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Should grocers be in the liquor business?

Liquor store owners, distillers and industry reps band together against grocers proposals


by: SPOKESMAN PHOTO: JOSH KULLA - Wilsonville Liquor Store owner Joe Valls says there is no way a large grocery retailer can offer the type of selection found in existing state-regulated stores. Scan the shelves of the Wilsonville Liquor Store and you’ll see the labels of a host of Oregon-grown distilleries.

There are Big Bottom, Clear Creek and Bull Run brand whiskeys, among others. Even Wilsonville-based Vinn Distillery, maker of rice-based products including vodka, has a place alongside national giants like Smirnoff, Jack Daniels or Jim Beam.

But some in Oregon’s distilled spirits industry fear that will all go away if one of a host of proposals to do away with the state’s monopoly on liquor sales eventually becomes law. And with the state’s 246 liquor stores projected to do more than $1 billion in business during the 2013-15 biennium, a lot is at stake.

“I’ve never had anyone tell me you need to carry this or carry that,” said Wilsonville Liquor Store owner Joe Valls, who owns a shop at the corner of Boones Ferry and Wilsonville roads that last year grossed more than $3 million in sales. “I’m quite generous to the small distillers as much as I can be. Shelf space is limited, and most are quite slow (sellers), but there’s a few that turn over, not at a brisk pace, but almost there. The idea is the more you have available to the public the more chances there are to buy into it.”

But Valls and others worry this approach won’t be shared by large grocery retailers, some of whom who are behind the five initiative petitions filed in December with the Secretary of State to place the question of liquor sales privatization on the November ballot. Petitioners have until July to gather enough signatures — 1,000 to earn a ballot title, another 87,000 plus to ensure a spot on the ballot.

Each of the five proposed ballot measures filed is a variation on ending state-controlled liquor sales, which dates back to 1933 and the repeal of federal alcohol prohibition laws.

Proponents, including Oregonians for Competition Campaign Coalition, the group behind the current petitions, say that privatizing liquor sales and ending the state’s “outdated” system would result in greater choice and lower prices for consumers.

“It’s appropriate for the state to regulate and license the sale of alcoholic beverages and to enforce state laws related to liquor,” Melinda Merrill, a spokesperson for Fred Meyer Stores, said in a statement released to the media. “But state monopolies on liquor sales — like Oregon’s system — are costly to taxpayers as well as consumers.”

The initiative, Merrill continued, will end the state’s “outdated” liquor store monopoly system.

“(It will) allow distilled spirits to be sold safely and responsibly in retail stores just like they are in most other states,” Merrill said, “while at the same time strengthening our state’s liquor laws.”

But Valls and others aren’t necessarily buying those arguments.

“This kind of thing didn’t really materialize in the 1970s,” Valls said. “At that time the grocery stores tried to get something going and failed miserably. Anytime there’s a downturn in the economy, that’s the first thing they talk about.”

Oregon’s liquor stores are run by private owners who have been vetted by the state for their business experience and expertise. Oregon is one of 18 “control” states that maintain a state monopoly on the sale of spirits. In Oregon’s case, much of this control is exerted through the central distribution of liquor through a massive warehouse in Milwaukie run by the Oregon Liquor Control Commission.

It’s a big business, too. Oregon liquor stores get an average of around 8.8 percent of sales as a commission while selling at state-established prices. This year, the state projects its liquor outlets will sell over $1 billion worth of product.

When it comes to beer and wine, state law has created monopolies for beer distributors that sell in turn to retail outlets including bars and restaurants. Wineries are allowed to sell directly to consumers through the mail and at wineries, as well as directly to stores, thereby bypassing the state middleman.

For Valls, it has meant a steady way to support his family for nearly three decades. But now, privatization could bring all that crashing down. Valls said he has no realistic way of competing with big-box retailers, if it comes to that.

“I anticipate a large fight on this,” he said. “And ultimately the people will probably decide that and I hope they are on our side. I enjoy what I do. We’re not getting rich, but it’s a stable income and provides for the family. We have six employees and I worry for them.”

Not all are opposed to privatization

But the industry as a whole is not quite united when it comes to privatization. Many distillers in Oregon’s growing industry say they aren’t as worried about state policy as they are about ensuring the quality of their own products.

“I like the open-market systems better,” Steve McCarthy, owner of Clear Creek Distillery, told the Portland Tribune in December. “If a state like Oregon is our home state and our most important market, I think we’ve made it work fairly well. That isn’t to say we prefer it, but that’s the way it is, and we’ve spent more time and energy trying to make it work for us than we have trying to change it.”

by: SPOKESMAN PHOTO: JOSH KULLA - Craft distillers such as Wilsonvilles Vinn Distillery find space on liquor store shelves thanks to Oregons centralized state-run distribution system. Some fear small craft distillers could be harmed by proposals to privatize the sale in Oregon of distilled spirits. The Ly family, which runs Vinn Distillery in Wilsonville, is staying clear of the political battles. But they’re certainly aware that what’s going on likely will have a significant impact on them down the road.

“I’ve been following it,” said Vicki Ly. “We’ve talked to the distillers guild about it because they’re a lot more involved in it. I don’t want to comment on it because we don’t know how it’s going to fully impact us.”

Paul and Danielle Romain, who work for the Oregon Beer and Wine Distributors, are leading industry opposition to privatization. They say the five privatization proposals differ very little in substance. The Romains told the Tribune they anticipate support for their position from the Oregon Neighborhood Stores Association, the small grocers, the AFSCME labor union and Oregon Petroleum Association, which also represents 7-Eleven and other convenience stores.

“If they truly go ahead, we’re plotting the campaign to defeat it,” Paul Romain said. “The industry will be pretty united.”

Valls tends to agree.

“It affects a lot of people,” he said. “We don’t want to Walmart-ize Oregon, where the little mom and pop stores are basically shoved out the window.”

That’s definitely not the intent, said Pat McCormick, spokesman for the Oregonians for Competition Campaign Coalition. He told the Tribune that privatization proposals include incentives for local distillers, including the proposed creation of an Oregon Distilled Liquor Board, similar to the Oregon Wine Board, to help with promoting the industry. Craft distillers would also be exempt from “revenue replacement fees” for the first $400,000 of annual gross sales. Finally, the proposals would allow them to sell directly on premises in much the same way as vineyards currently do.

“I think there’s really no argument the big stores want to close out Oregon distillers,” McCormick said. “There’s a lot of incentive to include them.”

There’s also the example of Washington state, whose voters approved privatizing liquor sales in 2011. The results north of the Columbia River have not quite been what proponents hoped. The new tax structure that went along with privatization now levies a 10 percent tax on distributors and a 17 percent tax on retailers. The end result, Valls said, is retail consumers now pay more for a bottle of whiskey in Washington than they did through the old state-run system.

Under the current Oregon proposals, a similar revenue replacement fee is little more than a 71.7 percent “sales tax,” according to the Romains. It would be imposed on top of a flat fee of 75 cents per beverage container that would be imposed at the wholesale level.

The legislative option

Valls is also dismissive of a similar competing OLCC proposal. That bill, LC (Legislative Concept) 242, is under consideration by the Oregon Legislature and would allow authorized retailers larger than 10,000 square feet in size to set their own prices on liquor above a minimum established by the OLCC. It would also require retailers to funnel some money to stocking and promotion of Oregon-made products.

Rep. John Davis, R-Wilsonville, said regardless of whether or not the issue ultimately is voted on by legislators, he is well aware of the concerns of local distillers and others.

“Allowing hard liquor to be sold in stores may somewhat ease access,” Davis said. “But it would most likely reduce choice because the distribution model in Oregon has helped spur our distilled spirits industry and allowed small players to have shelf space, and some of those brands have become very successful.”

Davis also said he is concerned that opening liquor sales to large retailers will open them up to increased theft or diversion of spirits to minors.

That’s the kind of sentiment that has Valls and others hoping things will go their way.

“One of the positives I’ve picked up is people are not willing to accept what the OLCC or grocery stores are presenting at this time,” Valls said. “It might come to a vote in November with the signature gathering. But there’s a lot of legislators who don’t like the idea of people getting kicked out of a job, and rightfully so.”

— Portland Tribune Reporter Jennifer Anderson contributed to this story.




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