Liquor Store Privatization

The Scranton Times Tribune has an excellent editorial explaining that the state government monopoly over liquor wholesale is just a bad as its monopoly over wine and spirits retail sales.

Currently the Pennsylvania Liquor Control Board determines what wines and liquors can be sold in the state. Moreover, restaurants and bars have to get their wine and spirits from the government—and they have to pick it up themselves, because the PLCB doesn't deliver.

The Times-Tribune writes:

As demonstrated in recent hearings by the state Senate Law and Justice Committee, the alcohol politburo's centralized control of the wholesale booze business is just as harmful to consumers' interests.

In the capitalist world, private sector retailers such as wine shops and restaurants buy directly from many wholesalers, who compete for customers by offering selection and price. Wholesale prices go a long way towards determining competitive, rather than standardized shelf prices.

In Pennsylvania, there is but one 800-pound gorilla of a wholesaler - the politburo itself, the Pennsylvania Liquor Control Board. It determines what the only retailer - also the Pennsylvania Liquor Control Board - can sell at retail, and at what price.

Some have suggested "modernizing" by expanding retail options, but keeping the government monopoly over wholesale. But if taverns and grocery stores still have to buy their wine from the government, Pennsylvanians won't get any greater selection or lower prices than they have now.

For more on this issue, check out recent posts on the cost of "modernizing" the PLCB's wholesale monopoly and why this issue matters to you and listen to our latest podcast in which Katrina Anderson talks with Marcia Lampman, Executive Director of the House Liquor Control Committee, on why ending the government's wholesale monopoly is critical to Pennsylvania consumers.

For most of us, liquor privatization means making liquor more convenient and affordable by getting rid of Prohibition era, state-run stores and unleashing the power of the private sector. But the state’s current retail system is supported by a wholesale network that’s also run by the government. For lawmakers to give Pennsylvania consumers the choice and convenience they deserve, the monopoly over wholesale and retail operations must end.

Marcia Lampman, Executive Director of the House Liquor Control Committee, says, "The PLCB is acting as a middleman, because you still have the 'big guys'—the wholesalers—operating in Pennsylvania as well. They are simply called importers and are only allowed to sell to the PLCB."

This adds a layer of cost and inconvenience that does not exist in other states. In fact, restaurants and taverns actually have to pick up their liquor orders from state outlets—the PLCB doesn’t deliver.

So, what is wholesale privatization and why does it matter? (Boondoggles aside.)

Marcia answers these questions and much more in our latest podcast. Listen here.

Fellow Pennsylvanians, we've all been there: road-weary on a long drive home, hungry and low on gas, and there it is…a big, red beacon of hope and MTOs…you have made it to Sheetz.

Okay, full disclaimer: I am a Western Pennsylvanian and my Sheetz card is practically falling off my keychain due to overuse.  But you don’t need to know a Shmiscuit from a Shmuffin to be embarrassed by recent comments about Sheetz in a Senate liquor privatization hearing: "They rip people off every day."  Another outrageous union boss comment? No, a state senator. The roughly 40,000 fans of Sheetz's pro-privatization Free My Beer campaign likely beg to differ.

Outrageous comments aside, whether you'd like to finally buy your booze at a Sheetz or a Wawa, or perhaps your local bar or restaurant, it's essential not only for lawmakers to increase convenience, but to get government out of liquor sales entirely. If the government maintains monopoly control of wholesale distribution, the PLCB will have complete power to make or break any retail stores that sell liquor.

Full liquor privatization is critical to expand consumer choice in Pennsylvania. The PLCB’s wholesale monopoly doesn’t serve current outlets well and it will only get worse if the number of outlets that sell alcohol increase.

If you wish you could buy your adult beverages this weekend at a store that isn’t run by the government, make sure you let your senator know that you want government out of the business of selling alcohol – completely.

Testimony to the Senate Law and Justice Committee yesterday illustrated why wholesale privatization must be a part of "modernizing" liquor sales in Pennsylvania.

The PLCB’s wholesale monopoly can’t serve current, much less expanded, retail outlets, restaurants and taverns. The PLCB does not deliver to restaurants, bars and taverns. In fact, the PLCB contracts with private companies for warehousing and even delivery to their own state stores.

Rep. Kurt Masser (a tavern owner) explains the PLCB’s ordering process: "I get my meat delivered to my restaurant. I get my produce delivered to my restaurant. I get my beer delivered to my restaurant.  I have to pick up my liquor order.  I can’t get it delivered.  And if the liquor order is wrong, I have to take it back to the store and redo it."  A competitive wholesale system will better serve Pennsylvania’s small businesses

Mark Gorman, Senior Vice President of the Distilled Spirits Council of the United States (DISCUS), whose members account for about 80 percent of spirit sales nationwide, testified yesterday on liquor privatization. Mr. Gorman noted:

• Privatization of retail sales should be tied to wholesale privatization of alcohol sales: "…if you decide to privatize one tier of business—you would be best served by privatizing the whole thing."
• Pennsylvania’s current state-run system does not adequately serve the state's more than 12 million residents.
• If the PLCB were to expand delivery to more than 15,000 restaurants, bars and hotels, DISCUS estimates the cost to taxpayers as high as $770 million a year.  In contrast, private wholesalers operating in most other states deliver products to restaurants.
• The Commonwealth could take in more than $500 million from selling off private wholesale licenses.

For Mark Gorman’s complete testimony, click here.

Testimony from Dawson R. Hobbs of the Wine and Spirits Wholesalers of America expanded on those arguments by explaining why a private wholesale system will increase selection and choices for consumers:

The existence of multiple wholesalers in a state also benefits retailers and consumers because it introduces competition to the market place. Each wholesaler will carry multiple brands in a given product category, for instance vodka or bourbon. Thus wholesalers are competing to make their particular band the product of choice in that market. This competitive dynamic ensures that retailers are receiving the most competitive prices and marketing support from wholesalers. Over time that means that consumers benefit by having the opportunity to purchase the best products at the best prices.

The successful experience from Washington shows that wholesale privatization can occur in a six month period.  Pennsylvania lawmakers should follow that example rather than spending millions of dollars to retrofit a bad system that is destined to fail and lose hundreds of millions in new revenue. Let’s get this right the first time by privatizing the wholesale system to ensure retail stores and restaurants get the quality service they so desperately need.  

The final Senate hearing on liquor privatization has concluded, where do things stand for Pennsylvania taxpayers and consumers?

Carl Marrara, director of government affairs for Pennsylvania Manufacturers' Association and Kevin Shivers, executive state director for NFIB - PA join us for a Google Hangout to discuss the hearings, voter support for privatization, and why privatization is good for Pennsylvania businesses.

Want to get involved? Call, write, or tweet your Senator today. Click here to send an email now.

Additional resources:

• PMA Poll: Strong Majority of PA Voters Want Liquor Privatization
• Follow PMA and Carl Marrara on Twitter
• Follow NFIB-PA and Kevin Shivers on Twitter

This morning marks the final hearing in the Senate on the House-approved proposal to privatize Pennsylvania’s Prohibition-era liquor system.  Time is ticking for the Senate to finally end the government booze monopoly.

A new poll released today from the Pennsylvania Manufacturers' Association shows that once again, the majority of Pennsylvanians support liquor privatization.  Further, support increased when supplementary questions were asked.  The poll revealed:

The number [of voters] who would be more likely to support liquor privatization grew to just under 70 percent if penalties for selling to minors became stricter (69 percent) and if displaced workers could find jobs in the private sector (68 percent). 
 
These results bolster privatization proponents because the current legislation being debated in the state Senate increases by tenfold penalties for selling to minors and establishes job tax-credits and training programs for PLCB retail and wholesale employees. Moreover, a recent analysis of policy changes in Washington State reveals that their privatization efforts led to a net increase in jobs and increased overall state revenues. 

The Senate needs to hear from you, the majority of Pennsylvanians that want government out of the booze business. Click here to write your Senator today.

On social media? Post on your Senator’s Facebook wall and Tweet out your support (some hashtags: #paliquor #consumerchoice #plcb).

On June 1, it will be one year since Washington state ended its government monopoly on liquor sales. To mark the occasion, the Seattle Times has provided a nice overview of how privatization has affected Washingtonians thus far. Here are some of the highlights:

• Liquor sales have increased.
• Tax revenue has increased.
• Prices have varied, in part because of new fees and taxes.
• Washington has seen a net job gain after privatization.
• Drunk driving fatalities are on the decline.
• The state has seen an increase in shoplifting.

How were things before privatization? "It was a disaster." That is how Tim Sheldon, the Democratic President Pro Tempore of the Washington State Senate, described the liquor monopoly in his state in a podcast. 

Senator Sheldon lamented how difficult it was for retail stores to get the inventory they needed. Sound familiar, Pennsylvania? The state's single liquor distribution warehouse could only process 15,000 cases a day, one-fourth the production of a similar private distribution warehouse based in Seattle. 

It is true that some liquor prices have increased in Washington. However, privatization is not to blame.  Excessive taxes and new fees is the reason many have seen a price increase. Washington now imposes the highest liquor tax in the country at $35.22 per gallon, according to the Tax Foundation.  The state has imposed an additional tax on private distributors and will require them to collectively pay $150 million in licensing fees. These costs are passed on to consumers in the form of higher prices, which is driving consumers to other states for their booze.

The disasters predicted for Pennsylvania by vested interests opposing privatization have simply not happened in Washington. Pennsylvania must pass full privatization, which means a complete divestiture of both the retail and wholesale sides of liquor sales, absent any new taxes or fees. The evidence is overwhelming; the government in the booze business is a lose business.

Last weekend’s Memorial Day celebration got off to a rocky start for three Pennsylvanians who were issued citations by state police. Their crime? Looking for greater selection and lower prices, they bought alcohol across the border in Delaware and brought it home.

The border patrol detail spent five hours on Friday staking out two Delaware malls, trying to catch Pennsylvanians in the act of smuggling booze across the border. It can't have been much of a challenge; 45 percent of Philadelphians and those from surrounding counties admit to buying their booze across the border to escape high prices and the poor selection offered by state stores.

Truth is many of us living near the state’s borders are reduced to criminals for being savvy shoppers.

It’s time we stop turning booze buyers into bootleggers for trying to save a couple bucks or for finding their favorite wine that the sultans of syrah deem unfit for Pennsylvanians' palates.

One popular myth in the liquor debate is that the Pennsylvania Liquor Control Board has enormous "buying power" that benefits Pennsylvanians. The story goes that the state is the largest, or among the largest, buyers of liquor in the country and this allows it to negotiate lower prices with wine and spirits manufacturers (wineries and distilleries), passing on those saving to state stores, bars, restaurants, and hotels.

The problem with the argument? The PLCB isn't the largest buyer of liquor in nation and it pales in comparison to the "economies of scale" that other wholesale distributors could bring to the commonwealth if the state's wholesale operations were privatized. 

A ranking of the largest private liquor wholesalers by Shanken's Impact Newsletter compared with the PLCB's pre-tax purchase of wine and liquor from manufacturers, shows the PLCB is only the 8th largest wholesaler in the U.S.

Moreover, the PLCB is only about one-ninth the size of the largest U.S. wholesaler, Southern Wine and Spirits.

The supposed advantage of keeping a government monopoly over wholesale—purchasing power and economies of scale—is based solely on misinformation.

More importantly, there are several key benefits to ending the government monopoly over wholesale.  As Elizabeth noted recently, wholesale competition is needed to reduce prices and provide greater selection in Pennsylvania.  This will ensure restaurants, taverns, and stores get better quality service.

I also point on in my latest commentary that the state wholesale monopoly is what creates the PLCB's conflict of interest in both marketing and controlling alcohol sales, and enables such boondoggles as branding government wine that competes with Pennsylvania wineries.

As lawmakers dig into the details of how to drag Pennsylvania's liquor laws into the 21st century, they should realize that a government monopoly over wholesale distribution creates higher prices, less selection, and greater misuse of taxpayer resources.