Don't Forget: it's not just the State Stores and the Case Law

I don't want to lose focus on privatization, because we've all got to keep letting our representatives and senators know over the summer that we want them to use the September legislative session to get this done: no linkage to the Transportation bill, no linkage to Corbett, just "linkage" to what their constituents have wanted for 40 years... We hear about "package reform," which is Legislaturese for "fixing the case law," but their idea of "package reform" is just another set of stupidly arbitrary limits on how much we can buy and where we can buy it. It's really simple: no limits on how much or how little beer we can buy in one transaction at one store. Fix it.

But there are other problems. I was reminded of one of them while I was reading this Washington Post article on how the beer scene is growing in Washington, DC. Washington beer bars have -- have always had -- a regulatory edge on their competition in Maryland and Virginia: no registration laws, no wholesaler exclusivity laws. The reporter explains how that works by comparing the two situations:

Suppose a Maryland or Virginia beer bar wants to sell a hot new release. The beer bars have to make sure it’s approved for sale in the state, call a distributor to see if it’s available in the warehouse, then arrange delivery to the bar. (This is what’s known as the three-tier system.) If a D.C. beer bar wants to bring in the same beer, it just calls the brewery or the local beer rep, orders the beer, has it delivered and pays D.C. sales tax on the purchase price of kegs or bottles. Any beer, from anywhere, can be sold here.

The article goes on to point out that enterprising retailers have driven hundreds of miles to purchase rare beers and bring them back. And...what would be so horrible about that? Well, for one thing, the Pennsylvania beer excise tax would have to be paid. It's not much, one of the lowest in the country (which means one of the lowest in the world, hallelujah), but it does have to be paid. Luckily, it's based on something very simple: volume, which means a standard table could be whipped up pretty quickly for 24-bottle 12 oz. cases, sixtel kegs, 12-bottle 22 oz. cases, and so on.

The major difference for the State? The bar would be responsible for paying that tax rather than a wholesaler, and would, presumably, be responsible for keeping a paper trail. Still...most bars would continue to buy the same old stuff from the same old wholesalers; that's where wholesalers in other retail markets make their money, off convenience and service, rather than laws that force retailers to buy from them at whatever price the wholesaler happens to set (or is allowed to set; some states have maximum markup laws).

Getting rid of beer registration would be ridiculously simple. It was obvious during the Beer Registration Raids Hearings that no one could give a straight answer on why beer registration even existed. It's likely that the reason it does is closely linked to wholesaler exclusivity; beer registration involves the brand, the producer/importer...and what wholesalers have the rights to sell that beer in the state.

So the two are linked. Well...maybe it's time to take a serious look at this anti-competitive combine of laws, and determine whether it's really serving the Commonwealth and its citizens, or if it's only serving a small number of businesses at the expense of the Commonwealth's beer drinkers.

Is This A Look At What Our Privatization Will Look Like?

Governor Corbett has unveiled his plan for privatization, and it's radical in scope, going well beyond last year's mangled piece of legislative committee crap. The Commonwealth Foundation has a good precis of it here, and the Tribune-Review has a better one here, but they don't get all the gimpy little details that are one of my major problems with the Corbett plan.

Actually, before we get to the little things...let's get to the big one: the police-enforced monopoly is still there. For no apparent reason other than to screw with us, there's nothing in here about allowing Pennsylvanians to pick up a bottle of wine on their way home from Baltimore, or New York, or work, for the large number who commute across the Delaware. That's right. Big Daddy in Harrisburg is still going to tell you where you can buy your booze: only in Pennsylvania. Sorry, gotta be blunt: that's un-American bullshit. Laws that tell me I'm not allowed to buy a bottle of gin and bring it home? Don't insult us: FIX THIS!

Now, those little details... The Corbett Plan gets rid of the Case Law, but does it by breaking it up into a bunch of ridiculous NEW limits that are going to have you carrying a card to remind you what you can buy where. The Inquirer explained it like this last week.

Under the plan, retail beer distributors, who now can only sell by the case or keg, could apply for a license to sell the alcohol trifecta: beer, wine, and liquor. Supermarkets could sell a customer up to two six-packs of beer, and up to six bottles of wine. Convenience stores and drugstores? A six-pack to go, no wine. Restaurants and taverns, which can now sell a customer no more than two six-packs of beer, could sell up to six bottles of wine. Big-box stores [Wal-Mart? Target? Home Depot?] would be allowed to sell beer by the case and up to six bottles of wine. In a nod to beer distributors, Corbett's plan would let them apply for "enhanced" licenses, allowing them - for the first time since Prohibition - to sell by the six-pack.

Get all that? Doesn't it just make you want to ask WHY?! Governor, there is no good reason to put limits like this on retail. Just have a beer retail license, and a wine retail license, and allow stores to buy one, the other, or both. Done. And if I want to pay their prices, I go and buy as much or as little as I want. Don't make us do that foolish "buy two, step out, step back, buy two more" dance anymore, it's just ridiculous.

Worst of all, you're compromising with a group that doesn't exist. The social conservatives and MADD don't want supermarkets and convenience stores to sell any wine or beer, so limiting it to half a case and six bottles won't make them any more likely to support this -- or, more aptly, acquiesce to it -- they will hate the whole idea, and still vote no. And if you succeed without them, we'll be stuck with a compromise that did nothing. Drop it.

Jon Geeting of Keystone Politics is passionately progressive and fully supports privatization; we've discussed it and come to large amounts of agreement. He's written some great stuff here and here, and here, where he argues that Corbett's plan is not radical enough, that it needs LESS regulation to open up MORE competition. (That's my kind of Progressive!) He's also in on a gallonage tax to replace the price-based Johnstown Flood Tax, which is another good idea: it makes cheap booze (also known as "wino fuel") more expensive, which would actually do something in the direction of, you know...control.

But I do like some things. Quite a bit, actually. Like this:  

• The State Stores go away, and the State is no longer the wholesaler! Which means we start to have a LOT more input on what's available for sale.  
• Taxes don't change. So unlike Washington's greed-driven failure, our prices don't automatically go up (which would be blamed on privatization). 
• Beer and wine sold in grocery stores. Look, I love my beer distributor. Actually, quite a few of them. Great guys, and they've supplied us with great beer. But...it's a LOT easier to buy beer and wine in the grocery store. Easy = good.
• Beer distributors can become all-alcohol stores. And I hope they do. Because I LOVE all-alc stores like Total Wine, and Canal's, and Bev-Mo, and Binny's. Huge selection, smart staff, great extras, full-on booze coolness. I like small specialty places like Park Avenue and Federal and Moore Bros., too: excellent service, the exclusive bottlings only they get. It will take an investment in space and stock and smarts...but it will be worth it. 
• The number of licenses to sell off-premise spirits doubles. It could be a lot better, but double is pretty good. I'd like to see it double again, but for now...it's one hell of an improvement. 
• Annual license fees. Because having the State issue the license and someone else make the money drives me crazy. It still costs the licensee, but the State gets it. 

There is room for improvement -- get rid of that police-enforced monopoly! -- but this is the best plan I've seen in my lifetime. Let's go for it.

The Beer Law Forum at Yards last week

As I warned you, we had another Beer Laws Forums at Yards Brewery in Philly last Thursday, set up by Philly Beer Scene. Senator Chuck McIlhinney was there, as were Bill Covaleski, of Victory Brewing Co., representing the Brewers of Pennsylvania, and Mike Gretz Sr. of Gretz Beer Distributors, representing things from the wholesalers point of view. I was on the panel representing the drinkers, and Tom Kehoe of Yards moderated. 

This was quite timely. Senator McIlhinney is going to be the new chairman of the Senate Law & Justice Committee (which handles liquor control), and to have him this engaged was great. He's obviously actively seeking input on this. We went right to him out of the box, asking why we had no sixpack sales in beer distributors. He started going off about grocery stores and the three tier system, and I interrupted him to explain that we were talking about the case law: why can't beer distributors sell beer by the sixpack? It would seem to be pretty simple.
 
But that set the tone for the whole night, and a frustration that has become familiar to those of us who want to rewrite The Almighty Liquor Code. It's because, he said, there are 22,000 licensees (tavern and deli licenses and such) in the state who don't want to lose their sixpack business, and they all vote. It quickly became apparent from audience comments that their employees vote too. But what about us, I responded: there are millions of us, and we vote. How can we make that important? It was a question we tried to get answered all night; we got something toward the end.

That led into a fairly simple question by Tom Peters at Monk's Cafe: if a beer is not registered in the state, and they want to get it in for a trial run, or a special event, is there some way to get it in without giving all the distribution rights to a wholesaler? Mike Gretz took that one and seemed to be saying that you could already do this under current state law (but several people in the room who are quite conversant with The Almighty Liquor Code told me that this was simply not so; I'm not sure). 

(Gretz took the opportunity -- as he did at least one other time -- to speak about the family businesses wholesalers represented (and the jobs), and the almost sacred trust of controlling alcohol abuse. I didn't agree with some of it -- it's just a defense of the three-tier system that wholesalers have been using successfully for years -- but I'm not insensitive to it, either. It's just that I can't help noticing that other states have sixpack sales AND sales in grocery stores, and there are no roving gangs of boozed-up semi-zombies there. Food for thought.)

Tom Peters would be quite vocal in support of the tavern owners' interests (understandably so) through the night. What are the tavern owners' interests? They have an asset -- their license -- that is quite valuable, worth tens of thousands (or even hundreds of thousands) of dollars, and they don't want to see anything happen that will decrease the value of that license. Beer distributors selling sixpacks will cut into their sixpack business. Well...maybe. But the grocery stores that bought bar licenses to sell sixpacks are cutting into it now, and the fact is that for most licensees, sixpack sales are a tiny part of their income. Even those who have used their license to run sixpack stores would probably be able to compete, though with lower markup and more effort. But if they're going to give that right up, they want something in return, and that...is where politics and the art of the possible will come into play. 

And that is why we have no sixpack law, because the tavern owners haven't been happy with any deal they've been offered. I get that it's their family business, their livelihood, but...we vote too. Maybe, with an activist leader coming to the committee, it's time to cut that deal.

Speaking of cutting deals, we did get into privatization. The senator is backing a plan to sell wine and spirits by the bottle for takeout at bars. The licensee would pay a $10,000 annual fee for that right (this would obviously lead to the equivalent of specialty bottleshops like The Foodery, but for wine or spirits, or both). Tom was skeptical; many places don't have the room for the inventory that would require. Well, then don't get the license, or figure something else out: if there's money to be made, people will figure out a way to make it. 

That's 22,000 possible additional liquor stores, of course, and that sounds interesting, until you understand that the Senator's plan still has the PLCB as wholesaler. So there's your selection, shot in the arse. Although who knows, if they don't have to figure out how to sell it, maybe they'll actually get some good stuff in? Thing is, we don't know, and that's when I blew my top and started shouting. I thought this was an idiotic plan -- I still do -- and that it's not really what we want, which is privatization. I calmed down, embarrassed, but still angry.

Then the Senator pointed out that while he would like to replace the state stores with private outlets (that's a paraphrase, I didn't get the exact quote, but it's very encouraging from a state senator running Liquor Control), we had to realize what he had to work with. "40% of the townships in Pennsylvania are dry," he said. Let me repeat that: Senator McIlhinney said, "40% of the townships in Pennsylvania are dry."*

That may seem crazy in 2012, but consider. NONE of the townships in the five counties in southeast PA are dry, so we're not the best judges down here. I do know of dry townships where I grew up in Lancaster County; they're still out there, and they don't go wet. As the senator said, increasing the number of licenses sounds great to you here, but when he goes out and to try to convince a senator from Adams County (west of York) on this, he doesn't get a lot of support from the area. It's pretty rural, pretty conservative. 

I think that was when we got a great comment from the audience: If alcohol is so important and dangerous that you can't privatize it, why are we privatizing schools? The wholesalers and tavern owners talk about family businesses, my parents are educators, this is my family business, and you're privatizing the education of your children. If you can do that, why not wine sales? The Senator denied that schools were being privatized -- maybe not up where he is, but in Philly they were -- and the whole thing got a bit disjointed, but it was an excellent point. It also underscores that most of the arguments against privatization are about union jobs and tax revenue, not health and safety.

We decided it was time to wrap things up, so we asked the Senator: what do we do to get through to our legislature that we want this to happen? Show up at things like this, he said: done. Write to your legislators: do it. What about other legislators? He kind of chuckled: you don't vote for them, so they won't really be impressed. Maybe, but...it can't hurt (I wrote the governor, too, BTW).

The thing is...to get their attention, you have to write often, and there has to be a LOT of you. We are going to have to organize, and as this is all going to start up again in February, and we don't even have buy-in on what it is we want...that's daunting. So by the end of the week: I'll have a punchlist of what it is we want. We'll go from there.

Remember: Privatization IS Modernization; an End to The Case Law.





Note that this 2009 newspaper piece gives a number of 28% of the townships and municipalities as dry, and 12% of state's population lives in them. Even though that's less than 40%, it's still a lot.

Crunch Time -- A Bill is in Debate

I don't have time to explain why I've been silent here for over six months -- a lot of it was work, and some of it was that I did a lot of talking on Facebook, which I now realize was wasted -- but that's not important right now. What is important is that HB 11, a privatization bill, is being debated in the Pennsylvania House today. Debate began last night, and continues this morning. That's exciting, but...the bill needs a LOT of work.

I've got some suggestions. Oddly enough, I got into an email discussion with Jon Geeting, who's involved with the Keystone Politics blog, "Pennsylvania's source for liberal political news and commentary." Jon's an example of why this is not your typical privatization battle, which usually lines up as liberal vs. conservative, free marketer vs. union supporter. Jon recognizes that the system we have is not as it should be, and while we don't see eye-to-eye on the taxes -- though we're not 180 degrees opposed -- we agree on a lot about the state's dysfunctional liquor code.

As I said, we got into a discussion recently, and came to six points that we agreed on, and think should be in any Pennsylvania booze privatization bill. Note that there is nothing in here about the actual end of the State Stores -- except that point 1 covers that effectively; they won't survive the competition -- or the union, because that's up to the legislators. Jon posted them yesterday at Keystone Politics, and I realized that it was time to blow off the cobwebs here and get back in the game. Here are the six points. They're somewhat controversial...in Pennsylvania. In other states, they're ho-hum standard.

1. Let supermarkets sell beer, wine and liquor, effective immediately. -- In Portugal, they sell bottles of whiskey in coffee shops; you can buy beer in supermarkets in most of the states that border PA, you can buy champagne at convenience stores in Virginia...and yet, no one's rioting in the streets. What's the big deal?

2. Charge a flat fee to any business that wants to sell booze – no cap on licenses. -- Pennsylvania's licensing system is broken, it makes no sense for the state, and the artificial limits on licenses penalize areas that are experiencing growth. Liquor licenses sell for upward of $300,000 in some counties...and the State sees only a puny annual fee from that. Get smarter: charge what a license is worth, and charge it every year.

3. Tax volume, not value. -- Pennsylvania's hated Johnstown Flood Emergency Tax is not going away; the State gets revenue from that tax, and booze taxes are an unfortunate reality. But most other states have a gallonage tax, that is placed equally on wine and spirits by the "proof gallon," a measure of volume of alcohol, rather than the way Pennsylvania does it, which is by a percentage of the price. What Pennsylvania's tax does -- unintended consequences -- is make blotto booze (cheap wine, cheap vodka) even cheaper, while making better booze even more expensive. If we're taxing alcohol for some health or moral reason, the gallonage tax is more honest; if it's just about raising revenue...well, why not put an excise tax on everything and share the pain?

4. Allow Pennsylvanians to buy wine, spirits, or beer in other states, or through the mail/Internet from anywhere, without penalty. -- End the police-enforced monopoly. This is pretty simple. The only reason this unAmerican, anti-federal "stop you at the borders" law is even allowed is because of an overactive interpretation of the 21st Amendment. After all, I'm allowed to buy gas, food, books, clothing, whatever I want in New Jersey or Ohio; why not booze? We're American adults; we deserve to be treated that way.

5. Allow any authorized retailer to sell beer in any volume they desire, without fake restrictions. -- End the case law. Now. End all artificial restrictions on how little beer someone can buy in a single purchase, as well as how much. The case law and its tavern corollary, the "two sixpack" law, make no sense. They are there as a favor to business, not for any kind of health reason, and certainly not for the Pennsylvania consumer. Or the Pennsylvania voter. The Legislature has fiddled around for years over this simple change. Shut up and do it.

6. Open up the wholesale market to more competition. -- More wholesalers means more competition, which means better prices and service. Charging $100 million for a wholesaler license is not a way to get more wholesalers. End state-required exclusivity contracts for products; if a wholesaler and producer/importer want to enter into an exclusivity contract, that's up to them and their lawyers, but the State has no interest in mandating it. Another law that was written by the industry...and it's about time we got laws written for the consumers.

These six points will make me no friends in the industry. They completely upset the apple cart, and may ruin long-established family businesses. But they will create new businesses, and the solid family businesses will thrive and succeed...as long as big businesses, chain retailers, aren't allowed to write this privatization bill.

We get one shot at this. Get in touch with your Representative now, today! Tell them you want a better privatization bill. You want a fair privatization bill. You want them to work for you.

Retail Booze Privatization: why HB11 doesn't cut it

HB 11, a bill proposed by House Majority Leader Mike Turzai back in July, is still the standard bearer for privatization. Privatization currently has the support of Republican Governor Tom Corbett, who has majorities in both houses of the legislature (although the Senate Republicans are stalling, possibly trying to squeeze out a deal on a Marcellus Shale "tax"). To make things more likely, the PLCB has obligingly stumbled badly in the past two years with: 

• two contracts of questionable ethics and effectiveness – one for the wine kiosks, the other for 'courtesy' training
• the embarrassing public failure of the wine kiosks (and a clumsy attempt to cover up a strongly negative internal review of the idea)
• a disastrous install of a $66 million inventory system that led to a gross overbuy of inventory (which then had to be stored in trailers in summer heat) and a shutdown of licensee deliveries pickups (the PLCB doesn't deliver...what was I thinking?!) for a week
• a still-simmering corruption debacle at the Philadelphia warehouse in which over 20 employees were suspended (and another cover-up)
• a complete fiasco over beer registration raids on three Philadelphia bars that led to very uncomplimentary hearings on the subject
• a frustrating inability to promptly close nuisance bars
• and a baffling failure to turn significant 'profits' with a police-enforced monopoly on sales of wine and spirits

This is the time to strike on privatization, and as you know, I've been all for it. I've called for it, argued for it, howled for it. 

But unless substantial changes are made in HB11, I cannot support it. 

It is not a question of the perfect being the enemy of the good; this bill has fundamental flaws that are simply not in favor of the citizens of Pennsylvania. I believe that they will result in the replacement of an unresponsive public monopoly with a poor selection of goods…with an unresponsive private oligopoly with a poor selection of goods, and I cannot support that. We have one chance to get this right, because changing the laws again will be even tougher. Let's have a look.

First, and most important to me, HB 11 does nothing about the intolerable police-enforced monopoly. If it passes as is, Pennsylvanians are still forbidden by law to bring home a bottle of wine from New Jersey (or Maryland, or Delaware, or New York...). I've been assured directly by Representative Turzai that the police will no longer enforce this, but that's not good enough. You're a legislator; don't tell me the police won't enforce a despicably un-American law; change the law. When so much of the state's population lives in the tight pocket of the southeast, just across the bridges from huge liquor stores, to do anything else is simply ridiculous. Kill the monopoly, encourage competition. The only reason this is even faintly legal and constitutional is because of the overboard interpretation of rights granted to the states through the 21^st Amendment by federal courts; there is no such monopoly on any other goods. The police-enforced monopoly is insulting and intolerable. I cannot and will not support HB11 or any other privatization proposal that does not end it, and neither should you.

Second, the proposed wholesaler fees for exclusivity of brands pretty much guarantee a smaller selection of wine and spirits. Nathan Lutchansky (of the PLCB Users Group blog) has explained this in greater detail than I'd care to replicate; read it there. You'll soon realize that this is a non-starter. Why is this here? Well...maybe this is the reason (and Turzai's general counsel Jim Mann is extremely protective of the bill as written, BTW). Clean bill, please: do-over time.

Taxes are another issue: they're too high. Turzai has replaced the insulting “Johnstown Flood Emergency Tax” with a more rational gallonage tax, but it attempts to replicate the revenues from the onerous Johnstown tax – plus state sales tax, plus the PLCB's “profit” that goes to the state (not really "profit," but a somewhat arbitrary number set each year by the legislature; didja know that?) – by boosting it to crazy high levels...more than twice the taxes in neighboring states. Again, Lutchansky hasthe numbers on this; have a look (see his "Issue #2"). The taxes on wine and liquor simply do not have to be that high. They're unfair at those levels; why should I be paying so much more to fund state programs that benefit everyone just because I drink -- moderately!? Now's the time to make these taxes more equitable, instead of some of the highest in the nation (which is weird, because we have one of the lowest beer taxes...). Replace the revenue with a shale gas tax if you have to.

A huge problem: what about beer?  Why hesitate when we can fix some of the most egregious problems with a couple quick penstrokes (see below) Get rid of the insane case law, now! While we're at it, do away with ALL limitations on sales by licensees: “distributors” can sell anything from a single bottle to a keg, and so can taverns (and delis, and supermarkets with deli licenses), and fix the tax laws so that all retail outlets are on the same footing (right now, bars pay more taxes than distributors...say what?). Then, allow beer distributors to add wine and liquor to their licensed sales; allow the new wine/liquor licensees to sell beer. The artificial separation of sales is all about protecting business status quo; rewrite these laws for the benefit of Pennsylvanians, citizens, and voters for a change! Hell, if Joe "CEO" Conti can say “I'm for the people of Pennsylvania,” so can I!

1,250 licenses is simply not enough. If the number were doubled, to 2,500, we would still be under the national average per capita, and this would help address the issue of oligopoly (see below). It will also help address the red herring issue of rural retail access.

I don’t know enough about how the PLCB sells to licensees to complain about it, so I’ll tell you what a friend of mine, a licensee, said:

“My concerns are from a licensee’s point of view. I don't want to be forced to buy from one wholesaler that has a limited selection, makes it difficult to place special orders, and charges retail and sales tax on ‘wholesale purchases.’”

To tell the truth: I don’t even know what HB11 does to address these concerns. I do know that almost every licensee I've talked to who tries to keep a premium wine or spirits inventory finds the PLCB frustrating, and that almost every one is afraid to criticize them. I’d like to hear more about what HB11 has for licensees...I suspect it's not much.

The licensing scheme in HB11 is just that: a scheme. It’s easiest to quote from a licensee who emailed me about this:

“The huge issue I see with the bill is the emphasis on large (over 15,000sf) stores. Was this bill paid for by big retailers like Total Wines? Who the hell is the state to mandate the square footage of a private business? Many of the state stores are much smaller than this. As per the bill, over half of the roughly 1200 stores will need to be over 15,000sf! These large stores often have lots of bottles, but by necessity need to focus on industrial products, not small producers. How is this going to increase selection? We don't need bigger Absolut displays. We need many smaller stores run by entrepreneurs who find and offer cool products. This bill would be the equivalent of mandating that over 50% of all restaurants be more than, say, 5000sf in size. Can you imagine what Philly would be like? A lot more Ruby Tuesdays, a lot less anything good. This aspect of the bill nearly makes it pointless to have privatization!”

I agree. The “protections” against private monopolies could be made much more effective by simply dropping the maximum licenses owned by any one company/person to ten instead of forty. Problem solved. If that loses support from big chains, well, first, too damned bad; and second, it will gain support from the people who are concerned about big chains grabbing all the licenses, and throttling selection. Who are we more concerned about? What’s good for business -- ho ho ho, don't you worry, little voter! -- is good for citizens? Sorry, that’s how we wound up with 75 years of the case law!

Finally, let the results of Granholm flow, and again: favor Pennsylvania’s citizens, not business interests who’d rather see no direct shipping of wine (or spirits or beer) because it might cut into their sales (studies show it doesn’t). Make the taxes realistic, and let direct shipping happen.

Those are the issues I have with HB11. I’d like to see them addressed, or explained, before I solidly support this bill. I've been told that some such changes are under way, but HB11 shows no changes online. Until such time as a majority of these issues are addressed and the police-enforced monopoly is done away with, I do not support this bill, and I urge you to consider these points before you support it. We have paid -- Lord God, we've paid -- for the misguided morality of our Repeal-era legislators and Governor Gifford Pinchot. We've earned a better road to privatization; one that takes our concerns into account first.

Where are we going to get that? I hope that Governor Corbett is doing what I'm starting to think of as his Swan Routine: serene and quiet on the surface, paddling like hell out of sight under the water. From the way he's talked about HB11 after the PFM Report came out (more on that soon) -- "a place to start" -- I don't think he likes it any more than I do. So here's hoping he puts leverage on Representative Turzai (and Jim Mann), or better, puts out his own version of a privatization bill that actually writes privatization for citizens.

Some wholesaler stuff

I've been hearing a lot of -- well, a lot of crap from anti-privatization interests (which pretty much means PLCB bureaucrats, UFCW members, Democrat legislators, a couple social conservative Republican legislators, and...no, actually, that's about it) about how the wholesaling's going to be terrible under privatization (and if HB11 stays the way it is, it may well be, but that can -- and better! -- change before it's voted on), and how big stores are going to crush mom and pops and leave us with no choice (like we have a lot now). 

This ignores, of course, what actually happens in states where private liquor sales are the norm -- like New Jersey, New York, Massachusetts -- and all kinds of stores thrive and the selection's just fine; real good, in fact, at many stores. Not all, but you don't have a great selection of groceries at every store that sells groceries, right? There's selection, there's specialization, there's price, and there's convenience to be considered.

Anyway, I was thinking about this when I saw this interview with Michael Binstein in Shanken News Daily [full disclosure: my major client, Malt Advocate, is owned by M.Shanken Communications...for what that's worth], the owner of the big Binny's chain of booze stores in Illinois. They have 25 stores, and the selection is tremendous; love going there when I'm in Chicagoland. 

I saw some pertinent stuff that I wanted to share.  Please notice: Binstein is bullish about expanding, not keeping a cap on his number of stores. He sees competition, and meets it (without the help of the state police). And he sees opportunity for wholesalers who want to work hard, and for small retailers. This is a smart guy, who knows the market, and is successful in it. Probably ought to give what he's saying some consideration.

This is not the whole interview.

SND: In the last four years, you’ve expanded from 19 stores to 25 stores, mostly through acquisition during a very difficult economy. Has your investment paid off? Binstein: The honest answer is that the investment is paying off. Time is the ultimate test, and one needs a certain amount of humility. But there’s not a single acquisition, store opening or expansion of our model that I would take back.
SND: How big a player are you in the greater Chicago market? Binstein: I’m told we’re the largest independent in the Midwest, and certainly the largest independent in Illinois.
SND: Who do you consider to be your biggest competitor in your market? Binstein: This is going to sound like a cliché, but I think anyone and everyone who holds a liquor license is competition, and there are tens of thousands of people who do. Convenience should not be underestimated. We may have the selection, we may have the best price, but with gasoline nearing $5 a gallon, people have to make tough decisions. Every player at every trade channel has a contribution to make. So there’s not a competitor that I minimize.
SND: Do you have any plans to expand to other states? Binstein: We’re keeping an open mind. We certainly have looked, and there are opportunities. But there are so many places within our market, so many communities and areas where we still think we could open a store. I think we’d like to finish Illinois before moving on.
SND: How are your relations currently with major suppliers?
Binstein: They can get very ideological—if not theological—about pricing. I think a bottle of wine, or liquor or beer, is like all commodities. It’s no different from selling soybeans, corn or wheat. It has a price, and it’s based on supply and demand, and it ebbs and flows in every market. Just as the corn, soybean or wheat broker or farmer can’t get too ideological or theological about what a bushel should cost, the same goes for our business. One of the oxymorons in our business is something called price integrity, when suppliers believe something should cost $20 or $30 and they don’t really care what the customer thinks it should cost. I think that’s a very myopic, unprogressive way of looking at business. This is not a very popular thing to say.
SND: How about wholesalers?
Binstein: There are bad retailers and there are bad wholesalers. There are lazy retailers and there are lazy wholesalers. I’ll leave it at that, but I will say that I think wholesalers have an opportunity, a very unique opportunity, to make themselves even more indispensable in this era of consolidation, because suppliers are looking for foster parents. Suppliers are no longer the primary caretakers of a brand. They may actually possess the birth certificate for the brand, but they need other people to nurture, raise and educate the brand. The suppliers have gotten away from brand-building, and now it falls more and more to the wholesaler and retailer to build those brands and fill that void.
SND: Are there still opportunities for small entrepreneurs in beverage alcohol retailing? Can a small, single-unit store survive and thrive in today’s climate?
Binstein: Absolutely. There’s never an opportunity to overcharge and under-deliver. As long as we’re not using code language to ask the question, “Is it still okay to work at outrageous margins and not give people the selection they deserve?” There should have never been that opportunity, and there isn’t that opportunity now. There’s room for the Davids and the Goliaths. And they both need each other.

Beer Raids Part II: dropping the big one

Just saw this on Don Russell's Beer Radar blog. The BLCE raided Origlio Beverage last night. Some points from Don's post:

The Bureau of Liquor Enforcement agents arrived about 7 p.m. last night and conducted a search of the warehouse, specifically looking for Origlio’s share of brands they’d confiscated from the bars last week. This includes: Duvel, Monk’s Cafe Sour Flemish Ale, Hacker-Pschorr and Russian River Supplication.
They reportedly confiscated only the Supplication because they would’ve needed a tractor trailer for the rest. They ordered Origlio not to distribute any of the other brands.

I'm guessing they didn't bring a tractor trailer because they had no freakin' clue how big these brands are in this market.

Here's my question. If the taxes on these beers were paid -- and I have no doubt whatsoever they were -- is the BLCE really holding up thousands and thousands of dollars worth of beer, crimping the business of hundreds of Philadelphia bars, restaurants, and distributors, putting jobs at jeopardy...all over a piddling $600 in registration fees? (That's $75 each for Duvel, Monk's Sour, Supplication, and 5 H-P brands listed on Origlio's website.) Are you shitting me?

Another quote from Don, because he said it just fine:

What we’re witnessing isn’t just bureaucratic incompetence or the result of outdated laws. This is an act of unrepentant arrogance. As one local restaurant operator remarked of the BLE, “They don’t answer to anybody. They’re running amok.”

What have I told you time after time? It's the arrogance of this agency that is simply jaw-dropping.

I'm going to have to quote Buddy "I married a PLCB manager" Hobart to express what I feel about this new initiative. "What I say to the skeptical," said Buddy Hobart, president of Solutions 21, "to those of us in the world who believe we've arrived and don't need to improve: Look up the word arrogant in the dictionary." When you find that page, I believe you'll find the PLCB logo next to that definition. 

They do, however, have some shame. The PLCB has an auto-response going now for e-mails about the raids in which they deny any responsibility. Here's what it says:

This is in response to your inquiry regarding the recent raids of three Philadelphia-area bars, conducted by the Pennsylvania State Police, Bureau of Liquor Control Enforcement ("BLCE"), in which the PSP, BLCE apparently confiscated beers that may or may not have been properly registered for sale in Pennsylvania.
The raids in question were conducted by the PSP, BLCE, not the Pennsylvania Liquor Control Board ("Board"). The officers involved are employed by the PSP,BLCE and not the Board. The Board and the BLCE are two distinct agencies.  Therefore, your inquires should be directed to the PSP, BLCE Harrisburg Headquarters. Their contact number is 717-540-7410.

As always, should you become a subject of ridicule or public outrage, the Chairman will disavow any knowledge of your actions. I always knew the PLCB was arrogant. I didn't know they were also gutless buck-passers, but it shouldn't surprise me. The BLCE is funded by the PLCB, they exist to enforce the PLCB's regulations.

As I keep saying, the thing to do...is write your legislator. Tell them things have gone too far. The PLCB, the BLCE, it doesn't matter which; they're out of control. It's time to break them, to bring them to heel. Rewrite the Code. People keep telling me it can't be done. I don't see any other thing to do.