Montgomery’s liquor system under fire

First of two parts

An eight-decade old system of liquor control in Montgomery County is drawing criticism and calls for its elimination.

Comptroller Peter V.R. Franchot, a Democrat and Montgomery County resident, said the current system for beer, wine and liquor sales is antiquated, inefficient and hurts local businesses.

“It’s a complete misfit,” Franchot said. “You have the wrong public entity involved in the wrong kind of business. Once people understand what a normal operation looks like, they will move in the right direction.”

Franchot, joined by others, said the right direction for Montgomery County is to get out of the business of being a middleman to restaurants, bars and package goods stores for beer, wine and liquor.

Restaurant and tavern owners in Montgomery County complain that “people go across the county line and have a better selection and, in most cases, better prices,” said Andrew Shulman, chairman of the Greater Bethesda-Chevy Chamber of Commerce, which has 600 members.

And customer service is a problem, too, he said.

“There are times when a restaurant owner needs to order a specialty wine for an event and they know they need to order way ahead of time,” Shulman said. “Then after all that, the product doesn’t arrive in time. The customer blames them for poor customer service and later, the county shows up with the six cases of wine and says, ‘You ordered it, you’re stuck with it.’”

Proponents of the system, including George F. Griffin, director of the Montgomery County Department of Liquor Control, said the calls for privatization are nothing new.

“This comes up occasionally,” said Griffin, adding that he believes the current system can be improved to better serve local businesses and customers.

Furthermore, Griffin and other county officials said, no one has offered any alternatives that would fill the multimillion-dollar hole left in the county budget if alcohol revenues were to go away. In the last fiscal year, the liquor department provided $25.7 million in revenue to the county’s general fund on overall sales of almost $257 million.

“We’ve looked at this issue around the county and nothing presents itself in terms of replacing the revenue on an ongoing basis,” said Patrick Lacefield, a spokesman for Montgomery County Executive Isiah “Ike” Leggett.

‘Not an easy conversation’

The discussions about a move to privatization of alcohol distribution are not unique to Maryland. Strong feelings exist on both sides of the debate. Many of the arguments date back to the end of Prohibition, when the federal government gave states, and in turn some local jurisdictions, the right to decide how alcohol would be regulated.

“It’s not an easy conversation, and there are so many sides to try to understand,” said Margaret Barchine, communications manager for the National Alcoholic Beverage Control Association, a group that represents states and jurisdictions where the government directly controls wholesale alcohol distribution.

Nationally, there are 17 states, including neighboring Virginia and West Virginia, and a small number of individual jurisdictions where the government controls liquor sales. A publication by the Montgomery County Department of Liquor Control says that 28 percent of the population in the United States lives in an area where such a model exists.

Washington was a controlled state. That ended with the enactment of privatization laws in 2011. An effort to put similar measures on a referendum ballot in Oregon is underway.

But Steven Schmidt, vice president of the association that represents controlled jurisdictions, said there is also action by some governments to take more control. Recently in Maine, the government reassumed control of alcohol distribution from a private contractor.

“They found they were losing too much money,” Schmidt said.

Montgomery County is one of four jurisdictions in Maryland — along with Somerset, Wicomico and Worcester counties — that operate dispensary systems. Agencies within those counties order product and charge a markup that is passed on to businesses.

Additionally, Maryland is one of four states, including Alaska, Minnesota and South Dakota, that have counties where alcohol distribution is fully controlled by government next to others where the system is privatized.

Liquor sales in the vast majority of jurisdictions in Maryland operate under what is known as the “three-tier system.” Bars, restaurants and stores buy from wholesalers who in turn purchase beer, wine and hard liquor from manufacturers and importers.

It’s a system that has support from the Maryland State Licensed Beverage Association.

“The MSLBA supports a tightly regulated system of alcohol distribution run by private entities, and believes that this private system works very well throughout the state,” said David Marberger, association president.

Worcester County is phasing out its government monopoly over liquor sales this summer under a law passed by the General Assembly three years ago. As of July 1, retailers will have the option of purchasing wine and liquor from wholesalers. The change will be the first test of whether a county system can compete with the wholesale marketplace. Many are skeptical and believe Worcester County will eventually move more to a licensing and enforcement model.

The phase-out in Worcester County came after numerous complaints from businesses resulted in a 2010 study by the Office of the Comptroller. That review found a number of violations by the county liquor control board, including selling the same product on the same day at different prices; selling products to some retailers at prices below what was allowed by law; purchasing products out of state in violation of state law; and providing some retailers with equipment at no charge.

Ultimately, the county board accepted the findings and a $16,000 fine. A bill introduced in the 2011 General Assembly session resulted in changes leading to a phase-out of its current operation.

The Montgomery Department of Liquor Control — an agency of 330 employees and 40 trucks — has a budget just shy of $60 million annually. In addition to typical enforcement of liquor laws, the department is responsible for sale of beer, wine and liquor to about 1,000 licensees in the county, mostly bars and restaurants. It completely controls the sale of distilled spirits, which are available to businesses and individuals only through the department’s 25 retail stores and distribution system.

Crossing the border

For Franchot, it’s time for the state’s most populous county — roughly 16 percent of the state’s nearly 6 million residents live there — to jettison its system.

“Right now there is a wet blanket over the county,” Franchot said. “Restaurants and individuals who need to get certain products and are willing to pay for it.”

Those people are going to stores in D.C., including some that are just a few hundred feet from the Montgomery County line, according to Franchot, who points to consumption statistics as an indicator of lost sales in Maryland.

Per capita, Montgomery County residents consume about 1 gallon of distilled spirits and nearly 10 gallons of beer, according to the most recent figures available from 2012. Both are lowest in the state.

Those same figures show that the county is middle of the pack when it comes to per capita wine consumption — about 2.5 gallons per person in 2012.

Shulman and others said that craft beers can be hard to come by in Montgomery County. Owners of bars and taverns frequently complain about how the Department of Liquor Control is slow to respond to changes in the market.

One sign of that, according to Franchot, lies in the county department’s own annual report that lists the top 10 beers sold in the county, including Miller Lite, Bud Light, Coors Light and Milwaukee’s Best.

Griffin, the current director of the system, was a former Bethesda tavern owner and an officer in the same chamber of commerce Shulman represents. He used to be one of the cheerleaders for change. Now he’s the chief defender of the system.

“Some of it’s legitimate and some of it’s perception,” said Griffin of the criticisms of Montgomery County’s system.

“One of the places we receive the most criticism on is the lack of sales in grocery stores,” Griffin said. “That’s a state law and something we have no control over.”

Griffin acknowledges that customer service is a problem and that most ordering issues are related to specialty wines and, to a lesser extent, beer.

“Everyone wants to carry something unique,” Griffin said of the ordering practices of area businesses.

Criticisms about price are not always accurate, he said. “We meet or beat most prices,” he said.

Schmidt, the vice president of the association that represents states and jurisdictions such as Montgomery County, said prices are often better for businesses and the consumer in areas where there is strict government regulation.

“Typically, what happens is prices go up in a deregulated jurisdiction,” Schmidt said. “That’s what we’re seeing in Washington and it was the consumer that paid.”

Even so, Griffin said he understands there is a need for improvement on a number of fronts.

Better employee training and additional workers will improve relations between the department and businesses, and the county hopes to open up some additional stores, Griffin said.

The department also will move soon to an improved online ordering system. Griffin compared it to online retailer Amazon.

“They’ll be able to manage their account, order online and see an estimated delivery date,” Griffin said. “Do I think that will solve every problem? No but it will help.”

Tuesday: A closer look at the Montgomery County Department of Liquor Control.