Washington retailers selling spirits have had a little more than one year to adjust to their roles in the state’s private liquor system, and the new marketplace has produced mixed reactions from those involved.

The state is raking in millions of dollars in tax revenue, large-scale retailers are reporting thousands of dollars worth of net liquor sales and consumers have far more outlets to choose from to buy spirits.

Yet prices today are higher than they were before privatization, greater competition among distributors has hurt business for some small operators and groups concerned about alcohol’s negative social impacts worry about the implications of making liquor more widely available.

Retailers sold 26.6 million liters of spirits between June 1, 2012—when Initiative 1183, which shifted liquor sales from state-run stores to privately owned ones, took effect—and the end of March 2013, an increase of 6.4 percent from the same period one year earlier, according to the Washington State Department of Revenue.

Costco stores are dominating sales across the state. The grocery chain gave massive financial help to I-1183 during the 2011 election. Costco spent about $22 million in an effort to get the measure passed.

Bellingham’s Costco, which brought in $1,588,514 in net liquor sales from June 1 to Dec. 31, 2012, had the highest sales out of all Whatcom County stores and also ranked 11th out of all stores in the state during the same time period, according to the Washington State Liquor Control Board.

On the tax revenue side, between July 2012 and May 2013, the state brought in $223.5 million in liquor spirit taxes, an 11.2 percent increase from the same period the previous year.

Prices per liter remain higher, post-privatization, than they were in the days of state-run liquor stores.

In March 2013, the average price was $24.28, while at state-run stores the previous year the average was $22.67, according to the Department of Revenue.

State officials have blamed price increases on added fees on retailers and distributors that were included in I-1183, which was done to let the state recoup the money it lost by closing its own liquor stores.

Retailers pay a 17 percent fee, and distributors pay 10 percent during the first two years they operate in the state, then the fee drops to 5 percent.

Sue Cole, spokesperson for The Markets LLC, said that while some shoppers in the Bellingham-based grocery chain’s stores are still commenting on the prices of spirits, the “sticker shock” many of them felt when retailers first began selling liquor last summer has begun to mellow.

“Things have sort of settled down in that regard,” she said.

With higher prices on spirits across the shelf, less expensive varieties are gaining popularity, Cole added.

New market, more availability

Retailers have jumped at the chance to sell liquor. Compared to 329 state-run and smaller contract liquor stores that operated before privatization, there are more than 1,400 locations selling spirits in Washington today, according to the state Liquor Control Board.

The privatized market has opened new opportunities for large retailers that focus entirely on selling alcohol. One of those, California-based BevMo! (Beverages and More!), opened Bellingham’s first large-scale alcohol beverage retail store in April.

BevMo! has opened several new locations in Washington state over the past year, including stores in Seattle and Bellevue. The Bellingham location is the company’s first outside of the Puget Sound area.

The chain’s business banks on offering customers a different experience than what they might find in a standard grocery store or big-box outlet. It highlights its wide selection, employees with extensive knowledge of it products and stores that are given autonomy to adjust their inventories and respond quickly to local customer demands.

Alan Johnson, BevMo!’s CEO, said Bellingham’s well-established retail sector made the city a good fit for the company’s expansion efforts.

On the retail side, working through the transitory period of liquor privatization in Washington went much smoother than Johnson initially anticipated, he said.

“Now we’re left to iron out some of the remaining kinks,” Johnson said.

Establishing relationships with vendors, working out product supplies and understanding how I-1183’s retailer fees would impact pricing were some key challenges BevMo! faced while trying to gain a foothold in Washington, Johnson said.

Small distributors hit

More spirits wholesalers have moved to take advantage of the increased number of outlets needing distribution contracts.

But in Whatcom County, greater competition from large-scale companies, including the national Southern Wine and Spirits and Oregon’s Columbia Distributing, has made business more difficult for smaller, local distributors, said Mike Shintaffer, manager of Sound Beverage Distributors Inc. in Bellingham.

With larger scales and inventories, major wholesalers are able to offer very competitive price points to restaurants and retailers, Shintaffer said. And the major wholesalers are not just offering spirits—Sound Beverage does not sell hard liquor—but also other products such as as wine, which makes up about one-third of Sound’s business.

Shintaffer said Sound Beverage, which has operated in Bellingham for 63 years, has lost about 30 percent of its total sales volume in wine since I-1183 took effect last year. The company has also shed seven employees within the past year, which is about 8 percent of its total workforce.

Aside from losing business, Shintaffer said he doesn’t think the new private marketplace has led to greater consumer freedom and choice, which was a major point I-1183’s campaigners pushed in 2011.

He worries that large distributors able to undercut smaller operators might wind up with greater power over the variety of products offered to retailers, focusing on the ones that sell, while ignoring others, he said. Shintaffer said he doesn’t believe such a system will be able to handle shifts in consumer preference.

“Whether that’s a better consumer choice option, I don’t have the answer to that question,” he said.

Shintaffer said he wasn’t certain how the market would play out in the coming years. He said Sound Beverage will continue emphasizing its local roots, and strong customer and merchandise support services to attract and retain clients in the area.

They are also positioning themselves to take advantage of the growing popularity of craft beer, he said.

“Craft beer is the hot trend right now,” he said.

Evan Marczynski, staff reporter for The Bellingham Business Journal, can be reached at 360-647-8805, Ext. 5052, or evan@bbjtoday.com.