A large bottle of Tito’s Handmade Vodka, Maine’s top-selling liquor by far, costs about $20 wholesale.

The retail price set by the state is $35, a markup of about 70%.

Crown Russe vodka in the same size sells for under $6 wholesale and $15 retail, a 157% markup.

A jug of Allen’s Coffee Brandy, always a Maine favorite, is marked up 96%.

And Fireball Cinnamon Whiskey, a Maine staple distilled and bottled in Lewiston, is marked up 86% to 162% percent, depending on the size of the bottle. A Fireball nip will cost you nearly three times as much as the same small plastic bottle sold wholesale.

“I don’t get it,” admitted Sen. Craig Hickman, D-Winthrop, co-chair of the Veterans and Legal Affairs Committee, which oversees the state’s spirits pricing. “I will never understand it because it’s not based on anything that makes sense to me.”

One pattern jumps out in the state’s pricing system, however.

State regulators apply bigger markups to less expensive alcohol than to pricier bottles – which critics say is unfair to lower-income customers and the makers of less expensive products.

Maine is one of 17 states that sets retail prices for spirits, and alcoholic beverages produced through distillation. Prices for other liquors, such as beer and wine, are not set by the state.

But the process Maine uses to set prices for spirits is uniquely complicated and complex – and some argue unfair – compared to other price-setting states.

 

A new law passed by legislators and signed by Gov. Janet Mills requires increased transparency and public accountability in the pricing process and has some distillers optimistic for reform.

Among them is Sazerac Co., which manufactures Fireball whiskey at a Lewiston facility that employs more than 270 people. The Louisiana-based, family-owned company has said its products face higher markups than its competitors. And, the company says, that is also unfair to its customers, who are value shoppers and likely have less disposable income than premium shoppers.

Winn Atkins, Sazerac’s vice president of government affairs, said in a written statement that the company hopes the law and new leadership at the Bureau of Alcoholic Beverages and Lottery Operations, or BABLO, will lead to more equitable pricing.

“From the beginning, our goal has always been to work with stakeholders and policymakers to move Maine towards a more simple, fair and less regressive pricing system while keeping retailers, small distilleries, and the state whole,” Atkins said.

The state’s current pricing system was put in place around 2016. It has been tweaked several times since, creating a complex – and unique – process to set spirits prices that have increasingly resulted in higher markups for lower-priced brands.

Lawmakers this spring considered a proposal to abandon the complex pricing process and switch to a uniform markup that would be the same for every bottle. But, after state officials raised concerns about setting prices in statute and a loss of revenues, lawmakers opted to increase legislative oversight and overall transparency. They passed a bill to require BABLO to review the state’s pricing strategy every two years, report back to lawmakers and receive public input.

Hickman said the public is entitled to know how the state runs its spirits business, which last year generated $67 million in revenue for programs ranging from transportation projects to substance use treatment and prevention services.

“If nothing else this process has brought to light a very complicated system for spirits pricing on an industry that the people of the state of Maine own that’s making a lot of money for the people of the state of Maine,” he said.

Maine’s spirits prices are recommended by the BABLO director and approved by the State Liquor and Lottery Commission, a five-member panel appointed by the governor.

The rationale behind some of these decisions is unclear.

A spokesperson for the Department of Administrative and Financial Services, which oversees BABLO, told the Press Herald that nobody from the bureau was available for an interview for this story.

Based on publicly available information, the director determines an initial markup for each product based on its type (i.e. gin, whiskey, vodka, etc.), whether it’s a higher quality or “value” spirit and the bottle size.

Historically, the state has had higher markup rates for less expensive, or value, spirits. Rates also are generally higher for smaller bottles.

But those initial markup rates are only the starting point. The state also sets minimum profit thresholds and adds a $1.25 per gallon premium tax, which directs revenue into the general fund for substance use treatment and prevention services.

The retail price must produce a minimum state profit, ranging from $6 per 1.75 liter bottle to $0.75 per 50 ml bottle.

In the end, the process leads to much higher final markups for the least expensive liquors.

Consider the price differences between Tito’s Handmade Vodka, which is the state’s top seller by dollar value, and Crown Russe Vodka, a value spirit produced by Sazerac that ranks as the 8th best seller.

The initial markup for Crown Russe is nearly 9% higher than Tito’s. But once other factors are considered, the final retail price of Crown Russe is nearly three times higher than the supply cost paid by the state, while Tito’s is only 60% more than the state’s cost.

It’s not clear what other factors went into setting that price. But the final retail price could be inflated to meet the state’s minimum profit threshold for that sized bottle. And then there’s the addition of the premium tax.

Other considerations the director can take into account when setting prices include prices charged in other New England control states and other “price point adjustments.”

BABLO spokesperson Sharon Huntley said the pricing system was adopted after the state noticed that spirits revenue remained flat, despite a more than 4% growth in sales in 2016. The state blamed that dynamic on value spirits and consumer incentives to buy smaller bottle sizes. In response, the state adopted a minimum profit threshold.

“Analysis identified that small sizes and ‘value’ brands were negatively impacting the state’s overall profitability,” Huntley said. “The pricing paradigm was upside down; smaller bottle sizes provided a better value than larger sized bottles, which runs counter to any other consumer goods pricing model.”

In 2023, Sazerac said in a letter to lawmakers that the moves hurt its business, saying that a 10% increase in price can lead to a 20-30% drop in demand, which would hurt the state’s overall revenue stream.

The company said changes in 2017 resulted in price increases for 1,000 of 3,000 products sold by all companies in Maine. But the 245 Sazerac products affected by the change represented 66% of the company’s product line here.

“This is clearly discriminatory and unfair,” Sazerac CEO Mark Brown wrote in a letter dated April 25, 2023. “As a government monopoly, BABLO should not be in the business of picking economic winners and losers.”

Earlier this year, lawmakers briefly considered switching to a flat markup for spirits. A state analysis concluded that choosing a 65% standard markup for all spirits would mean an annual decrease of about $18 million in revenue.

Instead, the Legislature followed the committee’s recommendation and enacted an amended bill that, for now, requires the state to review its pricing formula every two years and include more public input into that process.

About 10 of the 17 price-setting states use some sort of flat markup for the spirits, including New Hampshire, according to the NABCA trade group.

Officials with the New Hampshire Liquor Commission declined to provide additional details about their pricing strategy.

“Our internal pricing methodology is confidential proprietary information,” spokesperson E.J. Powers said in a written statement. “Through diligent negotiation with our broker and supplier partners, we establish pricing that strikes a balance between affordability for our customers and profitability for the state, crucial to supporting essential state services.”

In 2022, liquor sales in New Hampshire brought in $172.5 million, with $153.5 million going into the state’s general fund budget, compared to the $62 million generated in Maine, according to the NABC trade group.

Sazerac is not alone in calling for reform.

The Maine State Chamber of Commerce said a flat markup could create more predictability for businesses. They also called for more oversight of the price-setting process.

“All spirits pricing decisions have been made by the Bureau without any input or oversight from the Legislature,” chamber lobbyist Linda Caprara wrote. “We feel this committee and the Legislature as a whole should be setting the policies behind this complicated issue.”

The Distilled Spirits Council of the United States said Maine’s outlier system “has been complex, uncertain, and unpredictable, and can be altered and amended by the agency administratively.”

“When the control agency has the ability to administratively change pricing and the policy behind it at any time, that creates a difficult competitive environment for any supplier,” wrote Andy Deloney, the group’s vice president and head of state public policy.

Sen. Hickman said he and other lawmakers are hopeful that state regulators and spirits producers can work together to come up with pricing structure in the future that is fair for everyone.

“This was one of the more complicated matters that we looked at in committee because it’s not straightforward and it hasn’t been terribly transparent,” he said. “That’s unfortunate, but we have created another layer of transparency through (the bill) that the department was in agreement with. So what we have is a negotiated settlement – for now – between the stakeholders and the bureau.”

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