Pennsylvania restaurants object to LCB markup proposal

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HARRISBURG -- The disclosure of an internal Liquor Control Board proposal to raise the markup on wine and spirits has Pennsylvania restaurants protesting, though the board’s chairman says the plan is not on the agenda and does not have his support.

In a July 30 memo, the LCB’s finance director proposed the agency boost its price markup from 30 to 35 percent because of steep increases in the cost of employee benefits, such as pensions and health care. The agency’s expects a net income this year of $96.2 million, 20 percent less than the $120.7 million it reported for the 2013-14 year, August Hehemann wrote.

LCB Chairman Joseph E. “Skip” Brion said in a telephone interview that the three-member board received the financial analysis in an executive session July 30 but has not put a change in markup on its agenda. He said he opposes such an increase and believes the board should look for other ways to absorb the increasing personnel costs.

“Any markup discussion by the board would be a last resort,” he said.

In the memo, Mr. Hehemann wrote that it is difficult to predict how vendors would respond to an increase in LCB markup. Some vendors might lower their prices to maintain a particular shelf price, he wrote, while others would wait to see how competitors respond.

“If a markup were to occur, hypothetically, the vendor then would have to make a decision as to whether they would increase the price or not,” Mr. Brion said.

Restaurateurs in Pittsburgh and southwestern Pennsylvania said they believe an increase in markup would be passed along. Kevin Joyce, owner of The Carlton Restaurant on Grant Street, called it “absurd” to think vendors would not raise their prices in response. And he noted that taxes are levied after the markup.

“This would be devastating to our industry,” he said. “This is a major, major cost increase.”

At the Priory Hospitality Group, which operates the Priory Hotel on the North Side, president and CEO John Graf said businesses and customers would end up paying the difference.

“Some people are going to be able to raise prices and their customers will pay it,” Mr. Graf said. “Many others, especially small, independently-owned operations, mom-and-pop corner bars, have very, very price-sensitive customers. ... Raising the price of something a quarter or 50 cents, it’s going to decrease the demand for the product.”

In Beaver County, Alex Sebastian, who has owned the Wooden Angel restaurant for 46 years, said he does not believe the markup can be increased without raising prices.

“We would have to pass that on to the customers,” he said. “Another excuse for customers to not go to restaurants.”

Critics of Pennsylvania’s state-run system of wine and liquor sales continue to advocate reducing or ending the government’s role. The House Republican leader, Mike Turzai, said in a phone interview that the discussion is evidence the state should leave the industry. 

“Only a bureaucracy talks about doing an across-the-board markup increase,” he said. “That would never happen in the private sector.” 

Wendell Young IV, president of UFCW Local 1776, which represents liquor-store workers, saw it otherwise.

“The idea that in part of doing budgetary and operational planning someone within the PLCB prepared a memo that shows ways they could raise more revenue shouldn’t be shocking to anybody,” he said. “Anybody who is surprised at it just shows their ignorance in terms of how business works.”

In the 2012-2013 fiscal year, LCB operations produced $311 million in liquor taxes, $121 in sales tax and an $80 million transfer to the state general fund, according to the agency.

Karen Langley: or 717-787-2141 or on Twitter @karen_langley.

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