Politics & Government

Lawsuit challenges regulations on alcohol pricing

Spokeswoman Kathryn Stenger, from left, Northwest Grocery Association president Joe Gilliam, and Washington Restaurant Association government affairs head Bruce Beckett attend an election night news conference for Yes on 1183 in 2011 in Seattle.
Spokeswoman Kathryn Stenger, from left, Northwest Grocery Association president Joe Gilliam, and Washington Restaurant Association government affairs head Bruce Beckett attend an election night news conference for Yes on 1183 in 2011 in Seattle. AP file, 2011

Washington’s landmark 2011 ballot initiative on booze is best remembered for privatization, but it also took a step in the direction of deregulation.

Four years later, a court case is testing just how open the market should be.

New regulations for wine and hard-liquor sales take effect Thursday (Oct. 22). The state Liquor and Cannabis Board hammered out the rules over two years and approved them last month.

Restaurants and bars say the rules will keep them from working out deals with sellers that should be allowed in the modern market. A Mexican restaurant that wants discounts as part of an ongoing deal to promote a brand of tequila would be out of luck, Washington Restaurant Association lobbyist Bruce Beckett said.

Beckett said restaurant-backed Initiative 1183 allowed people “to negotiate prices based on a willing seller, willing buyer relationship.”

Hoping a judge would agree, restaurants, hotels and large grocers have sued in Thurston County Superior Court. Among the plaintiffs is Costco, the retailer that spent more than $20 million to promote the initiative.

Restaurants say the rules will force them to choose between raising prices, cutting staff or other costs, or shaving their slim profit margins even slimmer.

The liquor board’s official explanation of its rules says “citizens who voted for I-1183 did not intend to abandon reasonable regulation.”

“Alcohol cannot be marketed and regulated as other goods,” the agency wrote.

State law makes it illegal for businesses selling alcohol at wholesale to “discriminate in price.” But I-1183 loosened that law by legalizing price differences for wine and hard liquor as long as they are based on real “business factors.”

The ballot measure identified volume discounts as one practice that is allowed.

Now the liquor board has spelled out what is prohibited.

Small liquor stores prompted the rulemaking by pushing for a ban on wholesalers charging different prices to restaurants and bars than to stores — a practice known as “channel” pricing, which can be a marketing tool to encourage drinkers to sample products they might later want to buy.

The board didn’t go that far. It allowed price differentials for wine to continue. For hard liquor, it allowed the practice only for brand-new products.

The rules provide that volume discounts must be based on the volume of a single shipment or single invoice.

Restaurants object to those limitations. Beckett said the rules would also prevent restaurants from negotiating discounts in return for exclusively buying from one seller.

The liquor board’s fair-trade rules emphasize prevention of “exclusivity and undue influence,” according to comments read by chairwoman Jane Rushford at a board meeting and provided by the agency in response to questions. They describe the board as confident the rules are legally sound but recognizing they “may ultimately be decided by the courts.”

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