COMMENTARY

Distilled Spirits Dilemma

By Karl Klooster

As one of the 18 states opting to put distilled spirits entirely under state control at the end of Prohibition in 1933, Oregon entered the booze business and the obligation to serve the public that went with it.

Over the years, the Oregon Liquor Control Commission has slowly, sometimes begrudgingly, made adjustments to better meet the needs of an evolving society. 

In the beginning, sterile green front stores housed a clerk behind a bare counter who handed a list to the customer. Not a single bottle was in view. All merchandise sat on unseen shelves in the back.

Today’s state-run liquor stores are a far cry from those dreary old days. Many sport the colorful look and self-service arrangements of modern convenience stores. A few even sell wine and beer. 

But more about that later.

At 84 years old, the OLCC is now pursuing avenues to retool itself while still operating within a framework where it performs all the functions, from importing to storage to distribution to licensing of retail agencies and on-sale establishments. Add to that regulatory enforcement, and you have a bizarre institution that sometimes operates at cross purposes.

It promotes and facilitates the sale of controlled substances while at the same time vetting and approving those who seek to resell them, as well as investigating and punishing anyone who strays from a stringent legal path.

In recent years, the OLCC has come under increasing criticism regarding its inability or unwillingness to adequately respond to the needs both of licensees and public consumers. This shouldn’t be surprising in today’s frenetic business world where the expectation of immediacy has reached a fever pitch. Consumers want everything right now and are disappointed, even resentful, when they can’t get it. 

Lack of product diversity is a common complaint. Just because a given item is not a large volume seller is no reason, some argue, it should be ignored and/or allowed to continually run out of stock. Bars owners have lamented the inability to regularly obtain some specialty ingredients required for exotic cocktail recipes whose popularity has increased tremendously in recent years. Distillers lament the lack of support for new products. They say it is difficult getting OLCC purchasing personnel to buy and stock as yet untested items at all, much less in adequate quantities.

OLCC representatives counter that retail agents consistently stock as many as 1,900 items on their shelves and have access to an additional 2,200 by catalogue sourced from the main warehouse in Portland. They add that if restaurant and bar owners have particular needs, their retail agents will be glad to work with them. Of course, another argument is that, in Oregon, you have to pay for everything up front.

Some people ask why the OLCC doesn’t simply change its way of doing business and follow, for example, the California model. Private companies provide all the sales and marketing. The state handles regulations. 

Sounds good, except for one thing: The OLCC is not allowed to redefine and remake itself. That power rests with the state legislature, more specifically, its influential House Business and Labor Committee. 

If the committee were to be persuaded that a change from public to private liquor wholesaling was in the state’s best interests, it would make a recommendation to the full legislature, which would in turn draft a bill that would, in the end result, have to be approved by a vote of the people.

On Sept. 12, 2012, The House committee, co-chaired by Chris Garrett, D-Lake Oswego, and Bill Kennemer, R-Clackamas, saw a rather revealing report prepared by OLCC staffers. At the beginning of June 2012, the state of Washington began implementation of its voter-approved liquor privatization law. The report centered on findings compiled over the three months since.

When Washington first announced that privatization was being considered, through Measure I-1183, it quite logically got the attention of people with a possible stake in the outcome. From legislators in downtown Salem to OLCC staffers in Southeast Portland to big-time wholesale spirits distributors in Florida and California, interested parties closely followed the process.

When it appeared apparent that this would be Washington’s direction, if they had not already done so, wholesalers established a presence in the state. When it came time to apply for licensing consideration, 55 companies submitted applications. Three of them made 18, 14 and 13 separate filings in hopes of being awarded distribution rights around the state.

Once the dust cleared, and it had been decided who would have and do what where, the machinery finally started turning and retail doors opened as scheduled on June 1.

To the shock and dismay of customers — even though they had been forewarned — prices on average were 25 to 30 percent higher than under the old system. The OLCC report showed that Washington residents living near Oregon flocked across the border in droves to make purchases in the cheaper, not to mention sales tax free, state. So much so that sales at OLCC stores near the border increased an average of more than 35 percent during June, July and August and the non-border averaged an increase of more than 8 percent.

In other words, it has obviously been no California. The Golden State’s system, in place all those same 84 years, had worked itself out to make a profit at lower margins. Besides, state taxing is different.

As the saying goes, there is no free lunch, or martini with lunch, for that matter. The OLCC recommended to the house committee that it stay the course, so to speak. It will continue to evaluate experimental programs for carrying wine and beer in select stores and chain operators while pumping more revenue than ever into state programs.

Citing the $350.3 million net income for the 2010–11 biennium, the OLCC estimated that will increase by 6.5 percent, or $59.6 million, for the 2012–13 biennium.

This is thinking that traditionally fiscally conservative, socially progressive Oregonians can buy into… at least for now.

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