Show me the money!

Bailment was supposed to be this great golden road to increasing the profitability of the PLCB. I'm not seeing it.

If you don't know, bailment is the term used by the PLCB where a product is shipped to and accepted by the PLCB's warehouse, but the ownership of the product doesn't transfer from the supplier to the wholesaler (the PLCB) until that product is actually ordered by a retailer (the PLCB again). It is used to save the wholesaler money because they are not responsible for maintaining inventory, the supplier is. The claim is that bailment reduced costs enough that the PLCB didn't have to borrow $110 million (interest free) from the General Fund to kick start their fiscal year, as they have in the past. Is that what's actually happened? 

It's pretty simple to check: if you don't have to borrow and pay back $110 million, you should have $110 million more to spend or save or invest at the end of the year. So where is it? 

We know it isn't being spent on inventory, since 85% of volume is in bailment, according to testimony given just last week by the Board. And we know that the amount turned into the General Fund hasn't increased by $110 million. It was $80 million in 2008 and it was $80 million in 2014. And we know that "Operating Income" hasn't increased by $110 million.

So where did that $110 million go? Operating income was $130 million in FY 2008 and only $17 million more (13%) in FY 2014 (even though gross sales were up 26% in the same time period, meaning 'profits' dropped significantly...but that's for another post). Operating expenses didn't eat it up either, the $64 million increase wouldn't account for it even if Gross Revenue didn't increase at all, which it did by $82 million. Net assets were $77 million in FY 2014 and $105 million in FY 2008 so it isn't squirreled away in assets either.

So I'm asking. Assume I'm a member of the public, your boss, supposedly — explain to me just where that $110 million went exactly? I won't think any worse of you if you say you just blew it on tasting rooms and such — it would be hard to think worse of you, honestly — but where'd the $110 million disappear to? Show me the money!

Still more fun with PLCB numbers - Update

Keeping up their streak, the PLCB is still giving discounts to those who drink the higher end items and shafting those who don't.  From the July meeting agenda.

See if you can find your own.

Item - Unit Cost - Retail Cost - Page# - What it should cost


Johnnie Walker Blue with glasses in Refgid Box
$166.41  $234.99   8        $255.27

Casanova Di Neri Brunello di Montalcino "Cerretalto" DOCG
$184.56    $258.99    35    $283.12

Casanova Di Neri Brunello di Montalcino "Tenuta Nuova" DOCG
$66.10    $72.99    35    $101.40

Cain Vineyards Five
$101.36    $149.99    39    $155.49

Jameson Rarest Vintage Reserve Irish Whisky
$221.94    $309.99    39    $340.46

Glenrothes 1978 Vintage Single Malt Scotch
$643.08    $849.99    40    $986.48

Glendronach 21YO Parliament Single Malt Scotch
$100.53    $124.99    40    $154.21

Retail price should be unit cost times the markup (30%) times the flood tax (18%), 

$X * 1.3 *1.18 = Retail Cost

Still more fun with PLCB numbers

Today we are going to look at some disparities in the PLCB mark-up.  Part of the so called "modernization" is to have variable pricing, where the PLCB would raise the price (change the mark-up) of Captain Morgan a quarter so they could lower the price of Johnnie Walker Blue, for example.

But first a little history. Remember the PLCB was tasked to come up with a variable pricing plan in 1985 (within the Liquor Code). They did, but it was never implemented according to the Legislative Finance and Budget Committee Performance Audit of  May1992. However, it seems that there is already a variable mark-up in use. Looking at the June PLCB meeting minutes on page 27 you'll see Chateau D'yquem Sauternes for a unit cost of $681.05 and a retail cost of $909.99. Now to get from unit cost to retail you have to add on the 30% PLCB mark-up and the 18% JFT. There are some minor things like roundup and bottle fees that might add a few dollars too.

So we have:  $681.05 X 1.30 = $885.36 which is the markup.
Now impose the Johnstown Flood Tax:
$885.36 X 1.18 = $1044.73

But $1044.73 is not $909.99! So who gets shorted? The State or the PLCB? If the PLCB gets shorted, then the markup is only 13%. If the state is being shorted, then they are only getting 2.5% of their Johnstown Flood Tax, and not 18%.

I'd like to hear that explanation. Is the PLCB just arbitrarily changing mark-up so their prices are somewhat within range of normal and not so high as to be laughable? If they are, then why does that have to be "modernized," since they are already doing it? I find it interesting and this is not the only one - just the most glaring.

Another from the same meeting on page 29: Chateau de Beaucastel has a unit cost of $383.71 and a retail price of $519.99; again the math doesn't match.

$383.71 X 1.30 = $498.82
$498.82 X 1.18 = $588.61
But $588.61 is not $519.99

There are more, and you can do the math yourselves.
Balvenie 17 Year Old Doublewood page 19
Meteor Vineyard "Perseid" page 30
Dos Armadillos Tequila Extra Anejo page 32

Clean-up on Aisle Math!

I can find examples in other board meeting minutes, in fact, every one I've looked at (although I haven't looked at all of them nor every item). So what is going on here? A Union representative said it was probably a reporting error, which, if true, would explain it all away, but then bring up the question of why are there so many and why is it only on high priced items? Why don't regular items have as many reporting errors? I've gone through a pretty good number of them and you are welcome to try too...but so far it is only higher end items.

Even more proof is the infamous Screaming Eagle Wine debacle when the PLCB not only didn't pay the Flood Tax, make any mark-up at all and lost over $7,000 on the original unit cost of 10 bottles. I didn't see any legislative action approving that. That seems pretty variable to me going from 30% to -25% and not collecting or paying any taxes.

Does this mean the PLCB is somehow giving a break to people who can afford $900 bottles of wine while shafting the average citizen? Sure looks that way but if any representative of the PLCB wants to offer an explanation, I'll post it. I know that the Office of the Chief Council of the PLCB reads this since she has searched me out, so c'mon Faith you or your minions pass this along to somebody who can answer it.

More fun with PLCB numbers

Remember that the PLCB say that they only have a 30% markup and that no private business could survive paying a wholesaler and selling a product at a profit for that amount. Prices will go up, they say, because there's no way they can sell you booze as cheap as the PLCB! They actually say that.

Well...like a number of things they say, it's true only on the surface. If you look at the agency's Income Statement for June 2012 to June 2013 you will see that Sales net of taxes is $1,731,463,014, while cost of goods sold is $1,192,047,304...which indicates a profit margin of 45.2%. All sorts of businesses can operate on a 45% margin. So how does the PLCB get from 30% to over 45%?  They have bottle fees, bailment fees, "rounding," and probably some miscellaneous stuff we don't know about. Do the bottle fees and rounding account for an additional 15 percent of PLCB  markup?

According to the PLCB itself, it does. This quote is from PLCB Consumer Relations in an email they sent me. "According to our Bureau of Financial Operations, apart from some other minor influences, the bottle fee and rounding do account for the approximate percentage you note of gross revenue on a yearly basis."

Let's look at the last board meeting from April 2 to get an idea about how quickly the price can jump once the PLCB gets hold of a bottle. We'll start with these:

Item..............................................Unit cost...Sale Price..Markup
Shoofly Chardonnay                      $6.05       $10.99      81.6%
Woop Woop Chardonnay               $6.10       $10.99      80.1%
Sassello Morellino di Scanzano      $6.12       $11.99      95.9%
Camara Alta Tempranillo Navarra    $6.33       $11.49      81.5%
Domaine du Chapitre Touraine Blanc $6.47       $11.99      85.3%
Wine By Joe Pinot Gris                    $6.55       $11.99      83%
Chateau Ste. Michelle Dry Riesling   $6.75       $11.99      77.6%
Chasseur Des Brousses                   $6.87       $12.99      89.1%
(Markup for this list is total markup with 18% JFT)

As you can see, a few cents difference -- with the 30% markup + the bottle fee + "rounding" -- can equal a large amount of change in what the PLCB charges the consumer and what their real total markup is.

And think about it. What this means is that even with a 45% total markup the PLCB can't afford to have as many stores as they did 20 years ago, let alone the 750+ they had in the 1970's.  They can't afford to hire and maintain workers at the highest end of retail and still provide the service they are required to provide. Even with a police-enforced monopoly, their business model doesn't work anywhere near as well as the private sector.

Life in Pennsylvania: where the police will tell you what legal products you can buy and where you can buy them...and if you try to buy them somewhere else...they'll arrest you. 

WE DESERVE BETTER - PRIVATIZE!


Yes, the picture is fake but the verbiage isn't. Duh. It's what we call a parody, or exaggeration, a photographic catroon. The difference is, unlike everything Wendell W. Young IV says about the PLCB, we admit that it is bullshit.