Seattle, Wash.—Privatization of the liquor business under Washington state Initiative 1183—and the subsequent closure of state-run liquor stores May 31, 2012—has given some high-end wine shops a new kind of customer.

Wine shops that have added fine Scotch, bourbon, and artisan eaux-de-vie to their offerings have found spirits enthusiasts equally enthused about their selection of wines. “People who are usually high-end spirit enthusiasts are usually also people who like wine,” said David LeClaire, founder and general manager of Wine World and Spirits just across I-5 from Seattle’s University District.

LeClaire cast his ballot against I-1183, which ultimately won 58.7% of the vote in the state’s November 2011 general election. (See “Privatized: Washington State Votes Yes.”) His concerns were rooted in changes to legislation affecting the state’s wine industry that were part and parcel of the ballot initiative. However, many voters believed that the state’s exit from the business of liquor sales would increase selection.

LeClaire said it hasn’t happened in quite the way people expected.

Select few have large selection
“People voted for this thinking they’re going to get a great selection of spirits everywhere,” he told Wines & Vines. But instead of a great selection everywhere, it simply made a great selection possible, and just a few retailers are capitalizing on it. The majority of retailers are focusing on key money-making brands such as Baileys, Captain Morgan and Jack Daniels, which move at volumes that make competitive pricing profitable.

“The selection has really gone down in probably 95% of the places that sell spirits,” LeClaire said. “So that drives people to the few retailers who actually want to do things that are more interesting and a little higher quality.”

This is where Wine World, which opened two years ago with 23,000 square feet originally dedicated exclusively to wine, has benefitted. While it can’t compete on price, it offers the selection people can’t find elsewhere, knowledgeable staff and a willingness to order what shoppers want.

This is exactly the direction that retailer Catie McIntyre Walker of the Wild Walla Walla Wine Woman shop in Walla Walla anticipated the business heading as she contemplated the emerging market landscape in the wake of the ballot initiative’s success.

Walker told Wines & Vines she would have to work harder to provide customers with wines that volume-based retailers aren’t interested in carrying rather than compete by price.

Similarly, Michael Teer of the Pike and Western Wine Shop opposite Seattle’s Pike Place market—as well as Soul Wine in the South Lake Union neighborhood—told Wines & Vines in August that good relationships with Washington state wineries and smaller distributors were keeping his shops stocked with interesting products. (See “Washington Wine Sales in ‘State of Flux.’”)

The importance of quantity
But for LeClaire, the extra sales of labels such as Mark Ryan, a boutique winery based in nearby Woodinville, hasn’t alleviated his concerns at the ongoing fall-out precipitated by privatization of the state liquor business.

“It’s been good for us, but I know it’s not necessarily good for the guy down the street,” he said. It goes back to the question of margins, which are greater for larger retailers who have more efficient distribution networks and buy in the quantities that secure volume discounts.

The initiative allowed central warehousing, which cuts costs for larger retailers. But even retailers without a central warehouse serving a chain of stores can boost margins on popular products because of the quantities they’re selling.

“Even if you don’t have a central warehouse, if you’re bringing in a pallet of Jack Daniels or a pallet of (Chateau) Ste. Michelle Riesling, the distributor can just give you a deal on the spot, and say, ‘We’ll charge you $5 less a bottle than we’ll charge the little grocery store down the street,’” LeClaire said. “That’s one reason why a lot of these little stores can’t make it. They can’t compete on these prices when they’re not buying in quantity.”

Recent news reports suggest that many of the former state-owned stores auctioned off last year to entrepreneurs keen to enter the liquor business have closed in the face of the pressure. However, John Guadnola of the Washington Beer and Wine Distributors Association, which opposed I-1183, said firm numbers have been difficult to obtain.

The Washington Wine Institute, which is finalizing its agenda for the 2013 state legislature session, plans to seek refinements to liquor laws to mitigate the negative consequences of I-1183.