Numbers, numbers, numbers

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.

Gene Gene the wishing machine.

In an opinion piece in Thursday's Inquirer titled "Math supports modernization of liquor sales." , Representative Gene DiGirolamo (R-Bucks) demonstrates how much he enjoys the taste of the UFCW kool-aid, supporting his bill for "modernization" of the State Store System. He decries the "hype" surrounding his bill; there is none, but he's clearly trying to generate some. His main aim is to keep the State Stores open by any means necessary, because he's strongly anti-alcohol, and just as strongly pro-union ...and pro-union campaign support.

Gene and his bestest buddy, UFCW prez Wendell W. Young IV

Representative DiGirolamo -- Gene -- offers his piece as a discussion. "Some critics have questioned these projections, and I welcome the debate - provided it is an honest and transparent discussion that extends beyond sound bites." 

Okay Gene; let's go to the math, with an appetizer of economics first. The basis of any "honest and transparent discussion" is that the PLCB is a legal monopoly -- so any sales or "profit" increases have much less to do with the service, selection, convenience, or pricing being offered than with the fact that the citizens can't go anywhere else legally. As prices increase and population increases, sales will increase; that doesn't mean the monopoly is doing a good job, or satisfying the consumer.

On to the math. DiGirolamo says that there have been great increases in LCB "profits" over the past five years, but FY 2010 itself was horrid. Operating income was down almost 32% from the year before and was the lowest since well before 1999.  In fact, looking at operating income over the past 15 years, it declined in 8 of those 15 years (including last year) on a year to year basis and the long term rate of growth of the past 15 years is only 3.3% annually. Since inflation over that same 15 year period was 37.5% (2.14% annual compound rate for 2000-2014) the real dollar growth was only 1.16% annualized and that is nothing to brag about.

Getting down to the details of your "proposal", we can see that most of it is built -- appropriately enough -- on moonshine. Here's the specific proposals Gene makes, and the monies he projects that they will reap.

• Allowing more LCB stores to open on Sundays (currently only 25 percent can) and expanding the hours of operation on Sundays. Projected annual profit: $22.5 million.

To get an additional $22.5 million in profit means gross sales have to increase - using Gene's numbers of 6.92% profit margin - $325 million above what they currently are on Sundays, without taking sales away from any other day. This would somehow happen even though the PLCB said they would only be looking to open an additional 140-160 stores on Sunday, bringing the total to still less than half of the 605 stores they have open now. And the ones that are open on Sundays now are already the busiest ones. This seems far-fetched, if not outright misrepresentation.

• Allowing the LCB to locate more stores inside or next to grocery stores, beer distributors, and other high-traffic areas. Projected annual profit: $25 million.

The "store in a store" program has been authorized for 40 years and in place since 1981; no further authorization is needed. Less than 20 stores are taking part (fewer than were willing to take on a wine kiosk), so the odds of that somehow greatly increasing aren't good (even less for it happening quickly, since the standard lease is for 10 years). Putting stores near grocery stores should have been a no-brainer for the last 80 years, a prime example of how the PLCB has failed the consumer all this time. Gene claims this will somehow increase profit by another $25 million on top of the claims for Sunday sales. That requires another $361 million increase in sales to get there. Gene, you said you wanted to keep the State Stores to control liquor sales; looks like you want to increase them! Total sales increase needed for "modernization" to work: $691 million.

• Giving the LCB more flexibility in pricing, which would allow the agency to more quickly change prices to reflect market demand. Projected annual profit: $75 million

Be honest: you are saying the PLCB will be able to RAISE prices on popular items. That's the only kind of "change" that's going to happen, except for the occasional token lowering. That's not really going to help stanch over $300 million in border bleed or improve the notion that the state stores are competitive. How do I know that prices will go up?  If the PLCB is one of the largest purchasers of wine and spirits in the country, and are as effective negotiators as they claim to be, they should be getting the best prices on those purchases. To make any more "profit" above the 45.2% effective mark-up in place now, prices have to increase or costs have to decrease, and costs at the PLCB just don't go down. This is the keystone of Gene's "modernization" proposal; breaking the PLCB free of the regulated markup so they can raise prices. Everything else is window dressing.

• Speeding up the state process for reviewing leases for the state's Fine Wine & Good Spirits stores. This is a critical piece of the puzzle because it will allow the agency to more quickly open new stores in more convenient areas. Projected annual profit: $25 million.

I have to admit: I have no idea how opening new stores faster (with no mention of actually increasing the total amount of stores) will generate that much more income.  If the state store isn't open in one spot, the people are forced to go to a different state store. Think of the 2 years it took in Mountaintop to open a new store. Do you suppose the population stopped drinking because the store wasn't opened? That restaurants and bars no longer ordered any product? Gene thinks that sales will increase another $361 million if they open stores faster. I have my doubts. Total sales increase needed for "modernization" to work: $1.05 billion. With a "b".

• Allowing direct shipment of wine to Pennsylvania consumers while also permitting the LCB to ship products out of state. Projected annual profit: $25 million.

This one may actually make some money, but since no other state gets anywhere near 16% of their sales from direct shipments (another $361 million increase is needed) I'm not sure how realistic it is. Total sales increase needed for "modernization" to work: $1.37 billion.

• Installing lottery ticket kiosks in the stores. Projected annual profit: $3 million.

They may make some money on this, but it's all going to be siphoned off from other businesses. If the PLCB makes some money and small businesses don't make as much...they're on their way to a new monopoly.

• Allowing the LCB to join large purchasing consortiums to help lower the purchase price of wine and spirits. Projected annual profit: $10 million.

Besides the legality of this, other control states already have contracts in place, and all other control states except Utah allow private wine sales already, so this would be spirits only. That and the fact these consortiums don't exist yet may put a damper on the idea. And will the distillers give any additional price breaks? You can't stop selling Jim Beam because they wouldn't give you an additional nickel off the wholesale price. Again, I have serious doubts about this. 

So, Representative, please explain to us how sales will increase at least 62% above what they are now and how good that will be for the state. Sales in Washington - including increased border bleed - are up less than 15% and they have twice as many stores, open all day Sunday, Direct Wine Shipping by permit (the same as you propose), grocery store sales, and one stop shopping that you don't even propose: even if you double that because Washington only privatized liquor, you are nowhere near the increases you say will happen. Plus, there is no mention of cost increases for staff, admin, transportation, utilities, increased pension, medical or any other costs associated with a 62% increase in sales.

Open invite to Rep. DiGirolamo: if you respond, I'll publish it, but if you don't, I'll take that to mean you really don't want to have the debate extend beyond your own sound bites.

Why can't PLCB supporters do math? Or research? Or think for themselves?

I've made a number of posts on problems the PLCB supporters have with math: the "Why Johnny can't read or do math" series parts 1-3 and the "Wanna talk about Washington" along with the last week "The UFCW 1776 thinks that PLCB profit is less than minimal - We knew it all along."
The comments in some of the posts or the information provided by the supporters themselves proves that they still can't do math, or research their position with any degree of accuracy.

Let's take the main point in the comments that a newspaper story reports that the Washington State Office of Financial Management says that revenue collection was nearly $369 million in revenue for the incomplete (at that time it was written) FY 2014. Thus proving that privatization didn't work because it was less than the $448.7 million the state got in the last year of state run operation in 2012.

The only problem is that whoever fed our poster his info didn't look into the numbers at all. The $448 million also included $103 million in Wine and Beer taxes that aren't included in the newspaper's OFM story.  Also, the 2012 numbers include the one time input of $31 million received for about 160 state state stores that were sold. Lastly the story doesn't mention the change in the high beer tax rate which took place on July 1st 2013 which makes sense since they weren't part of the $369 million revenue collected.  The tax rate was lowered from $23.58 per barrel to $8.08 per barrel, a 291% reduction, decreasing the beer tax collected by over $47 million.  That beer tax reduction was not part of privatization. 

If you want to compare apples to apples then lets look at the last year of state run operation, use the total contribution to the state and local governments take out the wine and beer taxes and compare it to FY 2014 totals minus beer and wine taxes.  The 2012 total comes out to $448.7 million minus $103.1 million gives us $345.6 million and the 2014 total comes to $201.7 million minus $54 million in the wine and beer taxes (1) plus $267.4 million in liquor taxes  (2) which then totals $415.1 million and is still more liquor taxes collected than the last year of state run stores.  Remember that the 2012 total had an extra $31 million from selling the state stores.

I know, it is hard to imagine the Pennsylvania Legislature lowering taxes of any sort, but Washington is not Pennsylvania. I pointed this out in my posting "Washington is not equal to Pa"  In short, the continued lack of veracity by those who continually post in favor of the PLCB needs to be questioned at every turn, as they have proven they will twist and turn and outright lie when give a chance

Can there be any doubt that Washington is making more money without their state stores?

We deserve better than new "modernization" lipstick on the state store pig. Privatize and get the government out of retail and back into regulation where it belongs.

Let the free market rule, not the PLCB.

(1) WALCB annual report 2014 page 17
(2) the OFM report on I-1183 gives a slightly different number of $268.6 million due to ending on a different day.
Original post was updated; the Legislature changes taxes, not the PLCB. 

Wanna Talk Washington? Fine, Let's Talk Washington

The latest claim by some union members and supporters is that Washington state is making less money this year than when they had a state run system, and the implication is that it's because they privatized. The truth is that they are about $46 million ahead of the last year of state-run stores.  Even though I explained and pointed out where to find all the numbers in "Why Johnny can't read or do math Part 3", they seem to still have difficulty with addition.

One more time, then: the Washington State Department of Revenue collects liquor taxes. The total for Fiscal Year 2014 was $267,374,563. The Washington State Liquor Control Board collects spirit fees, license fees and beer and wine taxes. That was $227,320,000 for Fiscal year 2014. That means the total state booze-related revenue collected in FY 2014 was $494,7 million. In the last year of state-run liquor stores (FY2012), the total returned was $448.7 million (including store "profit") which also included the one-time $31 million income from the sale of the old state stores and was still $46 million less than this year.

Now, here's the crucial part that brings all the crowing about the State Store System's "record sales" into perspective. Compare what the PLCB, with control of both wine and liquor and twice the population and over twice the total sales of Washington State, did over that same period. They didn't even come close to  increasing the contribution to the state by that amount. Their increase was only $33 million, and yes, that includes the so-called "profit" and taxes, too. Washington does not charge regular state sales taxes on liquor, but includes a Spirit Sales Tax in the price, the same way PA includes the Johnstown Flood Tax in the retail price. I did include PA sales tax in the above comparison; it's revenue from booze sales. But still...they couldn't match the increase Washington saw when it privatized (and remember; Washington only privatized liquor!).

Freedom of choice, free enterprise, free interstate commerce...those are things the country was founded on, and these are the things denied the citizens of Pennsylvania by the State Store System. Washington State now has greater selection, more convenience, more taxes collected, and lower DUI fatalities. Looks to me like Washington is winning. We can be winners too. Privatize.

Privatization Is Modernization.

Do it The PLCB Way: let the unqualified lead

I often say the PLCB is poorly run and mismanaged by unqualified people. The list of mistakes, foul-ups, and just plain ignorance is a long and funny read in a perverse sort of way. As the second largest U.S. retailer of wine, the PLCB didn't and still doesn't have a Certified Sommelier on staff. None of the Board has ever run any company even 10% the size of the PLCB. The Chairman's Selection buyer isn't highly certified. There are no educational requirements for management positions...the list goes on and on.

Maybe that is changing. The PLCB now lists a Jennifer Brown as "Specialty Wine Consultant" on their payroll. She's the only one, as of 15 July, but maybe more will follow. So just how qualified is this person to be a "consultant" to the great unknowing mass of cube rats who select what every Pennsylvanian is allowed to buy?  Let's look.

I got a bit excited when I found Jennifer Brown was a certified Sommelier, a member of the Society of Wine Educators, and pursuing entrance into the Master of Wine program, along with attending the Wine Business Program at Sonoma State University in California, including viticulture and enology course work at UC Davis.  But alas...this is not the same Jennifer Brown hired by the PLCB. The one we have is a marketing person who worked or is still working as the Luxury Buyer France/CA of the PLCB Luxury division. You certainly don't want a certified and qualified person doing that job do you?

In fact, she herself lists wine tasting 4th of things she knows best behind Marketing Strategy, Marketing, and Sales.

I don't know about you, but that just about explains everything that I need to know about the selection process for Luxury French and California wine by the PLCB. My advice is go to Moore Brothers and talk to some people who care more about good wine than good marketing.


Oh, and that other Jennifer Brown, the really qualified one, also works in wine marketing -- for a private firm much, much smaller than the PLCB. Lucky them. Too bad for us.

Abolish the PLCB Q & A

To celebrate somewhat of a small milestone - my 50th story posted here I've decided to open up the blog to hear what you want. I've been writing about and answering the questions that I get from my reading, tips or tidbits of info from unhappy PLCB employees, inspiration from UFCW officials (and some not so official), and the regular citizens like you. These are things that I wanted answered or at least thought about but now it is your turn fellow privateers (or even the other side -- the Control Freaks and the prohibitionists) to ask me something about the PLCB you want answered. I can't say I'll have the answer you want or even an answer but I'll try.

Want to know how many stores are open? I'll go into the whole spiel about how many stores the PLCB says it has vs. how many are actually open vs. how many can citizens go to and not just licensees. Want to know how many stores turn a profit?  It is far less that you would think. Got a favorite bottle you want a better price on I'll compare PA to what I find.

Your turn, your voice, your questions.

As always, all questions/comments will be published (yes, even the Anonymous ones) so long as they are:

• relevant (don't tear off into rants on politics, or the lottery, and so on)
• civil: no personal attacks, and please keep the profanity to a minimum
• one round; don't keep asking the same question

Why can't Johnny read or do math — Part 3

If you remember in Part 2 of this saga, one anonymous poster — we’ll call him Business Rep 23 — was not able to figure out how Washington State collected more money after privatization. He couldn’t add the numbers from the Washington State Department of Revenue and Washington State LCB, and he said that the money from the old state stores wasn’t included.  If you look at the WSLCB Annual Reports, none of them list “Store Profit.”  It’s just part of their income after expenses and since they turn over everything else to the State or Local governments, they seem to not feel the need to do reporting the PA way.

Let’s see what the real numbers were in Washington, and how they compared pre and post-privatization. The last annual report before privatization was for FY 2012, which went from June 1, 2011 to May 31, 2012. This would include the big run on liquor that happened before privatization took effect on June 1, 2012 and the auction sales of the old state stores.

Total liquor sales were $900.47 million or about 42% of what PA does (it bears repeating: Washington only privatized liquor sales; they already had private wine sales). Washington State LCB does collect the beer and wine taxes, and some tobacco taxes too, but those obviously weren’t affected by privatization. If you do include all of that, the total is $448.7 million returned to the state. That number is what Business Rep 23 and his cohorts like to use when comparing Washington’s old liquor income to Washington’s new liquor income.  The key number here would be $448.7 million turned into the state for everything, including any profit made in the old state stores.

Now let’s look at the 2013 Annual Report, the first one after privatization.  There is no income from

Gross Liquor Sales any longer, but the License Fees have gone up from $33.91 million to $257.6 million and that the total returned by the WSLCB  to the State is now $318.32 million.  (License Fees are the actual cost of licenses, plus the 17% Retail License fee and the 10% Wholesale License fee that were added as part of the privatization bill.)

AHA! you say, that’s $130 million less than the year before, Business Rep 23 was right!  Er, well, no, he isn’t.  When Washington State was the only source to buy liquor, they collected all the state liquor taxes: the Spirits Sales Tax and the “Spirits Liter Tax.” But now that Washington State has a private system, those tax collections are now part of the Department of Revenue, and not the WSLCB. (Imagine: the Department of Revenue collects the taxes, instead of some dinky enforcement bureau. Makes sense, right?)

To get the total tax numbers, you have to look at the spreadsheet the Department of Revenue so kindly keeps updated here.  Looking at the Summary FY2013 tab and adding the monthly tax collections, you see approximately $228.6 million was collected from consumer sales and $37.3 million was collected from licensees through distributor sales, a total of $265.9 million.

This gives Washington State approximately $318 million from the WSLCB, and $266 million from taxes, for a grand total of $584 million in liquor/booze revenue.  Even Business Rep 23 has to admit that $584 million is more than $448 million. Okay, he doesn’t have to, and I’m sure he will make a bunch of statements trying to tear that fact down without any proof, but…come on. $584 million is at least 23% more than the $448 million that was collected the year before, just like I said in part 2.

So to sum it all up:

The WSLCB Beer and Wine taxes, tobacco seizures, other income, and all liquor revenue including store “profit” collected in FY2012 before privatization resulted in a total of $448.7 million being returned to the state, while in FY 2013, the first year after privatization, it was $584 million.

The moral of the story?  

Don’t believe Business Rep 23 or anybody else unless they have the facts to back up their statements.

Let's Kill Another Privatization Myth II

Time to debunk another myth.

"Pennsylvania has such a high DUI fatality rate because we have so many rural roads...not because the PLCB doesn't control sales of alcohol very well."

While PA does rank 6th worst in total in the US for Rural Road fatalities (2009) we rank 16th worst in DUI fatalities (2011). For fatalities per 100 million rural road miles driven PA isn't in the top ten or even top twenty but is number 23 (2009).


I had this page full of numbers and charts and math to prove the point but it comes down to this: 
Of the six border states and PA itself, PA is 5th worse in rural road death rate per 100 million miles traveled. It also turns out that PA is 5th worse in DUI fatalities.  In fact the rural road death rate and the DUI fatality rate coincide with each other for all seven states.  New Jersey has the lowest rural road and DUI fatality rate and West Virginia has the highest.  Common sense shows that the rural road fatality rate is a causation of DUI rate and not the other way around. Maybe the next excuse by the clerks will be to blame PennDot because we have too many potholes...anything but the lack of control by the PLCB

STATE	Rural Road
	Death Rate
New Jersey	1.48
Maryland	1.89
New York	1.95
Ohio	2.2
Pennsylvania	2.23
Delaware	2.41
West Virginia	2.62
(rates based on per 100 million miles traveled)

Looking at DUI fatality rates per 100,000 population we have

New Jersey - 1.7
New York - 1.9
Maryland - 2.7
Ohio - 3.0
Pennsylvania - 3.4
Delaware - 4.0
West Virginia - 4.7

I do want you to notice that the 4 states with better than PA's DUI rates all have private liquor sales and the one other control state (WV) has a worse DUI rate.

You could say that having the PLCB is killing more Pennsylvanians than would happen without it..

Wine Kiosk Debacle Footnote

The Commonwealth Foundation has posted the documents referred to in my previous Wine Kiosk post -- the ones where the PLCB's own internal evaluation committee advised against the wine kiosks -- here.

I don't really think any further comment is necessary.