Modernization wouldn't do what the consumer wants -- Part II

Today we are going to look at some other parts of so called “modernization;” increasing the licensee discount from 10 to 18% and variable pricing.  Notice that there is nothing mentioned for the consumer, even though they spend 2.8 times as much as licensees. Why?  Because licensees contribute larger sums than regular people, and since they don’t complain too much, you don’t have to pay as much attention as you do to what the citizens want. Pretty much saying, “to hell with standard practice, no case discounts for you!”

Based on last year’s PLCB sales numbers to licensees, an additional 8% discount would come to around $24,250,000. Where does that money come from?  It isn’t taxes since they are added in before the discount. Everything else stays the same since the discount doesn’t affect inventory or salaries or other costs...so it has to come from what the PLCB calls "profit" (what we know to be taxes that they just hadn’t happened to spend yet). Let’s look how that $24 million ties into the big scheme of things. To do that we have to do some math.

The PLCB had “profits” of $128,356,057.00 after the transfer to the PA State Police, but before the General Fund transfer. I'll be rounding the numbers from here on so they may not match exactly.
According to the PLCB talking heads “modernization” will increase this amount by $75-125 million depending on who you listen to.  Since there is a 66% difference between those two numbers, I’m not sure how accurate their guesswork is. In any case, let's use $100 million and add to that the $24 million that has to be made up from the proposed additional discount for the licensees to bring it to almost as much as they make now. The new total for operating income after PSP transfer is $252.4 million. Add to that number $387.6 million in operating expenses and you get $640 million in gross revenue from sales needed if this happened this year. 

But it didn’t happen this year so let us estimate what next year might look like.  I’ll say that sales will increase 5% to $2.28 billion which means that Sales Tax and Local Taxes will be about $135.8 million leaving $2.14 billion.  From that the 18% liquor tax ($327.2 million) will come out giving us $1.82 billion as sales net of taxes.  Historically cost of goods sold is about 69.5% so I’ll use that. COGS would be $1.26 billion leaving us with $554 4 million

However we needed $640 million leaving us $85.6 million short and I’m being generous since I didn’t put in any increase for expenses. Now the PLCB just can’t raise prices of X number of products by $85 million and call it even.  They have to raise prices enough so that after all expenses and taxes come out they have $85 million extra left over. Remember they had to sell almost $2.2 billion last year to get $128 million, so working off of that, they need to sell $3.8 billion worth of product to get to $252 million and we know that isn’t going to happen. They could raise the markup 65% or they could reduce costs by closing 25% of the stores and I don’t see that happening either. So they have to get the money from somewhere and “Variable Pricing” is one of the places they say it will come from. Not all of it but certainly a large portion.

Just what is the PLCB version of variable pricing?  Unlike a pure model the PLCB has to keep the prices the same state wide instead of regionally, by neighborhood or even by store. Also, unlike other variable pricing models of commodities, the consumer has no negotiating power other than to drive to New Jersey (which they probably should have done to begin with). Think Airline tickets if you need another example of variable pricing.  The price changes by demand, time of day, competition and other factors so while you may pay $200 for that round trip to Orlando, the next person could pay more or less.  

Now I don’t give the PLCB credit for being able to change pricing in real time as the airlines do.  They don’t have a good history with computerized things. The intent is the same though.  Lower prices on slow moving items to get them out or move a specific volume of items, and stores may strategically raise prices on more popular or high demand items when possible to increase profits.  A good overview is here. Something the PLCB should pay attention to: “When variable pricing can be tied to differences in costs of doing business, different prices can be justified; otherwise, brands run the risk of being seen to be opportunistic and unfair, likely damaging their reputations.”

I don't have any idea how many or how much prices will have to go up to get near that magical $85 million extra (and I don't think Senator Ferlo really does either), but it isn’t a small amount, considering that the PLCB only clears an average of 92 cents per bottle and it would have to go up to $1.80 per bottle if applied evenly and we know it isn't going to be applied evenly. Maybe some other things will reduce that or maybe not.  I’ll look further into some other “modernization” statements in another installment.

Privatization IS Modernization, accept nothing less.

Modernization wouldn't do what the consumer wants

We've been told that what the State Stores, the PLCB, and the whole police-enforced monopoly really needs is a good dose of "modernization." No need to dismantle this freak of nature; just "modernize" it!

Hey, how about some perks?

Let's look at one part of “modernization,” Direct Wine Shipping, and see what is being offered compared to what Pennsylvania citizens really want. Representative Costa said recently that direct shipping would be, and I quote, a “perk” for consumers. Why after all this time do the politicians and PLCB even care about direct wine shipping? Is it because they suddenly thought it would be good for consumers? No, it is because the Supreme Court Of The United States told them they had to allow all wineries, in-state and out, the same freedom in shipping. That was the Granholm decision, almost NINE YEARS ago, and our legislature still can’t comply. Strictly speaking, in my opinion, the failure of the legislature pretty much means it is currently legal to have wine shipped to your door since the section of the PA liquor code imposing restriction was deemed illegal and therefore unenforceable.

Representative Costa, 8 years later, decided he wants to support direct wine shipping and the bill he co-sponsored (HB 121) lists a fair amount of requirements to allow that in PA. Here are some of them.

(1) File an application with the board.
(2) Pay a one hundred dollar ($100) registration fee.
(3) Provide to the board a true copy of the applicant's current alcoholic beverage license issued by the board or another state, if applicable.
(4) Provide documentation to the board which evidences that the applicant has obtained a sales tax license from the Department of Revenue.
(5) Provide the board with any other information that the board deems necessary and appropriate.

Now that doesn’t seem too bad. But read on.

(6) Each month, the board shall publish on the Internet a list of all classes, varieties and brands of wine available for sale in the Pennsylvania Liquor Stores (Apparently all that money on rebranding was wasted, just like we said; if your own pet legislator can't even remember it, what's the point?). A person holding a direct shipper license may ship only those classes, varieties and brands of wine not included on the list at the time an Internet order is placed.
(7) Not ship more than nine liters per month on the Internet order of any person in this Commonwealth
(8) On a quarterly basis, pay to the Department of Revenue all taxes due on sales to residents of this Commonwealth
(9) Report to the board each year the total of wine shipped [into] to residents of this Commonwealth in the preceding calendar year.
(10) Permit the board, the enforcement bureau or the Secretary of Revenue, or their designated representatives, to perform an audit of the [out-of-State] direct wine shipper's records upon request.
(11) Annually renew its license by paying a renewal fee established by the board. (Unknown amount at the time of publication)
(12) A direct shipper may ship wine on the [Internet] order of a resident into this Commonwealth provided that the wine is shipped to a Pennsylvania Liquor Store selected by the resident.

So what we get is "direct shipping" to a State Store, not directly to the customer, and on top of that they want to track what and how much you buy. PA's own little spy network. That is not what the citizens want, no matter how the good representative tries to spin it.

That leads to situations like Arthur David Goldman accused of illegally selling wines not available in PA, providing the goods and services that the PLCB either couldn’t wouldn’t or was too incompetent to provide. Why? Because there hasn’t been any resolution in Pennsylvania of the Granholm decision. If people were able to direct ship then there wouldn’t be the market for somebody to fill with wines not available in the PA system.

How about we do reciprocal shipping, the same way other goods are done within the framework of interstate commerce? We don’t charge unnecessary fees or taxes to out of state wineries whose states don’t charge us any unnecessary fees or taxes. In-state wineries would benefit from increased sales, consumers would benefit because more out of state wineries would decide to ship to PA since they wouldn’t have to go through all the mickey mouse steps that Mr. Costa wants and after all this time PA would finally be in compliance with the Granholm decision.

Direct wine shipping is about 2% of total wine sales except here in PA where it is about nil. Privatizing and removing the PLCB from the equation results in a system that truly benefits the consumer.

We don’t want “perks.” We don’t want crumbs offered by poor half-hearted measures designed to placate and not really improve. We want and deserve better then what is being offered. Read HB 121 for yourself and decide if this is really the direct shipping you want or if a free and private system would do a better job.

Privatization IS Modernization – Accept nothing less.

Tennis match continues: Wegmans beer sales now okay, says PA Commonwealth Court

The Pennsylvania Commonwealth Court has upheld the PLCB's original actions in granting licenses to two Wegmans supermarkets (in Bethlehem and Williamsport). [Follow-up: SHOCKER! The Malt Beverage Distributors Association has said it will appeal this ruling to the State Supreme Court! Wow! Didn't see that coming... Sheesh.] This AP story (the link is to the Wilkes-Barre Times Leader) tells the story in a somewhat cock-eyed manner; read that second sentence:

Beer sales at restaurants run by the Wegmans supermarket chain got court approval Monday in a pair of cases that expand where consumers can buy take-out alcohol.

The unanimous decision in Commonwealth Court allows patrons to circumvent beer distributors where customers may only purchase beer by the case. The court rejected arguments by the state beer retailers' association that Wegmans created a "legal fiction" by routing suds sales through cafes that are attached by an interior passageway to their grocery stores.

The ruling upheld license approvals by the Pennsylvania Liquor Control Board for Wegmans stores in Bethlehem and Williamsport. The Pennsylvania Malt Beverage Distributors Association sued last March to appeal the agency's decisions.

The bolded sentence makes me wonder who on the staff of the Times Leader decided this story should be cast as so unfair against beer distributors. It would have been more accurate to simply state "The unanimous decision in Commonwealth Court allows Wegmans to use the restaurant licenses they legally acquired to sell beer by the drink and up to two six-packs to go, just like other restaurant licenses."

But here's my takeaway from the article, in that this is a non-event:

"There hasn't been a change in the law, there hasn't been a change in restaurant licenses, there hasn't been a change in the LCB policy," said liquor board spokesman Nick Hays. "What has happened is some of these stores have made business decisions to incorporate full-service restaurants in their businesses."

Like I keep saying: this is not new law. This has been legal for years, it's just that no one's done it. Now that supermarkets like Wegmans are doing nice in-store restaurants, though, why not? It's just a restaurant. Is the MBDA against restaurants and bars?

The real problem here is the case law, the concomitant "2 sixers at a bar" law, and the artificial and arbitrary nature of booze laws in general in the Commonwealth. Supermarkets can't sell beer, beer stores can't sell groceries, delis can sell both...why?

There is no answer, because the reasons are ridiculous. Just one more Reason...