#laws
In Praise of the ABC
The Brothers Vilgalys Spirits Company has existed, on paper, for just about a year. February 10th will be the official anniversary of our incorporation as an LLC. And just over a year ago, I put up the first blog post on this site, calling on Governor Purdue to help privatize the ABC stores. At the time, I was just getting started. I knew very little about spirits as an industry, and even less about business. And the prospect of working with a government regulating body was at first very daunting. I imagined that in a privately-run system that things would be so much simpler. I can now say will all confidence that I was wrong.
First of all, I should say that every distiller and broker I’ve talked to has said the ABC has been enormously helpful. This is especially so for North Carolina distillers. As a government-run monopoly, the ABC has flexibility that a private distributor just doesn’t have. They can afford to promote in-state products in favor of other more widely-marketed brands. North Carolina products receive premium shelf space, and are sometimes stocked in multiple places in the store. And the ABC’s transparency as a government agency makes a lot of the information we need as a start-up much more accessible. We were able to get sales records by county, and a separate record of statewide case sales by brands from the NABCA, all thanks to the ABC.
We’ve also recently seen what can happen when a state does sell off its liquor stores. A few years ago, Washington had a booming craft spirits industry. They also had state-run liquor stores, which worked closely with the Washington Distiller’s Guild to promote local spirits. Washington’s legislature had relaxed some burdensome laws, decreasing the cost of permits and allowing direct bottle sales to consumers from small distilleries. Because of this, and also because of strong support from Washginton consumers, the state has over 40 approved craft distillers, making it one of the premier states for the craft distilling movement.
As it has elsewhere in the country, the debate over liquor privatization was brought before Washington voters. The initiative was bulldozed through largely by Costco, who spent over $20 million dollars to pass the referendum. And it was Washington voters themselves who decided to pull the trigger.
The result of this was very good for Costco, who can now sell national liquor brands at a steep discount. However Costco and other large retailers do little to nothing to benefit local producers who simply can’t supply the quantities or discounts they expect. The state-run stores, in the process of winding-down, cancelled orders, while still forbidding small distillers from self-distribution. The new law also imposed high fees on direct bottle sales, meaning that the distiller now pays taxes on the production, distribution, and retail of spirits for each bottle sold from a single location.
Liquor privatization is still a pressing issue in many control states. It’s likely that Washington won’t be the last state to see this enacted, and Ohio is also making the transition. The current political climate here in NC seems to indicate that the ABC isn’t going away anytime soon. It’s a huge revenue generator for the state, and selling it off in the name of balancing the budget simply doesn’t make much sense.
There are still many areas where NC can become more helpful to craft distillers. It’s already the foremost southern state for craft beer, and with five craft distilleries and counting, we’re poised to follow suit for spirits. The best way to reform the system and help small businesses like ours would be the passage of Senate Bill 713, which we’ve talked about before. This bill would allow us to sell bottles directly to consumers, a huge step for a small start-up like ours. It’s also up to distillers themselves to ship to the ABC warehouse, even though daily delivery trucks arrive at local ABC stores to drop off spirits, then return empty. But these are small grievances compared to suddenly having your distribution upended in favor of huge retailers.
We still haven’t seen the full results of the shake-up. Perhaps in March, when the new self-distribution rules take effect, we’ll see if Washington distillers are able to adjust and thrive in the new business climate as they have in the previous one. That is supposing they can weather this transitional period at all. What’s clear from this example is that when large business interests are steamrolled through in the name of ‘deregulation’, small businesses are often those who pay the penalty. State regulation of liquor effectively levels the playing field between small and big, as every product must go through the same steps to reach consumers. When you take out a regulator, and replace them with a large distributor or retailer, you don’t see the promotion of local interests, but the same national brands as everywhere else.