The PLCB doesn't know business; just ask them

The PLCB plays at being a business, but they really don't know what they're doing. We've told you that many times. If you don't believe us, you can just listen to them. They'll make it pretty clear.

The PLCB -- the actual three member board, plus the so-called "executive director" Charles "Not a CEO, Nope, No Sir" Mooney -- testified in front of a joint meeting of the House Of Representatives Liquor Control Committee and Senate Law and Justice Committee about the effects of Act 39...especially about flexible pricing (you can read the whole transcript here). It's a big deal, these meetings and the change Act 39 brings, and the Board has to be ready for the legislators' questions.

And of course...they weren't. Apparently, they weren't really ready for flexible pricing, either, despite having asked for it for years. 

Let's start with the Chairman. Here's what he told the legislators when they started drilling him about why they hadn't simply negotiated lower prices to begin with; you know, with the huge "buying power" we always heard about. As we told you all along, the "buying power" bullshit was just that: bullshit. They never used it.

Holden: "If we would have sought lower product costs from suppliers, it would have resulted in reduced Commonwealth revenue due to the required application of a flat percentage markup and taxes." On face value, that would seem to make sense. Lower wholesale prices, run to a set mark-up formula to the shelf, means "reduced Commonwealth revenue," sure. Of course, it also means lower prices for us. You know, the citizens. But if it means the revenues are maximized, well, okay. After all, you can't make more money by lowering prices. 

But there ARE real businesses that make a profit doing exactly that. You may have heard of them: Walmart. Target. Aldi. Total Wine & Spirits. All of these real businesses, run by real business people, regularly make tons of money by cutting prices. It's established practice: lower your gross margin, so you make less money on each item; but at the same time the lower prices mean more sales, so you make more money overall. The PLCB doesn't get it; guess it's too much work. ("So many boxes to lift!")

They didn't need "flexible pricing," they could have been doing this all along. It's simple. For every item on the shelf, there is a price that will result in the maximum revenue. Higher, and sales decrease; lower, and total profit decreases. That price point is affected by things like competition, or price-matching, or sales, but the PLCB doesn't do any of those; they certainly don't have any significant legal competition. (And no, the PLCB does not have sales, at least, not in the usual sense: if the producers drop a price, the PLCB passes it through as is, and their slice of the pie remains exactly the same. They never cut prices, except on their ill-advised "clearance sales." Thanks, guys.)

Of course I'm lying. I don't know any of this math stuff.

But here's the thing that boggles the mind. Even under "flexible pricing," where they have to negotiate each price of the top 150 wine and spirits items, they STILL aren't using this business tool. So while they are screwing the suppliers and consumers, it certainly isn't as satisfying as it should be for either of us. 

No, the PLCB wants to really ream us. "...brands that are not within the statutory definition of best selling wines and spirits continue to be governed by the proportional pricing requirement of the liquor code. For a future legislative consideration, we respectfully recommend that the same pricing flexibility be extended on all products sold by the PLCB." 

And there it is. It's not enough that they raise prices on the majority of the best-selling items, they want to do that to everything. Keep in mind that there is no institutional pricing oversight by the legislature (only these hearings where the legislators gets to chide the Board about prices, and the Board gets to say 'oh, yeah, guess so, whatever') and as always, nobody with any experience in the industry is leading this parade of monkeys down the path.

More bumbling ensued as the hearing went on. The Chairman: "We made some mistakes at the initial supplier meetings. We asked suppliers for significant reductions to their product costs to increase our margin. But we failed to take a few things into consideration. We miscalculated the reaction of some of the largest suppliers of our best selling brands, who refused to come to the table at all." Imagine that. You said, 'Hey, we want to pay less for these brands everyone wants,' and companies that deal with sharpened pencils every day said 'That's nice. No.' After all, they sell the same products in neighboring states...that don't have the PLCB.

And once again, we suffer for the mistakes of ignorance, just as we have done for the past 83 years. While the Chairman was being the mouthpiece for this failure, it fully lies on Charlie Mooney. After 40 years in the PLCB, Mooney might know about graft, nepotism, bribes: it's apparently the way the PLCB runs. But it looks like he had no idea how the actual liquor industry (or any industry for that matter) worked.

So after blundering around for nine months, and hiring two specialists to help them figure out how to do this, and -- once again! -- paying an outside consulting firm to gather data, that all eventually led to this statement: "... 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."

Let me put that in English for you - they saved money on 580 products and you didn't see a dime of it. They raised prices on more items than they reduced prices, and of the top 10 selling liquor or wine items you saw a reduction on only one: a pint bottle of cheap vodka. Remember those top 10 items are the ones they should have the most leverage on, due to sales volume. They screwed us again. Of course they did.

SENATOR MCILHINNEY: "... the state citizens own this system, and they should be able to get some, any benefit by having a good deal when they go to the liquor store."
MR. HOLDEN: "Absolutely",
Except they aren't. We aren't. Weren't the legislators paying attention? We got NO benefit on 81% of the products that the PLCB paid a lower price for. They said so themselves.

Charlie Mooney also came up with: "Senator, we -- I am confident, without all the data in front of me, that, overall, consumer prices have decreased." Well Charlie, without having all the data in front of me, I call BULLSHIT. Especially after you raised prices on 422 items just because you had crap negotiating skills and didn't get what you wanted.

Maybe they should rename it the PLCB principle.

Remember that the PLCB has over $1.7 BILLION in liabilities, they are a drag on the economy of the state and stifle a free market where large and small businesses do not exist because of their continued presence in the marketplace. They do nothing for the citizens, unless you happen to be one that works there. Even Russia has free market liquor stores. Pennsylvania doesn't.

New Positions, Old Positions

The PLCB says, over and over, they want to run like a business. I did a comparison of how they attempt to go about that in my "Run Like A Business - Really?" post at the beginning of this year.

One of the things businesses do, one of the most important things, is hiring personnel to do the work and run the operations. The PLCB way is not so much to hire qualified people in 99% of those occasions, as it is to prefer the policy of promoting from within. In general, though, those people know nothing about how real retail is run, because all they know is the Socialist Monopoly PLCB retail model, which has little to do being "run like a business." Governor Wolf continues the tradition of hiring hacks, people with no liquor retail experience, with his latest addition to the board.

Who runs the "business"? The Board seems to have abdicated that responsibility, reserving to itself the job of rubber-stamping license applications (and reading letters from the Governor), testifying to the Legislature about how wonderful things are (despite how they look), and hiring people to actually run the "business." People like Joe "Da CEO" Conti and John Metzger and whoever Metzger's replacement will be when he retires at the end of September.. Nice work, boys.

Now we have the new made-up position of COO (Chief Operation Officer), which you usually find in businesses with more than one thing going on. Maybe he is in charge of the liquor testing lounge too. Just another $120+K slot that didn't exist before this year, filled by another born and bred PLCB insider, the former Director of Retail Operations Charles Mooney.

Besides getting paid every two weeks, just what has Mooney done? Not much so far, that we can see. But that's not surprising, considering that he was the guy who took years to replace Renovo's store, a year to move the Mountaintop store 50 feet (give or take), and pulled the State Stores out of downtown Lewisburg and Lock Haven against the wishes of the community, the local Representative, and their state Senator. You can read some other consumer friendly (I'm kidding) things he's had his hands in here. I don't expect much to change in the new position. Charlie's replacement is another brainwashed 30 year PLCB vet, Carl Jolly, so you know there won't be any innovation happening, just like during Charlie's tenure. Same old, same old, that's the way we've always done it here at the good old State Store System.

I'm not sure how this is going to work. In a real business, all the "Chief" officers are higher up the food chain than Directors. But at the PLCB we now have a COO and have had CIO (Chief Information Officer), both ostensibly under the Executive Director, at least according to the PLCB's own wire diagram in their Fiscal Year In Review (page 9 if you are following along). Just like every business you've never seen.

It is a typical PLCB answer to a PLCB problem. Throw money (or in this case, Mooney) at it and see if that fixes it. Adding more bureaucrats to an already top-heavy, incompetent organization is not the fix that is needed. Neither is keeping and promoting the old guard who only know the PLCB way. PLCB lifers have no real business experience, because the PLCB isn't a real business.

But if the PLCB is intent on creating high-paying positions that they don't have anybody qualified to fill, I'll offer these suggestions so they can fully mimic what a real business does.

CXO - Chief experience officer - A chief experience officer is the officer responsible for the overall user experience (UX) of an organization. This executive is ultimately responsible for the strategy and user interface design to connect the consumer to the organization's products and services, and may further oversee marketing communications, community relations, internal relations and HR relations. This would then supply someone convenient to blame for the millions of customers who have and continue to have poor experiences with the PLCB. Very handy for the Board to deflect criticism; this should be someone especially expendable.

CFO - Chief Financial Officer - This person manages the corporation’s financial risk.  They deal with data analysis, financial planning and record keeping. Being $240 million in the hole might require somebody to blame, so who better than the CFO?

CHRO - Chief Human Resources Officer - With all the new hires, the PLCB will need to be open longer hours and Sundays, and deliver products. That's gonna take a CHRO to combat the likely 40% turnover rate for new employees (and to blame for it).

CMO - Chief Marketing Officer - Somebody has to be in charge of the new, exciting coupons (and take the blame for their inevitable failure to meet revenue expectations).

CRO - Chief Revenue Officer - You really need this guy to explain to the unions and other PLCB supporters (and maybe even the Democrats in the Legislature) that "revenue" is not "profit". 

CSO - Chief Strategy Officer - Somebody has to be the point of focus to fight every pro-consumer initiative, every threat to the status quo, and any changes that weren't approved by Gifford Pinchot himself. (This position is unique in that it doesn't accept blame, it creates it. Very useful.)

How a real dysfunctional business works. Maybe the PLCB's not that far off...

Of course, all of these people need to report to a CEO, which they haven't had since Conti smeared crap all over title like an incontinent monkey, so you can add that salary to the total. You should be able to waste at least a few million on these folks and their staff  in addition to your new COO position. To make sure you expend the maximum amount, remember to only hire people with no experience in real life retail or liquor — just like was done over the past 80 years.

The only way the liquor and wine business in this state will ever "run like a business"...is if it is a business. Even better: lots of businesses.

Privatize. Accept nothing less.