Public Spirits

Public Spirits

Should Montgomery County be in the business of distributing and selling alcohol? Plenty of people say it most definitely should not.

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Potomac’s David Trone, co-owner of Total Wine & More, one of the country’s largest private retailers of beer, wine and spirits, derides Montgomery County’s alcoholic beverage control system as “a throwback to Prohibition.”

In a strictly historical sense, he’s correct.

The county’s control regimen was instituted some 80 years ago by E. Brooke Lee, soon after ratification of the 21st Amendment ended Prohibition. Lee, a former state comptroller and former speaker of the Maryland House, was a private developer in 1933—and Montgomery County’s undisputed political boss.

 A rural area of fewer than 50,000 residents at the time, Montgomery County had been “dry” since voting in an 1880 referendum to ban the sale of alcoholic beverages. “Colonel Lee,” as he was known in deference to his decorated service in World War I, was not himself a teetotaler. But he nonetheless saw controlling the sale of alcoholic beverages—along with restricting other vices, such as gambling and horse racing—as good for business, according to his grandson, commentator and columnist Blair Lee IV.

“For him, it was strictly practical,” says Lee, who lives in Silver Spring. “He wanted to keep the county an attractive place to live, so he wanted to [control] certain obnoxious practices.”
He adds: “The colonel’s motive was not revenue whatsoever.”

Maybe not, but money is the single greatest factor in today’s ongoing debate over Colonel Lee’s legacy. Now an urbanized area with more than 1 million residents, Montgomery County is the only such jurisdiction in the country to control both the wholesale distribution and the retail sale of beer, wine and liquor—generating $25 million to $30 million in annual profits for the public coffers.

“The challenge has always come down to the fact that it is a moneymaker for the county, and how do you replace that money?” says former County Executive Doug Duncan, who nearly 20 years ago tried to privatize the county-run retail liquor stores. Duncan ultimately dropped the issue after resistance from both the county council and several powerful members of the county’s delegation in Annapolis.

That resistance remains today, with the county’s power structure in Rockville skeptical of being able to replace the money that’s generated.

Though today’s average annual profit from the Department of Liquor Control is less than 1 percent of the county’s nearly $5 billion annual budget, “the amount of money is not trivial,” says Scott Fosler, a former council member who served on the county’s 2010-11 Organizational Reform Commission.

Even so, he favored privatization during his council tenure back in the ’70s and ’80s. And the consuming public today appears to share that view.

“If you ever had a referendum to take down the whole system, it would pass with 90 percent,” observes one member of the county’s delegation to the state legislature.

In recent years, state Comptroller Peter Franchot has successfully moved to dismantle a similar liquor control structure in Worcester County on Maryland’s Eastern Shore. Now he’s ready to take on the state’s largest jurisdiction, though doing so will require the approval of the Maryland General Assembly.

“Montgomery County needs to get out of the liquor business,” says Franchot, the first Montgomery County resident to hold the comptroller’s job since Colonel Lee. “They don’t do a good job at it.”

Franchot hits on one of the few areas of widespread consensus: The current system often doesn’t work efficiently, and it hasn’t adapted well to consumer attitudes and tastes. Until the early 1960s, you could buy liquor by the drink at just four restaurants in the entire county—Potomac’s Old Angler’s Inn and Normandie Farm, among them. Though the number of restaurants where alcoholic beverages are served has swelled to about 650 over the past half century, critics say the liquor control system has struggled to keep up in an era of craft cocktails and microbrews.

“Our model works fine if all you want is Bud or Coors,” says County Councilmember Hans Riemer. “But if you want to choose from hundreds of craft beers and craft whiskeys, then our system puts costs and risks on business owners that they don’t experience in other places.”

Jeff Heineman, the chef-owner of Bethesda’s Grapeseed American Bistro, used to work in the restaurant industry in neighboring Virginia and Washington, D.C. In Montgomery County, he says, “everything takes more time, more effort, more expense to get the same or less of what you want.”

Similar sentiments were voiced last year during deliberations of the county’s Nighttime Economy Task Force, which was created by County Executive Ike Leggett at the prodding of Riemer and fellow Councilmember Marc Elrich. The task force was formed amid concerns that Montgomery County is losing out to the District and Northern Virginia in attracting millennials, whose earning potential is seen as a key fiscal antidote to the county’s graying tax base.

Like other restaurant owners in the county, Heineman has had to deal exclusively with the county to obtain beer, wine and spirits, rather than going to a private distributor or wholesaler.

As he sits at Grapeseed’s bar on a Wednesday afternoon, Heineman talks about his upcoming Friday delivery from the Department of Liquor Control warehouse in Gaithersburg—a weekly order he had to place eight days in advance.

“We’ll call today or tomorrow to find out what we’re getting this Friday,” he says. “And they can’t actually tell us with 100 percent accuracy what we’re getting on Friday. The once-a-week delivery…makes it harder to maintain our wine list.”

In Virginia, by contrast, “you call up and get your delivery the next day,” he says.

As at many higher-end restaurants in the county, Grapeseed’s wine list largely consists of labels that the county warehouse doesn’t stock; they have to be obtained by “special order.” The Department of Liquor Control procures these labels from an outside broker, so Heineman and fellow restaurateurs pay an additional markup that has run as high as 35 percent. Critics view this as an extra layer, or “tier,” in the process that isn’t necessary when the wholesale and distribution functions are in private hands.

If all goes well, Heineman will order a particular wine one week and receive it the next, but special orders made through the county can take up to two months. The result is an expense for added inventory to ensure an adequate selection for customers at any given time.

“I probably have $20,000 [extra] tied up in inventory,” Heineman says, “so that floats around your bottom line.”

Heineman had experience dealing with the county’s liquor control system before opening Grapeseed in 2000 and says he knew what to expect. But some fear other restaurateurs are being scared away.

“One person came to the Nighttime Economy Task Force and said he wants to open a restaurant in Montgomery County—but that everything he hears is that it is a nightmare to deal with the [Department of Liquor Control] and that he’s not sure he’s going to do it,” Riemer says. “So I think there’s a perception issue that might even be worse than the reality.”

The task force considered other liquor-related issues that might be affecting the county’s nightlife, notably closing hours. But the Department of Liquor Control structure “is the clearest problem,” Riemer says. “…It’s the obvious aberration between Montgomery County and our regional competitors. It’s a giant sore thumb sticking out.”

Like most people in county government, though, Riemer prefers reform of the current structure rather than repeal—at least for now.

“My starting point is that the [Department of Liquor Control] can be made to work,” he says. “If we go at it that way, I think we have a chance of success. But if you go at it in a way that puts $25 million and 300 union jobs up in the air…”

Indeed, periodic debates over privatization during the past three decades have run up against fierce opposition from UFCW (United Food and Commercial Workers) Local 1994 MCGEO, which represents more than 300 workers employed in both the retail and wholesale end of the Department of Liquor Control. Union officials lobbied hard to kill Duncan’s plan to sell off the retail stores nearly two decades ago, when the issue reached the county’s delegation to the state legislature.

“Let’s assume for a moment that somebody came in and privatized,” says Gino Renne, president of MCGEO, which represents about 8,000 county government employees. “The fact of the matter is that those [Department of Liquor Control] workers will lose: They’ll lose seniority credits, their health care would not look the same, and I’d argue that their wages would not be the same.”

Even so, Renne acknowledges the need to consider changes to the Department of Liquor Control.

“I have friends who own restaurants in the county, and beer and wine stores, and there’s a certain level of credibility to their arguments,” he says. “Why don’t we bring the parties to the table—representatives of the restaurant community, representatives of the [private] beer and wine stores, representatives of the workers, George [Griffin, director of the Department of Liquor Control] and his people—and let’s see how we can fix the problem.

“This is a service industry—I get that,” he adds. “And with that comes an obligation to deliver the highest quality level of service.”

But some question how far the current structure can be improved.

“I really don’t think there’s a fix that could make it as efficient as a free market situation,” Heineman says. “There are a lot of ways they could probably move closer to it, but you could never get there. It’s defined not to be a free market.”

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