Tuesday, February 5, 2013

Is This A Look At What Our Privatization Will Look Like?

Governor Corbett has unveiled his plan for privatization, and it's radical in scope, going well beyond last year's mangled piece of legislative committee crap. The Commonwealth Foundation has a good precis of it here, and the Tribune-Review has a better one here, but they don't get all the gimpy little details that are one of my major problems with the Corbett plan.

Actually, before we get to the little things...let's get to the big one: the police-enforced monopoly is still there. For no apparent reason other than to screw with us, there's nothing in here about allowing Pennsylvanians to pick up a bottle of wine on their way home from Baltimore, or New York, or work, for the large number who commute across the Delaware. That's right. Big Daddy in Harrisburg is still going to tell you where you can buy your booze: only in Pennsylvania. Sorry, gotta be blunt: that's un-American bullshit. Laws that tell me I'm not allowed to buy a bottle of gin and bring it home? Don't insult us: FIX THIS!

Now, those little details... The Corbett Plan gets rid of the Case Law, but does it by breaking it up into a bunch of ridiculous NEW limits that are going to have you carrying a card to remind you what you can buy where. The Inquirer explained it like this last week.

Under the plan, retail beer distributors, who now can only sell by the case or keg, could apply for a license to sell the alcohol trifecta: beer, wine, and liquor. Supermarkets could sell a customer up to two six-packs of beer, and up to six bottles of wine. Convenience stores and drugstores? A six-pack to go, no wine. Restaurants and taverns, which can now sell a customer no more than two six-packs of beer, could sell up to six bottles of wine. Big-box stores [Wal-Mart? Target? Home Depot?] would be allowed to sell beer by the case and up to six bottles of wine. In a nod to beer distributors, Corbett's plan would let them apply for "enhanced" licenses, allowing them - for the first time since Prohibition - to sell by the six-pack.
Get all that? Doesn't it just make you want to ask WHY?! Governor, there is no good reason to put limits like this on retail. Just have a beer retail license, and a wine retail license, and allow stores to buy one, the other, or both. Done. And if I want to pay their prices, I go and buy as much or as little as I want. Don't make us do that foolish "buy two, step out, step back, buy two more" dance anymore, it's just ridiculous.

Worst of all, you're compromising with a group that doesn't exist. The social conservatives and MADD don't want supermarkets and convenience stores to sell any wine or beer, so limiting it to half a case and six bottles won't make them any more likely to support this -- or, more aptly, acquiesce to it -- they will hate the whole idea, and still vote no. And if you succeed without them, we'll be stuck with a compromise that did nothing. Drop it.

Jon Geeting of Keystone Politics is passionately progressive and fully supports privatization; we've discussed it and come to large amounts of agreement. He's written some great stuff here and here, and here, where he argues that Corbett's plan is not radical enough, that it needs LESS regulation to open up MORE competition. (That's my kind of Progressive!) He's also in on a gallonage tax to replace the price-based Johnstown Flood Tax, which is another good idea: it makes cheap booze (also known as "wino fuel") more expensive, which would actually do something in the direction of, you know...control.

But I do like some things. Quite a bit, actually. Like this:  
  • The State Stores go away, and the State is no longer the wholesaler! Which means we start to have a LOT more input on what's available for sale.  
  • Taxes don't change. So unlike Washington's greed-driven failure, our prices don't automatically go up (which would be blamed on privatization). 
  • Beer and wine sold in grocery stores. Look, I love my beer distributor. Actually, quite a few of them. Great guys, and they've supplied us with great beer. But...it's a LOT easier to buy beer and wine in the grocery store. Easy = good.
  • Beer distributors can become all-alcohol stores. And I hope they do. Because I LOVE all-alc stores like Total Wine, and Canal's, and Bev-Mo, and Binny's. Huge selection, smart staff, great extras, full-on booze coolness. I like small specialty places like Park Avenue and Federal and Moore Bros., too: excellent service, the exclusive bottlings only they get. It will take an investment in space and stock and smarts...but it will be worth it. 
  • The number of licenses to sell off-premise spirits doubles. It could be a lot better, but double is pretty good. I'd like to see it double again, but for now...it's one hell of an improvement. 
  • Annual license fees. Because having the State issue the license and someone else make the money drives me crazy. It still costs the licensee, but the State gets it. 
There is room for improvement -- get rid of that police-enforced monopoly! -- but this is the best plan I've seen in my lifetime. Let's go for it.


DrunksSuck said...

Yeah i agree making beer and wine cheaper and easier to get is great! I can't see a downside to that. Face it moron, alcohol kills and the more its available the more deaths there will be. Just bring back prohibition and drunks like you will be less likely to kill someone. You are a moron!

Lew Bryson said...

So pleasant.

You didn't read the post, did you? This isn't going to make prices go down, most likely. In fact, I said I'd like to see a gallonage tax, which would actually make the price of cheap wine and spirits -- the drunk's choice -- go up.

Hope that helps. Thanks for playing.

Rufus said...

Great write up, Lew.

It seems that this is the death knell for suburban and rural beer distributors. Most owners won't be able to afford this "enhanced" license and any annual fee associated with it. With those beer distributors, go much access to craft beer in a BMC wasteland. I'm certainly not against privatization, but it will cost rural people some great beer.

By the way, the idea that cheap alcohol causes mass drunkenness and widespread societal problems is severely outdated. Next, will people argue that the saloons' free lunch caused spousal abuse and child abandonment? Let's leave the old temperance arguments in history, where they belong.

Lew Bryson said...

I don't agree that it's going to end access to craft beer in rural areas. I say that because I buy craft beer pretty frequently in rural NY now, and the selection's pretty good. I was down in the Mount Rogers Nat'l Recreation Area, in far western Virginia five years ago...and found Flying Dog and Goose Island at a damned log cabin shithole convenience store back in the woods. The pull is there, and grocery stores will supply it.

But while this is taking the monopoly away from the State, it is also taking it away from the beer distributors. No mistake. Most will have to find another business, and they're going to have to work hard to do it. The suburban guys may actually be well-placed, some of them. I think it's the guys in Philly and Pittsburgh who are going to have trouble: space considerations.

It's got a long way to go, and one thing's for sure: if it DOES pass...it ain't gonna look exactly like this.

Rufus said...

Lew, you are comparing two very different regulatory cultures.

First, if distributors are required to buy an "enhanced" license, you better believe it will be very expensive (for anyone not a big box store). Second, this "enhanced" license does not include liquor or wine, in the governor's proposal. Therefore that will be just another expense for a distributor. Third, there is talk of an annual fee for licensing. Rural distributors in New York did not have this burden placed upon them. Even if they have to pay an annual licensing fee, the initial cost of the "enhanced license" and the cost of a liquor license may be too much for the little guy to pay.

That's the thing, Lew. Beer distributors are more than willing to compete and "keep up with the times." But if the Commonwealth makes it so expensive to initially do so, they will be priced right out of the market through no fault of their own. You simply cannot compare the marketplace of a state whose liberalized alcohol sales long ago to a state that is still very much afraid to and will push to make it very expensive to even compete.

Have you been to northwest Pennsylvania (not including Erie or it's metro area)? Please find me one beer bar or restaurant that carries more than a BMC "craft" offshoot. There may be some local brew here or there, but the only way I can find anything remotely good is to go to a distributor. And those that carry good beer are few and far between. They have the space and knowledge to create a market for craft beer where none existed before. The local grocery chain does not.

Again, I'm all for privatization. I want the most liberal alcohol laws possible. But what is being proposed and supported by many privatization advocates is a regulation of an industry right out of the market.

Lew Bryson said...

You're talking about one of the most beer-backwards areas in the State, unfortunately. If the demand isn't there, no one's going to sell it; apparently the distributors aren't either.

I agree that the distributors are being asked to pay a lot, but I also predicted this would happen a few years ago. The MBDA doesn't want ANY change, and they are stonewalling change instead of negotiating to get change that's more favorable to them. If all they do is say NO NO NO...when the change does come, it's not going to be good for them. They need to use what influence they have -- and enlist the wholesalers help if they can -- to get a better deal, instead of simply trying to stop this. That's what I see, and I'm not alone; there are distributors who agree with me, but they're not the collective voice.

The "enhanced" license you're talking about is to sell sixpacks. The distributors shouldn't be paying for that, that's bullshit. So go to Harrisburg and get it done!

But the response from the distributors has, and likely will continue to be, 'NO. Don't change anything.' Well, that's not going to wash. It's looking like it's finally privatization time, and the distributors need to cut their deal. It would be best if they got out ahead of it. Sixpack sales are a good thing, and they should get that for FREE. They sell beer, after all.

Rufus said...

Here's the thing, Lew. The market for craft beer in that area has to be created. The only business willing to do this is the beer distributor. There are no breweries there to do it. The wholesalers only care about BMC. The beer bars/restaurant simply put in what the distributors push. Wiping out the distributorship is a huge step backwards for the craft beer industry there.

I absolutely agree with you that the MBDA sold out it's members. I am only referring to the membership though, in my statements. I am extremely concerned about the ability for distributors to compete. The MBDA won't fight for equal competitive advantage and privatization advocates couldn't care less either. This is why I am saying that the state is going to destroy the beer distributor industry with the gleeful help of privatization advocates.

You seem very quick to lay the blame for the state destroying beer distributors on the MBDA and it's members. I am wondering if you'll focus any attention on the fact that the state has no business forcing businesses to pay exorbitant fees (or any kind of fees) in order to exist. Let's not blame the victims of regulation for things that are out of their control.

Lew Bryson said...

The only business currently willing to do that is the beer distributor. (And, by the way, I'm not conceding that; my local beer distributors were WAY behind the curve. It was the bars that pushed them. That's not what happened everywhere, but it did happen here.) Once things change...things will change. Grocers make more money selling sixpacks of craft than they do selling sixpacks of mainstream, and the craft brewers are getting very good at proving that. Get the grocers the ability to sell beer, get vacationers to ask for it, and away you go. The grocers have proven to be pretty quick on the uptake elsewhere.

"privatization advocates couldn't care less either." Most privatization advocates I talk to want to dump the legal requirement for the three tier system, too. They are wholly concerned about convenience and price for the consumer -- novel concept... -- not insulating a business category from competition. It's the distributors' job to convince the Legislature to bring compromise to the process; and I can guarantee you, they will. This is how negotiation works: ask for the moon, settle for halfway. The beer distributors aren't "destroyed" yet, and that's not going to happen easily.

But this is curious: "I am wondering if you'll focus any attention on the fact that the state has no business forcing businesses to pay exorbitant fees (or any kind of fees) in order to exist. Let's not blame the victims of regulation for things that are out of their control."

You've got it backwards. Beer distributors ONLY EXIST because of regulation, and they pay fees to keep that regulation. If grocery stores had been allowed to sell beer in 1935...we'd never have had these businesses at all. And you can't just set up as a distributor; you need that license. That's called a barrier to entry, and the distributors LIKE that. What they DON'T LIKE is that Corbett's plan is unbalanced in that it adds a LOT of competition for beer distributors...and then asks them to pay for that.

Which is why I don't think it will survive in this form, IF the distributors get smart and start working for negotiation, rather than stonewalling. Because if they SINK privatization, people are gonna know.

Rufus said...

Beer distributors certainly are a creation of government. That much is true. But you act as if there was a lobby for it prior to 1935 and had a hand in it's very own creation. The beer distributor system (and the three-tier system) was created by pressure from temperance advocates and national breweries. People naturally responded to an opportunity given to them and founded beer distributors.

What is completely illogical and ass-backwards is to create a beer distributor monopoly, later admit it was a mistake and then fee them out of existence without so much a chance to compete on their own merits.

Beer distributors are essentially a small wholesaler. Wholesalers will always exist in a division of labor society. Large wholesalers here in rural PA probably won't find it cost effect to delivery to every single bar/restaurant/gas station out in the sticks. They are not set up for it, obviously. It's easier to have satellite locations or simply contract distributors. By in large, beer distributors will only go away if they are denied a basic human right--the right to compete fairly in a free market.

I agree that the MBDA wants everything to stay the same. They are very wrong on that. But it's important to know that many distributors see the writing on the wall. I know this first hand. These distributors want to innovate and try to compete. Yet sadly that chance may be stolen from them by their very creator. That is what I'm saying is wrong.

In the end though, we'll see. I'll keep reading your blog to keep updated.

Lew Bryson said...

"The beer distributor system (and the three-tier system) was created by pressure from temperance advocates and national breweries."

Not completely true. Most of the Repeal-era parts of the Liquor Code regarding beer was written by the beer wholesalers. The national industry -- what had survived through Prohibition -- put on a major program as Repeal approached to make sure it was written as favorably for them as possible. I've talked to the man who was the then-young clerk to the industry lawyer who wrote Pennsylvania's model law -- we were talking about the origins of the unique "case law" at the time -- and that's what happened. The three-tier system: yes, demanded and granted by the Drys, and likely considered a good idea at the time, given the massive corruption stemming from brewery ownership or control of retail that was commonplace before Prohibition (and was one of the major reasons Prohibition passed).

But the beer distributor program... that came from the industry, and given the semi-monopoly it granted, you can see why. And the fight's been going on almost that long. I was told by the then-head legal counsel of the Pennsylvania Food Merchants Association that when the association of grocery stores and food wholesalers was originally founded -- over 60 years ago -- getting beer sales for grocery stores was one of the main goals, and one of the driving reasons for the creation of the association. As you can see, the beer distributors have proved stronger.

And then you say, "By in large, beer distributors will only go away if they are denied a basic human right--the right to compete fairly in a free market." They don't have that right now. They have distinct advantages -- and DISadvantages -- imposed by law. If they want that to change, they've got to lobby. If their Association is on the wrong track, it's time to either change the leadership, or form a new association.

But most Pennsylvanians -- fairly or not -- see beer distributors as having almost as much a monopoly as the State Stores. That's because Pennsylvanians see that buying beer in other states is MUCH more convenient, because of more outlets -- groceries, drugstores, gas stations, convenience stores, 'all-alcohol' stores -- and no silly restrictions on volumes: no case law, no 2 sixpack maximum. For the beer distributors to survive, they're going to have to work hard at negotiating a deal...and presenting their case to the public. The way they've BEEN doing it isn't working so well.

Speaking as a consumer, I'd like to see beer distributors get sixpack and single bottle sales at the stroke of a pen: no additional fee, just an admission that the case law was a bad idea and now it's gone. I'd like to see distributors have a much easier path to upgrade to an all-alc license...but at the same time, I don't want to give it away for free. I want GOOD all-alc stores, and too many beer distributors -- not ALL, maybe not even a lot, but too many -- are too lazy to do it right, if getting that license is too easy.

Things are going to change a LOT if PLCB privatization goes through. Beer sales need to be addressed at the same time, because it's all part of the same regulatory and sales picture. Things WILL change for beer distributors (they already have and are); the key for them is to get ahead of those changes and try to manage them for the best outcome for the distributors AND the consumer. Make the consumers your allies.