Walla Walla, Wash.—Voters sent the Washington State Liquor Control Board’s retail system packing with the passage of Initiative 1183 in the state’s general election this week. Voter approval of I-1183 requires the state to “close state liquor stores and sell their assets, license private parties to sell and distribute spirits, set license fees based on sales, regulate licensees and change regulation of wine distribution.”

Tallies of the first round of ballots from the mail-in poll indicate the measure will pass with approximately 60% support—a reversal of the narrow margin and sharply divided vote that stopped Initiative 1100 last year (see sidebar).

I-1100, which was spearheaded by Issaquah, Wash.-based Costco Wholesale Corp., would have ended the state’s monopoly on alcohol sales and—as Marty Clubb, president of the Washington Wine Institute last month told Wines & Vines—“red-lined the statute” governing alcohol in the state. I-1183, also backed by Costco to the tune of $22 million (more than triple the $6.2 million that Costco and others spent on I-1100), simply takes the state out of the liquor business while letting it continue to set policies, issue licenses and enforce regulations. Preparations will begin in earnest in January for the transition, which will occur by June 1, 2012.

A statement this morning by the WSLCB confessed the agency was “deeply disappointed” by the results. Neither the Family Wineries of Washington State, which backed the initiative, nor the Washington Wine Institute have released official statements regarding the vote.

While the absence of the state from liquor purchasing, distribution and sales is common throughout the U.S., and the opportunities for more flexible relationships with distributors and retailers promise to satisfy the desires of the Family Wineries of Washington State and others, fears also exist that the new environment may not be equally beneficial for everyone.

Some fear that centralized warehouses will diminish the number of products available to retailers, Clubb told Wines & Vines last month, increasing competition and the financial pressure on wineries to access available retail channels.

Volume discounts are also a concern, because larger retailers handling greater volumes will typically have more clout to secure volume discounts, allowing them to offer lower prices and undercut smaller retailers. Smaller wineries, in turn, may not be able to provide the volumes or afford the discounts required, limiting their market access.

Opportunities for small wineries and retailers
Retailer Catie McIntyre Walker, proprietor of the Wild Walla Walla Wine Woman shop on North Second Avenue in the Eastern Washington wine country hub, likened the effects of the initiative to what happened to small retailers when big-box stores such as Wal-Mart hit town. “Walmart comes in, and the small retailer becomes very fearful because they can’t compete with those prices,” she told Wines & Vines. “It dawned on me about a week ago, I am now in that position as a small retailer. I don’t sell in volume, so I’m not going to be able to compete with Costco.”

Her solution, as the balance of retail might shifts to larger retailers, is the same as other small retailers: She’s going to have to work harder to serve customers and be a source of wines that volume-based retailers aren’t interested in carrying.

“These small wineries are not going to be able to meet the huge demands that Costco wants,” she said, noting where her opportunities lie. “I am going to have to look at creative ways to offer things that Costco does not.”

On the other hand, she believes restaurants and bars will benefit from a liberalized business environment, because they won’t be beholden to the state for alcohol.

But with the state still in charge of regulations and enforcement, Walker hopes the state’s efforts won’t be redirected toward increased oversight of the industry. “Here’s the thing I really fear out of all this,” she said, “the state of Washington still has the control on our licences, and I can’t help but wonder if they’re not going to make things even tighter for us.”