At the end of the day do higher priced goods or services negatively impact your decision to buy? That is, would a higher price on something you desire dissuade you from purchasing it? If current gas prices are an indication of “consumers'” insatiable appetites to imbibe regardless of cost then I’d have to say no. Accordingly, any strategy that employs a price increase tactic in an effort to reduce consumption will ultimately fail.
But for the last 75 years the state of Washington figured that a fixed markup and no discounting would curb alcoholism. By taking advantage of the 21st amendment to the constitution which repealed Prohibition (the 19th amendment) and gave states control of the distribution of alcohol within its borders, Washington state has long mandated the distributors sell wine to retailers at uniform prices and at a minimum 10% markup. What’s more, producers also must charge a minimum 10% markup to wholesalers. What’s more, Washington also mandates that delivery of alcohol must originate from wholesaler warehouses directly to each individual retailer. For large volume and multiple location retailers this law means it cannot negotiate with wholesalers for volume discounts on beer and wine and impacts costs through inefficiencies that could be improved through centralized distribution. Washington’s ludicrous liquor laws don’t end there, either. For example, it mandates that wholesales charge the same price for delivery to all retailers regardless of location.
And for the country’s largest wine retailer, these laws are worth fighting against. So earlier this year the Washington-based giant Costco, with its $600 million in annual wine sales filed suit against the Washington State Liquor Control Board asserting its laws restrain trade and eliminate the free market. It argued that the state’s regulations were anti-competitive and in violation of the federal Sherman Antitrust Act. The Costco case is another chip in the weakening armor of arcane state liquor laws and States’ rights outlined in the 21st amendment. Last year a Supreme Court decision found state liquor laws in Michigan and New York unconstitutional and therefore paved the way for wineries and producers the ability to sell and ship directly to consumers and retailers. The latter of which was originally part of the Costco suit until a U.S. District Judge found Washington’s law prohibiting producer to retailer sales unconstitutional using the Supreme Court Decision as a precedent.
Last week the same judge, Marsha Pechman ruled in favor of Costco on the remaining arguments in the lawsuit. In cutting the legs out of most of the Washington Liquor Board’s laws and argument she said:
“If the state desires to promote temperance by artificially increasing beer and wine prices, the state could readily achieve that goal in a manner that does not run afoul of the Sherman Act.”
Ultimately, the decisions means the that the Washington State Liquor Board cannot:
- Force a 10 percent markup products sold by producers and distributors
- Ban volume discounts on beer and wine to retailers
- Ban credit sales to retailers
- Ban central/retailer warehousing of beer and wine
- Mandate that beer and wine distributors and producers post and hold prices for a month
- Mandate that wholesalers charge uniform prices to all retailers.
- Mandate that wholesalers charge equal “delivered” pricing to all retailers, regardless of actual delivery cost.
While the judge placed a 30-day stay on her decision in order to give the defense time to consider an appeal, I don’t think it will file one. As more and more of these laws are argued in front of today’s judges they are finding that while the 21st Amendment gave states the right to control the distribution of alcohol, many state laws are two-faced. That is, some of the laws don’t apply to in-state businesses and therefore unfairly penalize out-of-staters and this is unfairly restricting commerce under the guise of controlling the distribution of alcohol.
What’s this all mean for you? If you live in Washington you soon might reap the benefit of Costco’s lawsuit and find lower beer and wine prices at retailers throughout your state. Though some might complain that this law will hurt the little guy – low volume retailers and small production wineries. But let’s face it, the laws weren’t designed as protectionist measures — and they shouldn’t be. Producers and retailers can win customers with age old methods – quality product, customer service and a positive shopping/purchasing experience. After all, price really doesn’t matter.