I live in Virginia, where every spirit is bought at wholesale and sold to the public by Virginia ABC (Department of Alcoholic Beverage Control). Virginia ABC turns over roughly $200 million to the state each year.
I’ve found that my favorite spirit, the superpremium Van Winkle Special Reserve Bourbon 12 Yr, sells for $38.95 in all VA ABC stores, which I believe includes the 20% sales tax on spirits. Virginia already has far higher taxes on spirits than most other states, including Kentucky. At any rate, the final price is lower (by at least $5) in Virginia than Kentucky.
Why do I end up paying less for a 750ml of Van Winkle in Virginia than I ever remember paying in Kentucky?
A few possible reasons:
1) Virginia’s ABC has significant monopsony power when buying spirits. By virtue of the fact that ABC can prevent certain spirits from being retailed in Virginia at all, producers sell their goodness at a lower price to the state than they would to a bevy of distributors. Virginia has good reason to “negotiate” lower prices. It allows them to charge their 20% alcohol sales tax without the customer being much the wiser.
2) Virginia’s ABC has significant monopsony power in the location of liquor stores. Perhaps having a Virginia ABC store in your strip mall is an amenity that creates large shopping externalities, large enough perhaps for you to offer cheaper rent. Is ABC is able to get a better deal on rent than independent, licensed stores?
3) No retail distributors means no distributor cut. Cutting out the middleman means distributor rents instead accrue to customers and state government’s coffers.
My memory may be fuzzy, but I recall that a 750 of Maker’s Mark or Buffalo Trace went for $20 in Kentucky (at least at CVS), which is lower than the price I’ve found in Virginia.
Now, I’ll admit, my data are weak (I haven’t compared price lists from Virginia ABC stores and Kentucky CVS drugstores) and my memory is likely fuzzy. Yes, I do plan to investigate further. But what the heck is going on?
