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January 11th, 2012 NIGEL JAQUISS | Cover Story
 

Booze Wars

Grocers think they can finally break the state’s 80-year, nearly $500 million monopoly—but at what cost?

IMAGE: Christa Connelly

 

If the system is so bad, why hasn’t it changed?

One of the immutable rules in Salem is if it brings in money, don’t mess with it.

Last year, state figures show the OLCC delivered more than $178 million to state and local governments, including $8 million for substance-abuse and mental-health programs. The money goes to every city and county as well as the state’s general fund, which means there is considerable resistance to change.

The Oregon Beer and Wine Distributors Association also plays a powerful role in maintaining the status quo. Romain has led the group since 1983, which means he mastered the state’s arcane alcohol rules before most lawmakers had their first drink. The distributors’ political-action committees have given Romain more than $750,000 for campaign contributions in the past five years, making him a colossus in Salem.

Union support also has helped protect the OLCC. Romain, a Republican, has a somewhat unlikely ally in Botkin, a veteran lobbyist for the  American Federation of State, County and Municipal Employees. AFSCME represents 67 OLCC warehouse and distribution workers, as well as the agency’s enforcement staff. In 2011, lawmakers proposed deep cuts to the OLCC’s head count. But when the session ended, the budget included a small staff increase.

Botkin acknowledges some laws are puzzling, but she does not see the need for change.

“What we have is an OK system,” she says. 


How would breaking the OLCC’s grip affect consumers?

Oregon drinkers have lots of choices. The OLCC warehouse contains nearly 1,800 different items, from Aalborg Akvavit ($21.95 a bottle) to Zwack “Kosher” Slivovitz ($20.45), any of which is available at every OLCC store.

“The selection in Oregon is second to none,” says Hood River Distillers’ Dodge. “That could all change in deregulation.”

That’s because shelf space is limited—even at big-box stores—and the Costcos of the world prefer to carry fewer rather than more items. Oregon’s booming craft distillers fear there would not be shelf space for them in a deregulated environment, a concern Dodge says is evident in states where big-box stores sell liquor.

The success of Oregon’s flourishing craft-wine and beer industries seems at odds with Oregon distillers’ fears. Grocery stores are under no compulsion to give shelf space to Hair of the Dog beer or any of Oregon’s 400 wineries, yet many do because consumers want variety and will pay for it.

Romain says, however, if volume discounts were allowed, craft distillers would get pushed off the shelf.

“Whatever the case, I think the small distillers should be at the table,” DiLorenzo says.


How would deregulation affect the cost of booze?

The effect of deregulation on prices is hotly debated.

Not surprisingly, those in favor of deregulation say prices could get cheaper, while defenders of the status quo warn prices will rise.

OLCC and industry-price data suggest Oregonians get their Jack Daniel’s and Tanqueray cheaply. The OLCC regularly compares its prices to those in Washington and California, and Pharo says Oregon’s prices are lower.

“We don’t compete with the ‘loss leaders’ you might see in California,” he says. “But we could if the Legislature wanted us to.”

Pharo, Dodge and other opponents of deregulation say liquor prices will rise in Washington because distributors and retailers will need to make a profit, whereas before only the state took a cut. 

In theory, the state gets a better deal than many competing buyers will get under deregulation, because each of them will buy far less than the state. A deregulated system also means middlemen will enter the liquor business, prompting critics to say that retailers such as Costco and Safeway will require bigger margins than the 9 percent OLCC stores now get.

Gilliam disagrees.

“The private sector is more efficient,” he says.

SOURCES: The Substance Abuse and Mental Health Services Administration, Center for Behavioral Health Statistics and Quality, National Survey on Drug Use and Health, 2008-09.

 

How would deregulation impact the downside of drinking—alcoholism, drunken driving, etc?

Temperance groups such as the Oregon Partnership oppose any deregulation. The group argues that more outlets selling for more hours creates more opportunities for alcohol abuse, particularly among underage drinkers.

“Our system has worked really well in terms of keeping teens from getting liquor,” says Judy Cushing, president of the Oregon Partnership. “Privatization would really let the camel’s nose under the tent.”

A recent report by the federal Centers for Disease Control and Prevention supports Cushing’s position.

“Privatization results in increased per-capita alcohol consumption, a well-established proxy for excessive consumption,” the February 2011 report says.

Cushing and the CDCP may be right, but federal statistics also show Oregon’s tight control over alcohol has not stopped consumers from drinking more per capita than those in other states who enjoy unfettered access to booze. And it has not stopped Oregonians from drinking and driving more, as measured by DUII arrests per capita.

 

National Highway Transportation Safety Administration data show Oregon’s rate of alcohol-impaired driving fatalities exceeds the national average and is also generally higher than Colorado’s, which has much less state control of alcohol.

 

What’s next?

Whether Oregon is ready for or needs the kind of sweeping change that’s coming in Washington is uncertain.

Gilliam and grocers have made it clear if the Legislature does not make substantive changes, probably in 2013, they will consider putting a Washington-like measure on the ballot.

“If 2013 is a dead end, the industry will have to decide on the initiative process,” Gilliam says.

Even Romain concedes citizens like the idea of privatization. “If there were a yes or no vote in Oregon, it would pass,” he says.

In the meantime, the OLCC is moving forward with two rule changes that Pharo says are significant and should address concerns about convenience. In March, the five gubernatorial-appointed OLCC commissioners will vote whether to allow corporations, rather than individually run state liquor stores, to sell booze. That would allow Safeway, for example, to obtain a license to operate a liquor store within an existing grocery location.

In addition, state stores that are willing to expand and invest in improvements would be allowed to sell beer and wine. But even if both changes are approved, Pharo does not anticipate an increase in the number of licensed stores. Gilliam says the proposed moves fall far short of what his members want.

“The OLCC rule changes as proposed,” he says, “are a goose egg.”

In rocky economic times, perhaps the biggest barrier to sweeping change will be lawmakers’ concerns about preserving the cash flow from liquor sales and the (far smaller) contributions from beer and wine taxes.

In Washington, the state’s fiscal impact analysis of the Costco measure predicts state and local revenues will increase by more than $400 million in the next six years. There are no guarantees that estimate is correct, of course, but everybody who wants to change Oregon’s system acknowledges any new approach must produce at least as much tax revenue as the current system.

“Any plan would have to be at least revenue neutral,” Gilliam says. 

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