Not Quite 10 Years Ago...

It's not quite ten years since I started this blog with this post. It was on April 22, 2008, and I should probably do the 10th anniversary post next month, but...it's snowing like mad out there right now, and I'm not going to be able to go do brewery visits like I planned, so I'm doing it now. What's a month?

Ten years ago things were pretty bad; they were worse than they are today. The State Stores were not under any kind of real scrutiny, they didn't have a useful website, and there hadn't been a serious push for privatization in 20 years. Beer was sold at distributors -- by the case and keg only -- or at taverns -- only 2 sixers at a time, and at a stiff markup -- and that was it...except for the occasional weird exception. The Legislature was in a long period of inactivity on the Almighty Liquor Code. And I was losing my mind after seeing how booze was sold all over the country.

So I started this blog...and things changed. I don't take any credit for this. Much like the success of my other crusade, the Session Beer Project, I don't feel that I caused any change. I just had a very sensitive ear to the ground, and caught the rumors and mumblings before almost anyone else did. At the most, I may have suggested lines of inquiry to reporters (who picked up on the blog fairly early; as did a suspicious number of IP addresses in downtown Harrisburg), and if that worked, well, that's always been the main aim and hoped-for audience of the blog. (A big hat-tip and thanks to my co-writer, the pseudonymous Albert Brooks, who picked up the pen while I was sidelined for over two years and has done a GREAT job feeding facts to that audience.)

What happened in the past ten years? Here's the dumb stuff.

• The PLCB spent $3.6 million on public image, advertising, and store layout, paid to a California-based marketing firm. They come up with a new name for the State Stores: "Table Leaf." In a rare rush of smarts, the PLCB realized that's idiotic (though they did keep an option on it; see below), and decided to go with the basic stupid rename: Fine Wine and Good Spirits Store. Governor Rendell was furious...and the PLCB blatantly didn't care. Your money wasted: it's a monopoly (a police-enforced monopoly, as we would point out many times), there's no need for marketing.
• The aptly-named Special Liquor Order (and they call it SLO, you can't make this up) system broke down again, and again, and again...
• The PLCB so badly screwed up their new inventory system in 2011 that store managers over-ordered so much wine that they had to store almost 100,000 cases of it in tractor-trailers...un-air conditioned trailers, in the summer. Renting the trailers and hiring security guards cost about $500,000. (Numbers are from an Auditor General report.) Good job, morons!
• Around 20 State Stores closed. A bunch more were moved for arbitrary reasons without input from local communities. And of course, we revealed that ten counties in Pennsylvania have only ONE State Store. There are ten others with only two.
• The Courtesy Contract. The PLCB spent $173,820 on training State Store System clerks "how to greet someone, where to stand, and how to read a customer's cues." And the company doing the training belonged to a PLCB regional manager's spouse. Real nice. 
• We saw several ethics investigations of the PLCB (one of which struck paydirt) and several harshly worded audits. The marketing director was found guilty of fraud...back in 2015, and he still has not been sentenced. Speculation is that he is cooperating in further federal investigations. Conti must be spooked. 
• We saw again and again that the PLCB often actively made it harder for licensees and wholesalers and brewers to sell beer. You know...their only competition in the booze biz. Not bad, when you make the rules. This included the harassment of three Philly bars and a major Philly beer wholesaler for selling "unregistered" beer, carried out by the BLCE and supported by the PLCB (and their soon-to-be-exposed flawed database). After armed raids, seizures of beer, disruption of private (beer) business, and a full-blown legislative hearing...the result was a warning letter. Harassment, and they should have been sued. 
• The Saga of Joe "Da CEO" Conti, from his disappearance, to his greatest failure, to his ignominious end, to his unlikely (and lucrative) return. We miss his shenanigans; his constantly wrong-footed instincts were the best thing that ever happened to privatization. 
• The Wine Kiosks. Nothing more need be said. Possibly their biggest failure in the last 40 years, and that's saying something. 
• Table Leaf: the brand. As mentioned above, they'd already (over)paid for this branding, so they used it for a house brand of wine. And then they decided to wield it as a weapon against their biggest suppliers...and Pennsylvania wineries. Who brought it to the Legislature's attention, and that was the end of another PLCB fiasco.
• Privatization was repeatedly brought up by the House, and squashed in the Senate, mainly thanks to the efforts of Senator Chuck McIlhinney.
• But in all the past ten years, the very worst thing that happened was that the Legislature let the PLCB have the one thing that they never should have: so-called "flexible pricing." This is the idea that the PLCB should not be forced to use the same set mark-up on every item; when they got a deal, they could pass it on (which is bullshit: they could always have done that). What it really means is that they charge more; we told you that for years, and golly, it was true. We're stuck with it, too.

  

  Ah, the wine kiosk. The Best Worst Thing.

Wow. I know I'm missing stuff, but those are the big ones. Yet somehow, these ding-dongs are still in business, still the sole wholesaler of wine and spirits in the state despite continual screw-ups.

Meanwhile, we did get some things, although almost all of them were mixed blessings. 

All right, break it up!

• The case law is finally gone! That was one of the big ones. We no longer have to buy an entire case of beer at the distributor. That'd be great, except we still can only buy a 12-pack at bars and grocery stores (more on that shortly), then walk out the door and walk back in and buy another...What kind of bullshit is that?
• We can buy beer and wine in grocery stores and convenience stores!! HOT DAMN! Whoa there, hoss. We can buy beer and wine in places that hold a restaurant license; that's always been true, but now these stores can buy those licenses (for as much as $500,000!), and put in a 'cafe' that seats at least 30, and sell sixpacks. About 450-odd stores have done so, out of the thousands in the state. So don't wet yourself with glee. And remember: a 12-pack of beer, or four bottles of wine, and it's out the door you go. 
• Direct wine shipment (and beer...but not liquor) is now a thing. That's a big deal for a small number of people. 
• The PLCB had to start telling the truth about their financials; specifically, their deep pension debt. And just like that, they were no longer making money, net of taxes. They still are paying money into the General Fund, because they have to, but they're doing it out of reserve assets. The day of reckoning is coming. 
• We got some really cool stuff: Pennsylvania booze producers can cross-sell their products. A winery can sell PA-produced beer, cider, spirits, mead...and, what, kvass, I guess? Any of that. And they can have satellite stores off their main production premises, which can also sell those other products, which has led to Pennsylvania Libations, the first privately-owned liquor store in Pennsylvania in almost 100 years. And that's cool. 
• About a thousand (I think) liquor licenses were blown out of escrow and auctioned off. Mostly picked up by grocery stores. So that's kind of good, but...all those grocery stores buying bar licenses is making the price of a license go up, a lot in some places, and that's putting the squeeze on indie mom-and-pop bars and groceries. This is going to give us a lot more chain groceries and chain restaurants, and that, my friends, ain't optimal. 

That's all I can think of right now. There have been some other side effects. One, the PLCB is running scared, and the selection is about as good as it's been in a while. (You're a fool if you think that will continue if the privatization talk dies down, so let's keep 'em scared.) Two, the BLCE has been scared to do any enforcement of the monopoly, so we can buy out of state with impunity. Three, people have a lower opinion of the PLCB these days after the corruption charges, and that's good. Four, McIlhinney's retiring, and maybe we can get someone who really gets it in there.

OTOH...The GOP has, overall, been a huge friend to privatization of the PLCB in the past 40 years, despite numerous missteps. The unpopularity of the Trump administration may lead to a loss of the solid GOP majority in the General Assembly. Overall, that's how things go, but for this issue? If the Democrats gain a majority, or cut the GOP majority, you can kiss further progress good-bye. Because the Dems have made it crystal-clear that they are opposed to any further privatization of the State Store System. We'll just have to wait and see.

Overall, though? Good progress at the 10-year mark. We got rid of the case law, and the PLCB's sales are suffering from the wine sales at groceries. This is what union boss Wendell W. "Windy Wendy" Young IV referred to as "the death of a thousand cuts." Here's hoping he's right about that, and that "flexible pricing" doesn't bleed us to death in the meantime.

I feel for you folks who are far from a border. If Philly were where State College is, away from the liquor stores of Jersey and Delaware, the PLCB would have been long gone. Let's keep the pressure on.

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?

2 years in - time to say thanks

Here it is, 2 years since I started writing the blog thanks to Lew's kind offer.  Hard to believe there could be so many things wrong with the PLCB that I could write almost 140 posts in that amount of time. I hope I've kept up the standard Lew set when he started this blog.

2 down, less than 1 to go with luck!

I couldn't have done this as well as I hope I'm doing without all the clerks and office workers passing along tips and information; in a number of instances, things I would never have found out about by myself.  I'm sure our local union stalker would love to root out who they are, but I delete their emails and chats so their identities are protected.

There are a number of Legislators that need thanking. They know who they are, and I appreciate them helping to further the cause. And of course, the readers, to whom I hope this has been a source of information and thought. I know we have PLCB employees who read this but never act on what is brought up. They still can't get all the "Jack Daniel's/Jack Daniel/Jack Daniels" entries correct and I've mentioned that three or four times just this year. 82 years isn't long enough, I guess. (Guys, a tip: put a sticky note on the side of your monitor: "It's Jack Daniel's") Of course, thanks to the FBI for proving what we all knew.

I know we have Legislators on both sides who read us too, some of them want to do what their constituents want and some do not, and some do but aren't allowed by their party, and there are some who don't have a clue what this is all about. Horse, water - you know the rest.

My standard has always been to be able to back up and prove all the factual information I post and to accept anything that disproves it. So far I've not had any takers. I intend to continue that policy, because factual information is the basis of any reasonable discussion.

Here's hoping that year number 3 will be the last, because the State Store System will be a relic of the past.



On a side note to another story, it has now been two months and the PLCB still hasn't figured out how to use those computers enough to put out unaudited numbers for the year.

Goodbye, and Hello

As I mentioned in my last post, there is going to be a major change in this blog.

I'm going to stop writing it.

I have accepted a full-time position as managing editor of Whisky Advocate magazine, which starts today. Part of the terms of employment were that my writing is to be exclusive to the magazine, so I agreed to stop writing further on this blog.

However...the blog will go on. "Albert Brooks," an active proponent of privatization who has supplied ideas for posts to me in the past (and a tireless researcher of the PLCB's financials), and Joe Richards, who writes the 1WineDude blog, have agreed to post here on an occasional basis to keep things moving along. I welcome them, and thank them, and hope you'll enjoy what they have to say.

This means a lot to me. I've wanted "Albert" (yes, it's a pseudonym, and I understand and support his reasons) to have a broader forum for some time. Joe will add a new dimension to the blog. I've always wanted to have more about wine here, because it's a vitally important reason for privatization, and I simply don't know that much about it.

So this is going to work well. I'll still be reading, of course, and I'll still be moderating the comments; same rules apply, so only make personal assaults on Albert and Joe if you want to be the only person who reads them! Stay on topic, and we'll be fine.

I'll also encourage you to read what Jon Geeting has to say about State Store privatization at the Keystone Politics blog; I do, and I've quoted him frequently here and on Twitter. Jon and I don't agree 100% on how privatization should be done -- I don't think any two Pennsylvanians do! -- but he eloquently makes the case for liquor privatization from a Progressive standpoint, showing how this is not your usual "privatization" issue.

I truly hope that the major reason for the blog staying open will go away after the September session of the Legislature...but that's not the way to bet. We'll see. Good luck to everyone involved in the fight for privatization. Remember:

PRIVATIZATION IS MODERNIZATION!

Accept no substitutes!