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A year after privatization, liquor sales down in Whatcom County

Jacob May stocks liquor at the Liquor Depot on Barkley Boulevard in Bellingham, Wednesday, May 29, 2013. The store opened Oct. 31, 2012.
Jacob May stocks liquor at the Liquor Depot on Barkley Boulevard in Bellingham, Wednesday, May 29, 2013. The store opened Oct. 31, 2012. THE BELLINGHAM HERALD

While the shift to liquor privatization appears to have boosted state tax revenue in the first year, it had a chilling effect on sales in Whatcom County.

On June 1, 2012, Initiative 1183 went into effect, turning over sales of liquor from the state stores to retail businesses. Initial reaction by residents appeared mixed: While many appreciated the increased choices in terms of product and locations, the sting of significantly higher prices may have turned off others.

In terms of tax revenue, the state has benefited from the first year of I-1183. In the collection periods between July 11, 2012, and May 10, 2013, the state brought in $223.5 million in liquor spirit taxes, an 11.2 percent increase compared to the same period a year earlier, according to data from the Washington State Department of Revenue.

The number of spirit liters sold from June 2012 through the end of March totaled 26.6 million, a 6.4 percent increase compared to a year earlier.

It was a different trend in Whatcom County during the first seven months of liquor privatization. According data from the Washington State Liquor Control Board, Whatcom retailers tallied $11.3 million in sales from June 1 through Dec. 31, 2012.

That seven-month total is still less than half of the sales taken in by the Whatcom County state and contract liquor stores in the fiscal year 2011 ($25.8 million) and 2010 ($24.9 million). And those 2012 sales were during the second half of the year, which tends to get a boost from the holiday season.

Liquor sales at the Whatcom County stores run by The Markets LLC have been lower than expected, possibly because of the initial sticker shock, said Sue Cole, a spokeswoman for the company. She said they've noticed customers "trading down" and buying the less-expensive labels.

"Customers are being deliberate about their spending, and based on our studies they are just not going for (the higher-end products)," Cole said.

According to Department of Revenue data, the average price per liter is getting closer to the pre-privatization days. In June 2012, the average per liter price, after taxes, was $25.35, up $4 compared to a year earlier. In March 2013 the average price was down to $24.28, closer to the $22.67 average price in March 2012.

One factor for the drop could be the adjustments being made by distributors and retailers as they figure out the pricing. The influence of outside competition could be a factor, with the arrival of new stores such as BevMo. Prices could drop in March 2014 when a distributor license fee of 10 percent of total liquor revenues is reduced to 5 percent.

The challenge for retailers, though, is breaking through that initial impression that prices are too high, Cole said.

"I think prices have gone down, but not enough," Cole said. "I think the customer perception continues to be that prices are too high."

When it comes to store sales, Costco, a major backer of I-1183, dominates the list across the state. The Bellingham Costco ranked 11th in the state in 2012 spirit sales, with several Seattle-area Costco stores ranking higher, along with Bellevue's Total Wine & More.

Fred Meyer spokeswoman Melinda Merrill said they've experienced better-than-expected sales. The two Bellingham Fred Meyer stores combined nearly matched the Bellingham Costco store in 2012 sales.

The change to have liquor in retail stores seems to fit better into customer shopping habits, Merrill said.

Perhaps the biggest adjustments have been at the former state and contract liquor stores. Most were auctioned off to private owners who then had to re-open in the face of much stronger competition. The Liquor Depot at the Barkley Crossroads retail center near Lowe's went through three auctions before ownership was finally settled, delaying the opening until the end of October 2012.

Before privatization, the Barkley liquor store generated about $3 million in annual sales; the current sales level puts the Liquor Depot at less than half that amount, said store manager Tiffney Sturgeon. One of the challenges is letting people know they are open and an option for customers.

"Overall it's going well, but we need more people to find us," Sturgeon said.

To differentiate themselves from grocery stores, Sturgeon said they've tried a variety of techniques, including responding quickly to customer requests for products they can't find elsewhere. The store also offers a variety of discount programs, including stamp cards and military discounts.

"We've had so many special requests; that's made a big difference for us," said Sturgeon, noting they have one customer who regularly buys a liqueur imported from Africa, while locally made products also have a strong following.

Sturgeon said they also make it a point to get to know the customers to learn what they can do to keep them. They also have found success by providing special events, such as an autograph session with former Seattle Mariner Edgar Martinez.

In the span of just one year, The Markets' Cole said it's interesting how quickly everyone has adjusted to the changes. After decades of liquor being something the state handled, stores and customers view liquor as just another grocery category that goes through the same tinkering between popularity and shelf space.

"We had some challenges in the first few days with distribution," Cole said, "but it's smoothed out now."

COALITION FORMS SEEKING LIQUOR TAX RELIEF

A group of Washington residents has formed the Washington Good Spirits Council in response to growing concerns that the taxes on the sale of distilled spirits are too high.

The group's mission is to help develop a solution to what they believe is an unreasonable burden imposed by the new taxes as a result of Initiative 1183, said Sean Rossall, a spokesperson for the group.

"Our goal with this is revenue neutrality; there shouldn't be a huge windfall for the state," said Rossall, noting that I-1183 had the appearance of being a revenue neutral measure.

The group, comprised of residents and businesses, wants to develop a plan to present to state legislators. Rossall said he's optimistic that it can happen, despite the budget challenges in state government.

"It's our goal to create a smart policy, something we think will resonate with the state legislature," Rossall said.

For details about the organization, visit washingtongoodspirits.com.


BUSIEST WHATCOM COUNTY STORES


Here's a list of the top 10 Whatcom County stores based on liquor sales from June 1 through Dec. 31, 2012. Sales include customer sales and sales to on-premise businesses (such as bars). The Bellingham Costco, which ranks first in Whatcom County, ranked 11th in the state during that time period:



Store Total Net Sales
Bellingham Costco $1,588,514
Fred Meyer (Bakerview) $900,245
Haggen (Barkley) $644,697
Lynden Wine & Spirits $596,344
Walmart $594,408
Fred Meyer (Lakeway) $572,514
Haggen (Fairhaven) $475,985
Haggen (Ferndale) $467,292
Safeway (Lynden) $459,505
Haggen (Meridian) $432,538
SOURCE: Washington State Liquor Control Board
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