Friday, August 6, 2010

Washington's Initiative I-1100

On BI with the moms - she is doing better, thanks for all your well wishes - so I'll free ride on Jacob Grier and his take on Washington's initiative I-1100, which would, as I understand it, essentially do away with their version of the OLCC, or at least the part that controls sales.  Washington's craft brewers have come out against it, apparently because it would allow for market based wholesale pricing.  Here is Jacob:

At issue is a section of the initiative that would allow breweries to self-distribute and offer discounts to bulk buyers like Costco, grocery stores, and bars. Beer in Washington must currently sell at a uniform wholesale price: Costco pays the same amount for crates of it that a small retailer pays for a few cases. As a result, beer prices at large retailers are higher now than they will be if I-1100 passes.

Eliminating the uniform price requirement might make it harder for craft breweries to compete with the big beer companies who can offer greater discounts and benefits. Does this make the initiative anti-consumer? Only if you look exclusively at craft beer drinkers. Craft beers currently make up about 7% of the US market (probably somewhat higher in beer savvy Washington). The vast majority of beer consumers will benefit from being able to buy macrobrews at lower prices.

To put this another way, the Washington Brewers Guild is saying that the state should keep beer prices artificially high for 93% of the beer market in order to maintain the same broad selection for the remaining 7% (or whatever the actual figures are in Washington).

Personally, I doubt that the results will be as bleak as the WSG predicts. Craft brews are growing in popularity while macros are declining, and that’s unlikely to change. Smaller breweries are also starting to merge, operating independently while taking advantage of economies of scale. There may be some closures — this is true regardless of I-1100 — but craft beers don’t show any sign of going away.

My take on this part of the issue is that craft brewers' market has always been fairly distinct from macros, so they shouldn't start worrying about craft beer being more expensive, it always has.  Lower prices will allow them to grow their markets, in fact I think in Oregon at least, Ninkasi is being sold in Costco -something that will give them exposure to a whole new set of consumers.  The point is, if craft brewers have a superior product, they shouldn't be relying on arcane laws to be competitive.  Last time I looked, the craft beer industry in California, which has about the most liberal laws in the nation, was thriving.  In fact the modern craft beer industry started in California.  Craft brewers in Washington are making a mistake in aligning against consumer friendly reforms.  As Jacob says, it is about the consumer.


Okobojicat said...

I think one way you aren't looking at this is that the big craft brewers will be able to capitalize while the smaller ones will be in trouble.

Sam Adams or New Belgium sell A LOT of beer, and if they can sell a lot more beer to Costco or Wal-Mart or Safeway or Fred Meyer then that will be cheaper. This hurts your small breweries this way:
Imagine you're a consumer who likes beer and your buddy had you try a couple Sam Adams and you were like, hmm, that's pretty good. And you're at the old Fred Meyer picking up some chicken. You wander into the beer aisle and you see Sam Adams (which you remember being about $7.59 for a six pack) suddenly going for $$6.59. Next to it, you see Oskar Blues but at $8.99 for a six pack. Before, you might make that leap and get the Oskar Blues. But now, wit that $2.50 in difference you'll pass. That's where it hurts. When you have people getting off the gateway beers.

But, as an economist, I agree with you. There is no reason not to do it. Its good for the vast majority of consumers. Craft Brewers will survive.

Ian Harper said...

All the big breweries distributed in WA will be able to benefit from this. Pyramid comes to mind first (even though they don't brew in WA anymore) plus other like Deschutes, Full Sail, Bridgeport, etc. I know the Costco in Bellingham, WA buys Rogue and Pyramid on occasion so I'm assuming that they will get a discount (since they buy a whole 'board' at a time which is equal to 70 cases of 6 packs).

This is going to create a two tier pricing system in WA where big breweries will have an 'everyday low price' and smaller breweries will be at a relative premium. Currently the pricing runs from 7.99 - 10.99 (in Bellingham). That puts craft beer in a pretty close price range. Bulk discounts is going to change this.

Our state just in-acted a sales tax that only applied to 'macro' brews as a way to help get out state out of debt. I'm guessing that the passage of this law will undermine that effort.

On the plus side this initiative will also get rid of all the state run liquor stores. I'm in favor of that personally. I hate the state run stores. I've seen the 'light' in other states where liquor was sold in 'private' establishments and I really want that to come our way.