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State auction of liquor stores causing owners a hangover | Some winning bidders of state license already out of business
Six months after the privatization of liquor sales in Washington state, Kulbir Singh stands to lose everything.
The businessman who lives in Brazil, Ind., and purchased nine former state liquor stores — including one in Bellevue’s Northtowne neighborhood — had anticipated that it would take time for prices to settle. He even predicted the competition of retail giants, like Safeway and Costco. But Singh didn’t expect to find himself shutting all of his stores within months of opening.
“The storyline here is tragedy,” said Byron Roselli, a commercial real estate broker representing Singh and six others in the state. “It’s a tragedy for all the bidders. It’s a tragedy for all the landlords. And it’s a tragedy for the jobs lost.”
In 2011 Washington voters approve Initiative 1183. As part of the move to privatization, the state auctioned off 167 of its stores. Winning bidders were awarded the exclusive right to apply for a liquor license in a space of 10,000 square feet or less, though the winning bidders still would have to negotiate a lease and pay the cost of inventory.
Hoping to cash in on what seemed a lucrative business deal, 121 individuals bid as much as $750,100, netting the state a total of $30.75 million.
As the winners scrambled to meet their June 1 deadline for the change-over to privatization, some of the bidders began to question the value of their purchase. In the months since, a faulty transition and the competition of chain stores has prompted 11 owners to sue the state, and many more to go out of business.
Though the liquor board insists there was no blueprint for privatization, some stakeholders believe it could have been more efficient and transparent about its dealings.
Michael Cho, a member of the Washington Liquor Store Association, who bid on three separate locations in Bainbridge, Gig Harbor and Anacortes, says the problem is threefold. The law, written by Costco to favor big box retailers, didn’t specify implementation, but required sales be quickly transferred to the private sector.
“We are going out of business one by one,” said Cho. “If this continues, in six months, 80 percent of former state liquor stores will close.”
When Singh was awarded a certificate for his winning bids, he had just a month to negotiate a lease, pay 80 percent for the inventory of each store, and find employees, if he hoped to open in time. Each day his stores stayed closed, Singh risked losing his customer base.
The odds were stacked against him from day one, says Roselli, who has worked with the Washington State Liquor Control Board on store placement in Clark County. Many landlords had raised rent, or weren’t willing to negotiate leases.
On opening day, Singh was greeted by a half-empty inventory and a missing hard drive for his Point of Sales (POS) system, critical for tracking pricing and codes on store products. He hadn’t been allowed to settle into any location before the law went into effect, and so had no way of anticipating the setbacks.
The control board insisted store POS systems contained secure information, and the shelves had not been replenished, though he’d paid a down deposit on 80 percent of the inventory. Meanwhile, chains like Safeway and Costco had only to uncover the shelves on their new liquor stocks.
Singh decided he couldn’t afford to wait for the state to respond, and so spent $60,000 on a new POS system.
“Store after store wasn’t able to open through late June,” recalls Steven Fogg, attorney for Delta Kor, Inc. which purchased the rights to Bellevue’s downtown location at 1100 Bellevue Way NE. “People showed up and [thought] this store is closed, and ended up going other places…Any chance these guys had for success, was gone.”
Delta Kor paid $335,943 for the downtown store in a subsequent auction, and purchased licensing privileges for five additional locations. It is demanding the control board refund its bid for the downtown Bellevue store, paying the property owner was well into lease negotiations with the California chain, Beverages and More (BevMo), when a bid was made.
“It was easy pickings for what the state was selling. [Bidders] were led to believe, as long as you’re willing to work hard, you’re going to be able to replicate [the state’s] success,” says Fogg. “And in these general cases, I think [the state] knew that it was going to be impossible.”
The majority of those who participated in the state auction were immigrants with a long history of operating convenience stores or gas stations across the state. They weren’t new to business, but language barriers have made it difficult for them to navigate the road to privatization, said Cho.
Delta Kor’s bid only earned it the right to apply for a liquor license within a one mile radius of that original store. With BevMo moving in and mostly residential surroundings, the company sees no foreseeable alternative. In fact, as many would learn, the former state liquor stores had been built into shopping malls where they were in direct competition with big box retailers.
Cho doesn’t believe the liquor control board deliberately shortchanged owners. Everyone was on overdrive, he says, but it’s the state’s responsibility to correct its wrong.
“What was going on with privatization was unprecedented anywhere,” says Mikhail Carpenter of the WSLCB. “Nobody knew what it was going to look like.”
Carpenter explained that the liquor control board has done extensive outreach with stores, but under privatization it’s difficult to track store closures. The missing hard drives for POS systems were communicated to owners beforehand and bidders were reimbursed for any inventory absent at the time of opening.
The fate of small retailers under privatization remains to be seen. Cho helped form a retail association to respond to the purchasing power of the Costcos and Safeways of the state. But many of the advantages of high volume orders don’t apply under the law. The co-op must make one order, for example, and can only request delivery to a single location.
“I’ve lived in this state all my life, and I’m ashamed of what the state has done” said Roselli, who has since decided to work with bidders pro bono. “This is a deeper story about the impact of 1183.”
Cho plans to talk with legislators about amending the law, but in the meantime, can only hope for better days.
“We’ve been open since the second day of June and we’re still losing money,” says Cho. “I don’t know what to do…Maybe one day, the law will get better and businesses will pick up.”