What Might Privatization Look Like?

The future is as clear as vodka...

Two years later...I haven't given up, but I'll admit that the pandemic re-ordered my priorities. I've got [THE RAGING FEAR] my concerns under control now, and I'm starting to think about other stuff again. Like privatization. 

There's talk of using a state constitutional amendment to get rid of The Police-Enforced Monopoly that is the State Store System. This tells me two things. One, Republican legislators are tired of Democratic bullshit about this issue, and they're going nuclear. And two, that Republican legislators have stopped thinking clearly. 

Demolition of the PLCB, amendment-style!

It's my strong opinion that this would be the bluntest of instruments to achieve the goal of privatization of booze sales in the state. An amendment would not have the detail necessary to do this well, and would leave open all kinds of maneuvering room for backroom deals of the type I'm pretty sure we all know would happen. 

What kinds of deals? How about minimum square footage requirements, like they included in Washington State's privatization deal? The "reason" is that they're 'saving' us from 'a liquor store on every corner,' but it's really a deal for big-money donors like chain grocery and liquor stores to get a new oligopoly on retail liquor stores, trading a shitty monopoly for a still-limited oligopoly. We don't want that, believe me. 

Or they'll boost taxes to "make up for the shortfall" from the loss of the PLCB "profits." Once again, like Washington State's privatization deal, this is wrongheaded, and will lose us the greatest benefit of privatization: competition. It will put PA liquor stores (and bars, and restaurants) firmly behind neighboring states' stores on price, leading to even more border bleed. 

Because you know that the hated Police-Enforced Monopoly will not go away. We'll still be forced to buy booze in PA. Bullshit on that. Bullshit!

Okay, calm down, Lew. The constitutional amendment idea is not a good one, despite the Democrats forcing consideration of such extreme measures by their bullheaded intransigence on this issue. We need to come up with some way to make this an attractively bipartisan issue. 

Some of the problem is that the lazy legislature acquiesced when the PLCB put the supermarket safety valve in place, and didn't do the right thing: create a separate grocery/deli/c-store/gas station license for retail off-premise sales. That led to supermarket and c-store chains buying R-licenses at insanely inflated prices (over $500,000 in some instances), and now — shocker! — those businesses are dead-set against any move toward such a license. Great. 

But that's a whole other post, and I will get to that, and soon. I'm back on this. 

Time to take over the world, Pinky!

Meanwhile...What do I want to see in privatization? All open to tweaking, but...

First, and non-negotiable: the PLCB ceases to exist except as a regulatory agency...if needed. No state stores, no state wholesale. They've proven that they cannot run this fairly or honestly. They're done. As a regulatory agency, their operations must be made more transparent, and their power to "interpret" state laws and regulations to the point of nullification must end. 

Second, very important: learn from Washington State's mistakes. And they made plenty of them. A study panel should look at what Washington did, and what Alberta did, and come up with recommendations to make sure that we do better. Ask consumers in those places, too. 

Those two are huge, big picture things. Here are more direct things. 

1. Allow ALL R and Hotel licensees -- bars, restaurants, hotels -- to sell any type of alcohol beverage to any legal customer for on-premise consumption. With the purchase of an additional Off-license permit (for a reasonable annual fee to the state), they would be allowed to sell full bottles/cans to go. No more limits, no more "step outside and you can buy another" bullshit. Licenses increased to one per 500 adults in a county. Licenses become non-transferable five years after passage, which should end the ridiculous secondary market in paper.

2. Beer Distributors become all-alcohol stores with off-premise sales. Beer distributors MAY dispense draft beer in sealed (have to work on that definition) to-go containers. Number of licenses is increased to one per 500 adults in a county. License is non-transferable, starting five years after passage.

3. Create a new license for grocery stores, convenience stores, drugstores, and gas stations. Takeout ONLY, no on-premise consumption. Number of licenses are not limited, pay a reasonable annual fee to the state (with allowance for review after five or ten years), and are not transferable. License holders MAY also buy or retain a separate R-license for on-premise consumption if they want. 

4. Open up wholesale. Beer wholesalers may add all other alcohol. New wholesalers allowed, reasonable annual permit, non-transferable. More wholesalers means more competition, which means better prices and service. Charging $100 million for a wholesaler license is not a way to get more wholesalers. This may need tinkering; for instance, are multi-state wholesalers allowed to operate in the state? We may want to say no to that, or we may not. 

5. Pennsylvania citizens AND licensees may buy and sell from out of state. Period. This has gone on for way too long. If the state can't tax and regulate booze in a manner consistent with neighboring states, that's too damned bad. Look at it as incentive to do better. 

6. Sales tax to be applied at wholesale (or producer) level. Convert the Johnstown Flood Tax from a tax on price to a flat gallonage tax, like the rest of the country, and peg it to current national average. If that means less revenue, screw 'em. What Pennsylvania's tax does -- unintended consequences -- is make blotto booze (cheap wine, cheap vodka) even cheaper, while making better booze even more expensive. If we're taxing alcohol for some health or moral reason, the gallonage tax is more honest; if it's just about raising revenue...well, why not put an excise tax on everything and share the pain?

7. Rip out the old Liquor Code and start over. Aim for simple, understandable laws that ruin as few businesses as possible, but changes them where they are unfair, or not in the public interest. For instance, booze wholesale should emulate food wholesale: competition allowed, exclusivity as something that suppliers would pay for. The Code is currently open to way too much interpretation and confusion, and that has to end. 

8. Perhaps the most important is this: when this is done, when it's being written and decided upon, it must be 100% transparent. There must be citizen and industry representation on whatever task force does this rewriting of the Liquor Code, and regular reports must be presented; weekly, if necessary. There's too much money at stake to do otherwise, and we've already seen that it causes corruption. Obviously, I volunteer. Seriously, there should be representatives from all sides: wholesale and retail booze business (but only one each), consumers (one or two), anti-alcohol types (gotta be fair), the UFCW (no, really, it's only fair), and politicians. Maybe more stakeholders, that's just a first cut, but there must be representation and openness. 

These points will make me no friends in the industry. They completely upset the apple cart, and may ruin long-established family businesses. But they will create new businesses, and the solid family businesses will thrive and succeed...as long as big businesses, chain retailers, aren't allowed to write this privatization bill. And of course...nothing's set in stone, and politics is the art of the possible. 

It's about time, it's long past time, that the consumers, the voters, had a large say in how this gets done. 

Privatization. Yesterday, today, forever.

Meanwhile, in Saskatchewan...

How long has booze privatization been debated and promised in Pennsylvania? Decades.
How much has been done about booze privatization in Pennsylvania? Nothing. 

Meanwhile, in Saskatchewan, the Saskatchewan Party campaigned this spring on a platform that included transitioning their provincial monopoly liquor stores to privately-owned stores. They were put in power by the electorate, and now, less than two months later,, they've announced that they will convert 40 of the 75 government liquor outlets to private stores, and create twelve new private stores.

Dear Pennsylvania General Assembly:

We're better off privatized

After four years, I think it is safe to say that the liquor market in Washington state has settled down. Like everything else that is sold, big stores offer more and small stores offer less. People will pay more for convenience and pay less when buying quantity. Not every store is the same, which is a big change from the old state stores; just as it will be here.

How's Washington doing? Since the unions always make this about money, let's look at that. According to The Herald Business Journal total sales volume has increased 21%, and that doesn't count the couple of percent increase in border bleed. Border bleed isn't a product of privatization, Washington has always had it. It's no surprise, they've had higher taxes, and therefore higher prices then the adjoining states of Idaho and Oregon for decades. However, it isn't like the border bleed that Pennsylvania has; the population is smaller and there are no major population centers near the borders. An entire year of Washington border bleed is about a month's worth of what Pennsylvania loses.

How do we know this?  The states bordering Washington tell us that their sales have increased 7% after Washington privatized (and the booze taxes were jacked). For Idaho, that would be about $11.7 million and for Oregon about $34.8 million, or a total of $46.5 million per year being lost out of state after privatization.

In contrast, PA has at the very least $230 million in border bleed in just eight counties, and that was five years ago according to the PLCB itself.  Extrapolating for the entire state using the Pennsylvania Food Merchants Association or the Wine and Spirits Wholesalers of America studies puts it closer to $500 million, or almost eleven times Washington's border bleed.

Sounds pretty bad, right? Let's hope that our politicians get it right and don't raise taxes when the state stores are privatized. Will convenience go up? No doubt. Will selection increase? Overall, yes, though not everywhere; the State Stores won't be charging Philly to have a full wine selection in Potter County. Will border bleed decrease? Certainly: if you make a product easier to buy locally, people will buy more locally. Look at Washington: even though there were 27% in added 'fees,' sales still increased 21%. If PA doesn't raise taxes that number will increase, and even a few percent more as border bleed decreases.

What do we need to replace financially? $110 million, give or take, which includes State Police funding, Drug and Alcohol education funding, and the average amount turned into the general fund for the past 5 years. Last year the PLCB collected $334.4 million in Johnstown flood tax and $130.2 million in sales tax. A total of  $464.6 million. If sales go up 25% then taxes collected go up 25% too and 25% of $464.6 million is $116.15 million. Done! The PLCB "profit" is replaced!  But there is more.

Every place that has fully privatized has tripled employment in the industry. New owners will be paying business taxes the PLCB doesn't pay, they will be paying license fees the PLCB doesn't pay, and they won't be looking to the taxpayer to address any future shortfall in pension and medical. You won't have as much bureaucracy to pay for, there won't be some unqualified person deciding what the entire state is allowed to buy, there won't be the graft and corruption of state employees, there won't be people who thought kiosks were a good idea, there won't be state stores trying to hide behind 4 different names and there won't be the PLCB as we know it now. Certainly a good thing.

What there will be is NORMAL. Or at least far closer to normal than what we have currently and normal is good. Just ask the majority of the population how much better free enterprise is over state monopoly.

The PLCB screwed up Pappy Van Winkle last year (and will do it again this year)

Stacey Kreideman, the PLCB's Minister of Propaganda, said last year that the most "fair" way for the agency to sell their allotment of relatively rare and highly desired Pappy Van Winkle whiskeys was to put them up for sale all at once, online, in mid-morning, with no warning but an email to say "We got 'em, time to buy!"

Calling the results a disaster wouldn't be too far off. The day was so screwed up, with crashing servers and clogged websites, that the PLCB had to apologize. They apologized for not realizing that if you put a high demand item out all at once, and tell everybody at the same time -- by email and Twitter -- system volume is going to spike on your rickety-assed commercial site. In this case, about 20 times the norm, which was 18 times more than they could handle. Customer comments sounded like this:

@PAWineSpirits @pappyvanwinkle what a joke. You couldn't even log on or load the page. How unfair. Most people didn't even have a shot. -- Shannon Barr on Twitter.

@PAWineSpirits you completely botched that sale. The time for PLCB is over. --  from @jxalexander.

The PLCB has decided to do something different this year. Rumor has it there will be a lottery system for the Van Winkle and Antique Collection allotments. Will that be more fair than the most fair way to do it?

I don't have any details, but I do have some suggestions on how it should be done. For starters, I would put the lottery commission in charge of the lottery. Take it out of the PLCB's trembling hands completely. Who knows how to run a lottery better than the folks that run a lottery? Certainly not the PLCB.

Allow customers one week to sign up; say, between the day after Thanksgiving though the next Thursday.

Everyone who signs up has to provide all their required information -- ID, shipping -- along with a credit card number that will automatically be charged if their number is selected. That way no one wastes time trying to enter information on a system that's crashing.

Have a separate lottery for each product, all 11 of them but all on one form, just check the ones you want. Filling out your name, address and credit card info 11 times is something the PLCB would make you do. Limit quantities to one bottle of each item and limit entries to one per person. If we're going to be stuck buying only from the State Stores, make it fair: accept only PA addresses for billing and delivery.

Send out lottery numbers via email with a verification code so if there are any problems or questions the code can be used to confirm the entry. Once selection time is closed, run the numbers until all matches have been made...post the winning numbers on the website and send out the product.

Done.

Have fun with that. Myself, I've been dealing with the same guy at the same store -- out of state -- for about a decade. I pay list price and generally have it a month or more before PA puts it on sale. In business, relationships are everything. It rewards customer loyalty, not forcing them to buy only what the state provides. A lesson the PLCB can't, by its very nature, ever learn.

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")

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.

Liquor revenue vs. other revenue

More in the continuing saga of why can’t Johnny read -- or do math?


The Union in the guise of a former clerk and current business manager will tell you that “No state has ever realized equal revenue after they privatized, period.” (except Washington State, but I’ll get to that shortly). They cite the decline in Iowa and the contract in Maine as prime examples.

Let’s look at those in real terms. Iowa got out of the retail wine business on July 1 1985, the wholesale wine business on July 1, 1986 and the retail liquor business on March 1, 1987. UFCW Local 1776 president Wendell W. Young IV in sworn testimony stated that, “In just three years, after wine was privatized, revenues dropped by $20 million annually. Revenue dropped by $4 million in Year One; by $12 million in Year II and, finally, by $20 million in the third year of private control.”

What he said is true but there is more behind the numbers that isn’t told. On July 1, 1986 — the same day that retail wine sales were privatized — a 15% licensee tax was repealed. On March 1, 1987 — the first day that private retail liquor sales were allowed — Iowa lowered the wholesale mark up by 12% in order to help the newly established private liquor store businesses. There were 221 state liquor stores, and at the end of the four month transition period, there were 256 private stores; within the year the number rose to 430.

In fact, as reported back in 1997 on the 10^th anniversary of Iowa’s privatization, “Keeping the wholesale liquor business and selling the retail end proved to be fiscally sound. State officials estimate their treasury is $95 million richer than it would have been had Iowa retained its state stores.” And “Between annual license fees and the wholesale markup, the state now makes almost $15 million a year more than it would have, had it stayed in the retail business.” Not exactly the disaster that Mr. Young said in his testimony.

So who do you want to believe that Iowa is better or worse off, Wendell Young, who has an obvious bias, or the State of Iowa itself?

As for Maine, they contracted out their liquor distribution. They knew ahead of time exactly what they would get and what it would cost. Ten years later that contract is ending and Maine is looking to do another 2 contracts instead of just one. This time they want one for distribution and one for marketing and advertising. Obviously, Maine thinks this is the better way to go instead of running the whole show themselves and having all of those salary, retirement and medical costs.

Now for Washington. Collected revenue is up, over any year during state control; up 23% for the last fiscal year. That will go down some when one of the newly imposed fees decreases from 10 to 5% but is still going to be above anything the state stores brought in according to the Washington State Department of Revenue.  So much for the UFCW business manager’s quote about no state ever realizing equal revenue.

Lastly there is Ohio. The union doesn’t like to talk about Ohio since they sold their wholesale operation for $1.5 BILLION. While it is a strange combination of public/private partnership, the Jobs Ohio non-profit that controls the wholesale operation is a private entity. They can go bankrupt with no cost to the state, and anything they make goes to Ohio job creation. The state has no jurisdiction over their books or the management.

Now Ohio might be a special case but when Wendell Young or any other representative says that nobody would pay X amount for PA’s system or that no place made money after privatizing – they are simply lying. Every place in the U.S. (or Canada) that has privatized some or all of their liquor system has also seen an increase in employment, and while that isn’t “liquor revenue,” it is better than what we have here.

The takeaway is simple: if you’re a Pennsylvania legislator, revenue should not be a factor when you’re considering liquor/wine privatization. As far as that goes, neither should employment. Privatization will, based on previous experience, most likely increase revenues, and almost certainly increase employment — if you do it right. In this case, “right” is not giving in to compromise. Do a Washington State — shut everything state-owned down in a matter of six months to a year — but don’t raise taxes. Watch border bleed decrease, employment increase, and voter satisfaction go right off the charts.

Privatization IS Modernization. Accept nothing less.

Worth posting: a word from an (Anonymous) LCB clerk

This comment and my response from the post just below was worth posting here on its own to get more attention. I've edited my response a little just to polish it. This...is directed at the PLCB employees. It's about how to keep your jobs, and take pride in them.

Anonymous said...
Another word to my fellow LCB employees:
You cannot, and should not, expect anyone to choose sides on the privatization debate based on our losing our jobs. On the positive side, the thing we CAN do is educate ourselves about the products we sell. Product knowledge is a skill that will serve both to break the stereotype of the potable-ignorant LCB clerk AND also to give us a strong leg-up if we end up having to apply for jobs in the private sector.


My response...
Bullseye. The service at the State Stores isn't being talked about in the high-level debate in Harrisburg, for the human and political reason that no legislator wants to be quoted criticizing people's performance, but it is definitely discussed among the people who actually have to use the system.

I've said all along that the service I've received at the register has almost always been satisfactory, and often quite friendly. But the service out on the floor is distinctly sub-par, with a very few notable exceptions. I've been given to understand that there's no real program in place to increase product knowledge, and it shows.

Your union reps may tell you what a horrible work environment Total Wine is, but fail to point out that while their employees complain about their treatment by management, they almost never fail to admit that the training they receive in wine and spirits is exemplary...and they often use it to go elsewhere.

If you get motivated about what you're selling, and get excited about helping the people who need help...that's the very best thing you can do to stop privatization. Much better than the chanting and shouting that the UFCW encourages, much better than the flimsy "control" statistics, much better than allying yourself with anti-alcohol groups (because that just emphasizes the innate and bizarre dichotomy of the whole control/sell dual nature of the agency).

If you want a "modernization" program that could actually save your jobs, look to Sweden's Systembolaget, their state monopoly wine and spirits retailer. I've heard nothing but praise for it from producers (I was on a press trip with the Swedish brand manager for Pernod Ricard, and she never stopped praising it) and from consumers; a fraternity brother of mine now lives in Stockholm -- he's very picky about wine -- and he raves about the service and selection at Systembolaget...and as a former Pennsylvanian pities me for the State Stores.

Real modernization would include linking product knowledge and sales performance to advancement, would include a wine specialist and a spirits specialist at each premium store. It would give the local store managers much more training, and much more control over what's sold at their stores. It would take the control of shelf facings away from the people in Harrisburg and give it to you, the people who are actually selling, and seeing what your customers buy, and what they're not finding.

I don't think that's likely to happen, but if it did? It would go a long way to shutting me up on this issue. It would also help if some of your co-workers would stop trying to tell me that private stores in other states aren't as good as the State Stores, because I go there, and that's simply not true. Doesn't help your case. Instead, do what you can to make your service, your store better. Just do what you can, where you are.

I don't go to New Jersey for the prices. I go for the selection, somewhat, especially on spirits, because the State Store is, for whatever reason, scared of whisky. But the main reason I avoid the State Stores is the service. I get much better, much more helpful service at the private stores in New Jersey, New York, Maryland, and Delaware. Fact.

And let me add: I've already talked about how to change the State Stores and save them here. Add this stuff, and you've got a good formula for it. But...I still don't think it's going to happen. Because no one in the upper bureaucracy of the PLCB cares -- because their jobs aren't directly at risk -- and Wendell W. Young IV doesn't care, because up until now, shouting and chanting and yellow shirts and campaign donations have been all he's needed to just keep things the way they are. You're being encouraged to keep the status quo, but the status quo is what 60% of Pennsylvanians don't want (and remember: a large chunk of the 40% or so that says they're in favor of keeping the State Stores don't drink, and would really rather just have Prohibition). You can do better. You can do better on your own. Think about it.