Liquor Privatization Initiatives Part 1: Washington's Current Liquor Control System

Initiatives 1100 and 1105 would dramatically change the manner in which hard liquor, beer, and wine are distributed and sold in Washington State. Both measures would privatize Washington’s liquor control system, allowing hard liquor to be sold at grocery stores, convenience stores, and other retail establishments.  Today’s post explains our current, state-run liquor control system.  Future posts will examine the differences between I-1100 and I-1105 and how they could impact state resources in the years ahead.

The current liquor control system

In Washington, the state Liquor Control Board (LCB) acts as the sole distributor and retailer of hard liquor. This means that the LCB purchases liquor directly from manufacturers or importers and distributes it to the 161 state-owned liquor stores and the 155 contract liquor stores via the state’s centralized distribution center.  

Beer and wine, on the other hand, are primarily sold via private wholesalers and retailers under the current system. For regulatory purposes, the LCB divides the beer and wine industry into three activities, or “tiers” – manufacturing, wholesaling, and retailing. Under this three-tier system, manufacturers and distributors are required make each of their products available to all retailers at a uniform price.  They are also barred from offering bulk discounts to retailers that purchase large quantities of a particular beer or wine product.  These regulations and others prevent retailers from exerting undue influence over manufacturers (or distributors) and vice versa.

Alcohol-related revenues

In fiscal year 2009, sales of alcoholic beverages generated about $333 million in revenue for Washington’s state and local governments.  The graph below shows that the largest share of this revenue ($222 million) was derived from taxes applied to hard liquor.  Markup revenues, or profits from state liquor stores, accounted for the next largest share of alcohol-related revenues ($69 million).  The remaining revenues were generated from taxes applied to beer and wine ($31 million), and other sources ($11.3 million).

For more information on I-1100 and I-1105 read the Budget & Policy Center’s latest policy brief, “2010 Initiatives Could Impact Public Services.”