Vox Populi

Newspapers are the voice of the people, even now, in the age of the Internet. There are left-leaning ones, right-leaning ones, moderate ones, and some that seem to just wander about the center. But in Pennsylvania, right or left, they all seem to be in favor of liquor privatization.

The State Store clerks and their union bosses will tell you that it is because of the advertising dollars that newspapers will get from liquor ads; it's all about the money. But if you look at the Sunday New York Times, in the largest media market in the country, how much liquor advertising do you actually see? Usually under a quarter of a page. How much do they think The Somerset Daily American is going to get in advertising column inches? Makes for good sound bites, though, and helps you forget that for the clerks and the union bosses...it's all about the money.

I wonder how the "liberal media" is somehow controlled by the right on just this one subject, don't you? They know and have known that the people overall want a private liquor system. There has never been a scientific poll showing otherwise, including all the polls the newspapers have done themselves. The first complaints published about the PLCB were shortly after it started, saying there was a lack of selection and convenience. 82 years later, nothing has changed.

So here's the challenge. What newspaper is actually in favor of keeping the state stores? Are there any, besides the Raging Chicken Press?  (I'm not making that up and it isn't a print newspaper either.) Perhaps a few union and progressive blogs, but even some of them are in favor.

Here are just some of the newspapers that have come out editorially, some numerous times, for privatization. Where is the list of newspapers against?

Bucks County Courier Times-Intelligencer
Butler Eagle
Express Times (Bethlehem)
Lebanon Daily News
Philadelphia Inquirer
Pittsburgh Post Gazette
Pittsburgh Tribune-Review
Scranton Times Tribune
Somerset Daily American
The Altoona Mirror
The Citizens Voice (Wilkes-Barre)
The Courier Express  (DuBois)
The Delaware Daily Times
The Observer Reporter (Washington/Greene Counties)
The Patriot News (Harrisburg)
The Pocono Record
The Pottstown Mercury
The Reading Eagle
The Times Leader (Wilkes-Barre)
The Tribune-Democrat (Johnstown)
Williamsport Sun-Gazette
York Daily Record

All parts of the state, all sizes of towns and cities, all in favor of what the people want. 3,000 clerks should not control the wants of a state of 12.7 million.

Privatize. Make this the year it happens.

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.

The PLCB Hiding Failure Once Again - UPDATED!

Back in October of 2015 the PLCB came out with a new magazine called "Savor." It was supposed to be a quarterly guide to premium Wine & Spirits. You can see a copy of it here. See anything odd about that front cover? Neither did the PLCB, and that may have come back to bite them. They apparently didn't do any due diligence or research to see if the name was taken or if it would infringe on a current publication.

While it's mostly speculation on my part, I suspect the people at Saveur Magazine did take notice that Savor, while spelled differently, was pronounced largely the same, also covered wine and food, and would therefore infringe on their trademark. Normally in business there would be some kind of damages for use of improper use of a trademark, but I can't find anything that shows any were paid. There may have just been a curt cease-and-desist letter, and the PLCB may have taken the smart option for once and pulled the plug, but... These things take forever to work out so there may be nothing to find yet.

However, the telling fact is that I can no longer find ANY mention of Savor anywhere official, and I've always thought my Google-Fu was pretty good. Nothing on the FWAGS website, any search for "Savor Magazine" takes you to the PLCB Taste magazine listings. Savor has disappeared except for the actual link I posted above. Maybe one of you readers can find more than I did.

Nobody will notice - go with it!

So, here it is the beginning of April and of course, a quarterly magazine would be out by now since the first quarter of the year ends on March 31st. No Savor to be found anywhere. What happened to it will probably never be known -- the PLCB tries to bury its failures when it can; the wine kiosks being a rare exception that they seemed oddly proud of -- but what is known is that it is another case of PLCB failure added to the long list of poor business decisions they have made since inception.

By the way...there's more amusement to be had. Check the masthead of that issue of Savor: the PLCB got Philadelphia's MetroCorp to do Savor. They're better known as the publishers of Philadelphia magazine, and that's no surprise: the PLCB and PhillyMag do booze events together, which maybe explains why PhillyMag is a lot less pro-privatization than ... well, almost any other Pennsylvania publication, except maybe Taste. So are we back at audit time? How much did the PLCB blow on this contracted disaster? I'm going to try and find out but maybe like with TableLeaf, nobody in the PLCB will remember and there won't be any paperwork left to check.

UPDATE:

Unlike the 40 days it took the PLCB to answer my questions about negotiations the PLCB was much quicker with this inquiry. Their answer to what happened to Savor Magazine is that; "Savor magazine was renamed Premium Collection. The Spring/Summer edition is anticipated to be available around the middle of June." Great, that doesn't tell me what happened just what is going to happen. So the next question is if Savor was renamed because of the trademark infringement I speculated about above. 

They wouldn't outright admit to that but came up with this answer; "The PLCB has determined that a new name for its quarterly publication focusing on premium products – “Premium Collection” – would both align the publication more closely with our Fine Wine & Good Spirits Premium Collection luxury brand and avoid any confusion with another business." They couldn't determine that there would be confusion BEFORE they published?  This is pretty much double speak for "Hey we got a Cease And Desist order from another publication and since there wasn't a chance in hell we would win we decided to change the name and it took us too long to come up with "Premium Collection" so the publication date had to be pushed back." Is there any doubt? As Paul Harvey used to say, Now you know the rest of the story.

Privatize.

The letters

I'm not going to post much commentary on these letters between myself and the PLCB;  I'll let the letters speak for themselves.

February 26th, 2016 Letter to PLCB Chief Counsel Rod Diaz

Dear Mr. Diaz,
On Feburary 25th the House held an Appropriations Committee meeting with the PLCB.  In that meeting the Chairman of the PLCB Tim Holden said that they do not negotiate with suppliers because, and this is an exact quote: "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."  Later Board Member Michael Negra reiterated with "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."

Now looking at Title 47 Ch. 1. Art 2 Section 2-207 (b) General Powers of the Board, I can find nowhere that says prices can't be negotiated nor that they have to use the MSRP. In fact, the wording of the stated section, "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.". would seem to indicate that they should be negotiating to gain an advantage through volume purchases.

Given the language of the law, I'd like to know what the Board's reasoning (legal reasons, decisions, laws, opinions or whatever else pertains) is used to justify not negotiating and simply using the MSRP to determine pricing.

Sincerely,
Albert Brooks

April 6th, 2016 -- The reply came not from Chief Counsel Diaz but from Elizabeth Brassell the Director of Communications for the PLCB. It turns out there is no legal reason after all. (The emphasis in bold is added.)

Mr. Brooks:
I apologize for the delay in getting back to you, but on behalf of the PLCB and Chief Counsel Rod Diaz, I’m happy to address your February 26 email regarding the PLCB’s ability to negotiate prices with suppliers of wines and spirits under the proportional pricing mandate of the Liquor Code.

You are correct that the Liquor Code does not indicate that prices can’t be negotiated or that the PLCB has any obligation to use manufacturers’ suggested retail prices.  In fact, as you suggest, the PLCB’s buying power, as well as its discretion to list and delist products, allows for some price negotiation with vendors. However, any advantages obtained through volume purchases are directly reflected in the shelf price.

Because of the proportionality requirement, the mark-up applied to wine and spirits must generally be uniform across the state and across various product classes and brands.  Suppliers know that, and when they present products and prices for PLCB regular listing consideration, they often start at or above the retail price at which they want their product offered on our shelves, then reverse engineer the tax and mark-up formula to get to the price at which they’ll sell to the PLCB.

It is this general listing process that Board Chairman Tim Holden and Member Mike Negra were referring to in discussing price negotiation in recent appropriations hearings before the legislature. 

While the proportional pricing requirement was intended to promote flexibility when it was enacted in 2007, in reality it simply limits the PLCB’s ability to consider any factors in setting a shelf price other than what we pay vendors. Suppliers are aware of these constraints and use it to their business advantage. 

We do, however, actively negotiate lower prices on one-time buys, which is how we procure products for our Chairman’s Selection and Chairman’s Advantage programs, as well as many luxury products. We believe price negotiations are a key reason one-time buys are the fastest growing part of our business.

The PLCB is charged both with offering consumers quality products at reasonable prices and maintaining and growing tax revenues and profitability for the General Fund.

In seeking a legislative amendment to Section 207 of the Liquor Code, we’d like to have a clear mandate to consider other factors in determining shelf prices, such as product class, the sales history of the product, surrounding sates’ competitive prices, national market pricing and the marketing support suppliers put behind their products. This would allow us to lower some prices and increase other prices as the market allows, thereby applying the benefit of flexible pricing as increased PLCB contributions to the General Fund.

Thank you for your questions and the opportunity to respond.  Having read your blog posts and social media commentary over the years, we’d also like to invite you to visit PLCB headquarters and meet with leadership staff here. We’re always striving to improve our operations, and we welcome a productive dialogue that could help us advance. Let me know if you’re interested.

Elizabeth Brassell | Director of CommunicationsPennsylvania Liquor Control Board 604 Northwest Office Building | Harrisburg, PA 17124

 

Who do you believe?

April 7th, 2016 -- My reply, pretty much saying that if you wanted to do better...you could.

Dear Ms. Brassell,
Thank you for the reply. I really do understand that negotiation is a give and take between two parties, each with their own idea of the value of what is being bought or sold.  That said, I have serious doubts that the PLCB has ever done any analysis to see if the sales increase from lower pricing would more than offset the amount collected at the current higher price thus collecting more for the state. Since increasing sales IS one of the primary goals of the PLCB, this option should be taken far more seriously than it is.

As in my example with Oregon for a 750ml of Jack Daniel's, there certainly is room in the pricing structure, since Oregon also works on a set markup, and yet the math says they have to be paying a lower price even though Pennsylvania buys more than 5 times as much. 2,422,647 units for PA Vs. 433,506 * units for Oregon.

While I realize negotiation is not possible across all the items that the PLCB stocks, certainly the top 100 sellers should be scrutinized using Sales Price Variance Analysis to decide what cost is most beneficial to the state and consumer, it isn't that difficult to do.

I appreciate your offer of a meeting but my goal is not to make the PLCB better, they have had 82 years to work on that themselves, my goal is to eliminate the state store system and have it replaced with what most of the country considers normal.  A free market system that is regulated by the state.  Since our goals are non-congruent with each other a meeting will not further my wants and won't shed any more light on your problems than the reading of the blog which you say you already do. 

Sincerely,
Albert Brooks

So there you have it. Why they say they can't or won't try to get better prices for the consumer and why I say they aren't trying. The question now is...who do you believe?

More PLCB convenience

On  April 16th, 2011 the PLCB increased convenience, affecting the 4,200 residents of Renovo and the immediate surrounding area, by closing the State Store in town. They decided it was much more convenient — for the PLCB, apparently — to have the residents drive a minimum of 55 miles round trip to the State Store in Loch Haven: the only State Store in all 900 square miles of Clinton County, the only State Store for all 40,000+ residents of that county. 

Of course, the PLCB has said they are "actively looking" for a replacement spot in Renovo. I'm pretty sure that after five years some lard-assed PLCB real estate drone could have walked to every building in Renovo and the surrounding area. So I have to question on how "actively" they are "looking," or if they are just "actively" running their mouth trying to obfuscate the fact they aren't really doing anything. Last year I suggested the empty store at 112 St. Clair Street and Third St. in Renovo, which has parking and a loading dock, but no one "actively" did anything, and now it isn't available.

So how fair is this? Let's look at it the PLCB Way. The Almighty Liquor Code favors quotas: so many bar and restaurant licenses for so many residents, so many beer distributors and importing distributors per so many citizens...that sort of thing. Once it was one "R" license (a 'bar license,' roughly) for every 1,000 citizens, now it is 1 for every 3000. Apparently we don't need as many restaurants with beer and wine anymore; when did that change? What about State Stores? 45 years ago, there was one store for every 15,608 citizens. As of today, there is one store for every 21,225 citizens. Population went up, number of stores went down a lot, almost 25% down. That makes it more convenient for the PLCB and their ever-increasing operating costs, but what about you?

Based on that current ratio, Clinton County should have two State Stores, but they don't, and after five years they still don't (and of course, they're still screwing around with where they're going to have that one store!). I have to give the citizens credit for being so patient. Looking at the U.S. average, Clinton County should have seven liquor/wine stores, and they probably would under privatization, despite what the PLCB and its lockstep lackeys in the Legislature keep saying about a vast booze desert in upstate if privatization takes place.

It's a simple proposition. Renovo has two area grocery stores, one area beer distributor, and three area drug stores. Do you think any of those would have liquor and wine if allowed? You bet they would, because they know how to run a business already. Would the selection be better than the State Store? I guarantee it, in writing, and I'll eat my computer if I'm wrong! I'm not worried, it's an easy bet. Any selection is better than what the PLCB is providing now in Renovo: zilch, squat, zero, nada, nothing.

As long as we have the police-enforced monopoly State Store System, there will be less service in rural areas, because only the with the featherbedding incompetence of an institutionally corrupt and directionless agency like the PLCB can a state-backed complete monopoly not break even with the only liquor store in town. Privatization will at least allow somebody to provide what the PLCB won't, or can't. Privatization will bring small stores, large stores, specialty stores, and CONVENIENT stores. Will they carry everything? Of course not, but they will carry more than a closed store or a store that currently doesn't exist. A win for Clinton County! 

You have to wonder why Clinton County's representative in the House, Michael "Mike" K. Hanna, consistently votes against privatization. Is it because of the tiny handful of votes represented by the employees of the State Store in Lock Haven and their families? (Er...in Lock Haven for now, that is.) Or is it because he doesn't think his constituents can handle more than one liquor store? Or is it because he likes inconveniencing the thousands of tourists, hunters, and fishers that visit Clinton County every year, the hundreds of people who are working in the gas fields in Clinton, and the students (of legal age) and faculty at Lock Haven University? Because he does vote consistently against privatization (of course he does, he's the Democratic whip). If you live in Clinton County, why don't you ask him why he keeps voting against your convenience?

The PLCB vs. Real Business

Retail exists for the benefit of the consumer. The PLCB exists for the benefit of the people working at the PLCB. The consumer doesn't even enter into it, as admitted by the PLCB when they said they don't try to get the best pricing, they just pay whatever the producers ask. Now they say they want to "negotiate" as part of "modernization"; they aim to keep the difference between what they now pay and the lower price to maintain their bloated structure, not to lower prices for you and me. As if!

We deserve better. The State Store System had 82 years to prove their case, and the court of the public has said they failed. Just ask the people of Clinton County how well they are doing their job.

END IT, DON'T MEND IT.