Washington Retailers Sue, Claim LCB is Biased

FILED JUNE 25, 2012

Dear Client:

Costco and other retailers supporting Initiative 1183 in Washington State got everything they wanted when the measure passed in November. Almost. And now they are taking their latest grievances to the courts.

You may recall that the Washington Restaurant Association (WRA), Northwest Grocery Association (NGA) and Costco have vocally opposed the Liquor Control Board's ruling that restaurants can only buy 24 liters a day of wine and spirits from a retailer. The initiative states "no single sale may exceed" 24 liters, and the LCB interpreted that to mean per retailer per day. Retailers, meanwhile, claim the Initiative meant per pick-up. Says the lawsuit filed in the Thurston County Superior Court last week: "Acting under pressure from distributors, the Board belatedly introduced a daily limit on the amount of wine or spirits that a retailer may sell to another retailer, although.there are no health or safety implications." They also claim the LCB was against the Initiative from the start. "The primary financial opponents of the Initiative were large out-of-state distributors, but the Board did not favor the Initiative and has opposed prior attempts at privatization and increased competition."

Another issue at stake, says the lawsuit, is that the LCB is imposing the 1o% distributor license fee on retailers when distillers ship direct. They are also challenging restrictions on delivery locations for spirits distributors, and a rule that prohibits foreign distillers from selling directly to distillers. Finally, the lawsuit contests a requirement that forces out-of-state distributors to move products through an in-state warehouse before delivery to a retailer.

They claim these rules go beyond the LCB's authority, violates the Supremacy and Commerce clauses, as well as the Washington State Constitution. Furthermore, they allege these regulations were put in place to protect distributors, mainly Young's Market and Southern Wine & Spirits, and meant to "circumvent the Initiative." The result? Higher prices and less choice for consumers. "The Board's actions are increasing prices paid by consumers - yet the Board blames voters for prices not being lower," says the lawsuit. It goes on to say that consumers "are encountering unnecessarily increased prices and fewer product choices as a result of the challenged rules." If these limitations were put aside, they allege, then retailers could cut costs and pass savings on to consumers.

The 1183 coalition (as they call themselves) have fought the LCB's interpretation of the measure in many closed-door meetings "to no avail." So now they are asking that the court grant attorneys' fees, costs and further relief deemed proper.

WLCB'S RESPONSE. In a statement, the Washington Liquor Control Board called the plaintiffs' message "one-sided and inaccurate" and said it is "confident in the rules drafted to implement I-1183," which were drafted with help from a state senior assistant attorney general. It went on to say that spirits prices are higher due to the new fees imposed on distributors and retailers. "Unfortunately, there are many different financial relationships that are impacted by I-1183. What benefits one entity is likely to negatively impact others," it said. The board also maintained its neutrality regarding I-1183, pointing out that it defended the state in a lawsuit from opponents.

These retailers, particularly Costco, has been fighting the State of Washington since 2003, so his lawsuit marks the latest battle in an almost decade-long war.

To read the lawsuit for yourself, copy and paste this link in your browser: http://www.documentcloud.org/documents/372141-1183-lawsuit.html#document/p1


Darden Restaurants released its fourth quarter and 2012 fiscal year results Friday showing a 3.8% increase in fourth quarter total sales and a 6.6% increase in total sales for fiscal 2012. "This increase was driven by 100 net new restaurants, including the purchase of 11 Eddie V's Restaurants, the blended same-restaurant sales increase of 1.8% at our larger brands and a blended same-restaurant sales increase of 4.6% at the Specialty Restaurant Group," said cfo Brad Richmond.

New restaurant growth "accelerated significantly," in 2012, close to the company's long-term goal of 5%. Same restaurant sales growth at the Big Three (Olive Garden, Red Lobster and Longhorn Steakhouse) was 0.5% higher than fiscal 2011 and 0.5% higher than the industry average, according to chief and chairman Clarence Otis. Performance of the Big Three proved steady for the year but underwhelming for the fourth quarter. "On a blended same-restaurant sales basis, results for Olive Garden, Red Lobster and Longhorn Steakhouse were down 1.9% in the fourth quarter," said Brad. Darden attributed some of the decline to unfortunate timing of holidays, but "most of the decline was the result of disappointing promotional performance at [Red Lobster and Olive Garden]," said coo Andrew Madsen. Longhorn Steakhouse proved to be the exception with total sales growth of almost 12% and same-store sales increase of 3% in the fourth quarter. The Specialty Restaurant Group (Eddie V's, Capital Grille, Bahama Breeze etc.) also delivered strong numbers in the fourth quarter growing sales by 26.9%.

As a result of the poor performance at Olive Garden and Red Lobster, Darden is implementing promotions that focus on affordability rather than brand building. "Thinking about Red Lobster specifically, we think the results in the fourth quarter demonstrate really the heightened need for affordability that most consumers have in casual dining, particularly the Red Lobster core guest and that is why we've been working so hard over the last year, not just on promotions, but on a core menu that we think makes a meaningful difference in price point accessibility everyday for guests," said Andrew. The Olive Garden brand will follow a similar plan.

"So as we enter fiscal 2013, we're looking for accelerated new restaurant growth, same restaurant sales growth at similar to fiscal 2012 on an overall basis, but has a healthier mix from the brand perspective driven by better results at Olive Garden and we're looking for meaningfully elevated earnings growth even as we make important investments that we think are necessarily to sustain profitable sales growth beyond 2013," said Brad.

Darden expects to open 100 to 110 new restaurants and anticipates the total sales increase for the year will range from 6% to over 7%, he said. As one of the nation's largest restaurant chains, at over 1,936 restaurants, we believe Darden Restaurants is a good temperature gage for the restaurant industry.

Until tomorrow, Megan

"They are ill discoverers that think there is no land, when they can see nothing but sea."
Sir Francis Bacon

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