Unions Sue to Block I-1183


Dear Client:

Two unions have filed a lawsuit in Washington's King County hoping to block Costco's Initiative 1183 from being put into action. On what grounds? The lawsuit claims it was essentially a Trojan horse billed as a privatization initiative to the public, but in fact brings about a whole host of other changes that has nothing to do with privatization. Because it addresses more than one subject, they claim it is in violation of the Washington State Constitution's single subject rule.

"Not only were the changes to state law as written in I-1183 a violation of the single subject rule, their absence in the public debate was deceitful on the part of Costco. Essentially all the money that Costco spent on the campaign avoided the other changes to the law that positioned them to make huge profits," according to a statement from UFCW 21 and Washington Teamsters Joint Council 28.

They note that it's not illegal for a private company to pay for an initiative - in Costco's case $18.5 million - but believe it has anti-democratic effects. "Our democracy is threatened when one corporation like Costco can write a complex initiative, pay for the signatures, pay for the ads that control the debate, all the while avoiding discussion on the other parts of the proposal that are the true motivations by the corporation in the 1st place," said Tom Geiger, Communications Director of UFCW 21. "Costco did it this way to hide the fact of these other provisions. And that is in essence the reason why the single subject rule exists. To limit the deceitfulness, it requires the advocates for an initiative to be truthful about what is and is not in the initiative."

The 700-plus workers in the state stores who face losing their job under I-1183 are members of UFCW 21. Additionally, hundreds of other Teamster workers who distribute spirits, wine and beer under the current system may lose their jobs, said the statement.

THE OTHER CHANGES THAT I-1183 BRINGS ABOUT. Besides privatization, I-1183 brings about other major changes for wine and spirits in Washington, hence the lawsuit. (Recall beer was left out of 1183, presumably to keep the beer industry from lobbying as heavily against the 2011 initiative as they did in 2010). Wineries and now distillers can ship directly to retailers. It allows for retail-to-retail sales, which means the likes of Costco will be competing against area wholesalers for retail accounts. It grants franchise protection to wine and spirits wholesalers. It allows for volume discounts on wine (which will benefit large producers) and central warehousing for wine. It changes the ability of the Liquor Control Board to regulate price advertising for beer, wine and spirits. And it also calls for a 17% tax on gross spirits revenues for all liquor licensees. Distributors must pay a separate tax of 10% on all spirits sales for the first two years, and 5% each year after.

If the initiative continues as planned, state-owned liquor stores will shutdown and stores larger than 10,000 square feet will start selling beer, wine and spirits effective June 1. In the coming weeks and months, the state Liquor Control Board will start scaling back inventory in its retail stores and distribution center, and begin auctioning off its retail licenses. Its expected that more than 1,400 stores in the state will sell spirits, compared to the current 328 stores. About half of those 328 stores are operated by the state and the rest are franchised. Franchisees who want to continue operating must buy back their inventory under the initiative.

The state will also begin issuing licenses to qualified spirits distributors. Recall that Odom Southern and Young's Market are two large players in the state. Just a few weeks ago Young's chief Chris Underwood said they were "rapidly address its business and organization model" in Washington in the wake of I-1183, naming Tom Kappenman, currently general manager of Young's Northwest Spirits Brokerages, as the "point person for all spirit distribution matters in Washington moving forward."

Stay tuned for more details..


In our lead article yesterday we reported that imported wines are on the decline, based on the most recent scan data from Nielsen spanning food, drug, liquor and convenience stores. But it's interesting to note that imports are in fact growing if you look at customs data (as tracked by the Gomberg Fredrikson & Associates), but "there is certainly a shift back to Old World suppliers, given the weakness of the euro," said Stephen Rannekleiv, an executive director for Rabobank International. So what's the deal? "Given that Old World wines tend to skew towards on-premise, it seems feasible that Old World wine sales in the on-premise are more than making up for softness in grocery channels." There is also the chance that supply is sitting in importer/distributor warehouses, but Stephen points out that it is unlikely "that distributors would continue to take on product that isn't selling through." Thoughts? Let us know at megan@winespiritsdaily.com


Starbucks is planning to open 5 to 7 stores that sell beer and wine in the Chicago area by the end of 2012, reports the Chicago Tribune. The concept originated in the company's hometown of Seattle, where it offers small plate options (like cured meats and bread with olive oil) and beer and wine over its usual menu in order to boost nighttime sales. Some of the stores will be new locations, while others will be remodeled. Specific locations have yet to be finalized.

The handful of locations selling beer and wine in the Northwest have posted double-digit sales growth after 4pm, reports the Seattle Times. "It's something our customers have really been responding to," said spokesman Alan Hilowitz. "They want to sit and relax, and maybe one person wants to have coffee and the other wants beer or wine. People also can go out after work without having to go to a bar.." Moving forward, Starbucks will introduce the concept selectively, depending on the neighborhood.


THE OREGON WINE BOARD and Oregon Winegrowers Association have named Tom Danowski executive director. Tom has managed a strategic marketing consulting business in the Seattle area for the past two years, and has served as director of winery marketing at Chateau Ste. Michelle and Columbia Crest Wine Estates in the past. He was also chief operating officer for Seattle's Best Coffee until it was acquired by Starbucks. "Developing and promoting a brand that truly captures the essences of Oregon wine in all of its many nuances is critical to the industry moving to the next level," he said.

KENDALL-JACKSON president Rick Tigner will star in an upcoming episode of "Undercover Boss," making K-J the first winery to be featured on the CBS reality series. In the episode, Rick went undercover to reveal aspects of the winemaking business rarely seen by people outside of the vineyard. It will air Jan. 29.

Until tomorrow, Megan

"Most people have seen worse things in private than they pretend to be shocked at in public."
Edgar Watson Howe

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