By Laura L. Myers
KIRKLAND, Wash., June 2 (Reuters) - Washington state has extricated itself from decades in the liquor business, a move that is likely to give drinkers a headache when they reach for bottled spirits on local store shelves.
Under a measure approved by voters in November, Washington on Friday became the first state since the repeal of Prohibition in 1933 to privatize a government-run liquor retail and distribution system dating to the 1930s.
The measure also changed the state's wine distribution laws, established new regulations for alcohol advertising, created new franchise protections for liquor distributors and allowed grocery stores, already permitted to sell beer and wine, to sell spirits.
The bad news for customers is that on average, per-bottle prices on liquor could rise between 10 percent and 30 percent, retailers say.
The initiative imposed a new fee structure that raises those costs by 27 percent, which will likely be passed on to consumers, said Brian Smith, spokesman for the Washington State Liquor Control Board.
On Saturday there were indications prices were on the upswing. A bottle of Glenlivet 12-year single malt Scotch whisky sold for $54.63 at a Safeway in the Seattle suburb of Kirkland. That compares to $39.95 under state-mandated prices before the change went into effect, according to a database posted on the website of the Seattle Times newspaper.
The state's markup on wholesale liquor had been nearly 52 percent. The new private-sector markup could be as high as 72 percent, including newly imposed state fees, Smith said.
"Prices have gone up because of the fees," Smith said.
The liquor board on Saturday could not provide information on exactly how much prices have risen across the state.
The new law imposes two additional taxes, referred to as license fees, that businesses pay to the state for the privilege of selling liquor - 10 percent paid by wholesale distributors and 17 percent paid by retailers.
RESTAURANTS SEE PRICE GOUGING
A state analysis of the new law predicted that those costs would be largely passed on to consumers in the form of markups.
Already, liquor industry insiders are blaming wholesale distributors - two of which control about 80 percent of the state's liquor products - for the bulk of the price hikes.
"What restaurants and retailers suspect ... is that distributors are padding their wholesale margin in order to recoup" the license fees they pay, said Joel Benoliel, a spokesman for retail giant Costco.
"There's price-gouging going on," said Bruce Beckett, a Washington Restaurant Association spokesman.
Smith said retailers and wholesalers alike were passing on their license fees.
"So what you have is distributors marking up the product (for profit) and adding 10 percent, then retailers marking up the product (for profit) and adding a 17-percent fee," he said.
In anticipation of the price rises, consumers stocked up in the days leading up to the June 1 switch.
At state Store 192, Michael Jackson's song "Thriller" set a background mood for a slew of Thursday night customers who shopped hours before the changeover and bought cases of 1.75-liter bottles.
This week's purchases averaged $70 to $80 per customer, compared to a previous average of about $25, store manager Richard Stringfellow said.
"People definitely are stocking up. They know that prices are going up significantly."
Costco, an Issaquah, Washington-based warehouse store chain, donated most of the $23 million in financial support to the ballot measure. It says it plans to keep its liquor prices 5 percent below state levels, as it heavily promotes alcohol products from its own discount brand, Kirkland.
"We're in a steep learning curve, putting something in the private stream of commerce when it's been controlled by the state for 78 years," said Costco spokesman John McKay. "People will be learning on the fly."