A great place to work?

Among the lies, & fallacies, disingenuous statements and statistics that appear out of thin air over at the old PLCB fudge factory, we hear how the PLCB is a great place to work! Jinkies! Cool!

But what do the numbers say? According to the 2019 annual report (on page 61) the average age of a store clerk is 44 years old. Not exactly attracting younger workers. And when they do get workers, 56% of them are part time. I don't think those are the "Family Sustaining Jobs" that are so often mentioned. Out of that 56%, over half of them quit every year for a turnover rate of 53.1%. Even if you somehow manage to get one of the 2,453 full time filled positions, there is a 49.3 % turn over rate there too. Now factor in this: 29% of store workers change location every year.

Can you say "turn and churn"? Is it burnout, or do they just get tired of the bullshit? If the PLCB isn't that good at retaining employees, just how good they are to work for?

Turn it on its head: is this mismanaged workforce of any benefit to the agency (and thus, to the commonwealth). The average sales per employee for 2017 across this kind of industry was $689,000 per each full time equivalent. The PLCB can force a "part time" employee to work 34 hours a week if they want to, so that makes figuring out the total hours the part time workforce puts in a bit difficult. I'll just go with 25 hours a week for part time workers and 15 hours for seasonal workers.

With 3,190 full time sales and admin employees putting in 37.5 hours per week times 52 weeks, that's a total of 6,320,125 hours. Add to that 25 hours times 1,773 workers times 52 weeks equals 2,304,900 hours plus 383 seasonal workers at 15 hours each, but only 13 weeks of work equals 74,490 for a grand total of  8,719,515 hours. Take that and divide it by 37.5*52 (1,950) and you get roughly 4,471 full time equivalent employees.

Now that we have the number of full-time equivalents, we can then multiply that by $689,000 for each employee and come up with $3,080,519,000 as what average sales should be. But the PLCB only did $2,126,927,971 in sales or UNDERPERFORMED the average by just about 45%. In simple terms, having the PLCB do things is costing the state about $950 Million in lost taxable sales based on average sales. Now that is the average, there could be significant differences for liquor stores. But looking at Total Wine, they are only about 10% below that average, so it pretty much confirms the PLCB is a bloated, poorly managed organization,

It gets worse. All the PLCB numbers were taken from the number of working employees as of June 2019. However, the amount that are authorized is greater.  If the PLCB were fully staffed, they would be 65% BELOW average in sales per employee. Filling over 1000 current vacancies might cause the PLCB to not be able to meet the amount of payout revenues requested by the administration.

That of course, would require the PLCB to variably screw the citizens that much harder just to keep them afloat. In that scenario, it is better for them to have less people on the sales floor. What a way to run a business!

PLCB workers, staff, administrators, board members, and your supporters in the Legislature: tell me why we need this bloated, under performing jobs program?

We are not safer, we are not better served and we are not satisfied. Privatize.

Revisiting some numbers that you won't see the PLCB publish

I first posted Numbers, Numbers, Numbers (some State Store numbers that are always missing in the PLCB's annual report) three years ago. It might be good to have a second look to see if there was any improvement at the PLCB.  The original findings are (in parentheses).

1) The average amount of non-tax revenue returned to the state per unit (single bottle or box) of wine or liquor - $1.25 (73 cents) Beware: this is based on the so-called "profit" turned in to the General Fund, which has little to do with actual profit. It's simply the amount asked for by the administration. We know that reserves were dipped into for 2018, so this number is skewed even more than it normally would be.

2) Not counting the actual cost of the item, what the PLCB spends to put one item on the shelf - $2.91 ($3.06)

3) What PA spends to put an item on the shelf, including the average cost of the item - $10.78 ($11.40)

4) What it costs with taxes included to put one average item on the shelf - $14.48 ($15.21)
Note: While it looks like items 2,3, and 4 are an improvement...this is due to the huge numbers around just 3 items: Fireball 50 ml (+750,000 unitls) and Tito's 50 ml (+175,000 units) and Tito's liter (+380,000 units). When you increase mini sales by over 900,000 units, it skews the average cost and tax per unit. 
  
5) Average real estate rental cost per store (2018) - $1663 a week ($1432)

6) Industry average profit margin 8.1%; PLCB 2018 profit margin 8.9% (6%) The majority of this increase is due to the auction of the "Zombie" liquor licenses, not because of actual retail sales.

7) PLCB effective markup, not counting any taxes - 46.7% (45.36%)
This is because of variable pricing. Now that almost all items fall under that, expect this to rise even more next year.

8) State and federal government workers' average benefits as percentage of salary - 36.4%.
PLCB benefits as percentage of salary - 85-104% (as stated by Board members during the Appropriations hearings in the Senate).

9) Percent of sales actually checked for proof of age - Unknown. 
The PLCB did not include any information about carding in this year's summary. It is still probably under 2% as it has been in years past.

10) Retail Wine Specialists as a percentage of PLCB workers: 2.2%  (1.7%) - Only a gain of 20 in three years. Retail Wine Specialist as a percentage of Total Wine store employees - ~20%


Sources

1. - $185M returned to General Fund plus $30.5M for BLCE plus $5.5M for Alcohol Awareness programs plus $2.5M for Drug & Alcohol programs divided by 178.9 million unit sales. We were told "Modernization" will increase profits by $180M. Is anyone surprised that we're not seeing anything close to that? (Keep in mind that the $185 million is a very flexible number, mostly representing what the Legislature requires from the PLCB, whether it's actually "profit" or not.)
2. - Operating expenses (not counting the cost of wine and spirits) of $520M, divided by units sold. The lower this number, the more efficient the organization is.
3. - Operating Expenses plus Cost Of Goods Sold (COGS) = $1.928B divided by units sold 178.9M.
4. - Gross sales ($2.59B) divided by total units sold. $3.47 in tax for every bottle or box sold is the average of sales and Johnstown Flood Tax; more expensive bottles can be much more.
5. - Rental expense for all operating leases $52.2M divided by 604 stores. Of course, this cost will increase as the PLCB tries to move into higher traffic areas.
6. - IBISWorld, May 2013, Operating Income divided by Sales Net of Taxes. With increased pension costs, workers comp, salary, and benefits increasing, this won't improve any time soon.
7. - COGS divided by gross profit. This fat markup of 46.7% still isn't going to be enough to cover increasing operating costs as the PLCB had to go into reserves again to pay the $185M requested by Gov. Wolf
8. - US Dept Of Labor - Bureau of Labor Statistics, 2016 PA Senate Appropriations hearing.
9. - No information about carding is mentioned in this year's documents. You have slightly better than 98% chance of not being carded (compared to a 0.0% chance at private stores like Wegmans), and since the State Stores are never checked by police for underage compliance...how effective are they?
10. - 4999 (2/15/2019) divided by 111 (www.pennwatch) There appear to be no Spirits Specialists in the PLCB.
11. - Over 5000 employees and 800+ Wine Specialists (Total Wine wiki ). The PLCB has ONE retail wine specialist for every 5.4 stores, Total has SIX at each store.

Don't Let Them Fool You

The PLCB just put out their latest Retail Year In Review, patting themselves on the back — again — about how great the State Stores are doing! Yahoo! It's all here! Just don't look too closely at the numbers!

Because if you do look closely, peek under the gloss and sparkles, you can see just how crappy a job they are doing. Let's start with the record sales. Let's see: police controlled monopoly, citizens can't go anywhere else, rising prices, increased population... It would probably take a real marketing genius to have record sales under those conditions. And take a look at those record sales in the hottest market category - American Whiskey: the PLCB's growth there is less than the national average increase in sales. Not just a little less, it is about 30% less. Imagine how much more in taxes would be collected if Pennsylvania was able to match the strongest national trend in booze sales for just that one category.

The PLCB is over $1 BILLION in debt

Of course, our old friend Jack Daniel's isn't forgotten; after years of us saying that it isn't a bourbon, the PLCB in their normal bout of incompetency gets it half right. On page 32, table 19 of the report there is Jack Daniel's Gentleman Jack sitting in the number 10 spot for "bourbon." At least they didn't have JD #7 listed 3 times like they did last year (page 30, Table 19). It is hard to say if they left it out because it isn't bourbon or they just screwed the table up.

To prove they are keeping up with the "modern lifestyle," a whole one tenth of one percent (0.11%) of sales came from the Internet, which is really pathetic in this day and age for a retail company. Pathetic is the key word when talking about the PLCB's technology track record. Can you say "wine kiosk"?

Then there is the problem of saying things to make yourself look good, even when the numbers that you provide don't always match up with reality.  For most of us this is called lying, for the PLCB it's called "how we do business." Let's look at those "increased sales".  First we have the sales for 2015-2016 from the Retail Year In Review.  On page 4 it lists total sales of $2,303,405,801. On page 5 it lists sales by month and transaction; it doesn't total them up, but have no fear, I did it for you.

Notice that the total is about $23.5 million different. The PLCB doesn't say why, and apparently we don't deserve an explanation.

The next table is for the year 2016-17. Again, the monthly sales in total don't match the total listed by the PLCB on page 4 of the current Retail Year In Review ($2,443,725,791). Only this time, it is $76.5 million that has disappeared. Remember, as the owners of this mess this is our money, and I'd like to know where that $76.5 million is.

Here you'll see that the number of transactions was fairly flat, increasing only by 0.91%, while sales dollars went up 3.8%. What this tells us is that the citizens bought 1% more often, but it cost them 3.8% more each time, well above the inflation rate of 2.1%

Retail alcohol is one of the few major sales items where the individual product is elastic (in economic terms, this means that a small change in price can mean a large change in sales), because there are so many suitable substitutes. If your favorite vodka goes up, you can easily find another at a price you are more comfortable paying. The industry as a whole, though, is inelastic, meaning that people are going to pay for some form of the product no matter what the price changes to. The PLCB knows this (probably because they hired somebody to explain it to them), so they will increase prices and not have it affect overall sales that much, if at all. They are doing that right now, through the old variable pricing trick they foisted upon the public (and the gullible Legislature).

So now that you have real numbers in front of you, you have to ask where the PLCB came up with an "average statewide increase of 6.10%", when the numbers they give us don't match? What numbers are we supposed to believe Table 4 or Table 5? And why should be believe anything the PLCB tells us, given their history of anti-consumer behavior, their predisposition to screwing us? Why aren't they capable of making the sales numbers match on their own damn report? As far as that goes, why, in this age of almost instant information access does it take them six months to put this report out? Find another $2 billion business that takes that long...go ahead, I'll wait.

Face it, the PLCB does NOTHING for the citizens except cost them more in the long run. Remember: they are a BILLION dollars in debt and it isn't getting any smaller.

Privatize.

PLCB Math

So here we are, about to be screwed again by the PLCB. What is it this time? More nepotism? More corruption? No, this time it's just plain monopoly gorilla tactics (yeah, gorilla, not guerrilla). They wanted to force a private business to lower their margin so the PLCB could raise theirs.

Once again, they're just playing at being a business. A real business increases profits when it reduces costs through innovation or consolidation, they change benefits, they leverage productivity, they control operating costs. The PLCB does none of that; well or even at all.

For every dollar the PLCB spends buying booze, they make just over $1.45 selling it. (PLCB Financial Report 2015-16), but that isn't enough apparently. How can that be? Back in 2013 when Bailment was put in place -- that "nifty little system" that was going to make such a big difference -- the PLCB saved enough to no longer need a tax and interest free loan of $110 million from the state to start up their operation every year.  So where did that $110 million saved per year for the past 4 years go?  It isn't zero sum as some PLCB supporters suggest. 

For instance, if you start the year in debt by $100 million, and over the course of the year you make $500 million, your net is $400 million for the year. If you have no debt to begin with, then your net is the full $500 million. The PLCB no longer has that debt every year and so should be making $110 million more every year. Are they? Not according to their own financial reports.

In 2012, the PLCB contribution to the general fund was $80 million. In 2014, with bailment in full swing...it was $80 million. Maybe they spent it on improving the stores? Nope, store operations only went up $25 million over the two year period - still missing over $195 million. ($110 million times 2 years minus $25 million) Maybe they paid down some of the non-reported (at the time) pension debt. Hard to say, but if they did then they didn't continue it in 2015-16 when they had to report pension debt. That only went down just over half a million on almost $240 million of debt - a 400+ year payback plan.

Now we have "flexible pricing," which is of course all about "our need inside this building." Since none of the top 10 sellers of wine or spirits went down in price (except pints of Nikolai Vodka, which decreased a whopping 30 cents, and let's not talk about what a whopping display of hypocrisy it is for the PA Liquor Control Board to lower the price on The Drunkard's Friend), one can only assume that the PLCB kept all the negotiated differences of the most popular items. Now the question arises: how much more do they have to squeeze us by the balls to make the projected income increase of $165 million (or $137 million, depending on who you believe)? Raising the prices on 424 items isn't going to do that. Keeping all the $2.1 million in Jack Daniel's profit — as I'm sure they are doing or anticipating doing — still leaves a long way to go. 

By the PLCB's own admission of saving $110 million a year from bailment, and $165 million from price gouging the consumer, my math says that even with paying $195 million to the general fund, the pension debt should decrease by at least $50 million, and if you count that $110 million from the 4 previous years, there shouldn't be any pension debt.

Of course, that would assume the PLCB is an efficient, well run business organization with knowledgeable leadership and people who take initiative. None of which is true. It is a political pig sty stocked with innumerable incompetents that have no real business experience and run like a old boys club, hoovering up the hard-earned dollars of the citizens while giving almost nothing worthwhile in return.

So much for the Chairman's statement of:"...we can both generate additional revenue and achieve more competitive retail prices through cost reductions, rather than broad price increases." As a businessman, let me clue you in, Tim. You NEVER achieve more competitive prices by raising the price for consumers. The idea is to gain competitive advantage over other places selling the same or suitable substitute items. I'm betting you don't have a friggin' clue what that means.

Speaking of the Chairman, he was so proud saying that the PLCB didn't initiate any price increases during the period of 02/14 to 10/16. Well, guess what? They don't have to. ANY price increase gives the PLCB more money no matter who initiates it. I bet the suppliers never initiated 424 price increases all at once, though, did they, Tim? If you listen to the fearmongers at the UFCW and their lapdog bureaucrats in Harrisburg, we are told that there are 20,000 products available from the PLCB!! Yet Ol' Chairman Timmy is complaining that suppliers tried to increase prices on about 4% of them over two and a half years! Da noive o' dose guys!

You gotta ask why the $110 million from bailment PLUS the $137-165 million from screwing the public with "variable pricing" PLUS the $80-100 million or so they have been contributing the last 7 years or so doesn't total up to at least $337 Million being turned into the state ABOVE the taxes collected. Just what black hole of incompetence is it disappearing into? The answer is that it is all a lie. While they might make something more than before, the state, the General Fund, we the citizens are never going to see it. The PLCB needs it to keep their ship of mismanagement and incompetence afloat. They always have said that the PLCB will make more, not that the state or the consumer or the citizens would ever benefit from it.

It's OUR money; not yours.

What we need now is another border bleed study next year to see what damage has been done by these idiots. My money is that real border bleed is over $500 million by then, if it isn't there already.

Now more than ever we need to be rid of the PLCB.

Privatize, now.

Tracking the Trackers

Real business knows that tracking inventory is important, but the PLCB doesn't.

The faster, better, easier Product Search Page online inventory was recently down for almost four days.

FOUR DAYS! 

What kind of business has their inventory unavailable for four days?  A poorly run and managed one. They could use the excuse that their "other" inventory page (the "Fine Wine and Good Spirits!" page) was available. But look here: if they can't even get the category numbers to jibe on the same page, why should you trust that inventory?

I was looking at Cognac on the Product Search Page when it went down, so I had to use the "Fine Wine and Good Spirits!" website instead, which led me to this page. You'll note that the full number of items at the top is shown as 214; but the total of the available items shown at the left...is 189. Huh?

In the real world of my business, the total items available should match the total in inventory. Listing products you don't have or can't get serves no real purpose except to inflate your numbers when you lie to the citizens (or the Legislature...again) about how many products are available. Something that both the UFCW and the PLCB are prone to do, and we've told you that for years.

Not being able to match numbers on a single page begs the question of where these inventory numbers came from, and why don't they match across online product searches. Take a look what happened when I tried the same search on the Product Search Page once it came back up:

This total, 174, doesn't match 189 or 214, so which is it, PLCB? What random number is closest to what you actually have? I'd bet that none of them are correct, given the history of incompetence at the agency. For over five years they haven't been able to get Jack Daniel's (spelled "Jack Daniel's", see the label to the left!) listed correctly. They have Jack listed in both Whiskey, Bourbon (Straight) and Whiskey (Blended) and use a few different spellings. If they can screw up their #1 seller that much imagine how badly they screw up the rest.You can find your own examples if you think I'm cherry picking. I mean, I am, but believe me, I could pick the whole damn tree for you.

While inventory numbers are important, so is knowing what you are selling. If you look at the above picture again, you'll see it says COGNAC (IMPORTED). Guess what, PLCB: it's all (IMPORTED), because Cognac can only be made in Cognac, France! There is no such thing as COGNAC (DOMESTIC). Ya dopes.

It's just another example of the poor quality customer service that inevitably comes from a monopoly, because they know they don't have to do anything better, since the consumer can't go anywhere else. A real business depends on current, correct and factual information being provided to the customer, because they know they wouldn't be in business if they ran things like the PLCB does.

End the fiasco of fake business and PLCB incompetence - PRIVATIZE.

PLCB financials 2016. How'd I do?

In a surprise move showing more competence than....well...then they ever have before, the PLCB released its unaudited financials only 60 days after the end of the fiscal year. Sure beats the 122 days it took last year. I don't know if this is a trend or perhaps an outlier. (It's probably got something to do with no privatization bills currently under consideration in the Legislature. -- Lew)

As always they sent out a press release saying how great it was that a police-enforced monopoly that doesn't allow any competition, with a rising population and increasing prices, had record sales. I always like it when they claim how much they "return" to communities. Communities that would get the fees on their terms and their schedule if the PLCB wasn't mandated to act as the middle man.

And of course the big self-congratulations: "Hey, we collected taxes and turned it in!" Just like thousands of businesses do every year, only they DON'T send out press releases saying LOOK AT ME LOOK AT ME!!

Speaking of press releases, this one said to go to www.lcb.state.us to see the unaudited numbers.  You had to look hard because the link did't take you there! It wasn't found under the financials tab or in annual reports, but in the board meeting minutes. To their credit, they did move it to an easier place to find it when I mentioned it to them. Now if I could only get them to spell Jack Daniel's right...

So what did this really tell us, minus the hype? The big thing I got out of it was that total liabilities went up over $105 million in one jump and for all the crowing about record sales, the $238.7 million they were in the hole last year only went down by about $550,000. That's right: $550 thousand. Chicken feed. And inventory went up 9.4% again, even though the marvelous bailment was supposed to reduce it! It has gone up $70 million in four years, and if it jumps that much again next year, it will be higher than it was before bailment.

Well, how did I do on the predictions?  Let's see.

1. The normal amount of squawking about "record sales and profits" when that isn't going to happen. Collecting taxes is not making a profit even in PLCB Bizarro business world. Of course with a police enforced monopoly, rising prices, and more citizens,  why wouldn't there be record sales? A private system would generate even more sales.
This was really a gimme because we all know they were going to do that. Nailed it!

2. "Record amounts of taxes collected" will be big in PLCB world, but again, with a police-enforced monopoly, rising prices, and more citizens why wouldn't there be?
Again, who are they trying to impress?

3. I predict that "Net Operating Income" will decrease for the third year in a row, even with "record sales."
OK, I'm eating crow on this one.  Surprisingly it went up about 19%.

4. Prediction: "Store, Warehouse, and Transportation Costs" have gone up for the last few years, albeit only 3% last year but I think it will be 5% this year.
 Well....it didn't go up 5%, it went up 8.9%!

5. "Administrative, Alcohol Education, and Support Costs went up over 29% last year and 9% the year before. They will go up again by 8-10% this year.
Of course, the PLCB didn't group these together this year, so I can't compare apples to apples. But Alcohol Education did go up, so even if the others stayed the same, the total went up. I wonder if the education budget is higher then the advertising budget this year? They don't list that, so one never knows. Education is what they should be doing anyway, so after cutting it so much last year, it is good to see it up again.
 
6. The PLCB finished out last year almost $240,000,000 in the hole. I don't think that is going to change too much so I'll say a slight increase in that number for this fiscal year.
The total change was a whopping $550K. Just what are they doing with these "record sales" anyway?

7. Not really a prediction but an observation. PLCB "profit" return to the General Fund will be less than it was in FY2008 - which has been true for every year since then. Just where does all that record sales money go?
Nailed this one too. 8 years of "record sales" and they still haven't matched 2008.

There you have it for another two months, until the "official" numbers come out and I probe a bit more in depth. What this is really telling you is that take away the taxes, the entire PLCB contribution is 3/10ths of 1% of the budget. What it doesn't tell you is that they are a drag on the economy; always have been, always will be.

Fix that. Privatize.

Something to look forward to.

I don't know if you have ever watched a train wreck actually take place in front of you in real time, but it is something that you can't stop looking at. That's what it's like watching the anticipated PLCB profit projections coming from McIlhinney's Mistake, the "epic change" of a liquor bill. The big number is $149 million in increased revenue overall, but with zero dollars, none, nothing coming from the casinos that number is already down to $137 million. Of that, $25 million is going to come from Sunday sales and a whopping $75 million from "flexible pricing."

Now to get that $100 million that would mean, based on FY 2015's profit margin (1) of 5.988%, an increase in sales of about $1.67 BILLION (2). Not gonna happen.  Even if we use the exceptional FY 2014 profit margin (3) of  8.28% it would still be over $1.2 BILLION in increased sales. That ain't gonna happen either. Even if we count the increase in sales from all those places that will be allowed to sell wine it ain't gonna happen. So if the PLCB doesn't decrease expenses -- and when have they ever -- they have to increase sales. A lot.

What this means is that we may have been sold a bill of goods that is not based on any reality. Remember that no increases in staff or payroll are taken into account, at least, not that I've seen. Modernization proponents didn't say if they are or not in their proposals at the time.

PLCB Flexible Pricing model

Now dollar sales do not necessarily HAVE to go hand in hand with an increase in product sales. It follows the same trend, but isn't 1 to 1. With "flexible pricing" the PLCB can charge more for popular items and less for unpopular items in order to move stock. They could, all of a sudden, decide to play hardball and negotiate prices with vendors, which they have chosen not to do so far; see here, here and here. Only now they are going to keep the difference instead of passing it on as they had to do by law before (except they didn't do it, which kept prices higher, which cost you more, and increased sales totals for them).

If they do get lower prices, they can make more money because they will be spending less for product. Well, maybe. In the game of liquor chicken, who will blink first: the major suppliers or the retailer? Think of it this way, who gets the blame when something isn't on the shelf, no matter whose fault it is? The retailer. Who can least afford to aggravate the consumer: the PLCB, or Jim Beam? The PLCB is not dealing from a position of strength: the people want the product, they don't want the PLCB. Having new colors and plants in the store does not make up for having empty shelf space, especially when there is no benefit to the consumer because you want to keep that extra dollar.

Will all  this result in a large increase in sales and a large amount of money saved? Do cows fly? Bailment (not paying for products until they leave the warehouse) was supposed to save $100 million a year too, and that didn't happen. Now I realize that next year, when the financial numbers finally come out, it won't be for a whole year of this new fiasco and I'll have to adjust the totals based on historical values for July and the first two weeks of August, or just look at the second half of the year and extrapolate from there. No matter how you slice up the PLCB pig, you aren't going to find any bacon, only fat.

This is what happens when the PLCB increases sales over 50% in one year

Normal is what we want and there is no rest until we get it.

Privatize.

(1) The PLCB doesn't really make any profit, it just has left over Use Tax money it didn't waste on something. That said, FY 2015 Operating Income of  $111,520,313 divided by Sales Net of Taxes $1,862,269,904 gives you "profit margin" Note that Operating Income is before any required deductions.

(2) $100,000,000 divided by "profit margin" gives you the additional amount required to achieve the desired increase.

(3) Operating Income of $147,959,116, divided by Sales Net of Taxes: $1,786,501,686

Another year, another set of predictions

Last year was a pretty good year for PLCB prognostication. I hit most of my predictions. Just shows that if you have no faith in the State Store System, they won't let you down. So what, if anything, has changed this year? 

1. The normal amount of squawking about "record sales and profits" when that isn't going to happen. Collecting taxes is not making a profit even in PLCB Bizarro business world. Of course with a police enforced monopoly, rising prices, and more citizens why wouldn't there be record sales?  A private system would generate even more sales.

2. "Record amounts of taxes collected" will be big in PLCB world, but again, with a police enforced monopoly, rising prices and more citizens why wouldn't there be?

3. I predict that "Net Operating Income" will decrease for the third year in a row, even with "record sales"

4. Prediction: "Store, Warehouse, and Transportation Costs" have gone up for the last few years albeit only 3% last year but I think it will be 5% this year.

5. "Administrative, Alcohol Education, and Support Costs went up over 29% last year and 9% the year before. They will go up again by 8-10% this year.

6. The PLCB finished out last year almost $240,000,000 in the hole. I don't think that is going to change too much so I'll say a slight increase in that number for this fiscal year.

7. Not really a prediction but an observation.  PLCB "profit" return to the General Fund will be less than it was in FY2008 - which has been true for every year since then. Just where does all that record sales money go?

So there you have it. Will we have to wait for 122 days for a computerized accounting system to spit out unverified numbers like last year? Or will the PLCB figure out what button to push before then?  Will I be eating crow or steak?  I'm getting sorta used to steak.

How deep is the hole this year?

Today is day 7 of the countdown.

State Line = State of Mind

Not too far south of the Mason-Dixon Line is an odd little Pennsylvania-like anomaly within Maryland: the Montgomery County Department of Liquor Control. It's the last municipal control county in the U.S. They actually go the PLCB one better (one worse?): they have a monopoly on spirits, wine and beer sales, wholesale and retail off-premise. But like the PLCB, they are being called out for not serving the customers well and there are calls to privatize the system.

The funny thing is, the calls are from the DEMOCRATIC leadership of the state.  Specifically Maryland Comptroller Peter Franchot (D), whose office is in charge of liquor regulation for the state. Unlike the Democrats here in PA who would never say  something like “The county’s monopoly is bad for consumers, bad for small businesses and for our local economy” about the PLCB, the Comptroller is not only saying that, but saying it out loud and producing these anti-control broadsheets:

Clearly Franchot is not a student of Wolfonomics. He even has put out a report detailing exactly how and why privatization is better.

Of course the Union (who else?) opposes any talk of privatization saying that privatization would not create real competition.
"Under Maryland state law, two wholesalers may not distribute the same product in the same market at the same time. There is always one approved, designated wholesale distributor in a given market for each brand or product. Private liquor will have its own liquor monopoly."

So there won't be competition when Smirnoff is in direct competition with the other 40 brands of vodka in their price range? Somebody needs to go back to school and take some Econ classes. Competition will hold except at the very ends of the bell curve where there is no suitable substitute for the product you want: like a 60 year old bottle of Glenfiddich Scotch or a half-liter bottle of MD 20/20. That's true for the majority of states and countries, and is considered the norm so it really isn't pertinent to the privatization argument.

Of course, this ignores the indisputable fact that there is NO COMPETITION at all, be it real or fake, in Montgomery County now.

We here at the blog wish you the best of luck, Mr.Franchot! May you show our legislature the way to satisfying the consumer and ridding us of the archaic system now in place.

PLCB 2015 Financials - Trying to make the best of a bad situation

Accountants speak their own language. I don't mean like from a foreign country: from a different planet altogether. They make money appear and disappear based on perceived changes in procedures, making it extremely difficult for the average person to figure out what the heck they are looking at when going over financial statements.

That's by way of presenting the PLCB's long-awaited Financial Statement for FY2014-15. Apparently they just couldn't delay it any longer (one little upside to the ridiculous delay in the state budget process). Instead, they resorted to Accountantese to make it hard to figure out just what happened. Not only have they changed some of the layout of their statements, they changed some of the wording for the exact same line or item in the current report and between last year and this year.

A quick example of how the same thing is called different names is on page 4 of the report: the difference between Sales Net of Taxes (gross sales) and Cost Of Goods Sold (COGS) is called "Gross Revenue from Sales." On page 5, the exact same number is now "Gross Income from Sales." A minor point, but why?

The big change this year is that because of new state accounting rules, the PLCB finally had to list pension obligations. While that causes comparison problems of its own (since they don't include last year's numbers so you can see any changes), it does show that without paying off pension debt at a much greater rate, the PLCB will be in the hole for years to come (as we've been saying all along).

It would have been nice to see if the overall debt went down for this fiscal year compared to last but those figures aren't provided.  However, there have been numerous sources that have stated that overall pension debt went up last year without actually providing any numbers to back it up. My belief is that pension debt did go up, but we'll have to wait and see next year's numbers to find out if it really did continue to increase over this fiscal year too.

Medical Liability went up from $63.63 million to $76.65 million from last year or about 20.5%  and Workers Comp increased an astounding 62% from $25.9 to $42.1 million. So including all of that the PLCB now admits to being "only" $240 million in the hole from being $77 million to the good last year. Just so you understand: that is $77 million from last year plus whatever they thought they made this year (about $80 million) and they are still $240 million down.

I'm going to look at how the stores did overall --  not how investments or deferred inflows and outflow went or the non-operating costs -- and compare them with last year. Without further ado, here we go. (Remember, you can follow along with their report here.)

Sales: Sales went up 4.2% while COGS only went up 4.1% and the effective markup moved up slightly to 45.35% from 45.2%.  No big surprise there: the population went up, prices went up, and the economy is getting better. The surprise would be if sales hadn't gone up; it's a monopoly, after all.

Operating Expenses: Now we come to the heart of the matter: how efficient is the PLCB in turning all those sales into what they call "profit" (what I call an unspent use tax). These numbers DO NOT include Pension, OPEB, and Workers' Compensation Accounting Valuation Expenses from Net Income. It isn't pretty.

• Purchase, Storage & Transportation costs up 13.6% 
• Stores' Operation and Supervision costs up 17.4% 
• Central Administrative Support costs up 11.2%.
• Gross Operating Income down 24.6% 
• Net Operating Income down 32.4%
• Operating Margin down 38% 

All this even though the total number of stores and employees were about the same and this is with record sales!

A real business grows profit by doing one or all of these three things;

• Increasing sales by taking them away from their competitors, which will never happen under the current system. Border bleed is not going to decrease - period. 
• Becoming more efficient and controlling costs, which means not having Operating Costs increase 17% in one year. Also not likely. 
• Becoming more innovative...and we all know what happens when the PLCB tries that: wine kiosks, cost overruns, and trailers full of boiling wine. 

Increasing sales are good, but not when costs increase at a much faster rate. That's just not good business...but we are talking about the PLCB, which is not a business. It's a government agency.

Any honest accountant would despair. Maybe the PLCB's accountants do.

To be fair: the PLCB did increase funding to the Keystone Kops of Booze, the BLCE, by 3.1%. However, to make up for that, they decreased Drug and Alcohol education funding by 48%. Peter, meet Paul; here's his money.

There are some unanswered questions in the report, such as why inventory totals went up over 11% when the much-heralded bailment was supposed to reduce those costs. It went up last year too, and the year before that. In fact, it has gone up about 31% over the last 3 years.

This might just be me, but...the valuation of land as listed on the PLCB reports hasn't changed since at least 1999 (which is as far back as I can go), and building valuation, another line item, has been within 1%, up and down, since 2005. A minor but interesting question. I know my land and buildings have changed value over the past 16 years, yours probably did too. You'd think all those amazing offices, conference rooms and "wine tasting lounge" would increase the value of at least one headquarters property, right?

I realize that these are unaudited numbers, but they aren't going to change that much (if at all), if and when an audit is done, so what you see is what you get. Another year with record sales and another year of lower Operating Income. The real question is how long can this trend go on before it isn't sustainable: how deep will the hole be next year?

Hey PLCB - you down there?

Oh no! More failed PLCB math

Yahoo! Modernization will make so much money!

The Governor seems to think that if putting new "Modernization" brand lipstick on the PLCB pig will improve things, smearing it all over the pig will make things even better.

Really, Tom? Better for whom is the question. Certainly not the citizens, who will now have to cover any shortfalls in bond payments if there is a glitch in the revenue stream.  Remember that PLCB Operating Income went down 8 of the last 15 years on a year to year basis, even though every year had "record sales."

The plan is for the PLCB to make an additional $185 million more than they do now in only two and a half years, with all sorts of unproven ideas. We've talked about them before, but they're worth revisiting...for the Governor's benefit.

Oh. Well, maybe not, but still...

The "consortium" buying arrangement with other states is one of those. Does that sound like something that's going to be quick to come together: state legislatures getting together to pass the exact same law on something that will potentially limit their "sovereignty"? So far there has been no word from any of these other states that they would want to join with PA, nor has anything been presented to explain how our 1930's-thinking PLCB would get around the laws and contracts already in place in those other yet-to-be-named states. Not to mention...the other states aren't interested in buying wine with us; they're only "controlling" spirits, so how much are we going to "save" on this boondoggle?

Then there is the pie in the sky idea about shipping product bought at the State Stores to people in other states (which we can only believe is about screwing PA citizens out of our Pappy Van Winkle allocation, once the margins are unleashed). You know how well that goes over in reverse, if you try that in PA; call the BLCE! Do you think New York would take more kindly to it? They're going after their own stores for shipping out of state! I can't come up with a single reason any state would agree. They may now turn a blind eye to their citizens bringing in wine from elsewhere, but that isn't the same as a state-sponsored evasion of their liquor excise tax, which is what the "modernization" folks are really proposing here.

Wait...What? That shit don't make any kind of sense.

Then there are the perennially-failing One Stop Shops, the "store-in-store" idea. This program has been authorized for over 40 years and in place since 1981. How many businesses actually want a State Store in their store after 34 years of trying? Fifteen, by my count. The wine kiosks did better than that! Another PLCB success story that will somehow magically change with a good coating of "modernization."

Last year the state stores had an unspent tax collection margin ("profit") of 6.62% before kicking in for the BLCE's budget, or about $148.6 million on sales of $2.24 billion. How much will sales have to increase to get to the $333.6 million Wolf needs? The answer newspapers are finding is huge: at over $5 billion, and that still isn't enough: it doesn't take into account the inevitable increase in the State Store System's operating expenses. The Stores' Operations and Supervision expenses went up by 8.75% just in the last year, even though only nine stores were added. How many stores would be needed to reach $5 Billion in sales, even if all the other schemes worked out? How much would all the extra workers add to the already over $600 million in PLCB pension debt? And exactly how much booze is Wolf planning to force down our throats? Who knows...and the "modernization" folks aren't saying.

Even to reach the minimum expected "profit" increase of $46 million on expanded Sunday sales would require selling $700 million more annually on Sundays, or over 33% of the entire year's sales on a day that is, let's see, 14.3% of the week - something no other retailer does. To get to the upper estimated figure of $69 million in additional profit from Sunday sales, they would have to sell over $1 Billion more worth of product just on Sundays. Get on down to the State Store, Reverend, they got some serious "modernization" going on. It's a miracle!

Tell Costa to get a bucket...I think I'm gonna be sick.

The PLCB can and has taken two years to outfit one store. The transfer to "Fine Wine and Good Spirits" is on a 50 year schedule now. Why will the PLCB not be as incompetent as it always has been under any state-run plan?

With the PLCB now responsible for paying off the pension debt bond the Governor proposes, any shortfall will result in higher prices. They have no choice: there is nowhere else to get it (unless the State Stores start selling recreational weed, as some control-crazed supporters suggest). It will be this generation's version of the Johnstown Flood Tax...only the Flood Tax will still be with us, 18% on every single bottle, plus bottle fees, plus the "adjustable margin," plus sales tax (that's going up as well, of course). Hello, New Jersey! Hi there, Delaware!

During the last round of normalization hearings, one of the key points made against the idea was that according to a CDC "task force" report, the end of control would bring a 40% increase in alcohol consumption, bringing the end of civilization as we know it to the Commonwealth. Yet the same Control Crazies are lining up behind a "modernization" plan that requires consumption to increase at least 100% — to DOUBLE — to reach the numbers they need. Every argument about safety, external costs, health, and control goes out the window when it comes down to the brass tacks of keeping these unpopular, unwanted, unbelievable retail fossils. This is Control in its naked, ugly truth: it's really about keeping union jobs, and union campaign contributions.

Tell your Representatives and Senators to reject this insanity and to bring Pennsylvania as close to what is normal for the majority of the other states as we can get. We deserve it. God knows we've waited long enough. Tell the Governor, too. He's clearly confused.

The PLCB annual report - Let's look at some numbers

By all accounts, the PLCB had a good sales year. Well, hurray. It's nothing to brag about -- though they will, and have -- since they are the only game in town. The population grows (slowly, but it grows), the economy gets better, and people spend more money on booze. It isn't because the PLCB is doing a good job; it is because the citizens have no other choice.

PLCB touts "record sales": report shows net income down

That doesn't stop the PLCB from presenting their annual report as if they had something to do with the growth in sales. Here are some things they crow about in the report:

1. License fees returned to local municipalities $ 4,521,545 -- If the PLCB didn't get in the middle, local communities would get this revenue as a regular stream when businesses paid for their licenses TO THE LOCAL COMMUNITIES.

2. Philadelphia and Allegheny counties received $8,269,803 in returned local sales taxes. -- Again, if the PLCB wasn't in the middle, the taxes would be collected and distributed anyway. It must be nice to crow about following the law...except, of course, when it comes to trips and gifts for senior level PLCB employees.

3. Paid Total Annual Rent of $42,034,434 for 606 stores. -- This begs the question of how much rent would be paid if there were 2400 or so private stores? 2400 stores is about what the national average is for a population of almost 13 million.

4. Tweets sent: 723. -- Now this is pretty funny. A $2 billion enterprise managed to send out fewer tweets than my 16 year old niece does in a month. And then they go on to say that the PLCB was mentioned 2,516 times. This post counts as one of those mentions, just as an example, and so does this: "Hey @WolfForPA, can you do something about the PA Liquor Control Board, like get rid of it? ‪#‎priorities‬ ‪#‎wine‬ ‪#‎freedom‬" (tweeted by @mainlinehousewife on Nov. 4)

5. Updated the Fine Wine and Good Spirits eCommerce site with 'complete and accurate product names,' product descriptions and standardized acronyms. -- Really? From the people who completely cocked up the beer registration list just a few years ago? Let's look at just a couple easily-found examples.

George Dickel Tennessee Whiskey. The No. 8 brand is listed in the bourbon section and the No. 12 brand is listed in the Whiskey section

Jack Daniel's Tennessee Whiskey has one listed in the bourbon section "Jack Daniel's 1St Edition Straight Bourbon Master Distiller Collection" Which only exists in the mind of some PLCB employee since Jack Daniel doesn't label ANY of its whiskeys as "bourbon." Not one. All the others are listed in the Whiskey section as they should be, except for one that is in the Blended Whiskey section; but Jack doesn't do blended whiskey either. I will give them credit though: it only took them 80 years to finally learn how to spell "Jack Daniel's" correctly. I pointed out mistakes on that as recently as this past spring.

6. Also restructured the website search engine to allow searches using misspelled words, abbreviations, and synonyms producing much improved search results for customers. -- Let's see how that works.  Sticking with Jack Daniel's type in Jack Danial's into the search box.  You only misspelled it by one letter putting an "a" instead of an "e" in Danial's. The result.....a page and a half of Calico Jack rum first, but JD does show up on page 2.  

How about we just forget the "'s" and put in Jack Daniel into the search box.  Again a page and a half of Calico Jack rum and then the JD on page 2. An improvement! ...until you realize that if you spell Jack Daniel's correctly and search for it, you still get a page and a half of Calico Jack rum first! The trick, apparently, is to just put in Daniel's, and you'll get all the JD  listings. Just don't misspell it or forget the "s" or the apostrophe, because then you get nothing contrary to what the PLCB says. Not quite ready for prime time and certainly not a product a $2 billion company should be proud of.

I can find a lot more but let's look at some money.

Sales on the captive Pennsylvania population did go up 3.2%, which is to be expected, given that the state has a monopoly and overall spirits and wine sales were up nationally. But Gross Profit only went up 3%...and Net Income (which in a 'real' business would be called 'Profit') went down by 3.6%! Wondering why? Here's a clue: operating expenses went up 5.2% (which is a lot, considering what it bought them, as we'll see in a bit). Operating income went down, even though the much-ballyhooed 'bailment' is in effect (where the PLCB doesn't pay for a product until it leaves the warehouse). Contributions to the BLCE went up 4.1 %, but BLCE enforcement of border bleed is at the lowest it has ever been. Oddly, during this record alcohol sales year, the amount that went to Drug and Alcohol programs went down 3.6%, which seems a little contradictory, given the 'control' mission of the PLCB.
 
Don't overlook another big one: Return on Assets (usually called Return on Investment) went down 14.8%! ROA gives an idea as to how efficient management is at using its assets to generate earnings. Also, even though there was only 1 more store than last year, wages as a percent of sales increased an astounding 18.3%, which is not a good indicator of efficiency either.

Of course, a real business has to list all their debts on their reports to shareholders...and I don't see the over $600 million that is the PLCB share of the pension debt listed anywhere. Maybe it doesn't count since the taxpayers and not the PLCB have to cover it. 

Like any business with a PR department, the PLCB tries to put on its happy face when reporting on what a super duper job they are doing, but the end result is still less selection, less convenience, higher prices, no real increase in safety, and certainly more aggravation for the consumer than in states with a privately-run liquor retail and wholesale industry. One only has to travel to see that for yourself.

Still more fun with PLCB numbers - Update

Keeping up their streak, the PLCB is still giving discounts to those who drink the higher end items and shafting those who don't.  From the July meeting agenda.

See if you can find your own.

Item - Unit Cost - Retail Cost - Page# - What it should cost


Johnnie Walker Blue with glasses in Refgid Box
$166.41  $234.99   8        $255.27

Casanova Di Neri Brunello di Montalcino "Cerretalto" DOCG
$184.56    $258.99    35    $283.12

Casanova Di Neri Brunello di Montalcino "Tenuta Nuova" DOCG
$66.10    $72.99    35    $101.40

Cain Vineyards Five
$101.36    $149.99    39    $155.49

Jameson Rarest Vintage Reserve Irish Whisky
$221.94    $309.99    39    $340.46

Glenrothes 1978 Vintage Single Malt Scotch
$643.08    $849.99    40    $986.48

Glendronach 21YO Parliament Single Malt Scotch
$100.53    $124.99    40    $154.21

Retail price should be unit cost times the markup (30%) times the flood tax (18%), 

$X * 1.3 *1.18 = Retail Cost

Still more fun with PLCB numbers

Today we are going to look at some disparities in the PLCB mark-up.  Part of the so called "modernization" is to have variable pricing, where the PLCB would raise the price (change the mark-up) of Captain Morgan a quarter so they could lower the price of Johnnie Walker Blue, for example.

But first a little history. Remember the PLCB was tasked to come up with a variable pricing plan in 1985 (within the Liquor Code). They did, but it was never implemented according to the Legislative Finance and Budget Committee Performance Audit of  May1992. However, it seems that there is already a variable mark-up in use. Looking at the June PLCB meeting minutes on page 27 you'll see Chateau D'yquem Sauternes for a unit cost of $681.05 and a retail cost of $909.99. Now to get from unit cost to retail you have to add on the 30% PLCB mark-up and the 18% JFT. There are some minor things like roundup and bottle fees that might add a few dollars too.

So we have:  $681.05 X 1.30 = $885.36 which is the markup.
Now impose the Johnstown Flood Tax:
$885.36 X 1.18 = $1044.73

But $1044.73 is not $909.99! So who gets shorted? The State or the PLCB? If the PLCB gets shorted, then the markup is only 13%. If the state is being shorted, then they are only getting 2.5% of their Johnstown Flood Tax, and not 18%.

I'd like to hear that explanation. Is the PLCB just arbitrarily changing mark-up so their prices are somewhat within range of normal and not so high as to be laughable? If they are, then why does that have to be "modernized," since they are already doing it? I find it interesting and this is not the only one - just the most glaring.

Another from the same meeting on page 29: Chateau de Beaucastel has a unit cost of $383.71 and a retail price of $519.99; again the math doesn't match.

$383.71 X 1.30 = $498.82
$498.82 X 1.18 = $588.61
But $588.61 is not $519.99

There are more, and you can do the math yourselves.
Balvenie 17 Year Old Doublewood page 19
Meteor Vineyard "Perseid" page 30
Dos Armadillos Tequila Extra Anejo page 32

Clean-up on Aisle Math!

I can find examples in other board meeting minutes, in fact, every one I've looked at (although I haven't looked at all of them nor every item). So what is going on here? A Union representative said it was probably a reporting error, which, if true, would explain it all away, but then bring up the question of why are there so many and why is it only on high priced items? Why don't regular items have as many reporting errors? I've gone through a pretty good number of them and you are welcome to try too...but so far it is only higher end items.

Even more proof is the infamous Screaming Eagle Wine debacle when the PLCB not only didn't pay the Flood Tax, make any mark-up at all and lost over $7,000 on the original unit cost of 10 bottles. I didn't see any legislative action approving that. That seems pretty variable to me going from 30% to -25% and not collecting or paying any taxes.

Does this mean the PLCB is somehow giving a break to people who can afford $900 bottles of wine while shafting the average citizen? Sure looks that way but if any representative of the PLCB wants to offer an explanation, I'll post it. I know that the Office of the Chief Council of the PLCB reads this since she has searched me out, so c'mon Faith you or your minions pass this along to somebody who can answer it.

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. 

WE DESERVE BETTER - PRIVATIZE!


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.

PLCB - Moving at the speed of business. 1930's business.

Just an observation.

I like numbers, I like to see in cold hard print if things are as people claim.  This causes me to wonder why it takes over six weeks to post a pdf of a mimeographed copy of an un-audited financial report on the PLCB website?  Lately (the last few years) these reports have been showing up at the end of August but not this record year.  Maybe record slowness is part of the record year?  It's not like they don't have the info, the press release was back on August 5th so to cherry pick and report some numbers you basically have to have all the numbers available otherwise things don't match up when you do release the information to the public. There will be some interesting numbers showing up in a future blog post depending on when the PLCB hires somebody to figure out the internet for them.

Stay tuned.

Privatization IS Modernization - Accept nothing less.

UPDATE:  Here it is two weeks later and still nothing from the PLCB.  It is now two months since they released some cherry picked numbers so the question I'm asking besides what is taking so long is what are they not wanting us to see?