Costco booze fight is only the beginning

Alcohol-sales wars are brewing across the nation.

Costco this week failed in a well-funded attempt in its home state of Washington to expand its revenue from alcohol sales. The discount retail giant backed a ballot initiative that essentially would have booted alcohol distributors from the sales equation. Costco was pushing to buy alcoholic beverages directly from manufacturers. The initiative also would have made it much more difficult for Washington’s state-controlled-and-operated liquor stores to compete for business.

Ultimately, Washington voters rejected the initiative — leaving liquor stores in the state’s ownership for now.

But don’t think this fight ends here. The stakes are too high. Expect to see a flurry of legislative battles break out in several states over the next few months as retailers continue their push to expand alcohol sales.

Increasingly, manufacturers of alcoholic beverages, distributors and retailers — the legs of the three-tier system of alcohol distribution since Prohibition ended in 1933 — are at odds with each other as they compete for a bigger slice of the sales pie.

Distributors — the middlemen between breweries and retailers — have everything to lose if that three-tier system of beer distribution is dismantled.

Small brewers, who are usually at odds with distributors, also stand to lose. In Washington, they feared losing business to bigger brewers that could satiate big-box retailers’ demands for volume and deep discounts. Their speciality brands also would have had a hard time finding their way into the hands of consumers, says industry observer Harry Schuhmacher, of Beer Business Daily.

Plenty of small retailers say they also stand to lose from initiatives aimed at loosening state regulations on alcohol sales. In Indiana, for example, the owners of small liquor stores are fighting big-box retailers’ efforts to expand alcohol sales to Sundays and, ultimately, the sales of speciality wines and liquors to grocery store shelves. The small-store owners — who don’t have the deep pockets of a Costco or Walgreens — maintain that they’re being held to strict state requirements governing sales while big-box retailers are not. For example, Indiana law mandates that pre-package liquor stores hire clerks that are at least 21 years old and be the subject of regular state excise police inspections. The same rules don’t apply to the big-box retailers and chains pushing to expand their alcohol sales.

Though small brewers and distributors teamed to defeat the Washington initiative, count on them going for each other’s throats in other states. Old lobbying habits die hard, and even relatively minor law changes that wouldn’t compromise distributors prompt them to fight aggressively.

Small brewers are beginning to pick up the pace of their lobbying of state and federal legislators, but they don’t yet have the big money to make campaign donations that buy access and votes.

Big-box retailers? They’re going to throw their money behind whichever camp serves their purposes. And thanks to the recent battle in Washington, they’ve also demonstrated that they’re willing to fight on their own.

– Travis E. Poling

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