Heard off the Street: Pennsylvania's beer distributors cool to privatizing

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Ask any Pennsylvanian 21 years or older whether they support privatizing wine and spirits sales and a good portion of them will say yes.

If that simple question was the only issue, perhaps Gov. Tom Corbett's plan to divest the state's 600 or so Liquor Control Board stores would have made it through the legislature before lawmakers adjourned at the end of June.

But the Shaler Republican's initiative was not only about selling state stores. It called for wholesale changes in the way beer -- which accounts for about 85 percent of the 24 gallons of beer, wine and spirits the average Pennsylvanian consumes annually -- is sold.

Regulations adopted at Prohibition's demise are complicated at best, arcane at worst. Some aspects of the regulations are underappreciated, such as the fact that they have nurtured a healthy Pennsylvania brewing industry.

Many consumers and some lawmakers do not appreciate the implications of the changes Mr. Corbett envisioned.

"I think there's more to it than meets the eye," said Rich Rosella, 54.

After 28 years of selling beer for Frank B. Fuhrer Wholesale, a South Side company that is one of the nation's largest beer wholesalers, and for Penn Brewery, a North Side regional brewer, Mr. Rosella opened Allegheny 6 Pack & Doghouse on Pittsburgh Street in Cheswick in August 2009.

"I knew the business. I knew this was the niche I wanted to be in," Mr. Rosella said.

His 2,100-square-foot store sports a dozen beers on tap and about 400 different types of six-packs. While shoppers can drink their purchases at the shop, about 90 percent or more of Mr. Rosella's trade is takeout.

Whether they drink it there or take their beer out the door, Mr. Rosella said all his customers pay Allegheny County's 7 percent drink tax. Meanwhile, the tax is not imposed on customers of the beer distributors one mile to the north and south of him.

It is one of the many vagaries of how alcoholic beverages are regulated. Ray Kasunick, a North Side distributor, pointed out another.

Mr. Kasunick said the state's 1,200 beer distributors are required by law to buy from the wholesaler that owns the rights to sell brands of beer in a given territory. That wholesaler "can charge me $10 for a case and charge my competition $5 a case," Mr. Kasunick wrote in a note to state senators last month.

"I cannot go elsewhere to purchase my product. Is this fair to my consumer?" he asked lawmakers.

While lawmakers consider changing the maligned, misunderstood system, few harbor illusions privatization will change how much people drink. It will only change how and where they buy it. Many in the beer industry speculate the changes will give large, national and regional retailers an upper hand over beer distributors and promote national brands at the expense of regional and local brewers.

"I see that being the way this is going," Mr. Rosella said.

The House-approved version of privatization would have given beer distributors the right to sell wine and spirits. On its face, that seems pro-competition.

But North Side beer distributor Paul Kelly estimated it would cost him $450,000 to $500,000 to purchase a state wine and spirits license, modify his shop to accommodate the additional products, and stock his shelves with the new inventory. Many distributors who operate out of cramped quarters would face additional expansion costs to sell something many of them have no interest in selling.

"How many beer distributors do you know that have half a million dollars?" Mr. Rosella asked.

To be sure, this is what capitalism is all about: entrepreneurs embracing risk and thinking, investing and managing creatively to win the hearts of consumers.

But be careful what you wish for. There is widespread suspicion that large, big box retailers will stock their shelves with discounted global beers to attract customers who are also shopping for lettuce, milk and other unrelated products. That could reduce the shelf space devoted to regionally and locally produced beers.

Global beermakers, miffed that they do not command as much of the market in Pennsylvania as they do in other states, are all for that. According to Beer Marketer's Insights -- a Suffern, N.Y., research firm -- Anheuser-Busch controls 46 percent of the U.S. market, but only 28 percent of the Pennsylvania market. Using the King of Beers' marketing clout to get on the shelves of grocery and convenience stores would rectify that.

The interest of well capitalized, out-of-state retailers in getting a piece of Pennsylvania is evident in the activities of Total Wine & More, a Potomac, Md., company operating nearly 100 superstores in 15 states. With a few exceptions, the warehouses sell beer, wine and spirits. State records show that Total Wine spent $125,000 from January 2012 through March of this year lobbying Pennsylvania lawmakers.

Mr. Rosella also has vested interests. He doesn't understand why the political issue of getting the state out of the wine and spirits business "has anything to do with where beer is sold."

"If people want a keg, they know where to get it. If they want a case, they know where to get it. And the places aren't few and far between," he said. "I can't see more licenses helping anything."

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Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.


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