Wednesday, April 25, 2018

Proof the PLCB is screwing us - in their own words.

Please see the "We regret the error" post of April 30 for clarification.

The last post showed how even the most basic of business math escapes the political appointees that run our anti-consumer, police-enforced, cronyistic, unqualified, graft-tainted, incompetent (I can keep going) monopoly liquor control system. But even basic math — like you learned in 2nd grade — escapes them. Check this out: they can't even count!
No fair! You said there wouldn't be any more math!
This is taken straight from the law that made recent substantial changes to The Almighty Liquor Code, including "flexible pricing" (the law is commonly referred to as ACT 39):
"The board may price its best-selling items and limited purchase items in a manner that maximizes the return on the sale of those items."  
This is the flexible screwing pricing we have been talking about. We added the emphasis, and you'll see why shortly. ACT 39 then further defines what "best selling" means.
"Best-selling items" shall mean the one hundred fifty (150) most sold product identification numbers of wine and the one hundred fifty (150) most sold product identification numbers of liquor as measured by the total number of units sold on a six month basis calculated every January 1 and July 1." (Again, emphasis added.)
So using what you learned in 2nd grade, there are a total of 300 items that can change price, 150 wine and 150 liquor. Everything else is still under the 30% markup rules as before; that hasn't changed. If the price to the PLCB goes up, your price on the shelf goes up; and if a price goes down your price goes down. Pretty simple: 150 wines + 150 spirits = 300 items affected by "flexible the "limited purchase items."

Now let's look at testimony given by the board at a joint legislative hearing about how Act 39 is working out...because the legislators had a lot of questions about "flexible pricing." (You can read the transcript here)
"This rigid markup structure was inefficient, resulting in missed opportunities for the commonwealth to realize additional revenue and for licensees and retail customers of the PLCB to share in cost savings."  
Share in cost savings, eh? That's important. We'll get back to that.

Reading further in the testimony of the board we find this:
"...pricing flexibility has resulted in a reduction of product acquisition costs for almost seven hundred products, retail prices decreases for more than one hundred and twenty products and retail price increases of a hundred twenty-five products." 
Okay. The law states clearly that there the PLCB could change the standard markup on 300 of the best-selling products. Of that 300, prices went up on 125 of them, leaving a maximum of 175 prices that could be reduced or unchanged. Of that 175, approximately 120 went down, leaving about 55 unchanged, or at least in an unknown status. That's all that are allowed to be changed under the law. However, the board said that costs went down for 700 items: 700 minus the 120 items that were lowered in price...means 580 items didn't get reduced.

The Chairman said "Immediately after the effective date of Act 39, we began using the flexibility we were afforded in pricing our limited purchase items, including luxury products sold in our Premium Collection stores, Chairman's Selection, and Chairman's Advantage products, Wine Club items, and products in our e-commerce portfolio. We have always been able to negotiate with our suppliers to obtain great values on these products, but with Act 39, we  have been able to price each item as appropriately based on our supply and anticipated demand and current marketplace conditions."

Math - The PLCB way

Those 580 items that didn't get reduced couldn't be any of the things the Chairman mentioned here, because he said they already had negotiating power over their costs, and ACT 39 didn't change that. What it did change was the mark-up, the price they could charge us on the shelf. Did they charge more? No, only 125 items went up in price. Did they charge less? Not according to their testimony.

Figure it out. By process of elimination, the 580 items that they are now paying less for aren't in the top 150 wine or spirits, and aren't in the group of items that the board said they could already negotiate on. That means they have to be regular items that should fall under the 30% markup rule, which means one of two things. Either the price for the consumer had to go down, which didn't happen according to the testimony, or the Chairman is lying about something. Of course, there is the third option: he has no idea what he's talking about, or he's inflating the numbers to make the system look good in general (which is probably just habitual at the PLCB). Not really all that reassuring either.

Will we ever know? Probably not, since no one on the legislative side of the table seems to want to ask the right questions. Why do we put up with this continued malfeasance that is being perpetrated on the citizens and consumers?

Privatize and end this BS.

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