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I-1183, or why I will be voting no.

From The Iron Horse Brewery Blog

I-1183, or why I will be voting no.

As someone who has staked his entire future on the ability to make and sell beer profitably, I am going to be voting no on I-1183. While there are many arguments stated by the “no” community (some valid and others I find inflammatory), I will be outlining issues that are lesser known and meaningful only to me, my staff, other small breweries, small wineries, and small beer stores, and . . .  Okay, I am trying to be dramatic, when the truth is I only care about keeping my kids outfitted with Italian made shoes. Nonetheless, I will outline what I believe to be considerable concerns for the craft brewing industry in Washington state.

Issue 1. Loss of Uniform Pricing.  One element that is left over from the immediate post-prohibition era is uniform pricing.  What this means is, a supplier (e.g. Iron Horse Brewery, ABC Distributing) must sell a unit of iron horse beer to every retail establishment for the same price. That’s right, Joe’s Bar pays the same price as Global Conglomerate Beer Warehouser Club for a keg or bottle of Irish Death (this statute applies to all alcohol). The effect here is two positives for the little guy. Joe’s Bar has at least a snowball’s chance in an equatorial region of maintaining its business because it works on the exact same alcohol margins. Yay Joe! (Joe’s Bar is still at a disadvantage because of the free stuff that is technically illegal to get from alcohol suppliers that the big groups get despite the laws). The other positive is the effect of best beer wins. Since pricing must be consistent across customers, producers set prices at sustainable levels.
“The current system encourages competition based on the merits of the beer and the brand rather than the depth of discount or value-added practices (free shit). These protections have strengthened the beer ecosystem by putting small breweries and small retailers on the same level as the big producers and retail chains.” (footnote 1) There are no price wars (not entirely, but it plays out much differently than if there were no uniform pricing) for retailer business, so price being equal, retailers take on the beers that consumers want and that sell the best. It is my honest, heartfelt belief that uniform pricing is one of the largest factors contributing to the birth and growth of the craft beer industry in Washington state. With the passage of I-1183, suppliers would be able to discount as they see fit, or in the case of Joe’s bar, not so much, since its buying power is minimal. Conversely, Global Conglomerate Beer Warehouser could come to Iron Horse Brewery and say, “we believe that your product belongs on our shelves, so long as it is 20% less than you charge Joe’s Bar or the Corner Store”.  What does a small brewery do? Sell to the big retailer for little to no profit, or perhaps a loss, so they can remain relevant to the consumer? Or should the small brewery forgo the added sales volume necessary to carve out a greater share for craft beer and the future of its own operations? You, the voter, get to determine the future landscape of the brewing industry.

Issue 2. Central Warehousing or Die! Little Retailer.
With the pasage of I-1183 it will be legal to buy wine in massive quanitities from any winery, from any state at the price a business might get if it were buying, say, 10 semi loads to store in their 400,000 square foot central warehouse to distribute to their 180 retail outlets. Unless of course you don’t have a warehouse, then sorry for you. You will be buying along with Joe’s bar at the prices that the little guy gets. Now that you have this higher cost, but the same item, what do you do? You sell it at an unsustainable margin, or you don’t sell it at all.  Both of those options provide an inadequate profit to continually operate your business, and the next thing you know you’ve got your 9 year old working behind the counter, Child Protective Services comes in and hauls them away and you get carted off to jail and the one employee you have loses their job because your store closes. So much for creating jobs.  See how much this matters?

Issue 3. It Will Be Very Easy to Make these Statutes Apply to Beer.
Right now, you may be thinking, “I-1183 doesn’t apply to beer, Greg, you asshole!” You are right, on both accounts. Although, one of these truths is likely to change. The Washington State Liquor Control Board has a stated goal of parity among the various manufacturers (wine, beer, spirits). So I-1183 changes the law for wine and spirits currently, and later, with a stroke of the administrative pen, beer can be, and in the opinion of myself and many peers of mine, will be, eventually included. Suddenly, Washington will become a “how low can your price go”, bigger brewery dumping ground.  Considering that Oregon, California, Colorado, and Massachusetts all have breweries that vastly outsize all but one Washington brewery, and therefore benefit from significant economies of scale, I believe we will see those breweries meeting the desired price point of massive retailers and taking a large share of Washington beer sales. (Obviously this does not apply to you, Mr./Ms. Craft Beer Purist, you will always support Washington beer, but what about your less informed, chain store shopping, counterpart on a tight budget?)

Issue 4. Taxpayers are Getting a Bad Deal.
I have no aversion to privatizing liquor sales. In fact, it makes a lot of sense – so much so that there have been a grand total of zero initiatives filed by citizens to privatize liquor sales. Sorry for the sarcasm (sort of). I believe liquor sales should be privatized, but not for the benefit of large corporations. Liquor sale’s privatization should benefit liquor producers, the state, and most of all consumers. You want liquor in Babies R Us? Fine, just get the initiative written by a citizen, not a corporation. (I don’t hate corporations necessarily, Iron Horse Brewery is a corporation in fact, s-corp to be exact, although we are thinking about changing to c-corp so we can have different classes of stock and wage class warfare internally, between the four of us.) If we get the state out of the liqour business, let’s make damn sure we sell the assets for a fair market value. Some other state did (I can’t remember which one, someone help me out on this) and made a lot of money. We’ve surely invested plenty, we should get a return on our collective investment in the state liquor stores.

Issue 5. Punishment of Suppliers for Distributor Violations.
This is a weird addition, but with the passage of I-1183 Iron Horse Brewery could have our licensed privileges revoked in a market because of illegal activity of our distributor with our product, whether we know it or not. What?! i don’t know where the hell that came from, but that would be a major blow if suddenly we couldn’t sell beer in Megalopolis because our distributor gave away a free keg of our beer to Global Conglomerate Beer Warehouser Club without us knowing or consenting. (footnote 2)

I have probably really agitated many of you and I hope, as did not occur with my last post, that you read me the riot act. I am sure some of my information is less than perfectly defensible and I hope you illuminate that which is not. From my position, this initiative has some pretty detrimental possibilities for my chosen profession and the 13 other people that have decided to make Iron Horse Brewery part of their working lives. This is what matters to me. From what I see, I-1183 has little to offer in benefit to citizens that couldn’t be accomplished with simply privatizing the liqour stores and not totally upending the foundation on which our current alcohol marketplace has been built. More importantly, vote yes, vote no, hate me, love me, but please, oh please, do not cast a vote without being fully informed of the true ramifications and intent of this proposal.  Simplified television advertisements are not telling you the entire story.

Hugs and Kisses,


1 Greg Parker in an email to himself dated 8/19 on the same subject
2 This may already be in the law, i need to do some more research, but i ran out of time.

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October 26, 2011 5:57 pm

From Office of Financial Management: Total Estimated State General Fund Revenues for Fiscal Years 2012-2016
Assuming Low Markup $5,404,000, $51,373,000, $52,007,000, $36,083,000, $35,669,000, 35,244,000 TOTAL: $215,780,000
High Markup $8,777,000, $59,054,000, $58,372,000, $42,164,000, $42,204,000, $42,260,000, TOTAL $252,831,000
Total Estimated Local Government Revenues Low Markup $6,012,000
$56,913,000, $42,500,000, $27,973,000, $26,757,000, $25,492,000, TOTAL$185,647,000, High Markup $8,361,000, $63,034,000
$50,741,000, $35,770,000, $34,949,000, $34,098,000, TOTAL $226,953,000

October 26, 2011 6:45 pm

Could we get a little clarification on these numbers? Are they revenues based on the passage of I-1183, and if so, how are they different from current revenues?

November 1, 2011 8:37 pm

Thanks for writing this up. I’m totally against I-1183, but also totally disgusted by people making it a moral issue, claiming Costco can’t keep minors from buying booze. This is a much better argument that resonates with me.

November 2, 2011 5:09 pm

I’m on your side regarding I-1183. Well, no, that’s a lie – I’m on MY side. But that happens to be the same thing. There’s no way that this Initiaive will untimately benefit the (discerning) consumer. Alas though, I am a foreign national, and therefore ineligible to vote 🙁

Marc Milrod
November 3, 2011 12:29 am

Well said. I would argue that while alcohol related issues not being in the Consitution makes them a right reserved for each state, how each state deals with alcohol ought to benefit the general welfare. That is, any one group that benefits makes for bad law. Good law is benefits as many as are reasonable to consider, i.e. people of drinking age, or are in the beverage and distribution industries.

If we enact laws with hundreds of exceptions, you can bet that there are a few in there that game the entire piece of legislation and may end up making a mockery of the process, and preventing you from doing what you would otherwise be entitled to do.

Freedom from fucked up laws ought to have been in the Bill of Rights, it is up to the educated voter to be vigilant, otherwise someone will come along and hit you where you least expect it…. Does anyone remember reduced car tabs? or… gas tax for road improvement being spend on something other than roads? I hope I don’t need to say any more.

Every hour is a Happy Hour, if you allow it to be.

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