A Bethesda chef says he has plenty of opinions on the subject, but he won’t commit any of them to print under his name. The last time one of his employees spoke out on the topic, he found his restaurant the target of an underage drinking sting. A Silver Spring restaurateur can relate; she’s wary about speaking out on the subject, too,
lest she make “any enemies with the people that we get our supply from.”

A local wine sales representative also doesn’t want his name to appear in this article. Neither does the owner of a beer and wine store in Olney, which recently had some of its inventory confiscated by authorities. Both Bethesda chef Jeff Black and Gaithersburg wine merchant Cecile Giannangeli somewhat hesitantly agree to talk on the record about the subject—but with a stipulation: They want to review their comments prior to publication, a condition the Washington City Paper has agreed to.
What is the source of all their fears? The Montgomery County Department of Liquor Control (DLC), which distributes every drop of alcohol consumed in the county. Montgomery is the only jurisdiction in the United States that controls the distribution of the big three—beer, wine, and liquor—and it’s been handling this puritanical duty since late 1933, when the county decided the best way to limit the supply of fire water to its residents was to put the government in charge.
If the county served more as a dam back in the post-Prohibition era, stemming the flow of alcohol within its borders, the DLC acts more as an irrigation system these days. In fiscal 2006 alone, the DLC sold more than $191 million in beer, wine, and liquor to the 900-plus licensees in the county. Sales were up eight percent from the previous year, notes George F. Griffin, director of the DLC, in his letter in the FY2006 Annual Report.

The DLC may flood the county with beer and booze, but it also has another function: It’s home to the division of Licensure, Regulation and Education, which, along with the Montgomery County police, enforces the alcoholic beverage laws in MoCo. That means for every licensee in the county, the DLC serves as both its supplier and its enforcer. That tends to make folks nervous.

Governments, of course, have always regulated products and industries that officials deem dangerous to the public’s health, safety, or morals. There are age restrictions on smoking and outright embargoes on puffing those cancer sticks in public places, including bans in the District and Montgomery County. There are waiting periods and background checks on the purchase of guns. Now there’s even a ban on trans fats in New York City.

But if governments tend to legislate lifestyle choices, which in turn affects businesses, the DLC goes one step further: It has wedged itself between alcohol wholesalers and retailers who, frankly, would prefer to serve their markets without the presence of a slow-footed government bureaucracy. They have no delusions, however, that the county will sacrifice its multimillion-dollar revenue stream to get out of the alcohol business, so all sides have learned how to live with one another. In fact, businesses readily give the county credit for doing a decent job in many areas, except one: the sale and distribution of special-order wines.

Jeff Black remembers the dinner he had at Michel Richard Citronelle in December 2005 as much for the bottle of Burgundy he drained as for the meal he devoured. The wine, a Clos de Vougeot produced by Domaine Méo-Camuzet, so impressed Black that the very next day he asked his wine buyer to check into purchasing a case for Black’s Bar and Kitchen, the restaurateur’s flagship operation in Bethesda.

Brian Considine, the comptroller for the Black Restaurant Group who doubles as its wine buyer, learned that Country Vintner distributes the wine in Montgomery County. Considine made a quick phone call, learned the price, and then told his boss the bad news: The Clos de Vougeot was $260 per bottle, wholesale. “It was,” Considine remembers, “$20 more, our costs, than Jeff paid for at the table” at Citronelle, one of the most expensive restaurants in the city.

Black and Considine knew exactly why the bottle was so much more expensive in Montgomery County: The DLC, at the time, slapped a 35 percent markup on each case of “special-order” wine, those bottles that are not part of the county’s regular stock items. The markup, now 25 percent, is non-negotiable, and in the case of hundreds of high-end bottles like the Méo-Camuzet Burgundy, it’s often the third markup on a wine whose final price tag will rise even higher once it lands at a restaurant or wine retailer.

In other words, by the time a restaurateur like Black buys a case of special-order wine from the DLC, the bottles will most likely already have markups from the winemaker, from the wine’s local or national distributor, and from Montgomery County. The restaurant or wine store will then, naturally, add its own markup. If you’ve ever searched for a reason why some bottles are so expensive in Montgomery County, you need to look no further than the four-tier system that controls much of the special-order wine in the county. (An unknown fraction of these wines arrive in the county’s warehouse with no extra middleman markup.)

“The public just thinks you’re lying through your teeth when you try to explain it to them,” says Black, who owns three restaurants in Montgomery County and one in D.C. “They’re just ‘Yeah, yeah, yeah. Sure, pal. You’re ripping me off. I bought this same bottle of wine in D.C., and I paid less money for it.’ ”

More than 90 percent of the wine at Black’s is plucked from the county’s special-order list. Part of Considine’s job is to work the DLC system, with its great potential for added costs, and locate decent wines that are affordable for both Black’s and its customers. Then he has to work the system again—and the phones—to make sure his wines actually show up. It’s not easy—certainly not as easy as the process in D.C., where a wine buyer can just call his distributor, place his order, and the shipment arrives the next day, maybe even that afternoon.

To get special-order wine from the DLC, Considine must first find out who distributes the product in Maryland; the distributor’s sales rep can be invaluable in helping move the product through the system. Considine then tracks down each wine’s six-digit code from the county’s wholesale price book, writes the codes on his order form, and faxes it to the DLC. With order in hand, the county turns around and purchases the wine from the distributors, whom Considine just spoke to earlier. The distributors ship the product to the DLC, which will log the wine into the system, write up an invoice for the restaurant, and finally deliver the product to Black’s COD. The process, if it’s working well, will take between one and two weeks.

Any number of problems can occur in this process. A distributor may not have the product in its warehouse, or it may forget to ship the wine to the DLC. A distributor’s delivery may arrive late and not get logged immediately into the county’s system. An incorrect item code may get entered on the order form or into the DLC’s electronic system. Or, as happened recently to Geoff Tracy at Lia’s in Chevy Chase, the county may deliver the wrong wine altogether. “They just kind of pulled the wrong item” from the warehouse, Tracy says.

Any one of these problems can set an order back by weeks. The worst part for restaurateurs is that it’s difficult to find someone in the DLC who can tell them when their product will be delivered. “I never really know” what the holdup is, Considine says. “Sometimes [the wine will] just show up a couple of weeks later, and I’m not expecting it. Or I’ll have to reorder it to get it again, or I’ll never see it. You just never really know. You’re just kind of left there hanging.”

Simply put, the DLC’s special-order system requires that a restaurant devote more money, time, and manpower toward its fine wine service. The system, after all, is fraught with the kinds of human error that occur when so much paperwork—and so much product—passes through so many hands. “To maintain this [wine] list in the county versus downtown is probably twice as much work,” says one restaurateur who wishes to remain anonymous. “I had a restaurant in Virginia, and we [maintained a wine list] there, and it’s just twice as much work to do it in the county.”

Some restaurateurs and beer/wine licensees will not even bother with the fancy vino; they will instead rely mostly on the large volume of stock wines that Montgomery distributes from its massive warehouse in Rockville. Produced from wineries like Bolla, Concha y Toro, Sutter Home, and Beringer, these bottles won’t earn you much respect from food critics or fussy diners, but they’re relatively cheap and, most important, they’re readily available in the county’s warehouse. You order them from the DLC, and they arrive in a week or less.

One way that Considine and Black have learned to counter the county’s semi-reliable supply is to stock up on wine. When Jeff and Barbara Black overhauled Black’s Bar and Kitchen last year, the couple made sure to include plenty of storage space for wine. Their glass-encased, floor-to-ceiling, climate-controlled wine room holds about 1,400 bottles on horizontal display racks that keep the wine chilled at 58 degrees. More cases are stacked on the floor. Even more bottles are stored in a wine refrigerator in the kitchen. Black has also given over part of the management office to storing wine.

While all these bottles might help Black’s combat the DLC’s distribution system, they come with a high price. The cost of the wine inventory at Black’s tops $60,000. By contrast, the cost of the inventory at BlackSalt, the Blacks’ seafood operation in D.C., hovers around $37,000. Some of the discrepancy comes from the type of wines each store purchases: Black’s buys more expensive “steakhouse” reds; BlackSalt buys more whites, which tend to be cheaper.

But Black’s also just has more bottles on hand than BlackSalt, and every case that Considine purchases for Black’s must be paid for when the product arrives from the county. That means a good chunk of Jeff Black’s available cash is tied up in wine inventory, a problem compounded by the fact that the DLC does not sell wine by the bottle, only by the case, at its warehouse. For many of the pricier wines, Black’s simply does not need a full case, since it may take a year or two to sell those 12 bottles.

“If you’re only going to move a case a year, there’s no reason to sit on that product for an entire year. There’s too many other things you can do with the money,” says Black. “If you’re in a negative cash position in a restaurant, you will go out of business. You have to be very cognizant of your cash flows. It’s the name of the game.”

Black, however, is not averse to shelling out more for prestige labels, such as the Méo-Camuzet, if such a purchase would help him build a wine list that sets his restaurant apart from the competition. Too often, though, the DLC’s de facto four-tier system and its 25 percent markup put such pricy bottles out of Black’s reach. Or, more specifically, this one-two punch of middleman markups puts the squeeze on many of Black’s customers, who could find the same wine far cheaper in D.C.

How does the 25 percent, across-the-board markup affect wine lists? “My [Burgundy] list is so generic because I can’t get a decent enough pricing to put [good bottles] on the list,” says Considine. “I mean, nobody’s going to pay $400 or $500 for that bottle when they can get it for $240 in D.C. They’re going to laugh at me.”

Some drinkers are already laughing at the wine choices in MoCo. “Nobody can think of a single restaurant that’s in Montgomery County that has anything approaching a noteworthy wine list,” says Mark Slater, chef sommelier at Citronelle, who once co-owned a restaurant in the county. “I don’t know why the citizens of the county even let that stuff go on. It’s punitive.”

The multiple markups in MoCo do more than dull a wine list. They also force restaurateurs like Black to lower their own markup, which can range from 1.7 to three times the wholesale price. The lower tableside markups, of course, mean less money in his pocket, but Black sees no other option if he wants to remain in MoCo and dip into the county’s deep well of diners with disposable income. The restaurant industry is too competitive, particularly when customers can cross the line into D.C. and find better bargains. “You can lose customers over the price of your steak,” Black says. “It’s a highly competitive industry. You’re always cognizant of what your competition is doing. If you’re not, you’re going to get left in the dust.”

“As a general rule of thumb,” he adds, “you make less on wine [in Montgomery County] than you do in D.C.”

Given all the hassles in MoCo, you might assume that some licensees try to tip-toe around the DLC’s system, but the county’s alcohol enforcement arms make sure everyone toes the line. Inspectors, often tipped off by sales reps or even a licensee’s competitor, will make surprise visits to a retailer to determine if its wine was purchased through the county. “They don’t come on a Monday at 2 o’clock,” Black says of one inspector. “He would show up at Friday night, 7:45 or 8 o’clock, the busiest part of the night. He’d walk right up on the [cooking] line and grab me. ‘I want to see all your invoices. I want to see all your records right now.’ I would stop, and I would go into the office” and pull the documents.

If a licensee is cited, the offender will be trotted before the county’s Board of License Commissioners, which will decide a penalty. The board has “pretty broad powers in terms of what they can do,” Griffin says. “A lot of these on-premise accounts, if they’re repeat offenders, they can close them down for a weekend.” Or, Griffin adds, the board can revoke their liquor license altogether.

Cecile Giannangeli, by her own admission, didn’t fully understand the complexities of the county’s liquor-control system when she opened her wine store, finewine.com, in Gaithersburg in 1999, 10 years after she launched her first store in McLean.

Her interest in doing business in Montgomery County was based on a simple desire to sell wine in Potomac, where Giannangeli lives. She had just launched an e-commerce site, finewine.com, but without a liquor license to operate in Montgomery County, she could not sell her neighbors a single bottle since Maryland law forbids residents from purchasing package liquor outside the state or over the Internet. Finewine.com, the brick-and-mortar store in the well-trafficked Washingtonian Center, would change that.

The Gaithersburg location, Giannangeli discovered, has some advantages over her Northern Virginia operation. There is far less competition in Montgomery County for a customer’s wine dollar. Within a 1-mile radius of her McLean store, Giannangeli guesses there must be “16 opportunities to buy wine,” whether at the gas station or the supermarket. In Montgomery, wine-buying opportunities are limited to the county stores, the small mom-and-pop beer/wine stores, and the damn few actual fine wine stores in the area.

Giannangeli quickly learned why there are so few fine wine stores in Montgomery County: It’s a nightmare to run one, and you’re competing for customers with the very people who sell you the wine. And if that weren’t enough to scare off potential independents, the DLC would appear to have the clear advantage in the area of selling fine wine.

Sitting at a table in her Gaithersburg store, Giannangeli is looking over the price comparisons I’ve made between bottles sold both at her place and at the DLC’s store in Potomac, which is one of 25 county-run retail outlets that sell alcohol. Giannangeli’s prices are competitive on three of the 12 bottles that I’ve compared (two of which are on special at her Gaithersburg store); otherwise the county’s prices are far lower, sometimes by $4 or $5 a bottle. As I’m running through the price comparisons, Giannangeli stops me and cuts to the chase.

The county, she says, has “a competitive advantage because they’re getting the wholesale markup and the retail markup. I’m only getting the retail markup, so they’re making plenty of points because they’re double-hitting. They’re selling [the wine] to themselves, and they’re marking up the retail…So they can afford to make less of a retail markup.”

“How do I compete against a business that can mark it up so little?” she adds. “They’re double-hitting, which is illegal in [almost] every other jurisdiction. It’s not rocket science, but how come nobody seems to notice?”

Despite the situation, Giannangeli has managed to make her store a success, but, she says, “It’s incredibly difficult, and I work like a dog.” She also gets help from her Virginia wine distributors who sell product in Montgomery County. They prove to be invaluable in helping Giannangeli negotiate the DLC’s sometimes Byzantine system.

To Giannangeli, it sometimes feels as if her distributors are doing her a favor, whether physically going over to the DLC’s warehouse to help move the wine through the system or agreeing to lower their markups so that Giannangeli (and other retailers in the county) can be competitive with stores across the area. Her distributors do so much for her that Giannangeli laughs at the mere mention that they should sacrifice any of their markup, an idea that the DLC has pushed as a way to make fine wines competitive in Montgomery.

Giannangeli, in fact, has lobbied for just the opposite—that the county drastically lower its markup on special-order wines. About five years ago, she joined the Alcoholic Beverages Advisory Board, a panel that makes recommendations to County Executive Ike Leggett and the County Council on liquor control and enforcement issues.

Even though she views the whole DLC system on special-order wines as “unnecessary,” Giannangeli knew that her best tactic would be to push for small changes. So she floated the idea that the county reduce its special-order markup from 35 percent per case to 10 percent. For years, the board, which includes DLC representatives, thought the notion was absurd. But Giannangeli never backed down, and in 2005, DLC’s Griffin, who also sits on the board, finally came around. He agreed to knock the markup down to 25 percent, a change that went into effect on Jan. 1 of last year.

“We compromised for the first round, but it’s not over. I want to keep working on it,” Giannangeli says. Her next mission is to convince the DLC to move to a flat rate—say $10 per case—on special-order wines, a fee that would not penalize high-end wines.

Perhaps with a flat rate on special orders, Giannangeli can get her Gaithersburg store to perform as well as her Virginia operation. At present, the Gaithersburg outlet makes 10 percent less profit than the Virginia store, Giannangeli says. “If I was in any other jurisdiction, I’d be making more money. Here, I’m barely making it,” she says.

Less profit and more work for fine wine retailers in Montgomery—it’s a combination that makes Giannangeli wish the DLC would get out of the special-order business altogether. “The whole system is just an impediment. I don’t see what we get for the added process, except for the ability to do business here, which is something.”

Standing in the middle of the Department of Liquor Control’s massive, 175,000-square-foot warehouse in Rockville, among nearly $20 million worth of booze, DLC Director George Griffin is pondering the question posed to him: Given the frustrations of some licensees, what service does the DLC provide that couldn’t be done better in the open, free-market system?

“There’s like a big picture and small picture,” says Griffin. “The big picture is that we are controlling alcohol. The people of Montgomery County made a decision to control alcohol…When [alcohol’s] abused, it has devastating consequences.”

Griffin then proceeds to reel off some impressive statistics on how control jurisdictions have lower rates of underage drinking and fewer alcohol-related traffic fatalities for people under 21 than open jurisdictions. (An independent study forwarded to me by the National Alcohol Beverage Control Association seems to confirm his stats.) But then Griffin pauses briefly and delivers a disarmingly direct kicker to his list of justifications for MoCo’s system: “And that’s in addition to the $22 million that we give the county in unrestricted funds.”

Since taking over the DLC in 2001, after disgraced director Howard L. Cook Jr. was forced to leave for misusing a county credit card (among other misdeeds), Griffin will be the first to admit the contradictory nature of his job. It’s both to promote the “moderation and responsible behavior in all phases of distribution and consumption”…and to make a buttload of money to dump into the county’s budget. In the last five and a half years alone, the DLC has transferred more than $100 million to the general fund.

But when Montgomery County decided to become a liquor-control district all those years ago, making money was about the furthest thing from its residents’ minds. During the post-Prohibition years, people believed that control districts would actually limit the supply of alcohol, since governments would not have the same profit motives as private industry.

Many decades later, however, the markets for alcohol are bigger and more demanding than any Depression Era drinker could have imagined. The pressures on governmental distribution systems are enormous now—and yet those departments still do not share the same bottom-line, profit-oriented motives as private enterprise. Much of the bitching from restaurateurs and retailers about the DLC boils down to that very dilemma: Private businesses, whose livelihoods are at stake, are beholden to a bureaucratic monopoly with nothing to lose. Many have tried to break the DLC’s stranglehold on alcohol, including former County Executive Doug Duncan, and all have failed for one reason or another.

When Griffin took over the DLC, he inherited a department with low morale and little motivation. “The department had not been operating well and was sort of seen as an outcast from the rest of the county government in a way,” the director says. “I used to joke around and say, ‘This department was like, in a family, the crazy aunt who lives upstairs. None of us talk about her. You’re kind of embarrassed to admit that she exists, but everyone wants her money.”

Some of the problems Griffin could address immediately, like hiring a new management team and finding employees who actually want to work at the DLC. He also made it a priority, right from the start, to upgrade the county’s stores and move them to better locations. He now has plans to expand and air-condition the warehouse. But other problems—like repairing the DLC’s public image and improving relationships with distributors and the business community—require ongoing, long-term solutions.

For all his efforts, however, Griffin concedes that special-order wine still poses a problem for the county. “Wine is where there is that friction” between the DLC and the restaurants and retailers, he says. He would know. Griffin and Gus Montes de Oca, the DLC’s chief of operations, are the guys who bear the brunt of the complaints, whether from Jeff Black or Cecile Giannangeli or any of the hundreds of liquor license holders in the county.

The men have worked hard, they say, to address many of the service and distribution issues raised by license holders, but they admit that the price structure of special-order wines remains a problem with no clear answer. Griffin and Montes de Oca looked into a sliding scale for more expensive wines but determined that reducing the markup on ultra-pricy bottles would “affect such a small percentage of our business, and it wouldn’t solve the problem [of the fourth tier],” Griffin says.

The DLC’s current solution is to ask distributors and wine producers to follow the county’s lead and cut their markups. The pitch would seem to be a hard sell for distributors who apparently work harder in the county to keep their clients happy, but Griffin believes he can make the argument.

“They make one delivery here, and they’ve handled 100 accounts,” he says. “Why should they charge the same price per case here as they do somewhere else where they got to make 100 different deliveries?….There are some cost savings to them that they should be passing along to the licensee. Some of them do; some of them don’t.”

The ones that tend to lower or eliminate their markups are larger distributors, which deal in volume. The ones that don’t tend to be the smaller, specialty distributors, which still sell hundreds of special-order brands in the county. “Some of the big, big, big companies will [lower their markups] so that [prices are] uniform across the board, but we’re not that big to do that,” says one sales rep who handles only limited-production French wines. “Our margins are very low as it is.”

To try to win this tug of war over margins, the county has started to press its licensees to talk to the local distributors about lowering their markups. At the same time, Griffin says, “If we can do something else with [our] markup, especially with high-end special orders, we may do that.”

Of course, Giannangeli thinks she has the solution to the entire problem: get the county out of the special-order wine business. To her, the county’s taking on too much already. No private distributor handles all the volume and brands that the county does; they specialize more. She thinks the county should stick to what it does best: distributing beer, liquor, and stock wines. Leave the fine wine to local distributors.

Both Griffin and Montes de Oca say such an overhaul is beyond their authority. It would require a change in state law. It might even require turning a blind eye to the precious marketplace that local businesses hold dear.

“It’s like a chicken-and-egg kind of thing,” says Griffin. “We determine what’s special order and what’s stock based on volume and what’s going on. If there’s enough call for it, we’ll make something stock. If some stock is not selling, we’ll put it on special order. There’s nothing that says this is special order and this is stock except the marketplace, and those things change.”

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