With $22M bet, Costco shakes up Wash. election

AP News
Posted: Oct 25, 2011 2:02 PM
With $22M bet, Costco shakes up Wash. election

In a mostly calm off-year election, Costco Wholesale Corp. has mounted what is now the most expensive initiative campaign in Washington state history.

Seeking to dismantle its home state's liquor distribution system, the company has committed $22 million that's being spent largely on advertising. It's a total that amounts to 65 cents for every Costco membership household worldwide, or 5 percent of the company's recent quarterly earnings, or more than $6 for every registered voter in Washington.

The effort comes just weeks after the company announced that it was raising its annual fees by 10 percent _ $5 or $10 depending on the membership type.

In a different liquor privatization effort last year, Costco contributed $4.8 million, got outspent and lost the campaign with 47 percent of the vote. The company decided it wouldn't have a funding disadvantage again.

Joel Benoliel, senior vice president and chief legal officer at Costco, said campaign organizers didn't expect so much opposition money from a national wholesalers group that has helped build a campaign account of more than $12 million.

"It's a little bit like an arms race: Once you start, you have to keep up," Benoliel said. Unsure what the opponents would do, Costco contributed $9 million before a deadline for major donations last week. The opposition group has not reported a last-minute donation but still has time to file updated reports.

Benoliel said it's possible the company will get some of the money back after the Initiative 1183 campaign is over.

Despite having a broad coalition of support, Costco has contributed almost all the campaign cash to support the initiative. Grocers Safeway and Trader Joe's have committed $50,000 each.

It's not unprecedented to have such a major financial backer in ballot measures: Last year, Pacific Gas & Electric spent $46 million in its failed bid to curb the expansion of public power cooperatives in California.

Costco officials believe it could take several years to recoup the costs of their investment in the Washington initiative, but Benoliel said the effort is worth it on principle. He argued that the initiative lines up with the company culture of always working to streamline purchase for consumers, and he said the company has a duty to revamp the archaic system in its home state.

"This is what our members expect us to do: to fight for them when it comes to being gouged," Benoliel said. "Right now they're not getting the selection and the pricing that they're entitled to."

The advertising in the race has been combative, with opponents floating the misleading accusation that it would create a new 27 percent tax. Another ad depicts the mother of a child killed by a drunk driver warning of the consequences of expanding liquor sales.

In a fresh round of ads, initiative foes have started targeting Costco directly, accusing the company of seeking to pad its profits at the expense of the public.

"Our initiative process shouldn't be bought by big corporations so they can make more money," one ad says. "And our kids' safety should never be for sale."

The measure would end Washington's state-run liquor system and allow stores larger than 10,000 square feet to sell liquor. Fees paid by retailers and distributors would bring in tens of millions of dollars in more revenue for state and local governments each year.

Alcohol wholesalers have pushed against the measure since it would allow retailers to bypass them and negotiate directly with distilleries. Opponents also cite an exception in the law that could allow smaller stores to sell liquor.

Bruce Beckett, the director of government affairs for the Washington Restaurant Association, praised Costco for being willing to stand up and take on the issue. He blamed opposing interest groups for repeatedly blocking the issue from coming up for debate in the Legislature and said Costco has turned to the public for help.

"I think that Costco should be admired and lauded for having the courage to do that," Beckett said.


AP Writer Mike Baker can be reached at http://twitter.com/MikeBakerAP