Tuesday, May 12, 2015

Revealed: How the PLCB is going to make that extra $185 million...

Well...they aren't. Nobody really believes that the "Consortium of Control States" is going to work; states just won't work together on booze sales. That puts a big hole in the total right off the bat.  Using the 6.92% profit margin for the PLCB that has been bandied about by some legislators -- which is optimistic, at best --  the state would have to sell over $1.3 Billion in additional product — an increase of over 50% — in the next two years to hit the revenue goals in "modernization." In other words, they want to take more money from you in increased sales, fees, and higher prices.(We break it down for you here.) Not exactly how most people think of "control."

The only way the PLCB "makes" more money is by taking it from YOU

Tell your legislators that is it time they did something FOR the people, and not TO the people. Free us from 80 years of incompetence, mismanagement, graft, idiocy, nepotism, and political payback by making Pennsylvania normal again. Let the state regulate, not retail. Or as some genius on the PennLive site recently commented: 

"End it, don't mend it."

Wednesday, May 6, 2015

Why PA won't lose money privatizing

There are two conflicting arguments proponents of the State Stores use to say we shouldn't privatize. The first is the old "liquor store on every corner" lie, trying to scare us with images of urban decay, and the second is that prices will go up (because you know, like how competition always makes prices go up) and selection will go down. The selection part is just laughable, since we all know what the private sector can provide. If somebody wants it, the private sector will provide it: that is just how free markets work, as shown by everything else you purchase. If you don't believe it, think about how many different candy bars and single-serving drinks the average Sheetz offers.

That leaves "but we'll have too many stores," although nobody can define what the right amount of stores are except for the free market - stores that fill customer needs will survive, and if they don't, they won't. What does that mean for the state?  It means that it will collect more license fees, more business taxes, more sales taxes, and more excise tax and of course, more people will have to be working because all those stores don't exist since they can't all be current existing stores. So according to the pro-State Store folks, using their weak logic, amounts collected have to be greater than the current amount because more is being sold at a higher price.

We know sales will go up because they have elsewhere. PA isn't going to be special in that regard.  Will they go up 44% like the favorite CDC report the UFCW uses - doubtful since they haven't anywhere else. Will they eventually get up to the national norm? Probably, if they open more stores than the relatively small amount called for in HB 466 or Senator Wagner's proposed bill.

In the only recent example of privatization of a control state, total sales in Washington went up about 15%; 8-9% internally and 7% went out of the state, the increase in border bleed. Adding 27% in new fees probably had a lot to do with the increase in border bleed, so the lesson for PA is don't do that. Let's pick a reasonable number for how much prices may go up -- say 5% -- and let's stick with a 15% increase in sales. I think that will be a little low since we will be privatizing both wine and spirits while Washington only did spirits but I'll stick with it since it is a real number. That means the total sales will be about $465 million more than they were last year, or an increase of about $116 million in just tax revenue not counting all the other stuff, or pretty much a zero net in terms of liquor revenue but a larger gain in overall economic activity.

Border bleed will probably stay close to what is is because greater convenience will cause people to buy locally and the slight price increase won't change the buying habits of too many. But then you have all the new employees working, delivering to bars and restaurants, more distributors with new warehouses, new superstores being built where none exist today. All of that adds to the economy too, and all of that is something the PLCB won't provide; can't provide.

There's a sub-argument that private stores can't survive on the wholesale and retail markup of 30% like the state stores do. Bullshit. The PLCB doesn't survive on only 30%, they currently have an effective 45.2% markup (Gross Revenue From Sales divided by COGS), and they get there with all sorts of hidden fees and charges generally unknown to the buying public while all the while saying the markup is only 30%. They lie. The 5% increase I mentioned above would move that to just over 50% and lots of businesses would love to have that or even the 45.2% effective rate the PLCB has now.

Now let's say - horror of horrors - that prices actually decline. Lower prices increase demand which means more workers are required to fill that demand, which means more product is being sold which means that more sales tax is being collected.  The excise tax collection will go up too. Lower prices will decrease border bleed as competition and convenience cause more people to buy locally; as it will be is easier and/or cheaper or both. That causes sales to rise even more. There might even be an increase in out of state buyers that come into PA to buy.  So where do we end up?  Ahead of where we are now that's for sure. Ahead in jobs, ahead in tax collection, ahead in license fees, ahead in business taxes, ahead in income taxes, ahead in paying less future pension debt, ahead in convenience and ahead in consumer satisfaction.

Don't listen to him Tim and Skip - he's talking that crazy talk!
So if all the other states surrounding us have higher prices, as numerous state store people say, then if PA prices rise we'll be normal, if prices go down and get close to what most people believe are the better prices in New Jersey and Maryland, we'll be normal. And if we get the state out of the liquor business, we'll be normal like most states.

I vote for normality, not monopoly. Dump the system and move Pennsylvania back to normal.

Monday, April 27, 2015

Can we talk, about these talking points?

Everything below is taken from the March UFCW Wine And Spirits Council talking points. This is what the State Store clerks' union is encouraging their members to use in communications with legislators and public groups to convince them that normalization of the State Stores would be a disaster. We found a few issues with their issues.

  • This legislation risks the over $566 million in annual contribution from the PLCB.
Sounds terrible! Except that the PLCB has never contributed $566 million. They did collect taxes, but so did the Department of Revenue -- sales taxes, income taxes -- and they don't claim to have "contributed" $23 billion to the State.
  • States that have privatized in the past, such as Iowa and West Virginia, saw dramatic decreases in revenue after they privatized their liquor systems.
But the report on privatization commissioned by Governor Corbett to study the effects of privatization based on the HB 790 plan that PFM* produced, the report that's so frequently quoted by opponents, says this: "Privatization was deemed successful (in Iowa) from a revenue standpoint, with profits increasing by $125 million over the first 11 years of privatization compared to estimates under State control of the stores." Of course, Iowa and West Virginia only privatized retail, not wholesale, and Iowa lowered taxes too. Iowa has over 1,200 places to buy liquor now, with 25% of Pennsylvania's population. And a lower DUI fatality rate.
  • PFM predicts there will be 10-­30 wholesalers who will carry a wide array of products in a private wholesale system. This is simply not true in other privatized states, due to only 1 or 2 wholesalers usually operating in private states.
Let's see how true that is. I can name over a dozen wholesale distributors in Washington State in only two years since they privatized. 1. Click 2. Columbia 3. Crown 4. King 5. Marine. 6. Pioneer 7. Stein 8. Vehrs 9. Clatsop 10. Dickerson 11. Maletis 12. Midway 13. Olympic Eagle 14. Sound 15. Tripp 16. Young's 17. Southern.
New York has at least 40 just for wine. Pennsylvania has one - the PLCB. Of course, you don't even need to guess how things will be in a privatized system in Pennsylvania, you can just look at beer. There are over thirty beer wholesalers in the Commonwealth. This one isn't even close.

  • ... $1.4  billion over five years that will cost the state to transition from a public system to a private system according to the PFM report commissioned by former Governor Corbett. 

This is a lie that has been told over and over and over, to the press, to the Legislature, to the public, and it simply isn't so. The actual first heading on page 186 of the report is "Total Agency Operating and Transition Costs." So the $1.4 billion is the system's normal operating costs plus any transition costs. The operational costs are almost $1.2 billion! With a little math, you can figure out how much the cost is to keep the PLCB using the very same report. Over $2.2 Billion. How do you like me now?
  • This proposal has the potential to put alcohol on every corner possible.
This is just fear mongering. HB 466, the current bill the passed the House, doesn't even get the state up to the national average for liquor stores, let alone for retail wine outlets. To hit average for 12.8 million people, we would need to have over 2400 liquor stores, and over 6,000 grocery stores selling wine.
  • A peer-­reviewed study from a U.S. Centers for Disease Control Task Force recommended against any further privatization.    
While the statement itself is true, the entire study methodology and results were debunked by STATS.org. (Debunked by Forbes, too.) This study also said that privatization would lead to a 44% increase in consumption which hasn't happened in any state that privatized any or all of their liquor system. Not even close.
  • Studies show that state employees have a much higher rate of carding minors than the private sector does.
Maybe, but Pennsylvania state stores are NEVER checked for compliance, except by "internal" audit. So you can't make a factual statement that it is happening here.
  • The Turzai privatization proposal will lead to increased prices and decreased selection.
Somebody on the Council needs to stand in the middle of a Super Buy Rite or a Total Wines or Joe Canal's or BevMo or Binny's and say that. How selection is decreased when a store has more items on the shelf that the entire state of Pennsylvania stocks must be some kind of magic.
A real New Jersey Liquor Store; not near Philly or New York, either.
  • No where in the private sector can you find that type of selection in each and every store in the state.
One size doesn't fit all and nowhere in the state can you even begin to find something like the store shown above. Not every PA State Store even has the same stock, and neither will every private store, but you'll certainly be able to find more in the private market.
  • The proposal eliminates the 30% markup, yet keeps the 18% Johnstown Flood tax. This will result in dramatic price increases. 
Since the PLCB operates at an effective 45.2% markup and private business is far more efficient there seems to be some room to work with. Will everything be cheaper everywhere? No, just like one store doesn't have the cheapest price on everything. But then, the PLCB doesn't either.
  • Prices have gotten so high, that Washington consumers have been driving across the border to both Oregon and Idaho.
Having lived in Washington State, I can tell you first hand: Washington had the highest liquor prices in the country before they privatized. Adding 27% in new "fees" at the time of privatization certainly didn't help. Although they did drop the fee schedule to just an extra 22% recently. Idaho has said their sales are up 7% along the border. Oregon is about the same. The total Washington yearly border bleed is less than 2 weeks of current PA border bleed, so what does that tell you?
  • Those who purchased the former state liquor stores from Washington State are already out of business, as they were not able to compete with Costco, Safeway and others.
The one thing that hurt small liquor store owners in Washington was the WSLCB. It was just as bad in making decisions and rulings as the PLCB. They ruled that the small stores had to pay tax on resale product while larger distributors didn't, making the small stores products 17% more expensive for the bars and restaurants that they were selling to. That ruling has since been overturned, but it took over a year to do it. Box stores are still not the majority of sales in Washington. Small stores can compete just fine if given a level playing field. Look at New Jersey and California if you need examples.
  • The Turzai proposal will lay off 5,000 Pennsylvanians who work in the Wine and Spirits stores.
Well...there aren't 5,000 people who work for the PLCB (total staff of 4,597 as of 3/15) and certainly not all of them work in the state stores (not with the bloated management structure that is in place). Nor will they all get laid off, either. There will still be a need for administration, licensing, audit and what have you. And a third of the employees in the stores are part-time.

The Wine and Spirits Council seems to believe that consumers, and more importantly, legislators, can't learn from what other states did. That we can't put in place an even better system based on real world data, and not bad reports formed from junk science, or scary commercials where family members get killed off one by one.

Private systems work: just look at how you buy everything else. We don't need State Stores or the people in them to sell a legal product. There are 27,000 licensed establishments in the state and none of them have state workers standing behind the bar, serving or managing. We aren't safer, we aren't better served, and we aren't satisfied and never will be by a state run system.

*Much of the UFCW's "scientific" support for the State Stores as a bulwark against booze-fueled lawlessness leans on a CDC "taskforce" report, largely exposed as junk science by this piece. They lean on cherry-picking out-of-context nuggets on the economics from a report on the impact of liquor privatization prepared by PFM, a Harrisburg think tank. Have a look for yourself; why trust the UFCW, why trust us?  

Thursday, April 23, 2015

Why is it that....

The PLCB advertises even though they have no competition. There is no such thing as shopping for the best price; there's only the PLCB price. And of course...forget about shopping for selection. If they don't have it, you don't need it. Or want it. You may think you do...but they think better.

The PLCB limits how many bars and restaurants can serve alcohol, and while very few places are under their quota, there isn't a quota for State Stores. We are nowhere near what a normal state would have for liquor stores (and normal for wine retailers is so far away we can't even see it from here). In fact, the number of State Stores has been steadily decreasing for the past 45 years from over 750 to the current 605, and has only held steady the past two years.

The PLCB has no paper trail that lists who came up with in-house brands, who made the decision to feature them on endcaps, who decided to push them in advertising, and who said to feature them as alternatives when doing searches on the website? Do they know what they are doing at all? (Does any of it have to do with the continuing trail of ethics violations?)

The PLCB never lists any proof for the sales increases "modernization" supposedly will bring. Tell us exactly how opening another 140 stores on Sunday will generate $22 million more in operating income, or how just opening stores quicker will add $25 million more? Tell us what states will join in the booze-buying consortium being proposed? Have they even been approached about it? (Wanna bet there's no paper trail?) Tell us how the PLCB will make $75 million more if allowed to set pricing? Who will decide what the pricing will be, what will the change be based on, who will have oversight, who will look out for the consumer's interest (it never has been the folks in Harrisburg so don't expect them to suddenly start now),

The PLCB hasn't said whether a six-bottle container of 750ml bottles of Belgian Trappist brew will be a "case" too under their new "interpretation." It is over 144 ounces after all.  What about 6 bottles of beer that are only available in 700 ml bottles? Will there be a special "interpretation" for those if somebody decides to sue and the PLCB is too lazy to support their 80 years of apparently wrong "interpretation" like what happened in the latest "interpretation" that allowed 12 packs? And why can't the Legislature get off its butt and just do away with the case law entirely?

The PLCB ranks 15th worst out of 17 control states for binge drinking rates and is in the bottom half of all states, tied for 31st place. Why? Because "control states" like PA don't really control anything. The total alcohol use for control states averages higher (2.46 gallons per capita consumption in gallons, based on population age 14 and older) than the U.S. average of 2.33.

The PLCB's plans to increase sales are "good," but if the system were normalized, and a retailer wanted to increase alcohol sales...that would then be "bad?" Is private alcohol chemically different from PLCB alcohol? It's the same tax rate.

The PLCB and its pitiful handful of supporters somehow manage to overcome all of these issues, and continue to monopolize liquor and wine sales in the commonwealth. Kinda makes you wonder what keeps the Legislature from cleaning this up.

Monday, April 20, 2015

What modernization can do.

Modernization may improve this:

But it will never get you to this.

Thursday, April 16, 2015

Wine & the Modern (non-PLCB) World

More "Modernization": direct wine shipments in the Commonwealth! Pretty exciting stuff...kind of. On a closer inspection, what the PLCB and their Democratic supporters in the Legislature are proposing ain't all that exciting, and it certainly won't make the money Governor Wolf thinks it will.

In the first place, this isn't really "modernization," or some great plan, but more like forced compliance. The Supreme Court passed down the Granholm Decision 10 years ago, which basically said that states have to treat in-state and out-of-state wineries the same. Yet here we are, 10 years later, and Pennsylvania still hasn't complied. Without an enforceable law in place, you could argue that makes shipping wine into the state legal anyway. I'm not a lawyer, but the couple I've talked to about this have agreed. Of course, you would have to declare it and pay taxes (using the non-existent forms the PLCB doesn't provide) to fully comply with the law. It's only been a decade, so I'm sure they'll have those forms ready by 2020 or so.

When the Legislature finally gets around to complying with Granholm, they'll have to make a choice on how to handle direct shipping. One option is to just not do it at all, make shipping wine completely illegal, but that's probably not how things will go. Then there are two types of direct shipping states: "reciprocal" and "permit."

Reciprocal states say, 'We'll accept your wines if you accept ours.' It's quick, easy, good for the consumer, no fuss, no muss. Permit states require that shipping wineries may have to sign up, pay fees, collect taxes, file forms with sales data (like who they shipped to and how much), limit availability, and be subject to audit of their books to make sure every cent is squeezed out that they can get.

If there's an easy way to do it, and a hard way...you guessed it, the permit state model is what the PLCB and the Legislature are proposing, only more so. They want ALL of that permit state intrusion, plus the wine has to be put in special packaging that isn't required by any other state. You can see how popular this will be with out of state wineries. I'm sure that they'll flock to the PLCB, overwhelming them with permit requests, like the 55 currently signed up (in only 10 years!).  Who knows? It may even get to 100!

So what does direct shipment of wine as proposed actually do for you? Not much, but it does keep power in the hands of the PLCB, by making you go through them. However, you still won't get what you want, the way you want it, because if the PLCB can get it by SLO, you won't be allowed to order it direct. If the winery doesn't agree to all of the above terms, you are completely SOL. This, to keep an entire department employed that would otherwise be mostly gone if you could order things yourself. Another fine use of your tax dollars. (Don't even try to say the PLCB doesn't use tax dollars. Every penny they take in is a use tax, if it weren't, you would be allowed to "use" it someplace else. Like ordering wine direct from a producer.)

So there you have it, the system that some people think will increase sales $325 million above what they do now with those 55 wineries who are currently signed up. Why shouldn't it? It has all the convenience and consumer friendliness we have come to expect from the state stores these past 80 years.

We are not safer, we are not better served and we are not satisfied. The government should regulate, not retail. Move Pennsylvania back to normal.

Don't mend it: end it.

Tuesday, April 14, 2015

UFCW Wine & Spirits Council trying to hide from the truth.

The union that represents the State Store clerks, the UFCW, likes to use its puppet organization, the PA Wine and Spirits Council, to show all sorts of "proof" that the PLCB is doing a great job. Unfortunately for them, all of their information is either old, no longer true, or both. Let's look at some of the points they bring up. 

1. The UFCW says - The U.S. Centers for Disease Control (CDC) Task Force on Community Preventive Services announced its decision and rationale for recommending against further privatization of alcohol sales.
The real truth is - The statement is true but the science used to justify it was debunked as reported in Forbes.

The UFCW says - This document reports that in 2007 Pennsylvania had the lowest rate in the nation of death by alcohol-induced causes.

The real truth is - Since that point in time alcohol-induced deaths in PA have gone up 31% (page 78) and the state is not the lowest in the country. New Jersey and Maryland on our borders beat PA along with other states, even the famously booze-drenched state of Louisiana. Looks like there may be some problems with that 2007 study.

3. The UFCW says - "Control states have significantly lower rates of youth drinking and binge drinking, as well as lower rates of alcohol-impaired driving deaths, than license states.” Using a study from 2006 they go on to quote "In states with a retail monopoly over spirits or wine and spirits, an average of 14.5% fewer high school students reported drinking alcohol in the past 30 days and 16.7% fewer reported binge drinking in the past 30 days than high school students in non-monopoly states"

The real truth is - Not in Pennsylvania.  According to the PLCB's own Act 85 report (page 9) "...lifetime alcohol use was higher in Pennsylvania for the eighth grade (7.3% higher in Pennsylvania compared to the national MTF rates), 10th grade (9.4% higher in Pennsylvania compared to the nation) and 12th grade (6.0% higher in Pennsylvania)." 30 day use is shown as higher for Pennsylvania high school student too.A look at nationwide drinking rates by SAMHSA doesn't paint a rosy picture either. Binge drinking for adults places PA in a tie for 31st in the country, and of the border states, only New York  does worse -- five do better.

4. The UFCW says - "Increased availability of alcohol is generally associated with increases in
consumption. States that license alcohol retailers generally have higher alcohol density, greater physical availability, longer and later hours of sale, all of which are factors that contribute to the increased availability of alcoholic beverages."

The real truth is - Wendell is trying out for the Captain Obvious role, telling us that more stores and longer hours contribute to the increased availability of alcohol. No kidding, that's why the State Stores suck! But the idea that more stores/outlets will drive higher consumption is an old policy projection that has been debunked; see the next point.

5. The UFCW says  - Using a report based on the experience in Sweden, "According to the projections, scenario 1 (just stores privatized) yields a consumption increase of 17% (1.4 litres/capita), which in turn would cause an additional 770 deaths" or "The corresponding figures for scenario 2 (stores privatized and wine in grocery stores) are a consumption increase of 37.4% (3.1 litres/capita) leading to an additional annual toll of 2000 deaths." This does not agree with another report listed further down the page that is also from Sweden that comes up with a different result..

The real truth is  - The facts do not match the projections. Washington State, for instance, didn't have a 37.4% increase in consumption or even a 17% increase when they privatized the state liquor stores recently. DUI fatalities have decreased since privatization and are below Pennsylvania's rate. The report is real, but just like the CDC report debunked above that said consumption would go up over 40%, it doesn't match any reality. More junk alcohol science.

6. The UFCW says - Using a report on wine consumption from 1968 to 1991 that came out in 1995, the conclusion is that sales increased dramatically in five states that 'privatized.' "After controlling for both nationwide and state-specific trends, we found significant increases in wine sales after privatization of 42% in Alabama, 150% in Idaho, 137% in Maine, 75% in Montana and 15% in New Hampshire. The increases in liters of pure ethanol per year in the form of wine were 621,000 in Alabama, 432,000 in Idaho, 364,000 in Maine, 363,000 in Montana and 171,000 in New Hampshire."

The real truth is - Privatization of the selling of wine did increase sales in those states: up to the level of the national average. Wine sales in general more than doubled overall in the US over the same period. In fact...Pennsylvania has seen that same proportional increase, without privatization. Yet.

We could go on, but... Let's address the real issue: control vs. regulation. There are many points that should be taken into account as guidelines, regarding store density, age carding, single serve take out, etc. but they all have to do with REGULATION, not whether the state should be the sole retailer, trying to sell and control as much product as possible.

While there are definitely significant problems associated with drinking too much, those problems are not confined to states with private alcohol sales. Despite decades of "control," and one of the lowest "alcohol outlet densities" on the planet, Pennsylvania does no better than the national average for most measures of alcohol-related harm, and is worse on some. This plainly shows the current system doesn't work very well. The majority of risks can be managed by regulation and enforcement, just as they are now in other states.

It's a simple prospect. If you don't want to be like Camden, then regulate and zone store density, as most states have done. If you want to lower DUI, then perhaps the state should concentrate on prevention and education instead of Mother's Day vodka sales.

Pennsylvanians already consume more alcohol per capita than New York, Maryland, Ohio, and West Virginia, so our vaunted "control" and current regulations, actually, our whole system doesn't seem to be working. Our system is broken, and the best and only real fix if to get the state out of selling a retail product and back to regulation like most normal states. We can't move forward dragging the dead carcass of Prohibition with us. Especially since they don't really want to come along for that ride.