Pennsylvania's grocery store wine kiosks have alienated consumers, cost the state up to $1.5 million and should be immediately scrapped unless they can be heavily modified, according to a report released Tuesday by state Auditor General Jack Wagner.
One of every 21 transactions at the kiosks was problematic in some way, his performance audit said, and only three of the 32 kiosks statewide met sales thresholds set by the Pennsylvania Liquor Control Board. The bidding process for the 2009 kiosk contract caused auditors "concern," and the liquor board has left thousands of dollars in advertising space unused.
If the board really wanted to provide customers with convenience, Mr. Wagner suggested lobbying the General Assembly to allow all of its retail outlets and kiosks to be open for full hours on Sundays.
In a written response to Mr. Wagner's office, the chairman of the PLCB said the audit showed the price of "innovation."
"Innovation inherently is about doing things that have not been done before," Chairman Patrick J. Stapleton III wrote. "However ... that carries risk. Taking risks is a daily endeavor in the business world. But in the world of government, it more often is avoided."
The PLCB launched its wine kiosk program in June 2009, although most did not come online until December 2010. Just before Christmas that year the liquor agency took all 29 offline for maintenance after repeated malfunctions, and Mr. Wagner launched his audit.
The audit found operation of the kiosk program -- and PLCB oversight -- was questionable from the start. Some 919 malfunctions were reported in six months from June 21, 2010, through Dec. 21, 2010. Even after fixes by kiosk operator Simple Brands, there were still 118 malfunctions in the month after they relaunched in February 2011.
From late January 2009 through March of 2011 wine kiosk sales generated $206,060 while the PLCB's operating costs were $1,131,375 (and losses in the months since have increased that total to $1.5 million, the auditor's office said). The liquor board has the right to recover much of those costs under its contract with Simple Brands but so far those efforts have been unsuccessful, and Mr. Stapleton said in his letter that the contract will be terminated if the firm does not honor the claims.
Mr. Wagner said at his news conference Tuesday that the Conshohocken kiosk firm has lost millions of dollars on the program and he feared it would not pay. A Simple Brands official who answered the office phone Tuesday said the firm had no comment on the audit.
Under the terms of its 10-year contract, in exchange for advertising, the PLCB pays Simple Brands 50 cents for every kiosk bottle sold. But the board did not place advertising on the machines until May 2011, the audit says, paying for more than $26,000 in ad space it never used.
The PLCB also owes the supermarkets hosting the kiosks more than $76,000 in hosting fees (including $50,400 to Pittsburgh-based Giant Eagle) but has not paid them.
Contract language that could have held Simple Brands more accountable for kiosk problems was kept out of the final wording, the audit says, and the PLCB "did not enable fair and just competition" for the kiosk bid in 2008.
Auditors said they were concerned that the request for proposals to provide the kiosks "seemed so tailored to one vendor that others were kept away."
Once they were operational, the PLCB largely placed the kiosks in stores around populous areas of southeastern Pennsylvania or Allegheny County that already have plenty of stores with weeklong hours, but did not provide convenience to rural parts of the state. (One problem: sales statistics show the biggest sellers in rural areas are whiskey and box wine, the audit says, which cannot be sold by the kiosks.)
Mr. Wagner claimed real convenience would be provided to consumers statewide if the General Assembly changed state law to allow all liquor stores and kiosks to be open until 9 p.m. Sundays. Mr. Stapleton, the PLCB's chairman, agreed with that argument wholeheartedly. It also showed how government shared some blame for kiosk problems, he said.
"The board appreciates the Auditor General Office's acknowledgement that the kiosk program was hindered by state law," he wrote.
There are now 22 wine kiosks in the state after the Wegman's chain dropped its 10 machines in June, and Wal-Mart rejected plans to install 23. While the PLCB set the weekly sales threshold as 210 bottles per week, the audit found there are three stores -- all of them in Allegheny County -- that average fewer than 35 bottles sold per week.
Tim McNulty: firstname.lastname@example.org or 412-263-1581.