How PLCB buying power incompetence has cost you and me Billions

In my last post, PLCB "Buying Power" A Myth, (which you really should read first), I told you how for the past eighty-plus years the PLCB's incompetence in not negotiating or even trying to negotiate the best prices for Pennsylvania liquor prisoners should damn them for all eternity to the lowest circle of Hell, the one Dante reserved for people who betray those whom they should serve.

As always, we are going to provide some numbers to show what they've cost you. I'm going to use the largest selling whiskey in the state as an example, the standard 750 ml Jack Daniel's Old Number 7. (I thought I would use that because when the PLCB reads this (and they do), it might reinforce how to spell Jack Daniel's correctly, since they seem to have a problem with that.)

We are going to compare Pennsylvania prices with the state that has the 2nd highest liquor taxes in the country — Oregon, also a control state with uniform prices — and see who at least attempts to take care of their customers: the PLCB or the OLCC.

From the PLCB we know that (non-negotiated) cost +30% markup (required by law) + handling fee  (arbitrary) + 18% Johnstown Flood Tax (levied on the price) + rounding up (always up!) to nearest .49 or .99 (just because) = Retail Price. In this case, our bottle of JD has an initial cost of  $14.46. so putting that into our formula we come up with $14.46 + 30% ($4.34) + Handling fee ($1.20) + Flood Tax ($3.60) + Roundup ($.39) = Retail Price of $23.99.

Oregon doesn't give us their unit price so we have to work backwards from the retail price to figure out approximately what their cost price is. Oregon works on cost + 79.8% markup + $1.40 Handling fee + $.50 per bottle surcharge + roundup (to nearest .05). Oregon's shelf price for a 750 ml bottle of Jack Daniel's Number 7 is $24.95 or about $1 more than PA. Taking that $24.95 and working the formula backwards we subtract the roundup (which we'll call zero, because the price is already at $X.95, and we don't really know, except that it's not much). Next we subtract the surcharge of $.50, which gives us $24.45. Then we take out the handling fee of $1.40 to leave us with $23.05.  Taking out the 79.8% markup ($23.05/1.798) ends up with a cost price of $12.82 at most (it's unsure because of the unknown roundup, but it's less than a dime difference). Remember: PA is paying $14.46.

Hey, but Oregonians still pay more on the shelf, so Ha-ha! Only...how much is the PLCB's "non-negotiable" system of costing and pricing costing you, when you compare it to the unit price the OLCC is getting? Easy enough to find out. Put Oregon's cost into the PA formula. $12.82 +30% = $16.67; adding $1.20 gives you $17.87; drown it in the 18% Flood Tax, and that brings it to $21.08, then add the roundup…and you end up with $21.49, a $2.50 savings ON EACH BOTTLE, if only the PLCB did their job. PLCB incompetence in business cost PA consumers over $6.1 Million extra on Jack Daniel's alone last year.

You're getting screwed out of $2.50 every time you buy a bottle of Jack — remember, that's only one example — because the PLCB can't be bothered (or doesn't know how) to use their "massive volume leverage" to get the same price little Oregon does. Multiply that by how many millions of bottles they've sold since 1934, and that is how much they have cost the consumers of the state. An amount you have been paying extra for all these years because of PLCB ineptitude, laziness, and their "we don't give a shit, we're a monopoly" attitude. Far more than any so-called "profits" they have ever turned in.

Remember: this isn't a tax that's being levied on you that's going to benefit the Commonwealth, it's not a fee you're paying to the PLCB to pay for alcohol enforcement, it's not "profit" that gets sent to the general fund whether it's real or just hidden pension funds...it's money the PLCB doesn't know how to get from distillers, vintners, and importers. It's gone to line their pockets, exactly the people who the PLCB apologists rant and rave that privatization will somehow steal all your money to pay. Too late: they've already got it, had it for decades, thanks to the PLCB.

Is this the system you want to keep or do you want them to "modernize"? Because "modernization" and "flexible pricing" will just cost you more by statute instead of by PLCB incompetence; the only difference will be that the PLCB will waste the money on Increased Operating Costs to fuel the Boondoggle Machine. I say we privatize and let business people run businesses and end the PLCB screwing of the public.

PLCB "buying power" a myth

This is the single most important piece of information I've written about.

The House appropriations committee had the PLCB in for their annual hearing on February 25th, and besides the normal tap-dancing that they do ("Well, sir, it's my personal feeling that we'll meet those goals, yes"), the Chairman of the PLCB let it slip out that the PLCB doesn't really have any buying power.

Ooops! In a response to a question put forth by the Appropriations Committee about where they might be able to find more income, LCB Chair Tim Holden said that because of the current 30% markup structure, the board can't negotiate for the best price. According to Mr. Holden, the manufacturer sets the price they want to sell their product for, and the the PLCB backs down from that through the 30% markup, 18% Johnstown Flood Tax, bottle fees, and whatever other charges they have that they've hidden from you, to come up with a buy price that they will pay. Unlike a real business that tries to get the best possible price and then adds on what it needs to make a profit and cover expenses.

This quote is taken from the Appropriations meeting; you can see it here, at about 2:43 in. Holden says, "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. And we believe that the money that can be made by negotiating a better price on different products is where the greatest amount of [increased] money can be achieved."

A little later, Board member Mike Negra backs him up, even more clearly: "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. Not necessarily your typical retail relationship between us and the manufacturer. We can't really leverage our ability of purchasing, our 'buying power' is not really leveraged in that manner. There are significant dollars, we believe -- it'll take a lot of time, it'll take a real learning experience for our vendors and for our buyers to change that." Remember: Negra is the first Board member in a while to have any actual retail experience!

Now I can understand why the lazy way is taken. It is less work for the PLCB if they don't negotiate every price. But I have yet to find any justification in the Liquor Code for the attitude that they can't negotiate for the lowest price, which is what the board members are saying here. That reasoning seems to go against the what the Code says the Board should be doing already. The Code says the price has to be "proportional," not that it has to be proportional from the MSRP or that it can't be negotiated.

Section  2-207 (b) of The Liquor Code under General powers of board says: "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." Isn't that the definition of 'buying power'? If they aren't negotiating prices, which the Chairman says they are not, just how are they leveraging their volume purchases beyond what the vendor says they will give? As Negra admits, they aren't.

I'm going to say this in really big letters so you can't miss it.

There is no volume discount on standard stocked items, because the goal is to sell them at MSRP.

If you are the 2nd or 3rd largest retail buyer of ANYTHING and don't try to get a better price, then the entire organization needs to be replaced, eliminated, done away with for sheer incompetence.

The board not only doesn't want to save you money, they want to take away what money they could save you by negotiating lower prices by using the nebulous "flexible pricing" they want as part of "modernization." Believe this: "flexible pricing" means negotiating a lower price and still charging you the higher "MSRP" they charge now, and keeping the difference. At the PLCB, they don't care about the consumer. All they care about is covering their ever-increasing expenses so they can keep the boondoggle machine running at full speed.

Do we really need this? Privatize and let real businesses try to save you money by being in competition with other businesses, because they're motivated to keep you as a returning customer...rather than knowing that you have to come to them because that's the law.

Honestly? Sometimes you have to wonder how stupid we all are for putting up with kind of crap for eighty years.

Almost but not quite

In a surprise move, what can only be called a New Year's Miracle, after over 80 years the Pennsylvania Liquor Control Board has almost learned how to spell Jack Daniel's across its entire inventory, and they almost know what kind of liquor Jack Daniel's is for every entry. 

I've written about the PLCB's lack of inventory skills pertaining to JD quite a few times. I even sent them an email listing every mistake they made, and over the past few years they have slowly fixed most of the mistakes. Why slowly? Who knows, it takes just as much effort to call up the database entry on one listing as it does on all listings of Jack. Then it is just a simple matter of seeing if all are spelled the same, and — just a reminder, because it is the PLCB — correctly. It's Jack Daniel's.

I'm the PLCB. I order it, warehouse it, ship it, stock it, inventory it, and sell it. You expect me to know how to spell it too?

I would think that having a correct inventory would be a fairly important thing, I know it is in my business, especially for my #1 selling item.  However, this is the PLCB we are talking about and they don't seem to think so. If I can ever get them to get all of the Jack Daniel's products spelled correctly I'll start working on getting them all classified correctly. They've had a problem with that for years too.  There is no Jack Daniel's that is a blended whiskey as somebody in the PLCB thinks there is and has thought for well over a year now - just for an example. If I get that accomplished, I've still got years to go: they have hundreds of other mistakes I can use later.

Just one of the many examples of why the PLCB will never be a business, never run like a business, and never satisfy the consumer like a business.

THEY DON'T CARE

It isn't just in inventory, it is in every facet of the organization. Inventory is just something that every citizen can see and track and laugh at their incompetence on a daily basis.

They don't care what you want. Just think about how the PLCB was (and still mostly is) before the privatization push of the past few years 

They don't care what the community wants, as seen by examples in numerous communities, Lock Haven being a prime example. Or how about the YEAR it took to put in a new store in Mountaintop in the same shopping center as the old one. Or the fact that the PLCB can and does force a store into a dry community.

They certainly don't care about convenience. Closing over 20% of the state stores proves that.

They don't care about the consumer. Not having a single highly certified person selecting product for the entire state proves that. Not only don't they have a Sommelier in the PLCB to help select wines, they never have had one unless you counted a part time consultant (and she doesn't work for them anymore).

Privatization fixes all of that, increases employment, allows entrepreneurs to come up with new and inventive products, sales and marketing. Provides what the consumer wants, because if they don't, there is always a competitor who will.  Removes the unqualified from deciding what the ENTIRE STATE is allowed to buy, and increases convenience and selection.  

The PLCB can do none of these things.  Painting a turd pastel colors, putting baskets around it and changing the name to "Excretion" does not change the way the turd got there to begin with. Such is the problem with the PLCB.

Privatization is the REAL modernization.