It’s an election year and there are plenty of issues already heating up the gubernatorial race. HB2 has put public restrooms on everyone’s mind. But there are other issues that get people talking too. For quite a few, a trip to the local ABC Store can stir up a heated debate about lack of selection and high prices, and whether it’s time to end the state-run monopoly of liquor.
Back in 2012, McCrory supported the privatization of the North Carolina Alcohol Beverage Control Commission. However, lack of movement on the issue by his administration is less about McCrory and more about the conflicted nature of the subject with both camps making strong arguments to support their perspectives.
Conservatives advocate for a free market, lower taxes for small businesses and promote less regulation, so why not support privatization more aggressively? Mark Kwasnick, a grassroots organizer for Privatize NC, suggests it has to do with pressure from lobbyists and Christian organizations, such as the Christian Action League, that consider alcohol a drug that needs to be regulated.
“You can talk all you want about personal responsibility; still the product itself is a mind-altering drug – a drug that with each drink taken diminishes an individual’s ability to be responsible,” said Dr. Mark Creech, Executive Director of the Christian Action League, in an article on the organization’s website.
The state’s argument is pretty clear. The ABC, a system of 188 county and municipal boards that operate liquor sales across 425 stores, makes money for North Carolina. According to the 2015 Wake County ABC audit, Wake County and local municipalities received $8,363,651 in profit distributions from just over $111 million in gross sales—a significant and dependable cash flow for the county.
Formed in 1937, the ABC system fundamentally remains the same. North Carolina is one of 18 states with some form of state-run liquor retail or wholesale system. However, the trend has been towards privatization. The last time this happened was in 2011 with Washington making the transition.
In North Carolina, supporters from both sides of the issue point to Washington state as a cautionary tale. NC Alcoholic Beverage Control Commission Public Affairs Director Agnes Stevens says consumer prices increased not decreased with more competition. (Larger price increases were noted in independent liquor stores, while large retailers such as Total Wine and Costco remained the same, according to a study by the Alcohol Research Group.) While advocates for private sales argue that the effort fell short: the state focused on retaining large profits instead of truly adopting a free market system.
“Tax revenue is sacred,” says Kwasnick, though he believes that loss of revenue will be made up for in sales of retail licenses and higher consumption.
But the ABC system affects more than the state’s bank account or consumer choice. Local distilleries have to work within the system, which provides both benefits and challenges. Traditionally, liquor and beer sales are the most profitable part of the restaurant business and the current wholesale system makes profit margins slimmer.
“It’s an uphill battle,” says the general manager of one local restaurant and bar who spoke on condition of anonymity. He says that small businesses like the one he works for don’t have the discretionary income to lobby for change.
So why not take to a vote? See if the public prefers the current system or not? It’s not that easy.
Unlike states like California, the public can’t directly petition for new state laws in North Carolina. Currently, only a member of the General Assembly may introduce a bill to be voted on by the Senate and House of Representatives. And Kwasnick believes there are too many special interests for that to happen.
Who stands to win or lose from continuing state-run liquor?
There are three main issues facing restaurants when it comes to liquor sales: high prices that lead to small profit margins, difficulty in procuring boutique selections and rigid regulations. There also seems to be a culture of fear. All the restaurants we spoke with did so on the condition of anonymity anxious that voicing their opinion would affect their businesses.
“The real issue is availability and they don’t have a pulse on the market,” says one Raleigh restaurant owner. “We want to stay up on drinks trends but we can’t get product that is readily available in New York or Los Angeles.”
The ABC offers a special order program where you can purchase craft or niche liquors. The only catch: You have to order a case, anywhere between six to 12 bottles, which is cost prohibitive for most independently run restaurants and bars.
“To buy 12 bottles is a struggle for local businesses,” says the general manager of another restaurant. “So when you make it even more difficult to be profitable you’re not going to buy. You’re going to dumb down your selections.”
Rigid regulations also prevent a small group of restaurants from purchasing a case together. When you pick up your box at the local ABC store or distribution center it immediately gets labeled with a Mixed Beverage Permit number. If you’re caught with a bottle from another establishment both lose their licenses, according to our sources.
Some local ABC stores have been known to bend the rules in an effort to help local businesses.
“It’s a popularity contest,” adds the restaurant owner. “We weren’t able to get custom orders for awhile because if you upset someone they won’t respond.”
“Small guys get edged out,” adds the general manager.
For the people of North Carolina the debate centers on choice, accessibility and customer service. At most ABC stores, the government employees aren’t invested in the success of the business nor are they well versed in the market. Transactions seem sterile. People complain about poor customer service.
Supporters of privatization note the difference when walking into a bottle shop. The knowledgeable staff can make suggestions based on your likes and dislikes. Do you enjoy a citrusy IPA? Want a new recommendation for a saison? They’ll turn you onto new breweries, many locally owned and operated.
Mark Kwasnick a grassroots organizer with Privatize NC also happens to be a whisky fan and he laments the lack of options at the ABC store. Shelves are dominated by offerings from big distributors. If you want to try more obscure liquor, let’s say Stranahan’s Whisky, you need to buy a case of six at $59.95 a bottle.
“Would you be happy buying all your meat from government?” he says.
The consumer also carries the burden of the higher cost passed down to restaurants and bars. Each bottle purchased by restaurants and bars is taxed with a $3.75 (per 0.75L) mixed beverage tax. In order to make a profitable margin specialty drinks must be marked up.
Of course, the tax revenue generated from gross liquor sales trickles back to the local county or municipality and many people believe it’s an important source of revenue for the state. Additional profits are distributed to local law enforcement agencies and alcohol education benefits.
Other supporters of the ABC system note the potential for alcohol abuse and drunk driving with increased accessibility to liquor. After Washington privatized, the state went from 328 state run shops to 1,500 privately owned stores.
Last fall a new law gave distillers the right to sell one bottle of liquor to an individual once a year outside of the ABC system. The change helped small craft distilleries develop new business and generate additional revenue.
“It helps create a connection with customers,” says Matt Grossman, one of the owners of Raleigh Rum Company. Previously, the business would have had to direct customers to a local ABC store. Now individuals can take a bottle home right away.
“The opportunity for our consumers to purchase a bottle after a tour has proven invaluable,” says Melissa Katrincic, President/CEO of Durham Distillery. “The onsite bottle purchase has specifically been able to fund our retail staff team of four part-time people and our building lease each month.”
The only small issue for consumers is that Durham Distillery offers five products, two kinds of gin and three liquors. Many people think they can buy one of each but only one bottle can be purchased and they must choose their favorite.
Many distillers, such as Durham Distillery, maintain a neutral position on the subject of privatization.
“As with anything there are pluses and minuses,” says Grossman. From a distribution standpoint there are benefits: companies only need to ship to one central location and the ABC offers a Made in North Carolina section to give local products exposure. However, many people don’t shop in the NC section, they shop in the vodka or gin or rum sections, and there is no incentive for stores to promote local products.
The other hurdle is that distillers need to get each of the 188 ABC boards to buy the product. Setting up a meeting with each can be costly for small companies. Even if distillers do meet with the board, there are no guarantees that a sale will happen.
“If you can’t get the board to carry your product, you don’t have any other options,” adds Grossman.