It's time for a change. But is it coming?
It might be worth enduring a paternalistic retailer if Pennsylvanians really got a chance to buy wine and liquor cheaper than elsewhere. The LCB claims it delivers savings on wine through its “Chairman’s Selection”—leveraging its buying power as one of the largest purchasers in the nation to get quality wines at deep discounts. Sadly, it’s mostly a dud. Discounts are not that widely available, since Selections represent less than 5 percent of total wine sales. And though there have been some Chairman’s picks that were “pretty decent deals,” says respected Philly wine writer Mark Squires, “often they were so deeply discounted because the wines were absurdly priced in the first place, nobody wanted to pay their original asking price.” Squires adds, “Pennsylvania has entire categories of wines that are not fairly represented at reasonable prices.”
What’s worse, the LCB doesn't give the standard volume discount that most other retailers offer— i.e., a case of 12 bottles is the same price as 12 individual bottles, no drop in price. Sophisticated consumers like Squires dispute the idea that our system generates any meaningful discount, and it seems most wine buyers agree with him: Chairman’s Selection sales have plummeted in the recession, prompting LCB officials to cut back on the number of wines available.
Even if the LCB’s safety and discount arguments are empty, its money pitch is about, well, the money. Spokesperson Nick Hays reports that the state system contributes “between $400 and 500 million to the Treasury every year.” Half a billion dollars is a big nut, and at first, it seems to justify the system. But most of that cash comes from state and local taxes LCB stores collect on the government’s behalf, like the state trusts every retail store in the state to do. Strip the taxes away, and you’re left with the true worth of the state system to the public coffers. A 2008 audit of the system shows the true contribution to the state’s general fund as just $80 million. In state government terms, that’s a small number—barely a rounding error on the Commonwealth’s $59 billion budget. And as a tradeoff for all the inconvenience and annoyance the state system creates on a daily basis, it’s a terrible deal. If the state sold the whole operation (a recent estimate by the Reason Foundations suggests a $1.7 billion pricetag), and invested the proceeds like it does the pension fund, the government would make far more than $80 million just in annual interest.
The LCB is also guilty of some questionable business decisions, which throw doubt on its claim to be securing maximum returns for taxpayers. The LCB is halfway through a $3.7 million ‘rebranding’ contract with the Landor and Associates consulting firm. A rebranding exercise is odd, since, as a monopoly, the state has no other brands to compete against. It also has an entirely captive customer base, who is threatened with jail if they take their business elsewhere.
Other spending priorities from the LCB bureaucracy are equally strange. Last year, the LCB sparked criticism when it invited outside bids to provide “courtesy training” for store employees, including basics like greeting customers and thanking them when they leave. The contract was awarded to Solutions 21, a Pittsburgh-based company run by the husband of a board regional manager. A report from Pennsylvannia's auditor general criticized the LCB’s poor judgment in failing to disclose the conflict of interest and concluded that the training was not a worthwhile expense.
Questionable decision-making and poor business thinking are a persistent hangover at the LCB. It’s no secret that some state-run stores manage to lose money despite their local monopoly. But though the LCB has closed some of its worst-performing locations, its governmental status ensures that these moves can be subject to political influence from behind the scenes when a local pol wants to keep an unprofitable store open, even at the wider system’s expense. Concerns have been raised in the past when politically-connected developers secure a state-run wine and liquor store as a tenant, at what appear to be above-market rents. Neighborhood groups in Tioga protested the Broad Street store opening in 2004, when a company connected to the son of a senior aide to Gov. Ed Rendell nabbed a well-paying liquor store as a tenant in its new strip mall development. It’s probable that any back-door deals are the exception rather than the rule, but as long as government dominates the alcohol business, there will inevitably be questions and suspicions about conflicts, patronage and sweetheart deals brokered by those who enjoy a state-enforced monopoly to sell an essential good.
In some ways, the LCB deserves our sympathy. Notwithstanding the board's weird business judgment, they don’t make the rules. They don’t come up with the policies that dim the sheen on our drinking lives. They are the servants of our dysfunctional state legislature, which is where the blame for our current insane system mostly lies. The LCB has no choice but to enforce every arcane clause in the Pennsylvania Liquor code—the code our lawmakers are free to change, but almost never do.
So why don’t lawmakers bring our liquor laws out of the 1930s?
A heavily unionized workforce with hefty lobbying power has a lot to do with it. Wendell Young, whose Local 1776 represents the majority of front-line workers in the state stores, makes no secret of his union's political influence.
“We’ve never denied that our first and primary concern is the job security of our members, and we will work very hard to support the system to support their livelihoods,” he says.
Over innumerable election cycles, that support includes hundreds of thousands of dollars in donations from paycheck-funded Political Action Committees to legislators who write the state’s booze laws. “The lifeblood of politics is political contributions, I don’t like it … but that’s the system we have,” says Young.
Straightforward government inertia also blocks legal reform; because the liquor code in Pennsylvania is so uniquely restrictive, even the smallest proposed changes are likely to enrage some special interest or constituency. Try to allow six-pack sales in supermarkets and the beer-distributor trade associations will attack. Try to open more stores on Sundays (the law today restricts it to only 25 percent of outlets) and the store managers’ union may protest that their membership prefers not to work through the weekend. Try to encourage more stores and a thousand constituents will scream “Not on my block.” As a legislator, it’s easier to skip the battles entirely. It seems a mismatched fight—a few special interests and their lobbyists against the overwhelming dissatisfaction of voters statewide.
Most any Pennsylvanian could poll their block or workplace and find near-universal loathing of our liquor laws. But there’s only so much time and energy ordinary people can devote to politics. So this loathing, while total, takes a back seat to political issues that are more important. After a while, citizens grow numb. Politicians mistake this disillusion for disinterest, and before you know it, it’s 2010 and we’re stuck with a misbegotten system shot through with pre-war paranoia about alcohol.
But there is good news out there in the struggle to reboot our booze laws. Stan Sheetz, CEO of the Altoona-based Sheetz convenience store chain, has created an online petition at FreeMyBeer.com, which is gathering signatures by the day. Sheetz takes aim at perhaps the nuttiest parts of the liquor code—clauses that restrict beer sales to distributors (but only by the case) and taverns (but only two six-packs). Sheetz was frustrated by last year’s state supreme court ruling that suspended its beer retail license because it didn’t follow the path of Wegman’s and other supermarkets by including an on-site “restaurant” which could legally sell takeout suds.
“There are nine different types of retail beer licenses in Pennsylvania, but none of them will allow us to sell beer to our customers,” says Sheetz. Since lawmakers “don’t seem to be too interested in making any changes, we thought we’d get the legislators moving by appealing to the people.”
Lew Bryson, the campaigning booze blogger, thinks Sheetz is on the right track. He says, “The only thing you can do which will have any impact whatsoever is to go to your representatives in the Legislature.” And while Bryson warns that reforming 77 years of legal nuttiness doesn’t happen overnight, he thinks the chances for reform “are better than they have been in a long time,” in part, because “the LCB’s just been screwing up more than usual lately: the ‘Courtesy’ contact thing [and] the wine kiosks ... are going to be a huge disaster.”
In case you missed it this weekend, the Pennsylvania Liquor Control Board installed and opened its first Philly-area wine vending machine. It’s in Drexel Hill, the Fresh Grocer, 5000 State Road. We know buying wine from a machine is the 4th mark of the beast (the first was soda vending machines, the second was snacks, third [...]
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