U.S. states that have kept a tight rein on alcohol sales since the Prohibition era may be loosening their grip.
Lawmakers in Utah, where even high-alcohol beer is sold through state liquor stores, were urged by an advisory panel this year to put the business in private hands. Pennsylvania, Virginia and North Carolina have considered privatizing state liquor outlets. Tomorrow in Washington, votes will be counted on a ballot measure backed by Costco Wholesale Corp. (COST) that would end state control of liquor retailing.
Budget deficits forecast to reach $103 billion this fiscal year are making states more willing to open the taps, to the dismay of some public-health advocates who warn it may exacerbate social ills. Companies including Costco, bourbon maker Beam Inc. and Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), which owns food and alcohol distributor McLane Co., may gain a larger share of the $8.5 billion in gross sales last year in the 18 states where liquor is still controlled.
“If privatization does indeed occur in Washington, this could provide additional momentum to similar movements in other states,” said Jared Koerten, an analyst in Chicago for Euromonitor International Plc.
Many of the proposals involve making alcohol more widely available, increasing licensing fees and tax revenue. Any gains may be wiped out by other costs, from car accidents to domestic violence, said Michael Scippa, a spokesman for Alcohol Justice, an industry monitor based in San Rafael, California.
“Increased availability increases overconsumption, which increases alcohol-related harm,” he said.
Health Task Force
An independent task force working for the U.S. Centers for Disease Control recommended against further alcohol privatization this year. The group cited studies showing a median increase of 48 percent in consumption after restrictions on an alcoholic beverage are lifted.
Supporters say it’s only common sense to modernize a liquor market little changed in some states since the repeal of Prohibition in 1933, leaving behind a three-tiered system that keeps prices high by requiring retailers to buy from distributors, who buy from manufacturers.
“This is something the government shouldn’t even be in,” said Mark Filippell, a managing director at Cleveland-based investment bank Western Reserve Partners LLC, which recommended that Ohio privatize in a January report. “Why isn’t the state in the milk distribution business? Why isn’t the state in gasoline distribution? What about baby food?”
The Washington measure backed by Costco, Initiative 1183, would raise as much as $480 million for state and local governments over six years, generating license fees at 1,428 projected liquor outlets, state budget planners say. Vodka and other spirits are available only at state-run stores.
Producers and distributors are watching the measure closely because it would also let retailers and wholesalers buy liquor and wine directly from manufacturers in one of the most sweeping challenges yet to the traditional system, Koerten said.
“Pennsylvania, I think, is next in line,” he said.
Mike Turzai, the Republican majority leader in the Pennsylvania House of Representatives, introduced a bill on Sept. 13 that would sell state-owned wine and liquor stores. Pennsylvania might raise $1.6 billion to help close $29 billion in unfunded pension liabilities or make infrastructure improvements, according to a report by consultant Public Financial Management, a unit of Philadelphia-based PFM Group.
The state “needs to exit a business it should never have been in to begin with,” Republican Governor Tom Corbettsaid in an Oct. 25 statement.
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