This article was prompted by an email we received from one of our readers. Included in the query, our reader raised the issue of State Controlled vs State Licensed Liquor Stores …
“Great stuff but considerably more expensive than if you could purchase from Total Wine and Liquor. Why do we still have state controlled liquor stores in Idaho? What about free markets? Time for a change, make them compete on the open market.”
– Whiskey for the Ages reader
The emailer was commenting on a review of an Elijah Craig Small Batch Private Barrel which happened to be an Idaho State Liquor Division (ISLD) State Pick.
I replied …
“Thank you for reading the review and for your comment.
While I am neither for or against state controlled liquor stores, I’m not sure I follow your comment regarding the Elijah Craig Small Batch Private Barrel – Idaho State Liquor Division Batch 1 – 2019 product. I paid $29.95 for the bottle (a “Store Pick”) which is the same I would pay for an off the shelf Elijah Craig 94 Proof bottle (which happens to be on sale for $27.95 now through EO April). Are you able to purchase Elijah Craig Store Picks for less?
As for open markets, that is a GREAT idea for an article. Thank you. Please consider subscribing to our site so you can be notified when we post about this topic.
Cheers!”
– Brian Dawson, Whiskey for the Ages Editor
GENESIS
Shortly after replying, I began researching Alcohol Beverage Control (ABC) to learn how it fits into the marketplace. I live in Idaho, an ABC state, and arranged to meet with principles of the Idaho State Liquor Division. Our dialog was most enlightening and I learned much from the ISLD team. I came away with a new view of State Controlled vs State Licensed Liquor Stores. While I generally don’t think government should meddle in its citizen’s affairs, there may be an exception in this case. Read on to discover a little of what I learned.
REPEAL OF THE 21st AMENDMENT
On Tuesday, 05-December-1933, at 1732 EST, Utah became the 36th state to ratify the amendment to end prohibition. The vote met the three-quarter state’s majority needed to pass the legislation. Within minutes of ratification, legal liquor began to flow.
History records there were no more acts of liquor driven debauchery than in the weeks, months and years prior to the end of the grand experiment. In fact, author Daniel Okrent notes in his book ‘Last Call: The Rise and Fall of Prohibition‘ the 21st Amendment actually “made it harder, not easier, to get a drink”.
Legislation of drink added closing hours, age restrictions, Sunday service regulations and much more. While Mississippi was last to repeal its prohibition laws in 1966, Alcohol Control had begun. Regardless of what one might believe, governments in all 50 states, the District of Columbia and all US districts including Guam and Puerto Rico control liquor sales.
FOLLOW THE MONEY
The end of Prohibition gave the federal government a financial windfall. The bureau of Alcohol, Tobacco and Firearms (ATF) collected more than $258 million in alcohol taxes in 1934. The money generated accounted for almost nine percent of the US tax revenue! States wanted their share.
In the weeks and months following repeal, 18 states mandated greater control over the sale and distribution of alcohol. The remainder (largely driven by retail entities, influential people and private interest groups) chose to allow licensed individuals and businesses the ability to sell alcohol to the state’s citizens. State Controlled vs State Licensed Liquor Stores was born. This separation remained largely unchanged until 2011. Late that year, Washington state citizens voted to allow the selling of spirits by licensed retailers (more on this later).
THREE TIERED SYSTEM
Together, the states developed a structure of checks and balances to provide safe alcohol to consumers while ensuring simple tax collection. This became known as the three-tier system1:
▪Manufacturers provide distilled spirits to wholesalers
▪Wholesalers distribute the products to retailers
▪Retailers sell to the consumers
By employing this model, most states set involvement restrictions. Manufacturers cannot be wholesalers. Wholesalers cannot sell to the public. Each tier has their own licensing requirements and follow their own set of regulations.
▪Participants in each tier are responsible for ensuring that the laws and regulations set by the government are executed1
▪Tens of billions of tax dollars are collected sent to federal, state, and local governments by manufacturers, wholesalers, and retailers in the alcohol industry1
▪Large corporate distillers as well as craft distillers and brewers are given equal opportunity to reach consumers1
STATE LICENCED LIQUOR STORES
RELATIONSHIPS AND BUYING POWER
All states have liquor control, yet not all ABC programs are equal. States which have adopted the licensing model allow licensed retailers to sell beer, wine and distilled spirits from their outlets. Product availability varies and is largely dependent on previous purchases and the relationships businesses and shop owners make with distributors and brokers. Smaller retailers may not have established relationships and/or the buying power to secure rare and/or allocated product.
Wholesale pricing can also vary as big box retailers (BevMo, Binney’s, Liquor Barn, Total Wine and Liquor, Kroger, Costco, etc.) may get preferential rates based on historic purchasing. Most have better selection because they simply buy more. Retail pricing comes down to High School Economics 101: Supply and Demand.
STATE LIQUOR STORE RESPONSIBILITIES, SALES AND PROFITS
Licensed wholesalers and retailers are not exempt from federal income tax. States still regulate and monitor sales and tax collection activities. But when one digs deeper, there are other important financial factors to consider.
License states require credentialed wholesalers and retailers to impose and collect additional taxes on beer, wine and distilled spirit sales. Liquor taxes add revenue to the state’s coffers for use in liquor education, law enforcement in the court system, and of course, the state’s general fund. But taxes add to the cost of goods being sold. Some licenced states impose a 20% or more tax 6-packs, bottles, and/or cases of packaged goods.
And because they can, many retailers set their own retail pricing based on supply and demand. This is why many people in licensed states see popular whiskeys like Eagle Rare and Blanton’s at $80, $100, and $120 or more (even though MSRP is about $35 and $60 respectively). It is also why rare bottles go for much, much more than MSRP. Limited selection and high shelf pricing creates the perfect storm for an out of control secondary market.
In addition, the money earned on liquor sales may not always stay within the state in which they are sold. When licensed retailers are out-of-state corporate operations, profits can and do leave the state. In cases like these, there may be less revenue distribution to local citizens.
EXTENDED FINANCIAL CONCERNS WHICH IMPACT LICENSE STATES
Then consider other negative side effects of lesser local control. License states sell distilled spirits from more retailers at wider hours than in control states. Wider hours creates greater availability. According to studies done by the National Alcohol Beverage Control Association (NABCA), State Licensed Liquor Sales states have …
▪Wider consumption of alcohol by under aged people2
▪Higher crime and less safe roads in the later hours of each day2
▪Greater per-capita alcohol related health care issues2
▪Higher death rates attributed to alcohol2
These factors affect education, the medical establishment, law enforcement, the court system and impact families.
STATES ADOPTING A LIQUOR CONTROL MODEL
As of this writing, seventeen states and jurisdictions in Alaska, Maryland, Minnesota and South Dakota have adopted forms of the “State Control” model3. These jurisdictions control the sale of distilled spirits and, in some cases, wine and beer through government agencies at the wholesale level. Thirteen of these states also exercise control over retail sales for off-premises consumption, either through government-operated package stores or through designated agents.
Control jurisdictions represent approximately 24.8% of the nation’s population. A quarter of the country’s people account for roughly 23% of distilled spirit sales4.
State run control programs are not equal. Because each jurisdiction is different, I can only write about Idaho’s methods (as I live here). Your state may be dramatically different.
THE STATE OF IDAHO
From what I’ve learned, I believe the ISLD is quite forward thinking. Idaho avails itself to most federal programs and is an active member of the NABCA. In addition, and in my opinion, the division is on target with their published vision statement:
“The vision of the Idaho State Liquor Division is to be the most respected and the highest performing purveyor of distilled spirits in the USA.”
Idaho utilizes the NABCA’s Price Quotation Reporting System, which permits Control States to liaison with suppliers. As a result, Idaho consumers pay MSRP for the distilled spirits they find on Liquor Store shelves.
The State of Idaho sources distilled spirits directly from manufacturers, both large corporations and craft distillers. When the ISLD issues a purchase order, the distiller fills the request, based on what product is available at the time of receipt. I believe Idaho gets its share (and then some) of many coveted products.
This includes rare, allocated and even seasonally released Buffalo Trace Antique and Pappy selections. Many of these bottles are available for purchase in State run Liquor Stores, with some of the more rare products released through a random draw lottery system. My daughter, Hannah, and I have won the opportunity (through lottery entries) to purchase many of these rare and limited release offerings.
In addition, the ISLD has long relationships with many distilleries. So strong in fact, the division has purchased many single barrel whiskeys for distribution to patrons (think Store Picks). We’ve enjoyed offerings from Brown-Forman, over a half dozen Private Selects from Maker’s Mark, bottles from Elijah Craig, Four Roses, back-to-back years of Knob Creek selections, and I have single barrel picks from Buffalo Trace in my bunker, all purchased at MSRP.
IDAHO DATA
But maybe the biggest benefactors of Idaho’s structured control method are its citizens. Everyone benefits from liquor sales – even non and casual drinkers.
The state operates 67 state owned liquor stores leased from the private sector. The state has licensed an additional 101 private business owners in smaller municipalities. The Idaho State Liquor Division receives no state funding. To transport the 1.4 cases million cases sold annually, the ISLD contracts with a privately held Idaho-owned company, which keeps more money in the state. And because the state buys directly from distillers, the state pays ZERO federal income tax on distilled spirits which helps keep profits high and retail prices low.
In fiscal year 2020, sales of distilled spirits in Idaho exceeded $258,600,000. From these purchases, the state was able to distribute $95,400,000 to cities, counties, courts, substance abuse treatment, and the general fund for benefit of all its citizens. The ISDL projects revenue to top $1.2 billion in the next ten years.
BENEFITS OF REDUCED NUMBER OF RETAIL OUTLETS
Clearly Idaho has fewer retail outlets than License or even other ABC states. To offset the impact of fewer outlets, Idaho Liquor Stores are located on major travel routes. Most stores are near high traffic centers like grocery stores for one stop shopping. I pass three state run Liquor Stores on my 25 minute ride home each evening. If I take a different route, I pass four others. And because Idaho has fewer places to purchase distilled spirits:
▪Consumption is 15% LESS in Idaho than in open states5
▪Idaho has lower incident of problem drinking, under-age theft, alcohol-related harms and other health related problems6
▪Per capita, Idaho has fewer lost workdays and alcohol related deaths7
▪Idaho has safer roadways and a lower alcohol related crime rate in the later hours of each day7
WASHINGTON STATE VOTER’S REMORSE
As noted earlier, in 2011 Washington citizens voted to allow the selling of spirits by licensed retailers. In a 2016 case study, many Washington voters would like a do-over8. Their primary reasons include the following:
▪The increase in the number of liquor stores (330 before privatization to more than 1,600) has not lowered prices
▪Washington has the highest spirits tax rate in the nation (20.5% since privatization)
▪Liquor prices have increased by an average 15% since 2011
▪Greater per-capita alcohol related lost work hours and health care issues
▪Civil and Family courts have a higher incident of alcohol related cases since the measure’s passage
▪Higher crime and less safe roads in the later hours of each day
The study concluded, if voted on today the measure would not pass. Washingtonian’s were 2.6 times more likely to change their vote because of what has transpired since the measure’s approval.
IN SUMMARY
For sure, I am lucky (for many reasons) to live in Idaho, a forward thinking alcohol beverage control state. I will not say all ABC state citizens are as lucky. In fact I read many social media posts in which the poster decries their state’s meager selection and pricing. I’ve read there are discussions in Pennsylvania to explore changing the state’s alcohol beverage control methods to a licensing model. And North Carolina residents would like access to a wider selection of choices.
CAUTION: Be careful for what you wish for!
In closing, I’ve traveled and purchased alcohol in several licensee states. For the most part, prices paid in Arizona, California, North Dakota and Wisconsin were fair, but shelf pricing was higher than I pay for the same bottles here in my home state. I once shopped two locations in the same Wisconsin city just a few miles apart. Prices on the same bottles were different in each store. And in each store, the selection was decent.
Now it’s your turn. What’s happening in your state? Click the .. LEAVE A REPLY .. button in the field below to tell us your experiences.
State Controlled vs State Licensed Liquor Stores
written by Brian Dawson
Whiskey for the Ages editor
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REFERENCES
1 The Three-Tier System: A Modern View | National Alcohol Beverage Control Association (NABCA)
2 Reference, Alcohol Justice, 2014
3 Control State Directory and Info | NABCA
4 2017 Handbook Advance, Beverage Information Group
5 Distilled Spirits Council of the United States (DISCUS) and US census data
6 Alcohol Research Group, CDC
7 NABCA and Alcohol Justice
8 Washington State Residents Regret Vote, Alcohol Research Group, Public Health Institute