy their market duopoly.
The lawsuit has been filed against the WSLCB, but that's just the proxy battlefield for the ongoing war between Costco and the gargantuan liquor distribution companies.
3
Keep it from kids, and that's that. States with less restrictive laws are not littered with drunks on every corner.
4
Chickens: home to roost. I'm with Mr. Szilagyi, this is stupid and makes all of us look stupider. It also makes Costco look stupid, as they had a huge hand in crafting the initial language in the initiative, yes?
5
The fact is, the people who hire the people to make the laws don't give a fuck about practicality or common sense. They want money & power. That's what this issue is about. It has nothing to do w/ alcohol itself. It could just as easily be an issue of toothpaste.
9
You *do* know that just because @3 thinks the booze blue laws are archaic doesn't mean that he doesn't think the same of weed blue laws.
In order to make the initiative "revenue neutral," Costco wrote in a provision that saddled distributors with a whopping license fee and the burden of making up any shortfall in $150 of expected state revenue by the end of the year.
Then Costco conveniently added a provision allowing themselves to entirely circumvent the above distribution system. Thus the whopping increases in liquor prices everywhere except Costco.
Now Costco sues for the right to act as distributors/wholesalers in every way but in name.
And the state's interpretation is "arbitrary and capricious", @7!!?
Jesus, people here are dumb.
12
All they have to do is spin off a subsidiary (let's call it Boozeco) that distributes liquor but has no retail business. Then the "real" Costco is only a retailer. Problem solved.
Boozeco distributes to Fred Meyer, Bartell, mom-and-pop, ... and Costco. Costco pays Boozeco just like everyone else, but of course it's actually doing little more than an internal transaction.
Viva small business!
Which Costco doesn't. At any point in its supply chain.
Because Costco wrote it that way.
So Boozeco wouldn't get to enjoy the whoppingly unfair competitive advantage that Costco does. Which would be just terrible!
21
I suppose Whole Foods could have done something like what I suggested for Boozeco -- spun off a subsidiary that incorporated in Massachusetts. Maybe that's pretty much what TJ's did.
Or perhaps they could have "rented" space in those three locations to a Massachusetts person (who just happens to be closely associated with a higher-up in their MA operation).
As I understand it, Massachusetts does a pretty good job of cross-referencing corporate directors, so that the same person couldn't be on the board of directors of 20 different shell companies that would operate 60 stores.
Regardless, I really like the Massachusetts policy, which puts TJ's and Shaws on equal footing with the specialty stores.
That's not called "fucking random". That's called fucking lying.
And learn to punctuate, dumbshit.
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