Liquor Control

Small distillers threatened by privatized booze sales

In this year’s November general election, Oregon voters could be asked to ratify (or not) a new law that would effectively end the Oregon Liqour Control Commission’s role and “privatize” sale of distilled spirits (aka hard liquor). That is, assuming that at least one of eight petitions filed by a group calling itself Oregonians for Competition can garner the required number of voter signatures (87,000) to gain a spot on the ballot. The petitions are backed by the Northwest Grocery Association and agents of various large grocers, acting as petitioners.

Another ballot possibility that now appears dead is a “hybrid” bill (SB 1559) introduced by Sen. Lee Beyer (D-Springfield) in the February special session; it would have allowed some privatization as long as stores could show they had plans for preventing shoplifting of spirits and sales to minors. The stores would also set aside special “Oregon made” sections.

The final shape of the ballot measure — its actual title and detailed provisions — won’t be known for a while. A legal process ensues, involving lawmakers, the secretary of state and others. But the petitioners’ overall aims are clear.

The intent of the initiatives is to privatize — framed now as a move to “modernize” — liquor control in Oregon, achieved by eliminating state control of the sales of spirits, allowing such sales in large (over 10,000 sq. ft.) grocery stores (plus some boutique specialty stores, like wine shops). Current law mandates state monopoly control over the sale of spirits through state-contracted — but privately owned and operated — liquor stores. Oregon would follow similar action already taken by our Northwest cousins in Washington in 2012.

Opposition to the move comes from two main sources, one rather predictable, one more surprising.

Predictably, members of OLCC itself claim that “privatization” would damage Oregon’s economy substantially, costing the state over $200 million yearly in liquor sales-generated revenues and eliminating hundreds of family-wage jobs now established in state-controlled stores and in OLCC warehouses and offices. (The commissioners themselves hold unpaid positions.) Too, under newly appointed commissioners, OLCC is striving vigorously to transition from a mere regulatory agency to a “huge economic driver for the state,” actually “an economic development agency,” according to OLCC’s new Executive Director Steve Marks, who foresees active support for Oregon’s burgeoning enterprises distilling spirits. At this time, more than 50 distillers operate in Oregon (a number increasing dramatically), some quite substantial, like Hood River (licensed in 1934) and Clear Creek (1985), but most are small craft distillers, aiming to produce high-quality spirits in small batches.

The surprising opposition to the privatization of liquor sales has come from the members of the Oregon Distillers Guild. Patrick Bernards, chair of the guild, worries that privatization will mean less support for the 400 products now being produced by the small distillers. Under privatization, small producers — “passionate entrepreneurs” — will have to compete for shelf space in large grocery stores where sales are paramount. How, for example, would Oregon’s C.W. Irwin Bourbon find space next to Jack Daniels or Early Times? Price is another concern: Craft-distilled products tend to be more expensive than their mass-produced competitors; the craft distillers, like so many craft brewers of lagers and ales, emphasize high-quality products and hands-on techniques to produce spirits distinguished by their flavors and textures.

Under its new practices, the repurposed OLCC has relaxed rules to give distillers (and others) more marketing leverage. New rules will permit distillers to establish tasting facilities, and the agency will issue “special event” licenses so producers of spirits could participate (with booths and such) in events like the Eugene Celebration. OLCC also supports the craft products by encouraging operators of 248 state-contracted stores to establish “Oregon made” sections and allowing owners to order split cases (as little as a bottle at a time), shipped from OLCC warehouses to the stores, so they can test the market for particular products instead of having to buy a case. OLCC has even constructed a kiosk at PDX to promote Oregon distillers’ products.

Small producers, often strapped for cash, see reimbursement as an issue. Andrea Loreto, owner/operator of Elixir in Eugene, producing Calisaya and Iris (both infusions), notes that when he makes sales to distributors in California, “they pay when they want,” whereas “OLCC pays every two weeks, like clockwork.”

On Dec. 13, 2013, OLCC hosted media and the Oregon craft distillers to meld a message: OLCC is transforming itself, retaining many of its regulatory functions but with new purpose. OLCC, they wanted us to know, is now in the business of doing business, of promoting the enterprise of spirits, in the process generating critically needed revenue for the state, counties and cities. Eugene, for example, received over $4 million from liquor sales in the 2011-13 biennium; Lane County, during that period, took in just over $3.2 million. (By contrast, Washington and Multnomah counties split over $11 million.) The point was clear: Under the proposed “privatization,” those revenues could be threatened or gravely reduced.

Officers of OLCC, distillers, restaurateurs and many others hope to catch the rising wave of what’s being called the “cocktail culture,” a “trending” popularity reminiscent of a similar surge that occurred in the 1930s following the repeal of Prohibition. “Let’s have some drinks,” was common script-chatter in films of the era. Martinis were the frequent drink of choice, and getting a little tipsy was the key to fun. We might note that during that period, driving was still rather a novelty, and when the annual death toll from drunk driving reached the thousands, new and stricter laws were enacted. Cocktail culture waned.

The political efforts to privatize liquor sales in Washington (passed June 2012) were successful — and expensive. Costco, for one, reportedly spent millions of dollars in support of privatization. Clearly, Costco must’ve expected to recoup its costs through increased sales, which might account, at least in part, for why retail prices of liquor actually rose following increased “competition.” Ironically, the surge in prices benefited state liquor stores in Idaho where booze is cheaper.

By all indications, the campaign in favor of privatization in Oregon will be equally well supported by big grocers. And where will the financing in favor of the current system come from? Certainly not the cash-poor state of Oregon and not from the Oregon Distillers Guild, whose members simply cannot hope to raise such levels of financing.

This year, OLCC will issue over 12,000 liquor licenses, including 6,681 bars and restaurants. Fifty-five distillers produce over 400 products. OLCC’s massive warehouse now stocks over 1,900 products, 22 percent from Oregon.

If the privatization succeeds and the larger grocery stores gain the right to sell liquor, where are they going to put it? The answer is obvious: Something’s got to go. Slow-moving, marginal products — craft beers, wines, meads, spirits — will have to make room for mass-produced, better-established brands with effective marketing and advertising campaigns. The consumers will have fewer choices but most of them will hardly notice, and the more sophisticated will have the option to shop in “boutique” stores for boutique products. Meanwhile, the free-market economy marches on, beating the political drums.

What are the prospects for liquor privatization in Oregon? Some folks — craft distillers, brewers and winemakers, some liquor distributors and their agents — think the initiative can be defeated. Others are not so hopeful. One craft distiller, requesting anonymity, said simply, “It’s a done deal.” It might be so — unless Oregon voters take their democracy, and their own interests, seriously.