Regulating Liquor: Axing the Government Liquor Store

Part three in The Oregonian's series on Oregon's liquor laws comes just at the moment we learn a little more about what's happening in Washington state, which ended the practice of government-run liquor stores.  The effect?
Liquor sales in Washington are up – way up. That’s according to new figures out Monday on the period after the state’s new privatization law took effect. They show July’s retail sales increased 21 percent over the previous year. And that’s despite higher prices on spirits.
Graphic: Wall Street Journal.
What has been surprising is that, along with the spike in consumption (not surprising--the old "control" model was engineered to suppress availability) Washington has also seen a spike in prices.  That's because, along with privatizing liquor stores, the state also jacked up taxes:
Even before privatization, Washington had some of the nation's highest liquor taxes and fees, at $26.70 a gallon. The national average is $7.02 a gallon, said the Tax Foundation, a research group. Washington state's levies included government stores' 52% markup, a 21% liquor sales tax and a $3.77-per-liter excise tax.

And while those sales and excise taxes remain under privatization, new fees further raised prices: Liquor distributors must pay an additional 10% levy, and retailers another 17%. Distributors also are on the hook for any shortfall to the state if they don't generate $150 million from the 10% fee by April.  (Wall Street Journal)
Washington knew that increasing the points of sale from 328 to 1500 stores would increase sales.  Both to try to put a cap on how much booze people bought and to raise revenues, the state's new taxes will blunt demand (or, as that Wall Street Journal article documents, drive customers to Oregon).  There were other consequences, some intended, some not.

The interests who forwarded Washington's law were big-box retailers led by Costco.  Distributors were the big losers in Washington's law, which allows Costco and other retailers to buy directly from distillers.  But small retailers, who are barred from selling liquor (Costco wrote the law so only stores of 10,000 square feet could sell liquor) were also losers.  Small distillers and vintners may also be losers--big retailers can now use their might to drive volume discounts, which hurt smaller companies that have less pricing flexibility.  There may be other consequences, too, like a further shift away from bars to home consumption, which would make publicans losers as well.

In one jarring move, Washington dramatically shifted the business of booze in Washington.  Voters had a lot of assumptions about what the law would do: they thought it would make booze more accessible--but not too accessible; they thought it would be good for family wineries and restaurants, that it would lower liquor prices, improve crime prevention, and raise new revenues for public services.  The early record is mixed, but it's clear things aren't playing out exactly the way voters intended.

Oregon leads the nation in artisanal beer, wine, and spirits.  We have an archaic liquor control model that has a contradictory mission--selling booze on the one hand while trying to control it on the other.  And we also have lots of big players who stand to make--or lose--a lot of money based on how the laws are structured.  I'd like to see Oregon tune-up the OLCC and potentially get out of the business of selling booze.  On the other hand, it was from within the current environment that our artisanal culture emerged and flourished.  Looking north to Washington, I wonder how small distilleries and wineries will manage.  The key is balancing the interest of producers with retailers (big and little, grocery store and bar).  No wonder no one has managed a complete overhaul in 78 years--it's complex, confusing business.

Your thoughts?