Numbers you won't see in the PLCB Annual Report
A look at some State Store numbers that are always missing in the PLCB's annual report.
1.) The average amount of non-tax revenue returned to the state per unit (single bottle or box) of wine or liquor - 73 cents
2.) Not counting the actual cost of the item, what PA spends to put one item on the shelf - $3.06
3.) What PA spends to put an item on the shelf, including the average cost of the item - $11.40
4.) What it costs with taxes to put one average item on the shelf - $15.21
5.) Average rental cost per store (2015) - $1432 a week
6.) Industry average profit margin 8.1%; PLCB 2015 profit margin 6%
7.) PLCB Effective markup, not counting any taxes - 45.36%
8.) U.S. 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 - under 2%
10.) Retail Wine Specialists as a percentage of workers: 1.7%
11.) Retail Wine Specialist as a percentage of TotalWine employees - ~20%
The Proof
1. - $80M returned to General Fund plus $25M for BLCE plus $5M alcohol Awareness plus $1.7M for Drug & Alcohol programs divided by 153.5 million unit sales We are told "Modernization" will increase profits by $180M At 73 cents a bottle...well, you do the math. (Keep in mind that the $80 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 (minus the cost of wine and spirits) of $470M, divided by units sold. The lower this number, the more efficient the organization is. It has never gone down for the PLCB.
3. - Operating Expenses $1.751B divided by units sold 153.5M. Since the PLCB doesn't negotiate prices on the majority of items, this cost is higher than it should be too.
4, - Gross sales ($2,335B) divided by total units sold. $3.81 for every bottle or box sold is the average sales and Johnstown Flood Tax; more expensive bottles can be much more.
5. - Rental expense for all operating leases $44.9M divided by 603 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. The 30% markup you hear about is only one of the many fees and adjustments made to the price. This fat markup of 45.36% still wasn't going to be enough to cover increasing operating costs, according to August Hehemann, the PLCB's Director of Finance, who last year advised the Board to raise it 5% more. The Board, for once in tune to the politics of privatization, decided against that.
8. - US Dept Of Labor - Bureau of Labor Statistics, 2016 PA Senate Appropriations hearing. Nice gig if you can get it, but does it provide any benefit to the consumer?
9. - 1.3M cardings divided by 65.5M transactions You have slightly better than 98% chance of not being carded (that's 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. - 4654 (3/15/2016) divided by 81 (www.pennwatch) There appears to be no Spirits Specialists in the PLCB.
11. - 5000 employees and 800 Wine Specialists (Total Wine wiki ). Look at it this way: the PLCB has ONE retail wine specialist for every 7.4 stores, Total has SIX at each store.
Showing posts with label buying power. Show all posts
Showing posts with label buying power. Show all posts
Tuesday, April 19, 2016
Wednesday, March 2, 2016
How PLCB buying power incompetence has cost you and me Billions
In my last post, PLCB "Buying Power" A Myth, (which you really should read first), I told you how for the past eighty-plus years the PLCB's incompetence in not negotiating or even trying to negotiate the best prices for Pennsylvania liquor prisoners should damn them for all eternity to the lowest circle of Hell, the one Dante reserved for people who betray those whom they should serve.
As always, we are going to provide some numbers to show what they've cost you. I'm going to use the largest selling whiskey in the state as an example, the standard 750 ml Jack Daniel's Old Number 7. (I thought I would use that because when the PLCB reads this (and they do), it might reinforce how to spell Jack Daniel's correctly, since they seem to have a problem with that.)
We are going to compare Pennsylvania prices with the state that has the 2nd highest liquor taxes in the country — Oregon, also a control state with uniform prices — and see who at least attempts to take care of their customers: the PLCB or the OLCC.
From the PLCB we know that (non-negotiated) cost +30% markup (required by law) + handling fee (arbitrary) + 18% Johnstown Flood Tax (levied on the price) + rounding up (always up!) to nearest .49 or .99 (just because) = Retail Price. In this case, our bottle of JD has an initial cost of $14.46. so putting that into our formula we come up with $14.46 + 30% ($4.34) + Handling fee ($1.20) + Flood Tax ($3.60) + Roundup ($.39) = Retail Price of $23.99.
Oregon doesn't give us their unit price so we have to work backwards from the retail price to figure out approximately what their cost price is. Oregon works on cost + 79.8% markup + $1.40 Handling fee + $.50 per bottle surcharge + roundup (to nearest .05). Oregon's shelf price for a 750 ml bottle of Jack Daniel's Number 7 is $24.95 or about $1 more than PA. Taking that $24.95 and working the formula backwards we subtract the roundup (which we'll call zero, because the price is already at $X.95, and we don't really know, except that it's not much). Next we subtract the surcharge of $.50, which gives us $24.45. Then we take out the handling fee of $1.40 to leave us with $23.05. Taking out the 79.8% markup ($23.05/1.798) ends up with a cost price of $12.82 at most (it's unsure because of the unknown roundup, but it's less than a dime difference). Remember: PA is paying $14.46.
Hey, but Oregonians still pay more on the shelf, so Ha-ha! Only...how much is the PLCB's "non-negotiable" system of costing and pricing costing you, when you compare it to the unit price the OLCC is getting? Easy enough to find out. Put Oregon's cost into the PA formula. $12.82 +30% = $16.67; adding $1.20 gives you $17.87; drown it in the 18% Flood Tax, and that brings it to $21.08, then add the roundup…and you end up with $21.49, a $2.50 savings ON EACH BOTTLE, if only the PLCB did their job. PLCB incompetence in business cost PA consumers over $6.1 Million extra on Jack Daniel's alone last year.
You're getting screwed out of $2.50 every time you buy a bottle of Jack — remember, that's only one example — because the PLCB can't be bothered (or doesn't know how) to use their "massive volume leverage" to get the same price little Oregon does. Multiply that by how many millions of bottles they've sold since 1934, and that is how much they have cost the consumers of the state. An amount you have been paying extra for all these years because of PLCB ineptitude, laziness, and their "we don't give a shit, we're a monopoly" attitude. Far more than any so-called "profits" they have ever turned in.
Remember: this isn't a tax that's being levied on you that's going to benefit the Commonwealth, it's not a fee you're paying to the PLCB to pay for alcohol enforcement, it's not "profit" that gets sent to the general fund whether it's real or just hidden pension funds...it's money the PLCB doesn't know how to get from distillers, vintners, and importers. It's gone to line their pockets, exactly the people who the PLCB apologists rant and rave that privatization will somehow steal all your money to pay. Too late: they've already got it, had it for decades, thanks to the PLCB.
Is this the system you want to keep or do you want them to "modernize"? Because "modernization" and "flexible pricing" will just cost you more by statute instead of by PLCB incompetence; the only difference will be that the PLCB will waste the money on Increased Operating Costs to fuel the Boondoggle Machine. I say we privatize and let business people run businesses and end the PLCB screwing of the public.
As always, we are going to provide some numbers to show what they've cost you. I'm going to use the largest selling whiskey in the state as an example, the standard 750 ml Jack Daniel's Old Number 7. (I thought I would use that because when the PLCB reads this (and they do), it might reinforce how to spell Jack Daniel's correctly, since they seem to have a problem with that.)
We are going to compare Pennsylvania prices with the state that has the 2nd highest liquor taxes in the country — Oregon, also a control state with uniform prices — and see who at least attempts to take care of their customers: the PLCB or the OLCC.
From the PLCB we know that (non-negotiated) cost +30% markup (required by law) + handling fee (arbitrary) + 18% Johnstown Flood Tax (levied on the price) + rounding up (always up!) to nearest .49 or .99 (just because) = Retail Price. In this case, our bottle of JD has an initial cost of $14.46. so putting that into our formula we come up with $14.46 + 30% ($4.34) + Handling fee ($1.20) + Flood Tax ($3.60) + Roundup ($.39) = Retail Price of $23.99.
Oregon doesn't give us their unit price so we have to work backwards from the retail price to figure out approximately what their cost price is. Oregon works on cost + 79.8% markup + $1.40 Handling fee + $.50 per bottle surcharge + roundup (to nearest .05). Oregon's shelf price for a 750 ml bottle of Jack Daniel's Number 7 is $24.95 or about $1 more than PA. Taking that $24.95 and working the formula backwards we subtract the roundup (which we'll call zero, because the price is already at $X.95, and we don't really know, except that it's not much). Next we subtract the surcharge of $.50, which gives us $24.45. Then we take out the handling fee of $1.40 to leave us with $23.05. Taking out the 79.8% markup ($23.05/1.798) ends up with a cost price of $12.82 at most (it's unsure because of the unknown roundup, but it's less than a dime difference). Remember: PA is paying $14.46.
Hey, but Oregonians still pay more on the shelf, so Ha-ha! Only...how much is the PLCB's "non-negotiable" system of costing and pricing costing you, when you compare it to the unit price the OLCC is getting? Easy enough to find out. Put Oregon's cost into the PA formula. $12.82 +30% = $16.67; adding $1.20 gives you $17.87; drown it in the 18% Flood Tax, and that brings it to $21.08, then add the roundup…and you end up with $21.49, a $2.50 savings ON EACH BOTTLE, if only the PLCB did their job. PLCB incompetence in business cost PA consumers over $6.1 Million extra on Jack Daniel's alone last year.
You're getting screwed out of $2.50 every time you buy a bottle of Jack — remember, that's only one example — because the PLCB can't be bothered (or doesn't know how) to use their "massive volume leverage" to get the same price little Oregon does. Multiply that by how many millions of bottles they've sold since 1934, and that is how much they have cost the consumers of the state. An amount you have been paying extra for all these years because of PLCB ineptitude, laziness, and their "we don't give a shit, we're a monopoly" attitude. Far more than any so-called "profits" they have ever turned in.
Remember: this isn't a tax that's being levied on you that's going to benefit the Commonwealth, it's not a fee you're paying to the PLCB to pay for alcohol enforcement, it's not "profit" that gets sent to the general fund whether it's real or just hidden pension funds...it's money the PLCB doesn't know how to get from distillers, vintners, and importers. It's gone to line their pockets, exactly the people who the PLCB apologists rant and rave that privatization will somehow steal all your money to pay. Too late: they've already got it, had it for decades, thanks to the PLCB.
Monday, February 29, 2016
PLCB "buying power" a myth
This is the single most important piece of information I've written about.
The House appropriations committee had the PLCB in for their annual hearing on February 25th, and besides the normal tap-dancing that they do ("Well, sir, it's my personal feeling that we'll meet those goals, yes"), the Chairman of the PLCB let it slip out that the PLCB doesn't really have any buying power.
Ooops! In a response to a question put forth by the Appropriations Committee about where they might be able to find more income, LCB Chair Tim Holden said that because of the current 30% markup structure, the board can't negotiate for the best price. According to Mr. Holden, the manufacturer sets the price they want to sell their product for, and the the PLCB backs down from that through the 30% markup, 18% Johnstown Flood Tax, bottle fees, and whatever other charges they have that they've hidden from you, to come up with a buy price that they will pay. Unlike a real business that tries to get the best possible price and then adds on what it needs to make a profit and cover expenses.
This quote is taken from the Appropriations meeting; you can see it here, at about 2:43 in. Holden says, "People somehow believe that we have the ability to negotiate with the vendors. We have to do it proportionately so we have to have a markup that's consistent. And we believe that the money that can be made by negotiating a better price on different products is where the greatest amount of [increased] money can be achieved."
A little later, Board member Mike Negra backs him up, even more clearly: "The manufacturer sets the MSRP, the manufacturer's suggested retail price, and through the system it's backed down to determine what we pay for that product. Not necessarily your typical retail relationship between us and the manufacturer. We can't really leverage our ability of purchasing, our 'buying power' is not really leveraged in that manner. There are significant dollars, we believe -- it'll take a lot of time, it'll take a real learning experience for our vendors and for our buyers to change that." Remember: Negra is the first Board member in a while to have any actual retail experience!
Now I can understand why the lazy way is taken. It is less work for the PLCB if they don't negotiate every price. But I have yet to find any justification in the Liquor Code for the attitude that they can't negotiate for the lowest price, which is what the board members are saying here. That reasoning seems to go against the what the Code says the Board should be doing already. The Code says the price has to be "proportional," not that it has to be proportional from the MSRP or that it can't be negotiated.
Section 2-207 (b) of The Liquor Code under General powers of board says: "Prices shall be proportional with prices paid by the board to its suppliers and shall reflect any advantage obtained through volume purchases by the board." Isn't that the definition of 'buying power'? If they aren't negotiating prices, which the Chairman says they are not, just how are they leveraging their volume purchases beyond what the vendor says they will give? As Negra admits, they aren't.
I'm going to say this in really big letters so you can't miss it.
There is no volume discount on standard stocked items, because the goal is to sell them at MSRP.
If you are the 2nd or 3rd largest retail buyer of ANYTHING and don't try to get a better price, then the entire organization needs to be replaced, eliminated, done away with for sheer incompetence.
The board not only doesn't want to save you money, they want to take away what money they could save you by negotiating lower prices by using the nebulous "flexible pricing" they want as part of "modernization." Believe this: "flexible pricing" means negotiating a lower price and still charging you the higher "MSRP" they charge now, and keeping the difference. At the PLCB, they don't care about the consumer. All they care about is covering their ever-increasing expenses so they can keep the boondoggle machine running at full speed.
Do we really need this? Privatize and let real businesses try to save you money by being in competition with other businesses, because they're motivated to keep you as a returning customer...rather than knowing that you have to come to them because that's the law.
Honestly? Sometimes you have to wonder how stupid we all are for putting up with kind of crap for eighty years.
The House appropriations committee had the PLCB in for their annual hearing on February 25th, and besides the normal tap-dancing that they do ("Well, sir, it's my personal feeling that we'll meet those goals, yes"), the Chairman of the PLCB let it slip out that the PLCB doesn't really have any buying power.
Ooops! In a response to a question put forth by the Appropriations Committee about where they might be able to find more income, LCB Chair Tim Holden said that because of the current 30% markup structure, the board can't negotiate for the best price. According to Mr. Holden, the manufacturer sets the price they want to sell their product for, and the the PLCB backs down from that through the 30% markup, 18% Johnstown Flood Tax, bottle fees, and whatever other charges they have that they've hidden from you, to come up with a buy price that they will pay. Unlike a real business that tries to get the best possible price and then adds on what it needs to make a profit and cover expenses.
This quote is taken from the Appropriations meeting; you can see it here, at about 2:43 in. Holden says, "People somehow believe that we have the ability to negotiate with the vendors. We have to do it proportionately so we have to have a markup that's consistent. And we believe that the money that can be made by negotiating a better price on different products is where the greatest amount of [increased] money can be achieved."
A little later, Board member Mike Negra backs him up, even more clearly: "The manufacturer sets the MSRP, the manufacturer's suggested retail price, and through the system it's backed down to determine what we pay for that product. Not necessarily your typical retail relationship between us and the manufacturer. We can't really leverage our ability of purchasing, our 'buying power' is not really leveraged in that manner. There are significant dollars, we believe -- it'll take a lot of time, it'll take a real learning experience for our vendors and for our buyers to change that." Remember: Negra is the first Board member in a while to have any actual retail experience!
Section 2-207 (b) of The Liquor Code under General powers of board says: "Prices shall be proportional with prices paid by the board to its suppliers and shall reflect any advantage obtained through volume purchases by the board." Isn't that the definition of 'buying power'? If they aren't negotiating prices, which the Chairman says they are not, just how are they leveraging their volume purchases beyond what the vendor says they will give? As Negra admits, they aren't.
I'm going to say this in really big letters so you can't miss it.
There is no volume discount on standard stocked items, because the goal is to sell them at MSRP.
If you are the 2nd or 3rd largest retail buyer of ANYTHING and don't try to get a better price, then the entire organization needs to be replaced, eliminated, done away with for sheer incompetence.
Do we really need this? Privatize and let real businesses try to save you money by being in competition with other businesses, because they're motivated to keep you as a returning customer...rather than knowing that you have to come to them because that's the law.
Honestly? Sometimes you have to wonder how stupid we all are for putting up with kind of crap for eighty years.
Wednesday, July 9, 2014
PLCB competitive? Only when the wrong numbers are used.
I've been waiting to post this just in case the author or editors of the PG decided to post a retraction, correction, or even apology for publishing such a mistake-filled and incorrect article. Alas, no response to my emails to them and nothing in the paper itself. It looks like good journalism has fallen by the wayside at the PG, or at least when it comes to this piece.
The other day the Pittsburgh Post-Gazette ran a story about how PA prices were competitive with those of Ohio and West Virginia, both alcohol control states as is PA. The story itself was filled with all sorts of errors that you can read about in the comments, but our trusty Union Representative said that it "Doesn't change a thing about the premise of the article which is absolutely true."
Oddly the PG says "The policy of post-gazette.com is to correct content mistakes in articles, blog posts and on social platforms as quickly as possible. Corrections to articles will be posted at the bottom of the articles. The text of those corrections will be displayed here." Not like they have to stop the presses to print the correction on-line. Isn't 4 days enough time to check a website? Myself and others were able to check the prices in minutes not days. Based on their website list of corrections the PG has made any in a day shy of 2 months so maybe they aren't "as quick as possible"
The story got me to thinking about why it might be true. Ohio ranks as #11 in liquor taxes and PA is #15 with 36.2% lower taxes than Ohio according to the Tax Foundation so it really should be a surprise that prices are close. Add to the disparity that Ohio generally has a higher sales tax (local and state) than PA and the difference should be even larger. What does Ohio do better than PA? More efficient, smaller bureaucracy, less graft, less bloated management, and maybe less child killing greed than the PLCB? They also have more convenience with wine and beer both sold by private businesses.
The real question shouldn't be if PA liquor prices are competitive with Ohio but why doesn't PA beat Ohio across the board?
Oddly the PG says "The policy of post-gazette.com is to correct content mistakes in articles, blog posts and on social platforms as quickly as possible. Corrections to articles will be posted at the bottom of the articles. The text of those corrections will be displayed here." Not like they have to stop the presses to print the correction on-line. Isn't 4 days enough time to check a website? Myself and others were able to check the prices in minutes not days. Based on their website list of corrections the PG has made any in a day shy of 2 months so maybe they aren't "as quick as possible"
The story got me to thinking about why it might be true. Ohio ranks as #11 in liquor taxes and PA is #15 with 36.2% lower taxes than Ohio according to the Tax Foundation so it really should be a surprise that prices are close. Add to the disparity that Ohio generally has a higher sales tax (local and state) than PA and the difference should be even larger. What does Ohio do better than PA? More efficient, smaller bureaucracy, less graft, less bloated management, and maybe less child killing greed than the PLCB? They also have more convenience with wine and beer both sold by private businesses.
The real question shouldn't be if PA liquor prices are competitive with Ohio but why doesn't PA beat Ohio across the board?
Friday, April 18, 2014
PLCB SMACKDOWN
It must be their incredible buying power because the difference in taxes doesn't account for the difference in price. Maybe the PLCB can rename a store in response.
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