Booze Will Be Cheaper, Right ? Part 2

So, last time I laid out the generalities of why the Costco-written and voter-approved Initiative 1183 will actually result in higher liquor prices here in my home state of Washington. Let's get specific:  as an example, let's say a distributor in WA buys a 750ml bottle of vodka from its producer or importer and along with the transportation costs of getting the bottle to WA has a cost of $10.  Let's see what you pay when you take that bottle through the check-out lane. 


Original acquisition cost for the distributor              $10.00

Distributor's Profit Margin (25%)                            +$2.50
License Fees & Shortfall Cover (13.9%)                  +$1.39
Total Margin & License Fee (38.9%)                       +$3.89

Distributor Price to the Retailer                                $13.89

Retailer Profit Margin (30%)                                  +$4.17
Retailer's License Fee (26.6%)                              +$3.70
Total Retailer Margin & License Fee Cover (56.6%)   +$7.86

Shelf Price                                                                    $21.75

Other Mandatory State Taxes Collected at Checkout:

20.5% State Tax                                                 +$4.46
Per Liter Tax $3.77                                              +$2.83

Total 750ML Price to Consumer                                $29.04

So, $10 becomes nearly $30.  And, most premium liquors do not start out at $10; they are much more.  I expect we'll see a lot of Absolut drinkers become Smirnoff buyers and Smirnoff buyers become Popov buyers.  Trading down will be the norm as consumers adjust to an unexpected reality.

1183 - Booze Will Be Cheaper, Right?

When Washington State voters approved Initiative 1183 last November, many of them were convinced the days of Washington having among the highest prices for liquor in the nation were a thing of the past.  Sorry, no.  The state taxes on liquor are not going down or away.  And, to overcome a major objection to its previous effort to privatize liquor sales in the state, Costco inserted language in 1183 that guaranteed the state would not lose money from the closure of its state liquor stores.  Here's how it works:

•March 31, 2013– Distributor license fees must equal $150 million to the State of WA on this date.

• Any shortfall in that figure is allocated among distributors based on their share of 2012 spirits sales.

•Expected shortfall:  $100 million.  Distributors are already figuring this into their wholesale liquor pricing.

•Distributors pay 10% of gross profits on spirits to the state for  1st two years, 5% thereafter.

•Retailers pay 17% of gross profits on liquor sales to the state.

•$35.67 taxes on each $100 Wholesale cost - Spirits

Does this look like a formula for lower priced liquor in Washington State?