Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 28, 1993 TAG: 9302280016
SECTION: BUSINESS PAGE: B-1 EDITION: METRO
SOURCE: John Levin
DATELINE: LENGTH: Long
HERE'S A SWITCH: GOVERNMENT RUNS A BETTER BUSINESS
Turning over Virginia's liquor stores to private enterprise is not an issue we're hearing much about this winter.Yet, just a year ago, the General Assembly was poised to test the idea with a few privately run outlets. The notion was that Virginia ultimately might become part of the trend of moving away from state-run monopolies for the sale of hard alcoholic beverages.
That plan got shelved and downgraded into a study. And now the study itself appears to have been shoved to the back of a top shelf. The study was reported quietly to Gov. Douglas Wilder and a few legislators in December.
"There'll be no legislation this year" or anytime soon, said State Sen. Clarence Holland, the Virginia Beach Democrat who proposed and later withdrew last year's bill for a pilot program of private liquor stores.
"Unless they go to hell in a handbasket, I'll be a supporter of the present system," Holland said last week. "It's one of the best-run departments in the state."
What convinced him, Holland said, was the $100,000 study, paid for by the Virginia Department of Alcoholic Beverage Control.
It was conducted by Price Waterhouse, a national accounting and consulting firm, which broadly suggested that private retailers would raise prices and provide poorer service. As logic would suggest, private operators would be competitive in urban areas and less aggressive about serving rural areas.
Recall that the issue last year was mired in charges of self-interest when it was discovered that Wilder's son and a former aide were owners of a Richmond chain of wine-and-beer stores that was interested in selling liquor as well. Wilder later said he was no longer linked to the business. Holland also contends that issue is dead and it now has little influence on the larger issue of privitization.
Virginia's system and its long-held style of control stems from the repeal of Prohibition in 1933. Then, about one-third of the states maintained government-run systems for liquor sales while the majority turned over at least portions of their operations to private industry.
In recent years, three states - Iowa, Maine and West Virginia - have turned over their liquor retailing to private industry. And other states are considering such plans.
At issue for many states is the matter of revenue from what's generally a high-profit business.
The impetus toward privatization "is that states are in fiscal trouble and feel they can collect more taxes," from private owners, said John Burcham Jr., president of the National Association of Beverage Retailers, a Bethesda, Md., trade group.
"Generally speaking, there is more tax money collected and sales are greater," with private stores, he said.
With a public agency, the desire for revenue generally is tempered by a sense of public service. That means although some of the 245 state ABC stores were barely profitable last year, they continue operating in areas that private owners probably would shun.
In general, liquor sales are among the most profitable of legitimate businesses. Virginia's Department of Alcoholic Beverage Control this year expects to generate $156 million, according to the Price Waterhouse study. Of that, $40 million will be in profits from operating the liquor stores and the rest is from various retail and wholesale taxes.
In the fiscal year ended June 30, the state ABC stores reported a $36.3 million profit and a 14.1 percent margin on net sales. Compare that with the supermarket industry, which considers a 3 percent profit margin on food sales as healthy.
"I tend to be of the philosophy that private enterprise can do things more efficiently that government," Holland said. "But . . . I don't know of too many business that would complain about a 14 percent return."
"We're doing quite well," said George M. Hampton, chairman of the Virginia ABC Board.
"I think we're getting a good bottom line from the system as it is," said "But there always will be a philosophical issue about whether the state should be in the business." As with operating prisons and other services, there are valid questions about whether the state would be better served by private enterprise.
There are no easy benchmarks to know with precision that Virginia's ABC system is as profitable as possible. No other state quite matches the duties of the Virginia department, said spokesman Thomas Weedon Jr.
In addition to selling booze, for example, Virginia's agency is responsible for mounting educational campaigns to encourage responsible drinking.
And it also employs 110 agents to enforce state ABC laws. Last year its Moonshine Task Force operating from Franklin County destroyed 73 illegal stills and destroyed 57,100 gallons of mash.
By one measure, however, Virginia ranks as the fifth most profitable seller of liquor among the 50 states. That's based on the $17.40 in profits and taxes generated by each gallon of 100-proof liquor sold last year.
And the four states that ranked higher; they were all government-control states, Weedon said.
John Levin is business editor of the Roanoke Times & World-News.