Restaurants and bars in Worcester County may now buy spirits anywhere
Worcester County’s bar owners finally have an open market to purchase spirits.
The county’s exclusive right on alcohol sales ended July 1 when a 2010 sunset law took effect.
“This is moving forward,” said Doug Buxbaum, an Ocean City bar owner who speaks for about 120 liquor licensees in Worcester County on the issue. “We’re looking out the windshield rather than the rear-view mirror. There were a lot of hard feelings, a lot of disgruntled restaurant owners over the years. But moving forward, this is something that’s going to not just help the small businessman, but give us the opportunity possibly to create more jobs through the savings we’re passed along.”
The county’s liquor dispensary, known today as the Department of Liquor Control, charges liquor licensees more than wholesale and uses the money as a form of revenue. Proceeds are split among the county and its four municipalities at the close of each fiscal year in June. In Maryland, only three other counties have similar systems – Wicomico, Somerset and Montgomery.
But a scandal that erupted four years ago set in motion a chain of events that would unravel the county’s old liquor dispensary system run by the Liquor Control Board. A tip led to a nine-month investigation by the Maryland comptroller’s office that the county had been selling certain bottles of liquor and wine far below cost, which was illegal. State law required the Liquor Control Board to sell to retailers at no less than 10 percent above cost.
The Comptroller’s investigation found the Liquor Control Board had illegally purchased rum in Washington, D.C., from a nonlicensed wholesaler. The report also said the board had given away 14 expensive commercial juicers, which is illegal, because a wholesaler isn’t allowed to provide merchandise that would relieve bar owners of an ordinary business expense.
It wasn’t just the sales issues that drew attention. The Liquor Control Board’s annual disbursements to the county and its towns had fallen sharply in about 2009-10, from about $700,000 to roughly $110,000.
Based on the comptroller’s findings, and the dwindling distributions to local governments, the Maryland General Assembly abolished the Liquor Control Board by statute, replacing it with the Department of Liquor Control.
Maryland Comptroller Peter Franchot said while he’s pleased with the progress, he still wants the government to get out of the liquor business completely.
“I love the public sector for certain responsibilities, but not for selling liquor,” he said. “That should be handled by the private sector, which is much more efficient and has a much better concept of customer service. Just because it’s a revenue generator, that shouldn’t protect a bad idea.”
The comptroller’s Field Enforcement Division will be keeping an eye on Worcester County during the transition, Franchot said, “to make sure there’s no retaliation, no favoritism, no abuses whatsoever by the remaining vestiges of the public involvement. My preference would be in several years to have the public side out of it. The quicker, the better.”
County under pressure
Bobby Cowger, director of the Worcester County Department of Liquor Control, says he disagrees with the comptroller’s stance on his department.
“That’s a pretty harsh and drastic statement for somebody of his position to make,” he said of Franchot. “He’s supposed to be up there enforcing and working the laws, not trying to run a government agency out of business. Franchot has absolutely nothing to benefit from us being in business or out of business. Usually when someone’s that adamant, there are political reasons, and not justifiable reasons.”
Cowger said the majority of liquor licensees will continue to do business with the Department of Liquor Control. All 205 licensees were supposed to report by early May whether they would be interested in shopping outside the county or not. His office received 135 letters expressing an opt-out, with another 70 licensees not responding, which Cowger says is an indication that they’ll continue to purchase from him.
Early estimates indicated one-fourth of the county’s business would be lost to private wholesalers, a figure Cowger says he now doubts.
“We’re going to lose some business, but not 25 percent,” he said. “If you talk to the bars, I think they’ll tell you, as long we we’re competitive, we’ll be their first choice, because we can sell them every product. We’re the only one-stop shop, so they can have one delivery.”
Cowger also says his office provides jobs for 42 year-round county employees on a $1.6 million payroll at its warehouse and five retail Liquor Marts. He says he’s always tried to run the county’s liquor operation “like a real good business” with transparency and fair prices.
“It’s my goal to maintain it and make sure that happens. If we can just get around Franchot a little bit, and get him off my back, I’d feel a lot better,” he said.
The changeover from the county to private purchases originally had been slated for 2016, but that sunset date was shifted to 2014 as a result of some complex negotiations, according to Cowger.
He said state Sen. Jim Mathias, D-38-Worcester came to county leaders last year with an agreement struck with The Casino at Ocean Downs. The casino wanted to offer alcoholic beverages 24 hours a day.
Bars and restaurants in Ocean City, who have to stop serving alcohol at 2 a.m., weren’t happy to have that competition, and sought compensation if they were going to lose business to the casino. They made a deal to move up the sunset law by two years.
As a result, the county’s liquor operations would begin losing out to private enterprise business a full two years ahead of schedule. That angered Cowger, and he in turn made a compromise with state leaders to ensure distributors would sell to the county at wholesale prices instead of retail prices.
But Cowger says the resulting action by lawmakers has no teeth, and Maryland wholesalers still have no legal obligation to sell to Worcester County at wholesale prices.
“Worcester County really, we got screwed on that deal. Ocean Downs got what they wanted, the bars got what they wanted. And we didn’t get what we wanted,” Cowger said.
Price changes unlikely
Peter Franchot said he’s heard that some restaurants and bar owners expected to free up as much as $30,000 in capital after being released from the county’s mandatory markup. As a result, the comptroller said he believes bar owners will lower prices for patrons.
“That’s the whole point,” he said. “Consumers have been price-gouged for years by this system, which had a whole unnecessary layer of expense added to it. Vodka tonics at a bar in Ocean City cost a lot more than a vodka tonic in other parts of the state.
“Whatever the prices are, consumers are going to benefit from this new structure. Businesses tend to pass along higher cost, and they also tend to pass along savings, because they want to compete. That’s why I’m confident this whole process will have a happy ending for the consuming public.”
Not so fast, bar owners say. The price of that proverbial vodka tonic isn’t going to drop anytime soon, not with the current economic and business climate.
Leighton Moore is the owner of Seacrets, the resort’s largest and busiest bar and nightclub complex, one that purchases massive amounts of alcohol in bulk. He agrees that the changeover will mean a slightly higher profit margin, but said it won’t lead to lower drink prices.
Instead, that savings may go toward internal costs like health care, insurance, supplies and labor, all of which are unpredictable and rising.
“Buying products, it’s fierce out there,” he said. “In order to sell to the businesses, (the county) is going to have to sharpen their pencil. You can’t afford to be loyal at the cost of profit. Labor could go up with this possible hike in the minimum wage. We need to save wherever we can.”
One of the next-busiest establishments in Ocean City is Fager’s Island, where owner John Fager agrees that price decreases are unlikely. Fager has been in the Ocean City bar business for more than 40 years, dating to his days running The Purple Moose in the late 1960s, and he’s thrilled to see the county’s long-standing monopoly finally end.
He estimates his business will save 15-30 percent on liquor costs by buying from private enterprise instead of the county. Will he pass those savings along to customers?
“I don’t think so,” Fager said. “Drink pricing, just like food pricing, pretty much is up to resistance. Then you have so many other costs to absorb these days – increased unemployment insurance rates, workman’s compensation, general insurance. I mean, all these things are just skyrocketing.
“So if you’re trying to stay in business, this savings you’re going to get from the (county) isn’t really going to wind up in anybody’s bottom line, because you have so many other costs that are rising exponentially.”
Dropping drink prices is a nonstarter, noted Buxbaum, owner of Buxy’s Salty Dog Saloon and president of the Worcester County Licensed Beverage Association.
“It’s not that simple,” he said “This is a tough business. It’s very seasonal now. We were once moving to an eight-month town, when the shoulder seasons were strong. Now we have eight weeks to make it. That’s the bottom line.”
Buxbaum was also quick to point out the state’s recent increase in the alcohol tax, which jumped in 2012 from 6 percent to 9 percent, is already being passed along to paying customers.
“Where we’ve looked to have some savings on this,” he added, “the government’s put their hand in our pocket. They might be pulling their hand out of your right pocket, but they’re taking something out of your left pocket. Don’t think for a minute they’re not getting us in another direction.”