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Some liquor store owners feel burned by state, terms of privatization
Don Sidhu has held various jobs at gas stations, he’s driven ice cream trucks and taxi cabs and worked in a small business since he came to the United States from India in 1992.
Sidhu put a lot of money into his new business when the Liquor Control Board auctioned off the 167 state-run liquor stores to private retailers in April. He says he and his brother have put in $1.5 to $2 million from the four stores they bid on, including one in Kirkland’s Houghton neighborhood.
But Sidhu - like several other liquor store owners in the state - has felt the impact since liquor privatization took effect last June.
He was forced to close Liquor Store No. 57 in Houghton two weeks ago because he said the store lost 85 percent of business since privatization.
“We’re broke. The landlord (at one location outside of Kirkland) is coming after us because the personal guarantee is signed,” said Sidhu. “I’m looking for everything, there’s nothing I can do.”
Bankruptcy may be inevitable, he says.
Sidhu, who bought two stores in Vancouver and one in Kennewick, which is now closed, purchased the right to the Houghton location at 10609 N.E. 68th St. for $344,712. The right to operate the others were purchased at state auction for $264,125, $263,152 and $212,106 respectivly.
Many retailers would say the state packaged the liquor stores as a great business opportunity. The highest bidders were promised “special rights,” such as the exclusive right to apply for a liquor license at the current state run locations. And under Initiative-1183, the stores couldn’t sell liquor if their retail space was under 10,000 square feet, but these stores could. Additional cost control by employing non-government workers would also save retailers a substantial amount of money in the private sector.
On top of it all, retailers were offered a slice of Washington’s billion dollar liquor business.
“Did they bid too much for the opportunity?” said commercial real estate broker Byron Roselli. “Most everybody would probably say yes, but one of the reasons the bid amounts were where they were at is because of the way the state sold the packages as opportunities.”
After the auction on April 20, which had bids as high as $750,000 a store, the state put down a time restriction. From April 25 to May 11 store leases or fully executed Letters of Intent had to be locked down as well as a full cash payment of 80 percent of the liquor inventory as of Feb. 1 - soon to be discovered as unfavorable, slow-moving merchandise.
“These transactions take some time – traditionally, lease negotiations (normally) could take up to one year,” said Roselli. “But the state was forcing complete negotiations and executed leases in two weeks.”
Roselli has worked with the Washington State Liquor Control Board on the placement of liquor stores in Clark County and was involved in communications between potential bidders and liquor store landlords.
“The May 11 deadline ensured that those people would have their liquor license by May 31 because they legally couldn’t have spirits without it (come June 1 when privatization was put into effect),” said Liquor Control Board spokesman Mikhail Carpenter.
As a result of the short time-frame, Roselli said some landlords gave adverse rates and length of terms to the new tenants. Retailers ran into problems, despite the effort of extensive public outreach from the Liquor Control Board.
Several stores have yet to open due to complications with leases.
Added expenses have also been a problem for some retailers since privatization.
When bidders began preparing their stores for occupancy, many discovered the hard drives in the Point of Sale (POS) systems for keeping track of inventory were removed and they had to “scramble” to load all of the inventory numbers, pricing, codes and other numbers into new systems - another expense.
“All bidders were counting on full inventories so they could compete but they used their cash reserves to buy POS systems and inventory,” Roselli said.
Carpenter says the hard drives were removed because they had secret information pertaining to bank accounts that linked to headquarters, but that was communicated to bidders beforehand.
And when retailers did do inventory, the slow-moving merchandise, such as the $250 Patron, was unsustainable and many were forced to buy more popular alcohol immediately.
The escalated pricing from distributors didn’t help either.
Customers are required to pay a 17 percent fee (includes the cost of goods, operating costs and profit), a 20.5 percent retail sales tax and a $3.77 per liter tax on all product sold. Roselli said taxes and fees make up more than 50 percent of gross sales in all stores.
“The bidders realized they would lose significant business to competing retail but didn’t realize the impact of the 17 percent fee,” said Roselli. “I believe a major portion of the (previously state-run) 167 stores sold will fail by the end of the year.”
Because distributors negotiate price based on volume, outlets like Safeway and Costco could get much better deals if they bought in larger quantity.
“They (the bidders) don’t have the buying power,” Carpenter said. “The prices are determined by the distributor.”
Roselli said there are two major “quasi monopolistic” distributors in Washington - Young’s Market Company and Southern Wine & Spirits.
“From a bystander's position, it’s absolutely incredible that this is allowed to happen,” Roselli said. “One of the primary issues that every political candidate is running on is jobs. These closures have meant several hundreds of jobs.”
Carpenter confirmed he had heard of liquor store closures but said there was no way for them to track how many since they were now private and had no obligation to inform the State Liquor Control Board. He speculated a big reason could be because of the rise in competition since privatization but could not verify why.
One previously state-run liquor store in Kirkland has also closed, but the Reporter could not confirm what led to that circumstance.
Last spring, Dennis Duryea won the rights to Liquor Store No. 192, which was located near the QFC in Totem Lake. He moved the location to the upper Totem Lake Mall at 12548 120th Ave. N.E., after he spent $56,100 on the bid.
"We are still in business and are struggling to make a go of it," Duryea said. "Against all odds our business is growing a little bit each week."
But he did say many fellow auction store buyers have gone bankrupt.
"Many stores were forced to move because they could not obtain a lease at the current location, including us," Duryea said.
Other liquor stores who are still open report business is slow or just surviving.
Josh Boggs, assistant manager of Redmond Ridge Liquor and Wine, said that business has been fairly slow since the state was in the liquor business.
“We do have a lot of items that you can’t get at a Costco or other grocery stores,” said Boggs, adding that they carry specialty items like high-end tequila, bourbon, scotch and gin.
However, those other stores are grabbing a large amount of the liquor business, Boggs added.
“To be able to see liquor right in front of you while you’re shopping, it grabs your attention. It’s a convenience factor,” he said.
Redmond Ridge Liquor and Wine, owned by Chuck Ferrel, has been open about four years and previously contracted with the state to sell liquor.
Abi Eshagi of Woodinville purchased the store at Bothell-Everett Highway 20617 for $110,000.
“We never opened (the Bothell store) because we couldn’t get the lease,” said Eshagi. “What wasn’t disclosed was that someone already leased the location.”
Pete’s Wine had already applied for a liquor license in that spot.
Eshagi said that he has filed a petition with the State Liquor Control Board and that his lawyers are looking into the matter. He refused further comment on the legal procedures available to him.
He owns two others in the state that have survived.
“Sales have been OK,” Eshagi said. “But they have not been nearly what they were (prior to privatization).”
And yet, there are still liquor store owners who are optimistic.
Over at Premium Wine & Spirits on Redmond Way, manager Peggy Binckley said they’ve been busy since co-owners Jeff and Michael Roh took over in June. Jeff bid $281,660 in a state auction in April to win the rights to the store.
Location may be key. The state turned the building at 16389 Redmond Way into a liquor store in April 2010. And the brick building has some history behind it, according to Binckley, who said it was Redmond Mayor Bill Brown’s car-repair shop in the 1920s.
“People love this building — it’s dear to their heart,” she said. “The owners have gone to great lengths to restore it.”