Privatization for Four Control States?

Four control states are weighing proposals to change the role of state government in the distribution and sale of alcohol. Washington, Virginia, North Carolina and Mississippi are each assessing plans to reform their respective systems, and privatization is among the options on the table (or bar, as it were).

What’s driving these proposals? Primarily, the need for revenue. As states grapple with reduced income due to the recession and large budget deficits, many control states are eyeing their alcohol regulatory systems as potential sources of revenue windfall. For example, privatization of the state’s retail stores was part of the campaign platform for newly elected Virginia Gov. Bob McDonnell (R). He anticipates a $500 million windfall if the state stores are privatized and additional revenue from licensing fees, which is appealing to a state with a $4 billion deficit. Washington State also faces a deficit – $2.6 billion – and is considering privatizing distribution and retail sales of alcohol. Mississippi is considering privatizing wine distribution, with more than $2 million annually as the projected windfall for the state.

In North Carolina, the motivation for examining privatization is a need for greater accountability and ethics reform, said Senate President Pro Tempore Marc Basnight (D) in a prepared statement last week. The move comes in the wake of revelations about spirits-company funded meals and fat salaries paid to county ABC execs and staffers. A specially appointed panel is examining the impact of privatization on accountability and also cost savings and potential revenue.

So what does this mean for chain restaurant business? Well, for the time being, it means beverage execs need to pay attention to the debate about privatization in these states. While the process will undoubtedly be a long one – although the need for revenue is so intense right now that fast-track reform is not unthinkable – the outcome will change the way business is done in these states, and most would assume for the better. But there will be opposition. The union representing the state store employees is already opposing the proposal in Washington, and conservative religious and public advocacy groups will undoubtedly speak up. How the beverage alcohol companies and hospitality industry respond will affect the process, as well as the public’s perception of them. If and when changes are made, there will be ramifications in terms of how and from whom restaurants will purchase alcohol and, most likely, what products are available. As always, understanding state and local regulations will remain a crucial part of doing business.  Stay tuned.


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