The state can lower prices for alcoholic beverages while raising more revenue
October 28, 2016 12:00 AM
Linda Fitterer of McCandless reaches for a bottle of wine at a Fine Wine & Good Spirits Premium Collection store in the Village at Pine.
By Tim Holden
Members of the Pennsylvania Liquor Control Board had been looking forward to discussing our fair and reasonable approach to flexible pricing before the House Liquor Control Committee Thursday, but other legislative priorities apparently necessitated the cancellation of the hearing.
In lieu of that opportunity, we would like to correct the record regarding unfounded and inaccurate assumptions that revenue increases can come only from wine and spirits price increases for consumers — assumptions such as those advanced by David Ozgo of the Distilled Spirits Council in his Oct. 21 Post-Gazette op-ed piece (“Pennsylvania’s Liquor ‘Modernization’ Hoax”).
To be clear: It is not the PLCB’s intention to broadly increase retail prices.
For decades, state law required a uniform mark-up structure, which, data show, suppliers used to their advantage to develop a non-competitive environment in Pennsylvania.
Now, by engaging suppliers in collaborative, cooperative discussions about how to optimize revenue for the commonwealth, we can both generate additional revenue and achieve more competitive retail prices through cost reductions, rather than broad price increases.
The PLCB has not initiated price increases through a mark-up change in the past two decades, while suppliers have done so again and again. For example, between February 2014 and October 2016, suppliers increased costs on items 991 times, on average costing customers an additional $1.78 per bottle. In that same time frame, only nine cost reductions were submitted.
So what’s possible under flexible pricing? Here’s an example based on our top-selling bourbon, which is carried all over the United States.
In February 2016, Virginia’s price per bottle from the supplier of this product was $12.14, while Pennsylvania’s was $14.46. The retail shelf price on June 1 in both states was the same: $24.99. If Pennsylvania had been able to obtain Virginia’s lower price – $2.32 less per bottle – we would have achieved an additional $2.1 million in profit on that one product, based on the volume of sales in Pennsylvania. Or we could have reduced the retail price, or even a combination of the two.
Sixty-plus wine and spirits suppliers that represent 60 percent of items eligible for flexible pricing are entertaining cost reductions. Because of cooperative and collaborative negotiations, we hope to reduce prices on dozens of items in the near future.
We’ll also maintain the current retail price on the vast majority of products we sell, while achieving greater profit on hundreds of them. And, as we’ve said all along, prices will increase for some items, when the supplier and PLCB agree that the market can bear the increase.
Unfortunately, 20 of our largest suppliers (representing the other 40 percent of products eligible for flexible pricing) haven’t been willing to discuss lower costs. Not surprisingly, many of them are members of the Distilled Spirits Council, an organization we suspect may hold the profit margins of its members in higher regard than competitive prices for Pennsylvania consumers and increased revenue for the commonwealth’s schools, health and human services programs, law enforcement and public-safety initiatives.
We hope we can negotiate successfully with these reluctant suppliers, which could result in even more price reductions for consumers. We simply want more competitive costs from our suppliers – comparable to what other states and retailers enjoy.
The PLCB is driven by priorities made clear by the governor and General Assembly: (1) increase customer convenience; (2) generate additional revenue; and (3) achieve more-competitive retail pricing. The latter two goals can be achieved through cost reductions, rather than broad price increases. It is incumbent upon our biggest suppliers to work with us, in the interest of Pennsylvania customers and citizens.
Tim Holden is chairman of the Pennsylvania Liquor Control Board. He wrote this on behalf of the board, which also includes Mike Negra and Michael Newsome.
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