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I-1183, if implemented, could generate $81 million plus in annual sales for Costco

Ever since Costco and its executives first started making noise about deregulating and privatizing our state’s liquor control system, it’s been apparent that their driving motivation for pushing privatization is because they want our state’s liquor stores’ business for themselves — not because they think “getting the state out of the liquor business” (which is a favorite catchphrase of theirs) is good public policy.

Costco and other alcohol profiteers spent more than $6 million last year trying to dupe voters into deregulating liquor, after having failed to persuade the Legislature to do so. Voters rejected both Costco’s I-1100 and a competing measure, I-1105, by significant margins. But despite being told no, Costco was undeterred. It came right back this year with I-1183. And when it became clear that I-1183 – like I-1100 and I-1105 before it – would have vigorous opposition, Costco opened its checkbook and started writing check after check.

In the end, Costco spent around $19 million, setting a new record for spending on a statewide ballot measure. (Previously, the dishonor had belonged to the American Beverage Association, a corporate front for Coca-Cola, Pepsi, and the Dr Pepper Snapple Group, which spent $16 million selling I-1107 in 2010).

$19 million may sound like a lot of money, and it is. $19 million is more than our Washington State Parks system gets from the state’s general fund. $19 million could completely offset Governor Chris Gregoire’s proposed cuts to adult hospice care and early childhood education ($10.5 million and $6.1 million, respectively).

But $19 million turns out not to be that much when compared to the profits that Costco stands to make. The Seattle Times has a story today about Costco’s I-1183 spending, which was twice what its chief financial officer had been planning for. Despite going over-budget with I-1183, Costco still stands to profit handsomely from its passage… as long as the measure isn’t overturned in court.

Spirits sales account for about 2 percent of Costco’s overall sales in states where it sells liquor currently, [Costco Chief Financial Officer Richard] Galanti said.

That could easily top $81 million a year in Washington, where Costco has 27 warehouses that tend to do better than the companywide average of $150 million in annual sales.

Do the math, and it’s easy to see why Costco was willing to shell out so much for I-1183. $81 million over ten years works out to $810 million. Over twenty years, it works out to $1.6 billion. Costco’s executives no doubt figure that if they succeed in dismantling Washington’s liquor control system, it will stay dismantled, allowing them to profit indefinitely from their one-time investment.

Despite what Costco claimed in its advertising, I-1183 was never about convenience, choice, or more revenue for public services. It was (and is) about greed. The public safety and public health ramifications of increased availability of alcohol are not problems that Costco cares about. When its executives talk and think about laws regarding the sale of alcohol in Washington, they see dollar signs.

8 Comments

  1. JWB
    Posted December 9th, 2011 at 4:36 PM | Permalink

    Costco, or anyone in business knows alcohol sells…..and who cares who sells it….it will cost less buying it, and for the consumer, saving 20-30% is a good deal. This article makes business look bad. I am sorry, but I am very excited for the state to get out of a business they have been “cash cowing”.

  2. Andrew
    Posted December 9th, 2011 at 9:08 PM | Permalink

    So cheap liquor is more important to you than safe neighborhoods?

    Nice priorities you’ve got there.

  3. ivan
    Posted December 10th, 2011 at 6:34 AM | Permalink

    Give it up, Andrew. The majority has spoken, loud and clear, for whatever reason, and you and I were not in it.

  4. DB
    Posted December 10th, 2011 at 8:22 AM | Permalink

    Take a good look at who funded the opposition to 1183. They have succeeded in brainwashing others in believing this will be a public safety issue. In a time of budgets cuts to health and human services, The state needs to focus on enforcement, not sales, so there will be no more public safety issues than exist today.

    Will Costco and others profit? Probably and Of course. To write articles trying to “sum it up” that profit is the motivation is ludicrous and unfounded. Show us the historical data that proves Costco is that type of company or pipe down. Your kind of rhetoric is just trying to keep a campaign alive that was defeated. And, your type are just looking for inflammatory hot buttons the public reacts to by saying big business will profit while we all suffer. If your kid is out there trying to buy liquor, be a better parent and quit looking to blame others. Again that fear was manufactured by The industry that makes the products which they were campaigning against. Protect Our Communities was a joke and funded by the wine and spirits association. Can anyone see this? Sneaky snakes.
    Yes, Costco spent a pretty penny on this campaign but did they have a choice when one industry has been invoking public fear? Costco represents real people and gives them a voice WAY more than the Wine and Spirits Association of America, the backer of the opposition to 1183. If you asked every voter for the measure if they would have paid $6 on their Costco bill that month to get this passed, i bet they would have overwhelmingly said yes. Don’t blame Costco for basically being a voice for real voters. It’s sad that it takes $21million to counteract a negative campaign In which less than 50% even come out to vote on. One old state monopoly system down and busted, more to go.

  5. Andrew
    Posted December 10th, 2011 at 12:38 PM | Permalink

    “The state needs to focus on enforcement, not sales, so there will be no more public safety issues than exist today.”

    That’s why we have state liquor stores, friend… so the state can focus on enforcement. It’s much, much easier to police a few hundred state stores selling spirits than thousands of big box marts, convenience stores, and gas stations.

    I-1183 does nothing for enforcement. Did you even read the text of the initiative before you voted for it? I-1183 does not increase the number of inspectors, nor does it dedicate any new revenue to enforcement.

    The state has not been losing money operating state liquor stores. To the contrary… the stores bring in revenue for the state. Bringing up the budget shortfall is a smoke and mirrors argument.

    You have a pretty good double standard. In your view, it’s noble that Costco kept on fighting to privatize and deregulate liquor even after it had been defeated last year. But now that Costco has won, its opponents should “pipe down”, you say.

    Not gonna happen.

    Finally… it’s obvious that Costco’s motivation is profit. If their motivation was something else, then they wouldn’t be doing right by their shareholders, would they? They’re a for-profit corporation.

  6. Danio
    Posted December 12th, 2011 at 2:09 PM | Permalink

    This would not be so sensational if the author discussed net profit and not revenue.

    Please do some math and come back with a piece that is not so interesting and poorly supports your agenda.

    Costco management ripped off their share holders with their Washington liquor strategy. The Costco “winning” strategy had a negative NPV.

    Editor’s Note: This commenter’s screen name was chosen by NPI, and the comment was edited to comply with NPI’s Commenting Guidelines.

  7. Andrew
    Posted December 12th, 2011 at 2:59 PM | Permalink

    Actually, Danio, the post talks about sales from liquor. Not revenue. (The word sales is even in the title). If you’ve ever studied accounting, then you know there’s a difference between a business’ sales and a business’ revenue.

    In order to pinpoint what Costco’s profits would be, we’d have to be able to estimate gross profit and expenses, so we could come up with an educated guess. All we got from the Seattle Times was a figure for sales. If you add up the sales over a few years, it gets to be a pretty impressive number pretty quickly.

    Costco’s executives certainly seem to think there’ll be some profit left over for them to pocket after all is said and done. They do sell hard spirits in other states, so they’ve got a baseline from which to do their own calculations.

  8. Maj
    Posted December 13th, 2011 at 11:02 AM | Permalink

    What I don’t understand is an overwhelming majority of my customers are disappointed and angry that it passed. Before the electionm, 95% said they were voting no, while last year it was the complete opposite. How could it have passed? And why did the state approve it in the first place when it was an illegal initiative. How many of those hold Costco stock, like Ken Eikenberry, who while in office was vehemently against privitization. And by the way, those in the “yes” commercials were actors. Nice!

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