Costco Confusion

Wine, beer distribution bound to change in Washington, but how?

Dec 23, 2005 - A federal judge's ruling in Washington appears likely to change the way beer and wine is sold in that state and also has national implications. However, it's not clear what the result will be for either producers or consumers. So far, the attention has focused on the effects on wineries.


The judge ruled that Washington's system for distributing beer and wine violates the Constitution and the Sherman Act.

Costco Wholesale Corp. won a battle against the Washington State Liquor Control Board, when U.S. District Judge Marsha Pechman ruled Washington's three-tier system for distributing beer and wine breaks federal antitrust law.

In a separate ruling on Costco's case, Pechman agreed with the Issaquah-based discount retailer's claim that the state law that allows in-state beer and wine producers to ship directly to retailers but prohibits out-of-state producers from doing so, violates the U.S. Constitution's Commerce Clause.

While neither of the rulings will immediately change the way beer and wine is sold in the state, Pechman's decisions set in motion a chain of events that both Costco and the Liquor Control Board think could lower beer and wine prices for consumers in Washington.

In her ruling, Pechman stayed her judgment that the Constitution requires in-state and out-of-state producers to have equal distribution rights in order to give the state legislature time to change the law. She gave lawmakers until April 14 to either allow all producers of wine and beer - whether in state or out - to distribute their own products to retailers, or to prohibit any of them from doing so.

If the law must change, both the Liquor Control Board and the wholesalers association advocate forbidding both in-state and out-of-state producers from shipping directly to retailers.

That could send some small wineries out of business, said Tim Hightower, president of the Washington Wine Institute. That lobbying group for state wineries has calculated that the vast majority of the Washington's 385 wineries produce less than 2,000 cases a year - too small, they say, to catch the attention of a member of the distribution system.

While smaller wineries cannot afford to lose rights to self distribution, wholesales must be worried about what happens if chains like Costco are allowed to buy direct from out-of-state wineries.

While consumers may first be delighted with the prospect of paying lower prices, they must also be worried about the future of smaller producers.

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