The Utah Legislature is a misguided business operator. While the Utah state-controlled liquor stores have been high earners, the Division of Alcoholic Beverage Control (created and regulated by Legislature) has a knack for losing money, and more importantly, preventing making serious money.
The change to 5.0 beer caused the DABC to dump $10,500 worth of beer into the landfill as a result of state law. The loss was wholesale cost. However, the retail value was over $15,000 if sold in the market. And, furthermore, the state lost the sales tax revenue by tossing the beer. Glasses down.
State control of pricing is a loser. The Pappy Van Winkle bourbon, by state law, must sell for about $100 a bottle. Other free market states, even with some state control, saw this selling for $300 a bottle and higher. And, again, sales tax revenues are lost.
Utah’s high controlled prices are driving business to Nevada and Wyoming. Lee’s Discount liquor store in West Wendover, Nevada, is doing a booming business from Utahns.
State control of licensing is a loss by our leaders. There were zero bar licenses available a few weeks ago. Liquor stores are overcrowded, fewer than the growing population needs, inconvenient and misplaced. They stock inconsistent inventories (you can buy X at one store, but not another).
Utah state law quotas allow 4,900 population per liquor store yet has 20,000 population per liquor store, a highly underserved market. The downtown store at 400 South and 200 West, the most accessible for affluent city visitors and convention goers, has the lowest quality selections. The store at 1700 South and 300 West has one of the highest quality inventories, furthest from affluent visitors and in an industrial corridor. Go figure.
State control of product limitations in liquor stores is a loser. Utah state-controlled stores prevent anything else sold except the alcoholic beverage. Free-market stores sell mixers, accessories, glassware, foods like fine cheeses and more and rake in profits that rival alcoholic beverages in some stores. More sales tax losses.
Free-market wine shops make good money in what’s called “pre-releases,” For example, a great vintage Bordeaux estate does not hit the market for a few years, but buyers pay (cost plus sales tax) upfront years in advance for a retailer to reserve cases. The state collects the sales tax immediately.
Free-market stores have highly trained staff and highly motivated owners. Utah DABC employees are not trained to be product knowledgeable. Free market stores have trained employees who can convince consumers to trade up, that is buy a better wine ($35 instead of $20), for example if they are convinced that the staff is knowledgeable. Higher sales tax revenue here.
What’s more, regarding whether the consumer can trust state-controlled stores, I conducted a survey of shelf talkers (short descriptions of wines) that are supposed to inform consumers, but found over 50% of the talkers had the incorrect vintages for wines. If there is anything to know about better wines from any county it is “vintage matters.” Zero consumer confidence to trade up in state stores.
Turning the alcoholic beverage business to the free market will earn much more revenue for the state if it:
1. Collects yearly licensing fees based on the current market value of a license based on sales and type of license, and fees for transferring a license;
2. Allows free-market stores to sell products in addition to alcoholic beverages;
3. Allows more store, bar and restaurant licenses;
4. Allows free-market pricing (which generates higher sales tax income); and,
5. Gets out of the employment business.
The state can also gain income by collecting an additional fee based on the profitability of a store.
There are ways even with free-market stores that the state can have some control over the beverage business. For example, New Jersey prevents liquor (e.g., whiskey) to be sold in grocery stores. Other controls are purchase limits on age, prevent tobacco and cannabis products sold in liquor stores and DUI limits. And free-market store owners will be very careful to not sell to underagers because they can lose their right to sell in the state.
There is no sound business rationale for a state to control a free-market business. The state’s rationale has much to do with something else.
Scott Sommerdorf | The Salt Lake Tribune Terry Marasco
Terry Marasco, Salt Lake City, has owned wine and liquor stores, restaurants and bars in California, Nevada, Montana and Florida.
