How Much Have We Lost?

Monday, August 9, 2010

Alcohol Deja Vu in NY

This week, I headed north for my annual sabbatical to Schroon Lake, NY in the largest park in the United States - the Adirondack State Park.

My wife asked me to pick up a couple bottles of wine and I started to go into the grocery store until I realized that all wine and liquor may only be sold in state licensed liquor stores. Beer is sold in grocery stores and convenience stores.

We were passing through Ticonderoga, so we stopped at the liquor store there - Montcalm Liquors. While I was there, I got to talking to the proprietor.

He said that New York's Governor has proposed allowing grocery stores or other chains (e.g. Walmart) to sell wine and beer - to help balance the New York state budget. I looked into this and apparently this fight has been going on in New York for over two years.

The pro-wine group is called WIGS, short for "Wine In Grocery Stores." The promoters have created a group called "New Yorkers for Economic Growth" - yes, more wine sales apparently encourages economic growth - are claiming that this will bring $300M to the New York state budget from new licensing fees - sound familiar? Here's an article about it.

The owner I spoke to said he didn't think it was a good idea because it would destroy his primary profit center (which would explain why private industry wants to get into it) and significantly undermine the value of his license which he thought was worth at least six-figures if he was to sell it to someone.

In NY, each owner has a monopoly on a piece of turf. While his state fee is only $1,500 every three years, his license is actually worth MUCH more than that so expanding private liquor licenses actually has the effect of diluting the value of this asset that the state has given him. One group estimated that the proposal would put more than half of New York's liquor stores out of business.

The license expansion groups are spending a ton of money to sway public opinion and lobby legislators to tinker with the system. Their TV ad is below.



Perhaps all of this is coming to Virginia soon except we will have LIGS instead of WIGS (Liquor In Grocery Stores).

All of this brings to mind more side effects to this whole Virginia ABC privization I had not even thought about. First, when budgets head south, elected officials will do all kinds of things to avoid having serious discussions about long-term structural problems.

Second, the alcohol distribution system involves all kinds of vested interests with substantial investments in the status quo - whether it's New York's system or Virginia's - change brings real financial consequences to lots of people and that needs to be carefully considered because any changes are approved.

Third, allowing private alcohol distribution in Virginia will create even more issues and angles for legislators to be lobbied on beyond what already exists. For example, once the system is set up there will be all kinds of opportunities to tweak the system to benefit or punish different people. For example, the issue of how the licenses are awarded - by auction to highest bidder, by county, by census district, by existing alcohol consumption patterns, by local governments, is a major issue with winners and losers on all sides.

There are many other issues surrounding ABC privitization which this article does not even try to get into. These were just three epiphanies I had today wandering around on vacation.

The bottom line is that all of this is very serious business, a VERY COMPLEX issue with lots of potential ramifications that people are probably not even talking about, and will be heating up very soon.

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