LCB works in curious ways

Monopoly Money: The control of wine and spirits in Pennsylvania / Second of four parts



PHILADELPHIA -- The Rev. Jesse Brown Jr. organized a series of community protests in 2004 after state liquor officials decided to open a wine and spirits store in his Tioga neighborhood in north Philadelphia.

The store was one of the first tenants in a Broad Street strip shopping plaza owned by a development company headed by Jay Vederman, son of a top aide to Gov. Ed Rendell when Mr. Rendell was Philadelphia's mayor.

For two years running, the store lost $35,000 to $40,000 under a 10-year lease that eventually will pay out more than $100,000 annually to Mr. Vederman's Overbrook Investment Properties.

Sales finally exceeded expenses last year, but by less than $10,000. The more profitable store it had replaced, which closed in 2002, was in a building leased for about $30,000 a year.

"I'm certain it was political payback. I don't think there was any real question about it," said Mr. Brown. "Just because it's legal does not make it right that only those people who are well-connected get the political favors."

Particularly troubling for Mr. Brown is the store's presence on the same block with two churches, one of which has a day-care center. While Pennsylvania's liquor code prohibits stores within 300 feet of a primary or secondary school, it makes no mention of day-care centers.

Liquor Control Board Chairman Patrick J. Stapleton says the Broad Street store offers a much nicer, safer environment than previous stores in the neighborhood, where people would loiter and drink nearby.

"Compared to what was there, it's like night and day," he said. "If it's not producing to the degree that we'd like it to be producing, that's unfortunate. But that was the best decision for that neighborhood."

Did the Vederman connection play a role in the decision to lease the store?

"Not that I know of," Mr. Stapleton replied.

With the state in control of what is more naturally a private enterprise, it is perhaps inevitable that suspicions arise about political influences in PLCB operations. Mr. Stapleton did allow that the board hears from legislators "all the time" when a store closing or store transfer is in the works.

"A lot of times there is a strong belief by legislators that certain downtown areas should be served by a store," he said.

"They have a job to do, and so do we. I've never been threatened by a legislator. We make a decision and we move forward."

Rep. Camille "Bud" George, D-Clearfield, has been an outspoken advocate for state stores in his district, and tried unsuccessfully to prevent the closing of the Coalport state store several years ago. He believes any legislator worth his salt would do the same to save jobs and keep a downtown area viable.

The store in Houtzdale, Mr. George's hometown, has lost from $11,000 to $20,000 in each of the past three years, but, he vowed, "I would fight tooth and nail against any plan that took that store out of our town." From Houtzdale, the closest state store is in Philipsburg, 10 miles away. It made more than $60,000 last year.

Some losers stay open

Another store that's seen dwindling profits is in Doylestown, Bucks County, home of Joe Conti. He is the new liquor board CEO who previously chaired the Senate Law and Justice Committee, which oversees PLCB operations.

In the past three years, the downtown Doylestown store's profits have decreased from $48,708 to $16,255. Yet the board renewed the Doylestown lease last fall for another year, despite the presence of a Premium Collection store less than a mile away.

In sharp contrast to the downtown shop, the Premium Collection store on Veterans Lane has seen steadily increasing profits, up to $1.35 million last year, and is one of the top producers in the state.

Mr. Stapleton and Mr. Conti said the downtown Doylestown area has a number of bring-your-own-bottle restaurants and the state store is a convenience for diners to purchase wine before they eat, but its performance is one reason they limited the lease renewal to one year.

A very public example that political considerations have come into play erupted a year ago when Mr. Rendell urged Liquor Control Board members to hire Mr. Conti to the new CEO position.

Two members, Mr. Stapleton and Thomas Goldsmith, voted to hire Mr. Conti.

Then-Chairman Jonathan Newman voted no, then resigned in protest at what he saw as behind-the-scenes maneuvering that made Mr. Conti the CEO at a salary of $150,000. At a public hearing last year, Mr. Newman objected that the governor expected the board to approve Mr. Conti's hiring on two days' notice without benefit of public debate or a national search.

Mr. Stapleton and Mr. Goldsmith countered that there had been discussions for years about hiring an executive to oversee daily operations, and they wanted to take advantage of Mr. Conti's experience and availability.

There was probably little question that Mr. Stapleton, who replaced Mr. Newman as chairman, would support the governor -- less than two weeks before Mr. Rendell was handily re-elected that November, Mr. Stapleton had donated $1,500 to the governor's campaign. The following day, his Philadelphia law firm donated an additional $25,000.

Mr. Stapleton's law practice itself has raised questions regarding his board position, which, under the liquor code, is supposed to be a full-time job. Mr. Stapleton, who is currently paid $68,770 as chairman, reported in his 2007 statement of financial interests more than $1 million in salary in 2006 from two law firms -- $945,000 as a partner at Weber, Gallagher, Simpson, Stapleton, Fires & Newby in Philadelphia, $105,000 from his law practice in Indiana, Pa. and $2,500 as a director for Enterprise Bank. The year before, he reported a total of $262,000 from the three positions.

"He must be more talented than anyone else I know to be able to balance all those things and still be able to sleep," said Sen. Patricia H. Vance, R-Cumberland, who serves on the Law and Justice Committee.

Mr. Stapleton insists the LCB board position is a full-time job, and the board members, including new member Robert Marcus, are busier than ever with new initiatives.

In the past year, the board has entered an agreement with Gallo and Future Brands to oversee category management in stores, and it is using another outside firm, The Staubach Co., to handle store leases and negotiations. This month, the board announced that it had signed a $4 million-to-$5 million contract with Oracle Retail to computerize purchase orders and inventory management. This year, the board will start requiring UPC codes on bottles to help track inventory.

"We run this thing like a business," said Mr. Stapleton. "Our main goal is to provide the best possible service to our customers, and at the same time maintain good business practices."

Retail sales level in late 2007

But business has not been particularly good of late.

In the final six months of 2007, sales showed about 6 percent growth compared with 7 percent growth for the same period in 2006, an unusual year-to-year slide.

Mr. Stapleton said retail sales are level while sales to liquor license holders are down, a development he attributes to the economic downturn that's affected retailers from General Motors to Kmart. West Virginia reported a similar growth slowdown; wine sales in Maryland showed a slight growth increase while spirits were flat. Mr. Conti did say sales rallied in the second half of December, with near-record business on New Year's Eve.

As the board moves to more of a private business mindset, there also are signs it may see pushback on key initiatives.

While some out-of-state wineries are willing to put UPC codes on their bottles, others may balk because of the expense, or trouble, or because of branding concerns.

"Whoever is giving them that advice is not in the wine business. They're in the supermarket business," said Philadelphia-based importer Paul Zintek. "Wineries will not put UPC codes on just because Pennsylvania tells them to. They're not going to re-do their business model to sell a few cases of wine. I'm sure some of these wineries will say, 'We're not going to sell our wine in Pennsylvania.'"

"For me, having a bar code sends a message that we're a large producer. We're not. We're a small artisanal winery," said Stephen Corley of the Corley Family Winery in Napa, Calif.

Wine writer Mark Squires, who runs a bulletin board for wine enthusiasts on eRobertParker.com, said bar codes could be a particularly hard sell for both wine collectors and the wineries that produce the world's best wines. "If it had a Pennsylvania label it would be worth less," he said, "because the state has a notoriously bad reputation for storage."

Mr. Stapleton said the board intends to move ahead with bar codes. For those few who can't, or won't, do it, the board "may offer to put the bar code on their product for them, or have [the] vendor or wholesaler do it. But it needs to be done and it will be done."

Added Mr. Conti: "We've made a substantial investment in this technology and to not use it to its fullest potential would be foolish."

Also this month, the PLCB reached preliminary agreement with Landor Associates of San Francisco, which has done work for BP, H&R Block and Federal Express, to redo the agency's image, create a new logo and eventually look at redesigning stores. The two-year contract is for $3.7 million.

"I'm not crazy about the price," said Sen. John Rafferty, R-Montgomery, chair of the Law and Justice Committee. But he added that he does see the benefits of a redesign as part of a complete system upgrade to attract more customers.

A Senate colleague, however, questioned the move.

"Why a public organization is spending significant dollars to polish the image of a public monopoly is beyond me. I don't think there's any rational argument for that," said Sen. Rob Wonderling, a fellow Republican from Montgomery County.

Mr. Wonderling is crafting a bill to privatize retail liquor sales in Pennsylvania, which he intends to introduce early next month.


Steve Twedt can be reached at stwedt@post-gazette.com or 412-263-1963. First Published January 28, 2008 5:00 AM


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