Tuesday, April 22, 2014

I guess I'm on the official Enemies list

Look who I found poking around one of my accounts.

Glad to know they care enough to send the top dog.

Sunday, April 20, 2014

The PLCB responds to the Smackdown.

The PLCB response to the Smackdown?  I don't know but I can see it...

A meeting in the $40,000 PLCB drinking lounge they have set up in Harrisburg. The big screens are showing the Travel Channel, and soft music is playing. The question: what to do about the cheeky ad Total Wine ran directly comparing prices with the State Fine Store Wine and State Good Store Spirits Shoppes; and not too good a comparison for the drones in old Harrisburg. Ideas are not developing, but then someone gets a rush of blood to the brain.

"Hey, let's allow this rum to be put on special. We'll make up some cool tags and let everybody know we can put bottom shelf liquor on special too." No one has any better ideas, so the mighty marketing muscle of the PLCB lurches into action.

The next week, the sale is on, but the one brainy manager in the system (who runs the store in Snow Shoe, open three days a week for customer convenience) spots something amiss. "There is something that doesn't look right with these tags. It did pass the Art Department, The Printers, the Marketing Department, The Store Operations Director, and then was approved by the Board though, so I guess it is OK.

"But I thought that a liter was a third more than a 750ml. I guess I was taught wrong in school if all those smart people agree it's actually 25% more. Wait, isn't 'then' used to indicate time of some kind, and it's 'than' that's used for comparative purposes? Naw, they couldn't have two mistakes on one tag; nobody is that incompetent, not even in Harrisburg! Well, nobody will notice anyway. If our guys didn't catch it, then (or is it than?) the public won't either. What do they know about math and grammar compared to the folks in charge of the PLCB!"

Yup. It's a classic. Pure PLCB.

No wonder the PLCB doesn't like selling liters anywhere other than at their so-called "outlet" stores. The math makes their brains hurt!

(P.S. Total Wine sells the 1.75L at a lower cost per oz  even with the PLCB "sale")

Friday, April 18, 2014


It must be their incredible buying power because the difference in taxes doesn't account for the difference in price. Maybe the PLCB can rename a store in response.

More fun with PLCB numbers

Remember that the PLCB say that they only have a 30% markup and that no private business could survive paying a wholesaler and selling a product at a profit for that amount. Prices will go up, they say, because there's no way they can sell you booze as cheap as the PLCB! They actually say that.

Well...like a number of things they say, it's true only on the surface. If you look at the agency's Income Statement for June 2012 to June 2013 you will see that Sales net of taxes is $1,731,463,014, while cost of goods sold is $1,192,047,304...which indicates a profit margin of 45.2%. All sorts of businesses can operate on a 45% margin. So how does the PLCB get from 30% to over 45%?  They have bottle fees, bailment fees, "rounding," and probably some miscellaneous stuff we don't know about. Do the bottle fees and rounding account for an additional 15 percent of PLCB  markup?

According to the PLCB itself, it does. This quote is from PLCB Consumer Relations in an email they sent me. "According to our Bureau of Financial Operations, apart from some other minor influences, the bottle fee and rounding do account for the approximate percentage you note of gross revenue on a yearly basis."

Let's look at the last board meeting from April 2 to get an idea about how quickly the price can jump once the PLCB gets hold of a bottle. We'll start with these:

Item..............................................Unit cost...Sale Price..Markup
Shoofly Chardonnay                      $6.05       $10.99      81.6%
Woop Woop Chardonnay               $6.10       $10.99      80.1%
Sassello Morellino di Scanzano      $6.12       $11.99      95.9%
Camara Alta Tempranillo Navarra    $6.33       $11.49      81.5%
Domaine du Chapitre Touraine Blanc $6.47       $11.99      85.3%
Wine By Joe Pinot Gris                    $6.55       $11.99      83%
Chateau Ste. Michelle Dry Riesling   $6.75       $11.99      77.6%
Chasseur Des Brousses                   $6.87       $12.99      89.1%
(Markup for this list is total markup with 18% JFT)

As you can see, a few cents difference -- with the 30% markup + the bottle fee + "rounding" -- can equal a large amount of change in what the PLCB charges the consumer and what their real total markup is.

And think about it. What this means is that even with a 45% total markup the PLCB can't afford to have as many stores as they did 20 years ago, let alone the 750+ they had in the 1970's.  They can't afford to hire and maintain workers at the highest end of retail and still provide the service they are required to provide. Even with a police-enforced monopoly, their business model doesn't work anywhere near as well as the private sector.

Life in Pennsylvania: where the police will tell you what legal products you can buy and where you can buy them...and if you try to buy them somewhere else...they'll arrest you


Yes, the picture is fake but the verbiage isn't. Duh. It's what we call a parody, or exaggeration, a photographic catroon. The difference is, unlike everything Wendell W. Young IV says about the PLCB, we admit that it is bullshit.

Wednesday, April 16, 2014

Washington State is not equal to PA

For some time we've been told (mostly by UFCW last-ditchers) that Washington State's liquor income is close to Pennsylvania’s liquor income, and that when the Evergreen State privatized their liquor monopoly, they only got a small amount -- $181 million -- for their retail and wholesale systems together.

Well...kind of.

Take a look at this, from the Washington State Department of Revenue. This shows how much liquor tax was collected in 2013. It is more than PA collects, but since their tax rate is 5 times ours, that stands to reason. But the rate of taxation really doesn’t have anything to do with the worth of the system to a purchaser, except to drive it down. Worth is determined by demand and availability; so with about half our population, high taxes which decrease total sales, an already private wine market, and the 8th highest beer taxation (even after it was reduced - see below), Washington’s system was inherently worth less than Pennsylvania’s in total and per unit.

 Pennsylvania is a much bigger market with more outlets even after closing 20% of them over the last 40 years (while Washington increased their number of stores over the same time period) and controls both wine and liquor. As such, it is worth more since the volumes are higher and greater economies of scale are present, along with a high demand and somewhat reasonable taxation on liquor, albeit higher taxation on wine. As a wholesaler, Pennsylvania's monopoly rights are worth more than just the 4 times the indicated value (double the liquor and all the wine). Of course, nobody knows exactly what anything will sell for until it does in an auction situation, and that could change up or down daily. That said, a bigger fish like the Commonwealth is worth more than two smaller fish...and certainly more than one small fish, like Washington.

Some points to consider.
Washington – Population 6.9 million
Pennsylvania – Population 12.8 million

Washington $35.22 per gallon alcohol tax.
Pennsylvania $7.22 per gallon alcohol tax.

Washington Liquor taxes collected (2013) – ~$266 million in liquor taxes (after the 27% increase in fees)
Pennsylvania Liquor taxes collected (2013) – ~$183 million as the liquor share of the Johnstown Flood Tax.

Washington – 40 million units sold (liquor only).
Pennsylvania – 140 million units sold (liquor and wine).

Washington – Reduced beer tax from $23.58 a barrel to $8.08 a barrel (2013) to help in-state brewers.
Pennsylvania – Did nothing to help brewers (probably because our beer tax rate is already one of the lowest, at $2.48 a barrel).

Washington Border Bleed – The total increase for the year was about 10 days worth of PA border bleed.
Pennsylvania Border Bleed – The largest liquor border bleed in the country.

Washington – Legislature respected will of the people to privatize liquor sales.
Pennsylvania – Legislature consistently rejects will of the people to fully privatize (so far).

While we are not Washington, we can do what they did; and with the hindsight they have enabled, do a much better job of it. More jobs, more revenue, more convenience, more selection, less government and freedom of choice can and should be ours.

Privatization IS Modernization. Accept nothing less.

Monday, April 7, 2014

Privatization facts & figures

All the arguments against privatization — job losses, revenue losses, public safety endangered, less selection and higher prices, less convenience, and worse service — are addressed and refuted below, with facts and common sense. Arm yourselves with knowledge, and pass it on to your legislators.

Jobs - Everyplace in North America that has privatized some or all of their liquor distribution system has seen an increase in employment. Jobs in the industry tripled in Washington State and Alberta, Canada, the last two places that fully privatized. They doubled in Iowa, which kept wholesale sales but privatized all retail. Are the jobs exactly the same as what they replace? Probably not; are all jobs the same at every store where you shop now? Why would alcohol sales be any different?

Revenue and Border Bleed - Sales have gone up in privatized systems, every single one; how much is dependent on taxation more than anything else. Case in point is Washington State, which already had the highest liquor taxes in the country before they privatized and added new fees. Sales have still gone up in state, and the fee-driven increase in border bleed has increased sales out of state. If they hadn’t raised taxes, in-state sales would have increased even more. Washington State’s border bleed is nowhere near the border bleed rate in PA. The border bleed increase for an entire year in Washington is about a weeks worth of the border bleed PA sees.  While privatization will not eliminate border bleed in PA, it will, just from a convenience standpoint, decrease it. A privatized PA will still not be able to equal pricing of states with lower taxes, but it will make it easier to buy locally. People pay more for convenience all the time, even when less expensive alternatives exist reasonably close. Case in point is buying almost any food or dairy item in a convenience store — “a damn Sheetz,” as Senator Ferlo would snarl — instead of a grocery store. The key is to not raise taxes.

Revenue 2 – Iowa actually decreased their taxation and still reported making more than they would have if they kept their state stores.

Revenue 3 - It isn’t only direct liquor taxation that has to be taken into account. For PA, there will be business taxes that the current system doesn’t pay. There will be more income taxes from owners and workers, since there will be more of each. There will be new jobs created that do not exist under our current system, delivery to bars and restaurants being one example, and increases in current jobs to accommodate new business. Again, just one new warehouse in Washington State employed 1,100 workers, which was more than the entire state store workforce of 937. In the long term, money will be saved by not having taxpayers responsible for future retirement and medical shortfalls. The current amount the taxpayers owe for PLCB pensions is $550 million and is expected to go up to $600 million by the end of this year.

– Under the current system PA has more DUIs, DUI fatalities, underage DUI, binge drinking and underage binge drinking than 4 of the 5 privately run states on our border, and is just average compared to the rest of the country. Washington State has seen an 8% reduction in DUI crashes and DUI fatalities since privatization. While some may claim that is because there was less policing, policing has no effect on the decrease in DUI fatalities. Alberta, Canada has decreased their DUI fatality rate to one of the lowest on the continent (37% lower than PA) since they privatized, even though they have over 1,300 retail liquor outlets now for a population of under 4 million. Is there a connection? No way to say without further study, but it’s plain to see that privatization didn’t make the situation worse.

Safety 2
– Limiting underage access has always been a point for those opposed to privatization. While the true rate of underage purchases in PA State Stores is not known, since they are never independently checked (or policed in undercover sting operations, as privately-owned liquor stores in other states are) it would follow that it should be about the same as other localities which have similar requirements. Washington State was at approximately 93-94% compliance before privatization and is at about 92% now. Another thing we can learn from Washington State’s experience is how to limit direct unobstructed egress to cut down on shoplifting.

- Under the PLCB, urban areas essentially subsidize rural areas for alcohol selection, something that would seem to go against their stated mission of limiting access. This is the retail equivalent of PENNDOT making sure there is a Jaguar dealer in every county, because without government intervention they wouldn’t be there. Where the population can support them there will be larger stores, and in areas that can’t support those, there will be smaller stores. This is the retail model found almost everywhere. It is not the government’s job to make sure you can buy a wide selection of booze, especially when they say it’s detrimental (but they still want to sell you more of it). It is their job to make sure that a business climate exists which will allow retailers to try to sell whatever they want within the regulations and restrictions. To date I have not heard a reasonable explanation as to why the state should subsidize alcohol like they do milk.

Selection 2
- That in-store selection will increase is not in question. One only need to look across the country to stores like Bev-Mo, Total Wine, Roger Wilco, Binny’s, HighTime, B-21 and hundreds of others to see what the private sector can provide. They provide it based on consumer demand, not by what a bureaucrat or committee with unknown or non-existent credentials selects for them in a small capital city, far from major markets. What is in question is what variety will be available in rural areas. The answer is the same as it is for any other product. If the demand is there, the market will provide it, just as it does in rural grocery stores and hardware stores. If what you want is not available locally, chances are you will be able to order it, the same as now, only you probably won’t have to buy a case at a time as it is with a good portion of the current system. The entire state of big, small, specialty, urban, and rural stores will be open to you. Not that every store will ship but it will certainly be more than now, because real businesses strive for customer service since their existence depends on it and not state police enforced monopoly power.

– There are no absolutes in pricing. So much would depend on the system that is selected. Do we continue with the three tier system or do we eliminate one tier and allow more direct buying? Are taxes collected at the wholesale or retail level? Will the taxes increase or remain the same? Depending on what combination is used, you can say that prices should go down or prices should go up. The one thing you can say with certainty is that in a competitive market prices are lower than they would be given the same circumstances in a non-competitive market. As the third largest retail buyer on the continent one would expect the State Stores to have some of the best pricing available in the country. However, this is not always the case and the differences are more than taxes alone can account for.

Convenience – Since closing 20% of their stores in the past 40 years and having the lowest amount of stores per capita in the country (even lower than Utah!) there is no doubt the current system is inconvenient. Quite simply, anything that doesn’t open hundreds, if not a couple thousand more locations will not provide convenience seen in other states, and is a Band-Aid at best. It is obvious the PLCB cannot begin to compete in this area because they can’t afford it based on their business model of having everything the same store everywhere. Don’t let them buffalo you: the PLCB chooses the number of stores to open, not the legislature; the number of stores is not enforced by the Almighty Liquor Code (with the exception of the number of stores allowed to be open on Sunday). So while the population has increased over the last four decades, the number of State Stores has decreased from over 750 to about 605 today. Just to reach the national average, Pennsylvania should have about four times that number. “Modernization” does not begin to answer that issue, with one proposal saying they want to put 400 sq. ft. “stores” inside other stores, which they are already allowed to do now, and have been for at least 30 years. What exactly does that do for the consumer that the same size private store (which they claim wouldn’t provide the selection) would, besides remove that business opportunity from the citizenry?

Service – Unlike other retail stores, if you don’t like the service you can’t go anywhere else. You are stuck with the same training, the same attitudes, the same level of passion. In the world of private stores, if you don’t like the service you can go somewhere else and reward them with your business. The stores with bad service will eventually fail, and if somebody else sees the opportunity another will open. In the private sector you will find stores with a sales staff of well-trained professionals along with stores whose sales staff can barely tie their shoes. You have the choice of what level you require. Same size fits all is not a tenet of retail, although it seems to be gospel for the PLCB. There are private stores who have sommeliers on staff. The whole of the PLCB, 600 retail stores and an entire state’s wholesale wine trade, doesn’t. To be fair, the PLCB does have a sommelier as a part-time consultant. One. Part time. For the entire state. The third largest retail wine buyer on the continent does not have a full-time top tier wine person. I can’t be the only one to think there is something wrong with the system that not only allows this, but doesn’t care.

Privatization does create winners and losers.
The winners are the citizens who now have access to a free market; the losers are those who can’t adapt to the free market system. While no system is perfect, looking at the rest of the country it is easy to see which one is preferred by consumers and businesses whenever there is a choice.


Friday, April 4, 2014

30 years of progress – You’re kidding right?

The PLCB's "Store in a store" modernization idea: 
the Future through (the failures of) the Past

In the early 1980s the PLCB first came up with the idea of putting a State Store inside a real regular store. Boscov’s in Wilkes Barre and Joseph Horne Co., Pittsburgh were the two selected. It didn’t last as the Wilkes-Barre Store closed in late 1991 and the Pittsburgh one in 1993.

However, like most bad ideas that occur to the PLCB, the concept wouldn’t die, and on December 23, 2003 the PLCB started the first State Store inside a grocery store as part of the “modernization” of that time. Some of them are still around. The PLCB has managed to place about 16 stores within stores in over ten years of trying to convince grocery store owners of the value of this concept (and kept them in longer than the wine kiosks, but that's not saying much).

So here we are, 30 years after the original concept, ten years after the second attempt...and this kludgey idea is part of the PLCB's “modernization” plan. Thousands of grocery and retail stores ain’t buying it, and after 30 years of trying, at the rate the PLCB is getting stores in stores, it will take over 110 years to get up to just 10% of the state stores being 'more convenient' (unless they close more stores as they have been, that will make 10% easier to hit!), if you define 'convenient' as being able to walk into a different store and make a separate purchase.

Einstein's widely misquoted as saying that insanity is doing the same thing over and over again and expecting different results. No matter who actually said it -- and we know there aren’t any Einsteins at the PLCB -- the core is solid. That's what makes the latest 'modernization' idea from Representative Gene DiGirolamo to put 400 square ft. State Stores in grocery stores...a little nuts. But his plan is endorsed by the clerks union (even if the plan essentially is a wine kiosk without the automation, though there will still be a PLCB employee there to make the sales, just like there was when the wine kiosks didn't work). This goes to show how out of touch the PLCB really is.While national trends in alcohol retail are toward larger stores, the brain trust at the PLCB wants to do the opposite. Must be that lack of retail experience, or maybe the fact that they know we can't go anywhere else that lets them make these bad decisions.

Kind of what the store in a store would look like...minus the video.
I was told by a clerk that larger towns will have more selection and that little towns will have less selection and all I could think of is that a little selection in a little town beats NO selection in a little town.  With only 600 stores there are a whole lot of little towns without a state store and there are entire counties in PA with only one state store but but they have a number grocery stores.

However...remember that the PLCB and the Union threaten that if the State's monopoly were broken up and privatized, you will only see one aisle with only the most popular items in grocery stores and they won’t have the full selection of a State Store. Now I have to ask: if one side of a 50’ (which is short for a grocery store) 4 shelf aisle is a minimum of 300 square ft and you don’t have to have room for a cashier or baskets or office or safe...how is this "store in a store" going to provide any better selection? And you still can’t buy a case or a sixpack of beer there, so the three trip problem (that ONLY Pennsylvania has) is still there. Maybe they think that 2 1/2 trips are an improvement: go to the PLCB store in a store (with separate checkout), walk to a different part of the store to the 'cafe' to buy a sixpack (with a separate checkout), and then drive to the beer distributor to get a case. Such an improvement!

Here's a thought. How about we privatize the whole damn system and make it truly easier for the consumer by having just one place to go when shopping for a legal product? How about we get the state out of subsidizing the sale of alcohol like they do milk? How about if we take the totally unqualified board out of retail, since they know nothing about it anyway (none has any experience in retail and that has been true for decades) and turn it over to people who do know retail business i.e. private businesses? How about if we allow the people the freedom of choice that most citizens who don’t live in Utah or PA enjoy? If you are a legislator, how can you not want this for your constituents?

Real Modernization IS Privatization!