Gene Gene the wishing machine.

In an opinion piece in Thursday's Inquirer titled "Math supports modernization of liquor sales." , Representative Gene DiGirolamo (R-Bucks) demonstrates how much he enjoys the taste of the UFCW kool-aid, supporting his bill for "modernization" of the State Store System. He decries the "hype" surrounding his bill; there is none, but he's clearly trying to generate some. His main aim is to keep the State Stores open by any means necessary, because he's strongly anti-alcohol, and just as strongly pro-union ...and pro-union campaign support.

Gene and his bestest buddy, UFCW prez Wendell W. Young IV

Representative DiGirolamo -- Gene -- offers his piece as a discussion. "Some critics have questioned these projections, and I welcome the debate - provided it is an honest and transparent discussion that extends beyond sound bites." 

Okay Gene; let's go to the math, with an appetizer of economics first. The basis of any "honest and transparent discussion" is that the PLCB is a legal monopoly -- so any sales or "profit" increases have much less to do with the service, selection, convenience, or pricing being offered than with the fact that the citizens can't go anywhere else legally. As prices increase and population increases, sales will increase; that doesn't mean the monopoly is doing a good job, or satisfying the consumer.

On to the math. DiGirolamo says that there have been great increases in LCB "profits" over the past five years, but FY 2010 itself was horrid. Operating income was down almost 32% from the year before and was the lowest since well before 1999.  In fact, looking at operating income over the past 15 years, it declined in 8 of those 15 years (including last year) on a year to year basis and the long term rate of growth of the past 15 years is only 3.3% annually. Since inflation over that same 15 year period was 37.5% (2.14% annual compound rate for 2000-2014) the real dollar growth was only 1.16% annualized and that is nothing to brag about.

Getting down to the details of your "proposal", we can see that most of it is built -- appropriately enough -- on moonshine. Here's the specific proposals Gene makes, and the monies he projects that they will reap.

• Allowing more LCB stores to open on Sundays (currently only 25 percent can) and expanding the hours of operation on Sundays. Projected annual profit: $22.5 million.

To get an additional $22.5 million in profit means gross sales have to increase - using Gene's numbers of 6.92% profit margin - $325 million above what they currently are on Sundays, without taking sales away from any other day. This would somehow happen even though the PLCB said they would only be looking to open an additional 140-160 stores on Sunday, bringing the total to still less than half of the 605 stores they have open now. And the ones that are open on Sundays now are already the busiest ones. This seems far-fetched, if not outright misrepresentation.

• Allowing the LCB to locate more stores inside or next to grocery stores, beer distributors, and other high-traffic areas. Projected annual profit: $25 million.

The "store in a store" program has been authorized for 40 years and in place since 1981; no further authorization is needed. Less than 20 stores are taking part (fewer than were willing to take on a wine kiosk), so the odds of that somehow greatly increasing aren't good (even less for it happening quickly, since the standard lease is for 10 years). Putting stores near grocery stores should have been a no-brainer for the last 80 years, a prime example of how the PLCB has failed the consumer all this time. Gene claims this will somehow increase profit by another $25 million on top of the claims for Sunday sales. That requires another $361 million increase in sales to get there. Gene, you said you wanted to keep the State Stores to control liquor sales; looks like you want to increase them! Total sales increase needed for "modernization" to work: $691 million.

• Giving the LCB more flexibility in pricing, which would allow the agency to more quickly change prices to reflect market demand. Projected annual profit: $75 million

Be honest: you are saying the PLCB will be able to RAISE prices on popular items. That's the only kind of "change" that's going to happen, except for the occasional token lowering. That's not really going to help stanch over $300 million in border bleed or improve the notion that the state stores are competitive. How do I know that prices will go up?  If the PLCB is one of the largest purchasers of wine and spirits in the country, and are as effective negotiators as they claim to be, they should be getting the best prices on those purchases. To make any more "profit" above the 45.2% effective mark-up in place now, prices have to increase or costs have to decrease, and costs at the PLCB just don't go down. This is the keystone of Gene's "modernization" proposal; breaking the PLCB free of the regulated markup so they can raise prices. Everything else is window dressing.

• Speeding up the state process for reviewing leases for the state's Fine Wine & Good Spirits stores. This is a critical piece of the puzzle because it will allow the agency to more quickly open new stores in more convenient areas. Projected annual profit: $25 million.

I have to admit: I have no idea how opening new stores faster (with no mention of actually increasing the total amount of stores) will generate that much more income.  If the state store isn't open in one spot, the people are forced to go to a different state store. Think of the 2 years it took in Mountaintop to open a new store. Do you suppose the population stopped drinking because the store wasn't opened? That restaurants and bars no longer ordered any product? Gene thinks that sales will increase another $361 million if they open stores faster. I have my doubts. Total sales increase needed for "modernization" to work: $1.05 billion. With a "b".

• Allowing direct shipment of wine to Pennsylvania consumers while also permitting the LCB to ship products out of state. Projected annual profit: $25 million.

This one may actually make some money, but since no other state gets anywhere near 16% of their sales from direct shipments (another $361 million increase is needed) I'm not sure how realistic it is. Total sales increase needed for "modernization" to work: $1.37 billion.

• Installing lottery ticket kiosks in the stores. Projected annual profit: $3 million.

They may make some money on this, but it's all going to be siphoned off from other businesses. If the PLCB makes some money and small businesses don't make as much...they're on their way to a new monopoly.

• Allowing the LCB to join large purchasing consortiums to help lower the purchase price of wine and spirits. Projected annual profit: $10 million.

Besides the legality of this, other control states already have contracts in place, and all other control states except Utah allow private wine sales already, so this would be spirits only. That and the fact these consortiums don't exist yet may put a damper on the idea. And will the distillers give any additional price breaks? You can't stop selling Jim Beam because they wouldn't give you an additional nickel off the wholesale price. Again, I have serious doubts about this. 

So, Representative, please explain to us how sales will increase at least 62% above what they are now and how good that will be for the state. Sales in Washington - including increased border bleed - are up less than 15% and they have twice as many stores, open all day Sunday, Direct Wine Shipping by permit (the same as you propose), grocery store sales, and one stop shopping that you don't even propose: even if you double that because Washington only privatized liquor, you are nowhere near the increases you say will happen. Plus, there is no mention of cost increases for staff, admin, transportation, utilities, increased pension, medical or any other costs associated with a 62% increase in sales.

Open invite to Rep. DiGirolamo: if you respond, I'll publish it, but if you don't, I'll take that to mean you really don't want to have the debate extend beyond your own sound bites.

What's So Modern About "Modernization"?

The main alternatives to liquor normalization*, as proposed by HB466, are doing nothing...and "modernization." The Senate GOP got their chance at "doing nothing" two years ago when they torpedoed the House's last normalization bill. Now the other one's getting an outing; but just how modern is "modernization"? Let's find out:

The Democrats are in a full court press against liquor normalization, from Governor Wolf -- "I will veto the bill if it reaches my desk in its current form." -- to Representative Costa -- who puts his faith in the Governor's veto and one nebulous "modernization" plan -- down to little Democrat wanna-be Gene DiGirolamo, the Republican representative from lower Bucks County, who's been pathetically peddling his own "modernization" bill for two years, with no serious takers.

It's too little too late for the House: HB466 swiftly passed with a 114-87 vote on party lines (with four spineless Republicans deserting their party). The Democrats and their union foot-soldiers see the writing on the wall, the writing that says "30-20 Republican Senate majority," and they're nervous. They're talking tough, but they're relying completely on two things at this point: the past (and unexplained) reluctance of Senator Chuck McIlhinney (R-Bucks) to let a normalization bill out of his Law and Justice Committee, and the Governor's stated readiness to veto a bill..."in its current form" (emphasis added to a word that gives him some wiggle room).

If the governor full-out vetoes a passed bill, the Republicans on their own don't have the votes for an override, and they won't get any Democrats to go with them. That just won't happen. So it's possible the Governor offers a deal to get what he wants, and part of that deal may involve either open debate of the "modernization plan, wherever that may go, or incorporation of some of the modernization ideas into a watered-down normalization bill.

That begs the question: what do the Democrats (and little Gene) mean by "modernization"?

As you might expect from the crew backing the State Store System, it's a retro kind of "modernization." Here's what the plans offer.

Sunday sales -- Expand Sunday sales to all State Stores, and extend the Sunday closing time from 5:00 to 10:00 although the majority of stores close at 9:00 other days. Hmmm, let's see...so what? First, there are already over 150 stores open on Sunday, and they're in the most heavily populated areas, so not a huge impact. Second, and just to be petty: does this include the stores in places like Snow Shoe, and Clymer, and Knox that are only open three days a week now? The sad thing about this? It's the most directly consumer-friendly part of the whole "modernization" proposal.

Direct shipment of wine -- Kinda depends on what you mean. Do you mean that wineries and importers would be able to ship directly to you? Or directly to the State Store of your choice? (Wow, so convenient!) Because it depends on which Democrat you talk to. And keep in mind that they want the wineries to pay a hefty fee and do a ton of paperwork to support it and to tell them who bought what and how much; there's a limit of 9 liters/12 bottles a year (one case and you're done). Then you'll have to pay shipping, and...this really only affects a small number of high-end wine buyers. This one sounds good, but it's going to be bait-and-switch.

Wine and beer sales in grocery stores; cafe licenses and "store-in-store" -- A proposal to expand wine sales to grocery stores that have bought an R license to sell beer (with the stipulations that they must open a 30 seat cafe and ring up the booze separately from any food purchases...and limits on how many bottles they can sell at one time). This is not modernization, it's something the stores thought up, and are paying through the nose for because the state won't adjust the Almighty Liquor Code to allow it to happen without buying up an expensive bar license. (No one's said whether regular taverns will be able to sell wine, either.) If they DO expand the Code to allow wine sales by the bottle, they will make sure that the price isn't competitive with the State Stores. Count on that.
Then there's the bright idea to expand the "store-in-store" program, which puts a State Store under the same roof as the grocery store. Well, hooray. Fact is, "store-in-store" has been available since 1981, and since the big co-location push began in 2003 most supermarkets just aren't interested (read the sad story here). Bringing it up only sounds new because very few Pennsylvanians have ever seen one of these sorry things, or realized that it was particularly convenient when they did; after all, it's just a State Store that has a door that opens into a supermarket. Then there's DiGirolamo's idea, which is to put a free-standing 400 square foot "mini-State Store" with a limited selection of wine in grocery stores. It sounds like a wine kiosk, only there's always a clerk there, not just when it breaks down...well, okay, you're right, that was pretty much always. This isn't modernization, this isn't even a new idea. It's an old idea that already hasn't worked.

Extended hours -- First they tell us when private stores come in, people can buy booze at all hours of the night, and that leads to crime. Now they tell us they want to stay open later. You figure it out.

Sen. Costa illustrates how much prices could be increased
(or maybe he's ordering a Subway foot-long)

Price flexibility -- This is beautiful. Currently, the State Stores work on a regulated markup: every price is set to go up by 30% of the wholesale price (plus taxes and fees). They want to change this to allow the State Stores to set the margins as they see fit, "up or down," on different products. Given that the System's operating costs just keep increasing as a percentage of total revenue, how long will it be before all the margins are going up? (Keep in mind, increasing the overall margin was suggested to the Board as a way to "counter higher expenses" just last year by the PLCB's finance director.) Consumer-friendly? This is PLCB-friendly, it does nothing for you.

"Upgraded procurement guidelines" -- What does this even mean? Do you think it will be good for you? Do you think it's modern?

Personnel hiring outside the Civil Service system -- Yeah, that's modernization: the Civil Service rules are the only thing keeping the PLCB from being a complete patronage pit. They say they need it to hire people who know wines and spirits and promote people for product knowledge (then on another day, they'll insist that all of their employees are already wine experts and highly trained).

Increased licensing fees -- Charge bars and restaurants and beer distributors more to sell booze on the license they already have; charge them more to sell six-packs, charge them more to be open on Sunday, charge them more to sell both wine and beer. This isn't any kind of 'modernization,' this is charging everyone more for drinks in order to cover the PLCB's steadily increasing operating expenses.

Customer loyalty programs -- Because everyone has been asking for coupons and a PLCB "shoppers card." Haven't you asked for that? Isn't that modern?

Expedited review of leases -- Right. So they can move the stores around more without any input from the local community. More top-down Soviet-style planned economy crap. That's not "modern," that's 1950s-era thinking.

Enter into a buying consortium with other control states -- To lower prices. Really? If they get this and the price flexibility, they'll pay less to producers, they'll charge us the same amount as before or more, and -- you got it -- their operating costs will keep going up. And will selection improve? Never.

Self-service lottery ticket sales in State Stores -- This isn't "modernization." This is simply taking lottery sales and fees away from actual businesses, supermarkets and convenience stores. Next they'll want to sell snacks and cigarettes. The State Store bureaucracy apparently just doesn't like independent businesses. (They don't really like you, either; State Store employees refer to you as a "chronic alcohol user." Did you know that?)

That's it? That's "modernization"? Yup. Does it address the real concerns? No. There is:

• Nothing about more stores than the current bizarrely low number of about 610, when the average for a state our size and population would be, at the least, over 2,400 (but those increased operating costs mean more stores would utterly bankrupt the system)
• nothing about better selection in the stores (because they don't even know how to sell what they already have)
• nothing about taking down the insulting police-enforced monopoly that makes buying a bottle of wine in New Jersey a crime (there's been talk recently, sure, but the Legislature's been talking about getting rid of the case law for over 20 years)
• nothing about delivery to licensees (did you know that? Bars and restaurants have to go to the PLCB to pick up their booze, because the state agency can't be bothered to deliver it. Good thing, probably, because the increased operating costs would be huge! Forget the fact that private beer wholesalers somehow manage to do it...)
• nothing about breaking the case law (because they don't want to upset the beer business, which has been such a friend to them by killing normalization in 2012 UPDATE: Senator Brewster's latest modernization plan DOES contain language about lowering the case limit. You'll have to buy his whole bill to get it...)
• nothing about allowing any supermarket to sell wine and beer (without buying a scarce tavern license and adding a "cafe", something small family-owned stores simply can't afford to do)
• nothing about beer sales at convenience stores, drug stores, gas stations (that's so scary)
• nothing about how to even get this crappy system up to the level of New Hampshire's control stores
• nothing about fixing our crappy booze tax system (which currently makes cheap booze cheaper and expensive booze more so; just the thing to "control" consumption)
• nothing about improving service, which continues to elude them; at least, it does in all the stores we've gone into recently.

Nothing, in short, of any real value to the consumer. Modernization is a lie, a shiny glittering lie, just like a fishing lure, and the hook hidden inside is that it's an excuse to keep this creaking relic alive for ten more years without threat of normalization while we 'give modernization a chance to work.' But it won't. They don't even know what's really wrong with this horrible mistake of a retail system, which is why they can't fix it. They want to "modernize" it? They've had 80 years! How many more chances do they deserve? Governor Wolf says he's a businessman? MAKE IT A BUSINESS, many private businesses. It's not even radical; it's normal, just look at any and everything else you buy.

Normalization is modernization. Accept no substitutes.



*We're considering a change here. Changing the state's current monopoly on wholesale/retail liquor and wine sales is something both liberals and conservatives are in favor of, but calling it "privatization" gives its opponents a wedge to split off liberals who don't like the idea of privatizing more legitimate functions of government, like roads, schools, prisons. We'd use 'modernization,' but... We're going to try the word "normalization," given the fact that selling wine and liquor in privately-owned stores IS normal in the majority of the U.S. (yes, even in most of the "control states") and the world. We offer this idea for the supporters of real change to use.