June 11, 2003 News & Features » Cover Story


The Battle Over Booze 

Should Virginia be in the liquor business?

For Delegate Allen L. Louderback, a Republican from Luray, it’s an ethical dilemma.

“I have a little difficulty when we have one hand trying to maximize profits from the sale of alcohol — which means trying to maximize consumption — and the other hand trying to discourage drunk driving, underage drinking and all that,” Louderback says. “It just seems contradictory.”

Louderback led an unsuccessful drive this year to extract the state from the booze business. His bill to privatize the system by selling the stores to regular retailers was the latest in a long line of such measures that have been blocked by Virginia lawmakers.

Legislators even turned down a request by Gov. Mark R. Warner to simply study the idea.

Among the opponents was Warner’s fellow Democrat Delegate Clifton “Chip” Woodrum from Roanoke. Woodrum has batted down numerous privatization pitches during his 23 years in office.

“It comes up every couple of years, like someone just woke up,” Woodrum says. “But we’ve been doing it this way for 70 years, and until someone can bring me something other than some loosey-goosey philosophical predicament problem, they’d better not mess with a system that brings us money and exercises serious control over who we sell alcohol to and how we sell it.”

Philosophy, however, isn’t the only hitch. Some say government has more important things to do than peddle liquor, and that the state might clear more money under a private system.

Others say it’s simply time to change a setup that has survived virtually untouched since the end of Prohibition. Several other control states have recently switched to private stores, and officials there say it has been a good move.

Alcohol is a free enterprise in 32 states and in Washington, D.C., with liquor, beer and wine being sold by licensed retailers from a patchwork of privately owned liquor stores, grocery markets, and drug and convenience stores.

In Virginia, liquor is treated differently. While beer and wine can be found at most food or fast marts, government-run stores are the only legal source of packaged liquor. It’s a crime in Virginia to buy a bottle anywhere else — punishable by a maximum fine of $2,500 and up to one year in jail.

That’s OK with some residents, who think such restrictions might keep a damper on drunks in their neighborhoods or on their roads.

Others resent the tight rein.

With 55 stores for every 1 million adults, Virginia has the second-lowest number of stores per capita in the nation. Consumers say that’s inconvenient.

Merchants interested in owning liquor stores gripe that a lucrative market open to retailers in other states is off-limits to them in Virginia.

Tavern and restaurant owners complain that the state’s monopoly hurts their bottom line. Liquor sold in mixed drinks must be purchased from the state at the same price a resident would pay, which robs barkeeps of the good deals they could get from competing vendors.

All agree that tradition is entrenched. Political back-scratching makes it even harder to dislodge.

Wholesalers supplying beer and wine to Virginia retailers have contributed more than $2 million since 1996 to a scattershot of political campaigns. In 2001, wholesalers were among the top five donors to House campaigns where the candidate faced no opposition — a generally accepted indication of a donor buying an ear.

Represented by their lobbyist Walter A. Marston, the wholesalers have argued passionately in Richmond against privatization.

“A whole snake pit of issues” turns them against it, says Marston, including concerns that private stores won’t be as vigilant as state stores when underage buyers try to purchase liquor.

Many retailers say beer and wine wholesalers are really worried about the buck.

“They raise all these social concerns,” says Laurie L. Peterson, president of the Virginia Retail Merchants Association, “but it all comes down to competition. If liquor is right there in the grocery store, customers might buy it instead of beer or wine.”

Small, in-state distillers such as A. Smith Bowman, a spirits-maker in Fredericksburg, like things the way they are. State-run liquor stores grant small Virginia operators shelf space they wouldn’t rate in a private store.

Big, out-of-state distillers want privatization. They think it will eventually spawn more liquor stores and more sales of their products.

That possibility alarms religious and neighborhood groups, who worry that more stores will encourage more drinking that will corrupt their flocks and batter their communities.

“If we could go back to the Prohibition, we would,” says Jack Knapp, executive director of the Virginia Assembly of Independent Baptists. “But since I don’t see that happening, we’re in favor of anything that makes it less convenient for people to get the stuff.”

The battle of wet versus dry is nearly as old as the commonwealth. Prohibition, enacted by the 18th Amendment, began at the stroke of midnight Jan. 16, 1920. Virginia had been quick to ratify the amendment. Years earlier, on Sept. 22, 1914, the state had voted for a statewide ban on liquor.

Legislation laying down those state rules took effect Oct. 31, 1916, a day chronicled by the Richmond Times-Dispatch, whose former reporter Alan Burton Clarke wrote exhaustive accounts of the Prohibition era.

On that day, the paper reported, Richmond saloons were to close at midnight. About 1,000 people gathered at Grace Street Baptist Church to commemorate the day, and across the city, church bells rang and fire sirens sounded.

Virginia said goodbye to the “demon” Jan. 16, 1920.

“Goodbye, John!” evangelest Billy Sunday cried out at a rally in Norfolk, The Virginian-Pilot reported. “You were God’s worst enemy and the devil’s best friend. Farewell! I hate you with a perfect hate, and by the grace of God, I love to hate you!”

The crowd of 10,000 roared.

This coast-to-coast ban was the ultimate victory for the temperance movement and, some felt, the salvation of the nation.

The party had simply gotten out of hand. The rum that arrived at Jamestown with the colonists had boomed into a national binge.

Drinking was widespread in early America. Medicine was crude and water often fouled, so alcohol was considered a healthy tonic for men, women and children. Settlers were known to tote three things: a musket, a Bible and a jug.

Men drank in public. Women drank at home. Babies were dosed with rum, whiskey and brandy. Toddlers were encouraged to finish off a parent’s glass. Teenagers were taught to hold their liquor early.

“It was universal — an accepted way of life back then,” says Eric Mills, who researched the history of alcohol for his book, “Chesapeake Rumrunners of the Roaring Twenties.”

“They even passed the jug around in church,” Mills says.

With meals, holidays and social occasions well lubricated, alcohol became ingrained in the culture. True Virginia hospitality called for more than wetting a guest’s whistle. Visitors routinely left the door nothing less than downright drunk.

In time, stepped-up imports and improved production at home unleashed a flood of cheap booze. With few laws to discourage it, America became besotted. In the peak year of 1830, the average person was drinking more than nine gallons of the hard stuff every year — five times more than the 1.81 gallons averaged in 2000, according to the Distilled Spirits Council of the United States.

By the mid-1800s, doctors, social workers and preachers were sounding an alarm about alcohol’s impact on the body, family and soul. Temperance groups and anti-saloon leagues formed. The pendulum began swinging toward sobriety. Prohibition came in degrees. Random counties voted to go dry, then sporadic states and ultimately, the nation.

Smuggling began almost immediately in the Chesapeake Bay, according to Mills. The setting was too ideal. Located midway along the Atlantic coast, the bay’s nook-and-cranny shoreline was inhabited by an enterprising breed of people already equipped with boats.

Foreign traders pointed their ships, holds heavy with liquor, toward the bay. Anchors dropped three miles off the Virginia Capes on the edge of international waters — beyond the grasp of U.S. law, but within easy reach of the residents of Hampton Roads.

Local smugglers slipped into their boats, darted out under the cover of darkness, loaded up and ran for shore, where they hid the hooch until it could be picked up by car and sped to thirsty buyers in Richmond, Washington, D.C., Baltimore and beyond.

Business boomed. Speakeasies served illicit liquor from backrooms. Moonshiners moved in. Otherwise upright citizens were willing to break liquor laws. Crime syndicates flourished. Bandits hijacked supplies of medicinal alcohol, even sacramental wine.

In 1933, the federal government conceded that the liquor war was lost. The 21st Amendment repealed Prohibition, and states were allowed to pick their own path.

In Virginia, the debate over how to regulate the liquor business was immediate. On the eve of the end of Prohibition, before midnight Dec. 5, 1933, the Times-Dispatch had coincidentally planned a party to honor letter-writers to the paper, the T-D’s Clarke reported. The dinner party, which took place at the Hotel John Marshall ballroom, included about 350 Richmond residents, T-D letter-writers and political bigwigs.

The dinner party took on a mood of festivity about the end of Prohibition, the paper reported, and included a debate about whether Virginia would operate its own liquor business or regulate a private system of stores. State Sen. Robert O Norris Jr. of Lancaster argued for the state; State Sen. Vivian L. Page of Norfolk argued for privatization. After the debate, the audience voted 53 for privatization; 49 for state-run stores. In 1934, the General Assembly took the state-owned route.

“We know as well as anybody else that there is so much liquor in Virginia already that outsiders can hardly hope to transport any more into the state with any great profit,” then-Attorney General John R. Saunders was quoted as saying in the Times-Dispatch.

Most states chose to regulate the alcohol industry and tax its concoctions. Known as “open” states, they created a three-tier system to thwart the old practice of distillers pushing their products indiscriminately to the public.

In open states, distillers can only sell to wholesalers, who then sell to retailers.

Virginia and 17 others became “control” states by importing a system used in some Canadian provinces. Most control states order liquor directly from distillers, sell it themselves and pocket all the profits.

The setup delivers more than just money. In control states, the government decides the number of stores, their locations and what kind of liquor is on their shelves. Such oversight is intended to give government a stronger thumb on the more potent spirits.

In Virginia, the Alcoholic Beverage Control Department runs the liquor operation. Every bottle of booze entering the state passes through the department’s 7-acre warehouse in Richmond before heading on to one of its stores. From the mountains to the sea, prices are exactly the same in every ABC store.

With a 58 percent-plus markup, ABC earns enough to cover its own bills and kick the extra to the state and local governments. ABC stores moved 3 million cases of liquor, Virginia wines and mixers in 2002, producing record net sales of $338 million and the year’s $51 million net store profit — a figure that has doubled over the past decade. Retail experts say that’s a healthy return.

Not good enough, says Catherine Giordano, a Virginia Beach businesswoman appointed by Gov. George F. Allen in 1994 to head the ABC operation.

A thorough once-over of the system convinced Giordano it had to go. “It’s a bloated bureaucracy,” she says. “If it were my business, I would have chucked it a long time ago.”

Overhead is the killer, Giordano says. The state pays rent on all the storefronts and fields a staff of 1,550 employees to run them. Roughly 500 of the workers are full-time state employees receiving full benefits and an average annual salary just under $30,000. “It’s just a poor use of resources,” Giordano says. “We should be trying to downsize government.”

Giordano says she conducted six studies while in office to explore the options. She focused on partial privatization — with the state as the liquor wholesaler and merchants handling the retail end.

“All six proved it was possible to let go of the state stores and actually increase the money coming in,” she says.

Giordano says she reported her findings to Allen, but they were ignored. “No one wanted to hear it,” she says. “I’m sure the studies still exist somewhere, over in an archive at ABC.”

Alcohol’s religious and social overtones make politicians “skittish,” Giordano says. So does the idea of tinkering with a thousand-plus jobs.

“It’s about votes,” she says. “And 18th-century thinking. No one wants a reality check.”

In 1996, Giordano resigned out of frustration, she says — halfway through her four-year term. Now running her own information technology company, she still gets fired up when discussing the ABC.

“A conservative state should not be selling alcohol,” Giordano says. “It’s absolutely ludicrous.”

Vernon M. Danielsen occupies Giordano’s old job now. Appointed by Warner in 2002, the current chairman of the ABC board is a former accountant and current co-owner of an electronics communications company in Lynchburg.

Danielsen puts stock in a different study that says the opposite of Giordano’s.

Price Waterhouse Consulting conducted this one in 1993 while Gov. L. Douglas Wilder was in office. Wilder was a fan of privatization, but backed off after word surfaced that his son owned a small chain of beer and wine shops that might sell liquor if allowed.

Price Waterhouse concluded that splitting markups with private retailers would strip the state of too much money.

Maintaining the same revenue flow would require “prices to go up or consumption to go up by 50 percent,” Danielsen says. “No one wants either one.”

Danielsen says ABC is 10 years into an overhaul that’s streamlining operations and delivering better customer service. Computerized systems have improved efficiency. Old stores have been remodeled and 30 new stores opened. More new stores are on the way.

Danielsen says he’s at philosophical peace with Virginia’s booze business.

“Alcohol is a special commodity,” he says. “It can be abused — addictive — if improperly used. I think the state is in the best position of anybody to walk the fine line between promoting and controlling.”

His boss, however, isn’t so sure. A weak economy has left Virginia grappling with a $6.1 billion revenue shortfall. Forced to cut costs, Warner asked Wilder to lead a commission last year dedicated to scrutinizing state operations.

One suggestion among the many that emerged: Consider getting rid of the ABC stores.

Warner asked legislators this year to fund an in-depth look at the idea.

His request was denied.

Lawmakers said they balked for different reasons.

“It’s already been studied to death,” says Woodrum, the delegate from Roanoke.

State Sen. Kenneth W. Stolle, a Republican from Virginia Beach, says he worried that the wording in Warner’s request gave the governor the go-ahead to scrap the state stores if he chose.

“Make no mistake,” Stolle says. “The language was to implement privatization. We’re not about to pass something like that without a whole lot more discussion.”

Warner insists he only wants an updated, impartial study. He’s weighing whether to forge ahead, using his own staff to hunt down information.

“The governor just wants to know what the stores are worth and if there’s some long-term financial benefit to privatization,” says Ellen S. Qualls, a Warner spokeswoman. “He was surprised by the legislators’ lack of willingness to even consider the issue.”

Robert D. Holsworth had a seat on the governor’s cost-cutting commission. The director of the Center for Public Policy at Virginia Commonwealth University, Holsworth brushed off speculation that Wilder’s well-known fondness for privatization had fueled the commission’s suggestion.

“A lot of people were interested in it,” Holsworth says. “We were supposed to look at every government service and ask ourselves if it was essential. It was hard to make that case for alcohol.”

Scary scenarios inject emotion into this dollars-and-sense debate.

Critics of privatization paint a future where liquor stores stand on every corner in the commonwealth and booze billboards trash the view.

They point to “open”’ areas such as Washington, D.C., which has more liquor stores in its 100 square miles than exist in all of Virginia.

“Drive up there,” says Woodrum, “then ask yourself if that’s what you want for Virginia.”

Control has helped Virginia steer clear of such a landscape. State stores rarely advertise — a policy that plays well in a place that prefers its alcohol out of sight. Until mixed drinks were approved in 1968, Virginians discreetly furnished their own brown bag at restaurants. National names have even had trouble coming to town.

When the restaurant chain Steak & Ale entered Virginia in 1971, it had to do so under the name of “Jolly Ox.” State liquor laws wouldn’t allow the word “Ale” up in lights.

ABC stores keep their heads down as well. Most are tucked into modest strip centers, and their hours are tightly regulated. The times and locations aren’t always convenient, says Reginald Williams, 33, who was stopping by the ABC store near Harrison and Broad streets last week to pick up a fifth of Hennessy and a bottle of Aristocrat Tequila. With privatization, he says, “maybe they’d be closer to your home.”

Williams recently moved to Richmond from Washington, D.C., where, he says, “We’ve got liquor stores everywhere, you know?” Still, he’d hate to see a store on every corner. “Up north, that’s pretty much what’s happening.”

Dannie Gerrald, 45, stopping by for a pair of Colt 45s, says he’s fine with the way things are. “Change is not always good,” he says. “It just makes things different.”

ABC insists its customers are satisfied. While the department’s 2002 phone survey indicated that half of Virginians don’t drink hard liquor, nearly half of those who do rated the state stores “excellent” or “good” and said they didn’t want private liquor stores.

Consumers often have the quietest voice in such debates. While industry insiders finance politicians and pound the podium in Richmond, the folks buying the liquor “are, for the most part, reluctant to stand up,” says Tom A. Lisk, a lobbyist for the retailers.

“Everyone worries about a stigma if they’re somehow a proponent of the consumption of alcohol,” Lisk says. “But go to any restaurant any Friday or Saturday night, and you’ll see a lot of people enjoying the product.”

Lisk was among those trying to shop yet another study around Richmond this year. Commissioned by the Virginia Retail Merchants Association, this study concluded that privatization is the way to go.

Legislators shunned that one. Woodrum says they figured its outcome was tainted because pro-privatization retailers paid its roughly $20,000 cost.

Virginia isn’t the only control state to wrestle within itself. After years of similar angst, Ohio and West Virginia went for partial privatization. While still technically control states, they’ve spent the past 10 years unloading their state stores.

Matthew L. Mullins, a spokesman for the Ohio Division of Liquor Control, sums up the change: “Very positive.”

Ohio decided to pay licensed merchants a commission for selling the state’s liquor. The switch is saving the state $21.4 million every year. Annual profits have climbed to $141 million, a 46 percent increase since 1997, the year the conversion was complete. The number of liquor outlets remains around 400. Rates of consumption and alcohol-related incidents are stable.

West Virginia decided how many liquor outlets it wanted, put the licenses up for bid, collected $48 million and cured a migraine in the process, says Patricia M. Holtsclaw, comptroller of the state’s alcohol control department.

“We devoted a big chunk of resources to running it,” she says. “A big headache is gone now.”

In Virginia, Bev Sell ponders privatization. A well-known community activist in Hampton Roads, she says liquor sales have been one of her concerns.

“I’m not a Prohibitionist,” Sell says. “Check my trash can. You’ll see. But I wonder how many liquor stores a place needs.”

Sell says she doesn’t like state control — which she calls “the fox watching the hen house” — but she isn’t sure of the right course for Virginia.

“How could I know?” she says. “Everyone in Richmond says what they want you to hear.”

Sell wants an unbiased study and town-hall-style meetings to mull over the results. She thinks citizens should call the shots on questions like this.

“Most people don’t understand how political all this is,” she says. “The people with the most money and the best connections wind up controlling what trickles down into your neighborhood — right down to the number of liquor stores.”

That odd mix of money and morals has a chokehold on change, says VCU’s Holsworth.

“Everyone’s got an agenda,” Holsworth says, “and that’s prevented a fresh look at this issue for years.

“But sooner or later we’ll have to put this on the front burner. One day, Virginia will have to take a serious look at its liquor.” S

Joanne Kimberlin is a reporter at The Virginian-Pilot in Norfolk. Norfolk’s WVEC-TV 13 contributed to this story. Additional reporting by Jason Roop.


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