Costco Challenges Washington State Alcohol Distribution Laws

Author:Mr Michael Newman
Profession:Holland & Knight LLP

In a lawsuit that may have enormous national implications, Costco Wholesale Corp., the warehouse club chain that has become the nation's largest wine retailer, recently sued the Washington Liquor Board. Washington is the home state of Costco.

The lawsuit challenges Washington laws and regulations prohibiting quantity discounts and extension of credit to retailers, requiring price posting and minimum price markups by distributors, and permitting only in-state wineries and breweries to distribute directly to retailers.

Costco claims that it seeks "to create lower prices and greater choices for Washington consumers and reform an inefficient and unlawful system that permits distributor to benefit at the expense of consumers and certain wineries and brewers." Costco believes that it can lower its costs and offer better prices and selection to consumers if able to negotiate discounts and buy directly from wineries and breweries and supply its stores through its own distribution systems.

The national ramifications of this case are great. Costco's general business model of maximizing efficiencies includes buying merchandise directly from manufacturers. Direct purchasing, to the exclusion of the wholesale distributor, is a process that runs counter to the alcohol beverage industry's traditional "three-tier" system of distribution - a structure implemented by statute in virtually every state since the Repeal of Prohibition.

Opponents to Costco's efforts assert...

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