Tuesday, August 26, 2014

The PLCB value to PA.

A fairly short look at another reason the PLCB is bad for consumers.

First we have to understand what "value" is. Value is not something defined by any organization but by the individual who decides to buy "X" instead of "Y." Does that $10 bottle of wine have more 'value' to you as an individual at this time then that NY Strip Steak? This time it may, next time it may not, depending on the scarcity and availability of the item or suitable substitutes. Value is not solely price-driven either, since for every purchase the consumer considers what they won't or can't buy if they do get the product under current consideration; be it that steak or a new car. You can see this individual idea of value in people who may have expensive shore homes with little furniture, driving a 10 year old car; or the opposite, with people who have an expensive car, but live in a place that needs more than just a fresh coat of paint.

Society also places value on things. Roads, Schools, Police, etc., etc. It also places value on labor. Obviously some skills are worth more to society than others, so their value is higher, and thus the compensation received is higher. One can get an idea of how society values a profession by the compensation given within that geographic region. But in Pennsylvania, alcohol retail labor prices are not bound by market forces, and are therefore not reflective of the scarcity or societal subjective valuations of such work.

The presence of extreme unionization further shows the manner in which wages and benefits have been manipulated to unsustainable levels, and how the State creates dependent constituents who will support the government entity because they alone benefit from it. What emerges is a wage rate and level of benefits that are not found in any other retail industry, supported and defended by a large workforce of unionized bureaucrats, who will fight privatization at all costs in order to protect their artificially high wages and benefits.

These artificially high wages and benefits lure workers to the PLCB. In effect, the high compensation tells potential workers, "This is where you are needed, there is a scarcity of this kind of worker and because of that we value you greatly". However, this is false because they are not brought about by market exchange and competition, but instead by government coercion, restrictions, and taxation. They mislead the worker, and draw them into the self-sustaining bureaucracy. If it were not for the PLCB with its artificially high compensation, these workers would've been drawn into other productive industries, where their wages would have indicated a true shortage/valuation of workers and would've been put to productive uses more highly valued by the consumer.

If you believe the PLCB is a worthwhile endeavor because it provides a revenue stream to the state, then these artificially high wages and benefits reduce that revenue stream, thus providing less benefit than if labor were priced at market rate . If you believe that the PLCB should not be selling retail or wholesale alcohol, then the artificially high wages and benefits cause prices to be higher than they otherwise would be along with limiting entrepreneurship, job creation, and competition . In either case the current labor structure is not optimum for the citizens except for the 0.04% of residents who work for the PLCB.

"No government enterprise can ever determine prices or costs or allocate factors or funds in a rational, welfare maximizing manner. No government enterprise can be established on a business basis even if the desire were present. Thus, any government operation injects a point of chaos into the economy, and since all markets are interconnected in the economy, every governmental activity disrupts and distorts pricing, the allocation of factors, consumption/investment ratios, etc." (Murray Rothbard - S.J. Hall Distinguished Professor of Economics, UNLV)

(I'd like to thank Joe Norton for his invaluable help with this article.)

Thursday, August 14, 2014

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.

Wednesday, August 6, 2014

Why the MBDA is bad for beer and bad for citizens.

On face value, the Malt Beverage Distributors Association of PA would seem like a good thing. The organization is standard fare for a trade association in the sense that it is a group banded together to promote the business of selling beer. If you were to look at their Facebook page, you might see linked articles promoting craft beer, which makes sense, since the trend in beer sales continues to move more and more toward American craft brews.

But this particular association is perplexing, not only to the average citizen, but also to the people within the industry. The surface claim is that this association acts on behalf of those in the industry for the betterment of “strength, service and value” for consumers. This idea of strength, service and value is stated in the headline of their most recent newsletter.

In order to understand how this organization actually contradicts the idea of service and value for consumers as well as strength within their industry, we need to look at its current membership numbers and how the number of beer distributors has decreased over the years.

There are a third less beer distributors operating today than there were in 1970, even though the population has increased by a million and interest in craft beer has increased dramatically. There were about 1800 beer distributors in 1970, 1600 in 1985, 1400 in 2000 and there are approximately 1200 today. This is an average loss of over 13 distributors per year. Maybe this is why out of the 1200 in existence today, only 450 or so are actual members of MBDA, according to their web site.

What happens to those distributor licenses when the businesses close? After a specified period of time, typically five years, the license — kept in a safekeeping account by the PLCB — becomes unavailable to anyone else for purchase. In other words, it disappears. This means that Pennsylvania consumers, already strapped for alcohol retail diversity, have even fewer choices of where to shop for their beer.

This is where the conundrum begins with regard to the MBDA. The MBDA did their best to maintain the status quo in all of the liquor privatization efforts because they said it would hurt their numbers. How can the numbers dwindle more than they are already? More than 13 small beer businesses have disappeared each year during the last 44 years

P.W. Botha, the last president of apartheid-era South Africa, said, “We are moving into a changing world; we must adapt, otherwise we shall die.” The MBDA has chosen to avoid adaptation and refuse compromise over and over again when discussing change in Pennsylvania’s beer and liquor laws. They insist on package reform that would permit beer distributors to sell singles, six packs, and twelve packs, but will not agree to terms to allow other liquor licensees to sell cases. This inability for a collaborative approach to change has set the stage for the biggest threat to the beer retailing industry in Pennsylvania.

Frustrated grocery and convenience stores have figured out that they can purchase a restaurant “R” liquor license and sell beer in their stores. They have to turn themselves into pretzels trying to get around the existing restrictions in the law, adding "cafes" and separate checkout areas, but time and time again the court has upheld the validity of their approach. In 2009, the State Supreme Court did not originally find in favor of the Sheetz organization selling beer, but ultimately, with a few changes, Sheetz has been able to meet the obligations of the law and to set up beer sales in some of their locations. At the time of the finding, the court chastised the legislature for not taking action to fix the antiquated laws. Yet, in 2014 we remain chained to ancient legislation and organizations rooted in the past: the PLCB and MBDA..

In 2010, the court upheld the decision that Wegmans could sell beer in their stores with proper separation of registers and departments. The point is, consumers want to try a variety of beer and they don’t want to have to buy a case to do it. With a few tweaks, stores such as Giant, Sheetz, Wegmans, and Giant Eagle are obtaining R licenses (about 200 have done so, putting even more pressure on beer distributors).and providing consumers with what they want. Sort of.

The problem is that the R licenses are not necessarily available in the areas where these particular retailers want to purchase them, and in some counties, the value of the R license has become incredibly inflated, meaning that not only is it impossible for a grocer to buy a license, there are no new restaurants going into those communities either.

This situation is terrible for consumers and worse for beer distributors. So, getting back to the MBDA, you would think that an association wanting to create value for its members and provide service to consumers would be actively trying to make changes. Not so.

Not only are they objecting to any kind of change, they’re actively working to ensure anti-competitive and anti-environmental practices, which works against the good of the citizenry. Here are a few examples of what they tout as achievements, taken straight from their web site:

  1. Defeated legislation to allow credit sales among licensees. – Credit makes for easier and smoother business. Even the PLCB uses credit although they were 16 years behind other businesses. Why wouldn’t beer distributors want to use this business tool?
  2. Kept mandatory deposit bills and referendums bottled up. – Nice pun on their part but deposits reduce litter and promote recycling which it seems they don’t want to do.
  3. Blocked legislation to legalize interstate sales of beer. – That's understandable. Even with government limitations on entry into the business and lower beer taxes than surrounding states, they definitely don’t want people to know it is usually less expensive to buy beer elsewhere.
  4. Eliminated language from a bill to permit food stores to sell candy that contains liquor. Why? Is there any candy with beer in it? I’ve seen chocolate with a dab of liquor in it, but cough syrup and mouth wash has more alcohol and I can buy both in a grocery store.
  5. Helped secure injunctive relief in federal court against mail-order beer clubs. Yep, don’t want people trying something new that they might buy a case of if they like it.
  6. Supported Clean Air Act exclusion for distributors. They don’t want clean air?
  7. Drafted and secured passage of the Quota Law. This one is a bit confusing, and on talking to a few beer distributors, they seemed confused too. Is the quota for distributor licenses, or for tavern licenses? We’ll have to pick this one apart in another post sometime unless some MBDA representative wants to clarify it for us.
Can you see what is missing in all of this? There is not one piece of active legislation that the MBDA has INTRODUCED to help their industry in an already transitioned market place. They seem completely uninterested in providing better price and selection for their customers. Given their stonewall opposition to any liquor privatization bill...that's not surprising at all.