Monday, November 28, 2016

We're still screwed: PLCB flexible pricing is coming.

We've posted a number of  stories about how bad flexible pricing is for the people, the consumers, in Pennsylvania. It is potentially the worst thing ever to come from the police-enforced liquor monopoly.

Despite that, here are some of the "benefits" flexible pricing will bring, according to the Chairman of the PLCB Tim Holden. You probably want to take his thoughts with a grain of salt; Ol' Tim still doesn't know the difference between Jack Daniel's and bourbon, and probably doesn't care.

It seems that Tim is upset that some suppliers don't care about PLCB profits. Well, why should they?  Businesses do not exist so that the PLCB can over-charge the citizens. They exist to do as well as possible for their owners, their shareholders. To assume that a business should care about the success of an agency that depresses their sales performance is ludicrous in the extreme and just reinforces how out of touch the PLCB leadership is.
This is how PLCB flexible pricing is really going to work
Back in April, well before the passage of Act 39, Elizabeth Brassell, the PLCB director of communications, wrote to me: "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." Did they do this? Of course not, because it had no benefit to the PLCB, only the customers.

Chairman Holden tacitly admitted that saving consumers money wasn't all that important when he said: "The PLCB is driven by priorities made clear by the governor and General Assembly: (1) increase customer convenience; (2) generate additional revenue; and (3) achieve more-competitive retail pricing."  It seems that the General Assembly priority is more #3 because they, like most citizens, want to get the PLCB out of the retail and wholesale alcohol business.

Holden goes on to say:" We simply want more competitive costs from our suppliers – comparable to what other states and retailers enjoy." Except that while those other retailers pass on those cost reductions, because they want your business, the PLCB wants to keep that difference, to keep that money to bolster their bloated and failing organization.

They have no reason to pass on anything because they have no competition; there is nowhere else the consumer can legally go. Holden admits this: "We’ll also maintain the current retail price on the vast majority of products we sell, while achieving greater profit on hundreds of them. And, as we’ve said all along, prices will increase for some items, when the supplier and PLCB agree that the market can bear the increase." Of course, when there is no other choice of retailer, the market can bear a lot.

Think I'm over reacting?  Here are some new prices from the PLCB under the "flexible" system on some pretty price insensitive items they know they can bleed enthusiasts for:

Item 2015 2016      $↑     %↑
Family Reserve Rye $100 $160 $60 60.0%
P. V. Winkle 23 Year $250 $400 $150 60.0%
P. V. Winkle 20 Year $150 $250 $100 66.7%
P. V. Winkle 15 Year $80 $150 $70 87.5%
Old Rip Van Winkle 10  $50 $80 $30 60.0%
V. Winkle Special Res $60 $100 $40 66.7%

Think that is bad?  Look what happens if you are unlucky enough to win a package deal.

Thirty packages are available with three bottles each: the 20 year, 12 year, and 10 year. The price for each three-bottle package is $999.99; $570 MORE than the individual bottles. There are six packages of four bottles each: the 20 year, 15 year, 12 year, and 10 year. The price for each four-bottle package is $1,199.99: $620 MORE than the individual bottles. And four lucky Pennsylvanians will get the opportunity to buy packages that include each of the six 2016 bottlings, at price of $1,999.99. Only $860 MORE than the individual bottles. Such a deal!!

Tell us again how this is good for the consumer, Chairman Holden? 

This is just one prominent example. Is there any doubt that the PLCB is going to make that extra money by taking it out of your pocket, either surreptitiously or through outright price increases? I hope you're ready Pennsylvania, because you are about to get screwed.

Privatization is the only way to get the PLCB out of sales and into regulation, where it belongs.

All quotes from Chairman Holden are 100% real, and taken from here

Monday, November 21, 2016

PLCB lies of omission

Sounds like the PLCB to me.
People — or government agencies — don't always tell the truth when their jobs are on the line. Such is the case all too frequently with the management of the PLCB. From the former CEO telling the workers to destroy wine kiosk paperwork, to a different CEO not knowing who came up with the idea to spend millions on anti-Pennsylvania "house brands." 

Now we have the lie of omission from the Board. After years of meetings with the House Appropriations Committee, the Senate Appropriations Committee, the Senate Law and Justice Committee, and others, not once, not ever did they say that "modernization" won't reach the goals that their supporters in the legislature said it would, specifically the $65 (or even $50) million that the Legislature estimated.

Until now
, that is.

I'll save you the click, and give you the nut:
"[PLCB director of communications Elizabeth] Brassell says she cannot speak to the specific $65 million figure because it did not come from the PLCB. The number came from a House fiscal analysis in June. A House Appropriations Committee report last month pegged that number at a slightly more conservative $50 million in 2016/17.
“I’m not sure what/when fiscal analyses came from different folks or what may have changed. Sorry, can’t speak for data or assumptions that aren’t ours,” Brassell said. “We have yet to be able to meaningfully estimate how much additional revenue might come from flexible pricing, but it’s certainly not the estimates attributed to Act 39 as a whole.”
Did you notice that she didn't say what the PLCB thought it would be? Another omission designed to keep the "owners" — you and I — in the dark. Why would they do this? Because if they didn't agree and the figure is is much lower, as it appears it will be, then "modernization" would be shown to be the failure that it is. And why not? The recent history of the PLCB is full of schemes that were supposed to make money that never panned out: the bailment scheme, the new POS system, the SLO system, closing stores and reopening them (well, someone's cousin the real estate agent probably DID make money on those deals, right?).
More PLCB excuses.
I didn't say that. I didn't say anything!
Disingenuous? Most certainly. Illegal? Probably not, but should we expect more from the people that run OUR business? Shouldn't we hold public servants to a higher standard because what they do or didn't do affects the entire state? You know who pays the price for these lies isn't the PLCB. It's us, the public that has to put up with more lipstick on the PLCB pig.

After all that has supposedly changed in the past year...can you buy a six-pack of beer, a case of another beer, a bottle of wine, and a bottle of liquor in one place? Nope. Can you buy wine in grocery stores? Not really; the huge majority don't and won't have a license because of the inane "cafe" requirements. Can you find the selection that you see in other states, and on the shelf, not in their "online store," something you can look at buy right now? Not even close: there are private stores that stock on the shelves as many items  as the PLCB carries on their imaginary stocklists.

We deserve better and the free market provides it; the PLCB never will be able to.

Wednesday, November 16, 2016

I Do Not Like These Changes

Take the Liquor Code out behind
the Capitol and beat it to death. asked me what I really thought about the PLCB and the Almighty Liquor Code in light of recent changes (the ones Governor Wolf said were "historic").

So I told them.

Favorite bit?  “If privatization means less booze-based revenue for the state, well, fine, let them find it in someone else’s pockets for a change. Moderate drinkers have paid more than our fair share for long enough."

Privatization IS Modernization. Rewrite the Code; the WHOLE Code!

Tuesday, November 15, 2016

Where the PLCB Money Goes: Then and Now - A Second Look

Let's have a look at what the PLCB has done with its money -- our money -- since the new millennium has started. I did this story almost 3 years ago so let's see what may have changed The numbers from 3 years ago will be in parenthesis. 

Fewer stores, more employees: In July 2000 there were 692 stores with 2,869 full time workers and 1,072 part-time workers In June 2016 there are 601 (604) stores, and as of May 15th, the last reported figure for FY 2015 there were 3,067 (3,080) full time workers and 1,606 (1,417) part-time workers. Stores decreased by 15.1% (it was 14.6% the first time I wrote this) and employees increased by 18.9% (13.5%). Just looking at it from 3 years ago there are 3 less stores but 176 more employees. 

Higher gross, lower margin: In 2000 the PLCB had record sales of $1,083,330,579 and record operating income of $89,868,893 or 8.30% of sales. In 2016 the PLCB had record sales of $2,430,209,796 ($2,171,946,398) and non-record operating income of $131,770,874 ($151,877,723) or 5.42% (6.99%) of sales a decrease of 53.14% (18.6%) in operating income for every dollar spent in sales compared to 2000. (Hardly surprising, given the increase in overhead represented by the previous point.) Looking at these numbers is there any doubt "flexible pricing" is going to cost you more?

Cost overruns: In 2000 the Auditor General found the PLCB incurred $408,000 in additional costs due to problems in Its implementation of a new computerized Warehouse Management System. In 2010 the Auditor General reported the PLCB incurred excess costs of $500,000 due to problems with the new inventory system (on top of being over budget). The inventory system was contracted for $25.8 million and as of June 2010 has cost $66.6 million, or 158% over budget. Of course, we are still paying the legal expenses for the wine kiosks too.  Who knows when that will end or how much it will total.

More for ads, less for education: In 2000 the PLCB contributed 0.76% of their expenses to drug and alcohol education.  In 2013, the biggest year they ever had up to that point, they donated only 0.66%, up from the 0.53% in 2012 (also a "record year"). This year it went up but only because they had to pay the $800,000 they shorted Drug and Alcohol programs last year. It is still below 2013 levels  The PLCB hasn't released how much they spend on advertising until this year where they said the spent "about $6,700,000" or over double what they spent on education.

More booze, less enforcement: In 2000, the PLCB gave 7.39% of their expenses to enforcement of the liquor code.  In 2015, the PLCB only did 5.51% (6.19%), a shortage that works out to over $9 million less for enforcement compared to 2000. So even though the number of licensed establishments increased and the population increased, there was less liquor code enforcement. State stores still aren't checked at all for compliance.

More embarrassment, less arresting? In 1992 the Auditor General reported that: "Policing bootlegging and illegal importation of liquor without payment of Pennsylvania taxes should be the primary mission of the liquor law enforcement personnel."  In 2013 there were 2 reported cases of “bootleggers” caught. It could be that the more support for privatization there is, the less border enforcement takes place...since that would highlight the huge problem of people who purchase out of state. It might have something to do with the $9 million the BLCE doesn’t get since they were no longer funded at year 2000 levels too. While I'm sure a few token bootlegging arrests were made in 2015 I haven't been able to find out how many.
The real PLCB new funding source.
Same lack of relevant experience: In 2000 no member of the Board has had any experience with running an enterprise anywhere near the size of the PLCB.  That hasn’t changed at all in any year since and they still only work 21-22 days a year. It hasn't changed with the current board, or ANY board either.

"Multiple weaknesses" in procurement: In 2000, the Auditor General reported that: “Weaknesses exist in the administration of the Pennsylvania Liquor Control Board's warehouse management system consultant contracts.”  In the 2010 Audit the Auditor General reported that: “…multiple weaknesses in the PLCB award process, including lack of documentation. As a result we could not verify the PLCB adhered to proper procurement standards or exercised proper due diligence in awarding the contract.” (Remember that one of the PLCB “modernization” plans is to have less oversight in procurement although thankfully that part of "modernization" wasn't part of ACT 39.)

The PLCB has not changed in the sixteen years since 2000...Act 39 will only cause a larger bureaucracy with less customer service and more problems, that spends less on its very reason for existence: control. The problems are systemic, pervasive, and totally ingrained in the PLCB's processes and workforce. They won’t be fixed until the entire system is replaced with privately-run wholesale and retail operations -- as it is in the majority of other states and countries -- and they are able to fully concentrate on regulation, compliance, and enforcement, and not sales.

Privatization is Modernization – accept nothing less.

Tuesday, November 8, 2016

Free Market or Socialist PLCB - who makes jobs?

The Legislature continues to ignore the drag the PLCB puts on the economy. Every place that has fully privatized has tripled employment in the industry. A side benefit is that a free market allows entrepreneurs to open businesses that a controlled market, by its very nature, limits. Since over a third of the PLCB is already part-time the claim of losing 5,000 "family sustaining" jobs from privatization is blatantly false.

Just one example of that limitation in jobs is craft distilleries. In 2012, the first year that limited distillery licenses were allowed — years behind other states — Pennsylvania had four. Now, four years later, the state has about 50. In contrast, Washington State — with about half the population — has 86 (as of mid-July). Since privatization of the state liquor monopoly in 2012, Washington has added 51 distilleries, added jobs, added tax base. Slow old Pennsylvania has added 50 in the same amount of time — with twice the market, and our proximity to big markets in New Jersey, New York, Ohio, and Maryland — an increase that should be well over 100, based on population ratios.

So what is holding things up? The PLCB's friends in the Legislature and the Almighty Liquor Code, of course. How many jobs, how much investment and taxes has the state lost because of the PLCB? Far more than the heavy hand has allowed in. What are we afraid of? Success? Money? Tax revenue?

While ACT 39 has added a few jobs (mostly in the PLCB hiring consultants to figure out how to implement it), there hasn't been the boon in employment full privatization would bring. No new warehouse jobs (union jobs!) that would be created by the formation of new distributors, because the state still controls wholesale. No new delivery jobs (more union jobs!) trucking wine and spirits to new stores, because there are no new stores, and besides, for the most part the PLCB doesn't deliver anyway. No new sales jobs because there still aren't any new stores. Poorer service because while private stores depend on good service for return customers, the state stores know you can't go anywhere else. Less selection because the PLCBureaucrats in Harrisburg are selecting the shelf stock for every single store for the entire state, instead of customer requests and demand, new product promotion, and American-style competition like how EVERYTHING ELSE  is sold in retail.

While the PLCB is a jobs program, it isn't a jobs program that benefits the citizens overall, just the lucky winners at the State Stores and warehouses. It benefits them by denying and disrupting the normal opportunity and jobs found in free and open markets.

If the Pennsylvania State Store System were really all that good...Well, think about it. 

  • They wouldn't be afraid of competition. 
  • Other places would be trying to emulate our system. What a ridiculous concept! 
  • The citizens wouldn't want change. They do.
  • Pricing would reflect buying power. Flexible pricing makes sure it doesn't.
  • Qualified people with industry experience would be making business decisions, not political hacks. 
  • People would come into Pennsylvania to buy; instead the state has the largest alcohol sales border bleed in the country.

We aren't safer, we aren't better served, and even with McIlhinney's four-bottle folly, we aren't satisfied. The only way to really satisfy the consumer is with a free market, not a closed system.