Presented by:Pat Kohler, Agency Director

March 7, 2012

Sleepless in Olympia:I–1183 in Transition

Agency Goals:

• Orderly transition by May 31, 2012. • Meet the timelines and the requirements

spelled out in the initiative.• Advert harm to contract, tribal and military

stores.• Maximize reasonable value for our assets.

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I-1183 Timeline• December 8, 2011

– I-1183 becomes law• March 1, 2012

– Distributor and COA’s licenses active• May 31, 2012

– State business operations close• June 1, 2012

– Spirit Retail licenses active

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Implementation Project Teams

Audit Team Legal & Policy Team

Product Supply Team

Employee Transition Team

Communication Team

State Liquor Store Team

Contract Liquor Store Team

Asset Disposal Team

Reverse Logistics Team

Warehouse Hibernation

Team

State Store Auction Team

Warehouse Sale Team

Regulatory Team

Organizational Structure

Rulemaking Team IT Team

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Key Activity Timeline

Activity Jan Feb Mar Apr May Jun Jul Aug Sep

Store Audits

State Store Auction

Store Closures

Reverse Logistics

Employee Layoffs

Asset Disposal

Warehouse Hibernation

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Key Agency Challenges• Administering layoff of over 1,000 employees under

two complex collective bargaining agreements.• Providing full retail services through May 31, 2012,

yet ensuring that inventories are depleted at the end of the day.

• Conducting audits of over 300 store locations in eight weeks.

• Auctioning of State Store Rights at locations that are owned by 3rd parties.

• Changes to the existing regulatory system.6

Supplier Buy Back Agreement

• 124 suppliers established agreements, representing 99% of spirits.

• Only 96 of 424 (22%) listed beer, wine & mixer products will be covered by an agreement.

• 2,225 of 2,850 (78%) special order spirits will be covered by an agreement.

• Reversed logistics.

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State Store Auction• A successful bidder owns the exclusive right to apply for a

spirit retail license for the existing location.– Allow for liquor sales at a premise under 10,000 sf2

– Location is not subject to local jurisdictional challenge– The “right” is sellable, transferable, and re-locatable– No obligation to operate a liquor licensed business

• Public on-line auction.– Individual store locations– All system bid– 45 day window

• Maximum reasonable value.– Criteria to determine total revenue factoring in cost avoidance 8

Regulatory ChangesUniform Pricing:• Is repealed for spirits and wine (No sales below acquisition cost).Ban on quantity discounts:• Is repealed for spirits and wine (No sales below acquisition cost).Ban on Central Warehousing• Is repealed for spirits and wine.Ban on Retail to Retail Sales:• Is repealed for spirits and wine to a degree (24 liters per sale to

an on-premises licensees).Liquor Markup & Taxes:• The markup is removed.• Removes the 15% discount on the purchase of spirits by retail

on-premises spirits liquor licensees.9

Producer/ManufacturerTypically a brewer, winery, or distillery

Current 3-Tier System

DistributorCompanies specifically designed to sell specific products

to restaurants, bars, stores, etc.

RetailerGrocery & liquor stores, bars, restaurants, etc.

Consumer 10

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Distributor

Producer

Off PremiseRetailer

On PremiseRetailer

Consumer

I-1183 Model

In State Producer• Privileges

– Sell to Distributor – Sell to Retailer– Sell to Consumer at the

Distillery• Costs

– 10% distributor fee on sales to Retailers

– 17% retailer fee on sales to consumers

Out of State Producer• Privileges

– Sell to Distributor– Sell to Retailer

• Costs– 10% distributor fee on

sales to Retailers

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Producer

• Privileges– Sell to Distributor – Sell to Retailer

• Costs– 10% distributor fee on sales to Retailers (first

two years)

– 5% distributor fee on sales to Retailers – $150 million distributor assessment for

“holders” of a distributors license (for the period March 2012 – March 2013)

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Distributor

Off Premise• Privileges

– No Uniform Pricing– Quantity Discounts– Central Warehousing– Retail to Retail Sales (limited

to 24 liters/day)

• Costs– 17% retailer fee on all spirit

sales

On Premise• Privileges

– No Uniform Pricing– Quantity Discounts– Central Warehousing

• Costs– 17% retailer fee on all spirit

sales

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Retailer

Additional Requirements: Must maintain 10,000 ft2 of retail space

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Distributor

Producer

Off PremiseRetailer

On PremiseRetailer

Consumer

I-1183 Model

Current Applications by License Type

License Type ApplicationsSpirit Certificate of Approval (COA) 24

Authorized Representative COA (Foreign & US) 77

Spirit Distributor 39

Spirit Retailer 789

Contract Liquor Stores 66

Wine Seller Reseller Endorsement 284

As of March 1, 2012 16

Q and A

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