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Hospitality Pros Are Fighting to Change Pennsylvania’s Archaic Booze Laws

Today, industry professionals testified in favor of revising alcohol laws for the state of Pennsylvania.

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Though Pittsburgh and Philadelphia have received significant attention recently for their dining scenes, one area still causing strife is booze. That's not to say that there aren't great wine lists in each city, but the antiquated system through which wine and liquor is imported and distributed in the state of Pennsylvania has, for many years, hindered hospitality operators, and finally a group is speaking out.

Along with Utah, Pennsylvania is one of the strictest "control" states—meaning all wine and liquor sales must pass through the State. In PA, a legislature-governed organization called the Pennsylvania Liquor Control Board (PLCB) was created in the repeal years with the explicit aim of—per Wikipedia, citing a book by Mark Noon—"discourag[ing] the purchase of alcoholic beverages by making it as inconvenient and expensive as possible." Today, the PLCB enforces the legislative code that regulates the sale of wine and spirits (but not beer). Along with determining where and when wine and spirits are sold, that code includes an enormous five-tier price hike, starting with a 30 percent mark-up that channels money into Pennsylvania’s general fund, followed by several other taxes, resulting  in layer after layer of bureaucracy. This overall scheme ensures that a wine which would retail for $10 in New Jersey would end up costing $18.25 in Pennsylvania.

This overall scheme ensures that a wine which would retail for $10 in New Jersey would end up costing $18.25 in Pennsylvania.

That means that restaurants and retailers—or "licensees"—cannot profit in liquor sales in the same way that their counterparts in New Jersey and New York do since the state controls all retail selections to consumers through its Fine Wines and Spirits stores; there are no privately held retail shops in PA. "The State run stores are about as warm and cozy as a Costco or CVS and often staffed with inexperienced employees," said Megan Storm, who works for the wine importing and distributing company Artisan’s Cellar. Licensees also have to go to great lengths to actually get those wines, such as hiring their own delivery trucks—as opposed to working with distributors, as most states do. And furthermore, through the State-run system, restaurant professionals and retailers say they simply don’t see the kind of diverse bottle selection they would like to be able to offer.

Today, a group of industry professionals testified before the House Liquor Control Committee at the Pennsylvania State Capitol, in Harrisburg, with the hope of conveying the message that Pennsylvania’s approach to wine and spirits is hindering the profitability of their businesses and preventing a stronger wine and spirits culture from developing. This perspective was presented by a group comprised of small- to large-scale importers and distributors, brokers who work with importers in other states to bring in small-production wines, beverage directors, restaurants, and hospitality industry associations.

Terri Beirne of The Wine Institute, which represents California wineries, testified before the Committee. She explained that one specific cost mark-up, known as the LTMF (logistics, transportation, merchandising factor), has been steadily increasing for years, with no explanation: "For a 750 mL bottle of wine, it was a flat fee of $1.20 until 2010; then in 2011 they changed it to a percentage of the price, which was a baseline of $1.30 per bottle on average." Over the course of four years, the LTMF was raised to a baseline of $1.37 for "new products" which, for wine, could simply mean a new vintage. "They just keep moving the base line," she said. "We don’t even know the details of this price calculator, this is the best we know."

It’s one thing to imagine how consumers are affected by this mark-up—but restaurants, which often depend on the margins from alcohol sales to make a profit, are really suffering. "Restaurateurs such as Timothy Kweeder of Petruce et al., are struggling to keep their doors open and their wine cellars well stocked," said Storm. She mentioned a Philly Mag review of Petrace et al., a restaurant featuring small-production natural wines that sparked a comment thread lambasting its wine mark-ups, and which then stoked a flame of discontent that was already burning amongst the wine-loving restaurant industry community.

Melissa Bova, the Director of Government Affairs for the Pennsylvania Restaurant and Lodging Association, explained that there are further costs that raise the prices of wine and spirits for retailers and restaurants. It is somewhat labyrinthine. Before the LTMF fee is applied, a non-descript 1 percent fee is applied to the unit cost of an item. Next, a 30 percent markup is applied to the first $65 of the sum above (with 10 percent on any amount above $65). Next the LTMF is applied. On top of the LTMF, there’s an 18 percent tax, which was originally created about 70 years ago to help a town called Johnstown that suffered a flood. Then, for some reason, that number is rounded up to the nearest $.09, and (as in most states), a sales tax is added when a bottle is sold from a state-run store.

Yet, the main complaint Bova hears is that Pennsylvania doesn't "have the selection that a lot of states have. We don’t have the variety we need. And it’s hard to mark up a product that already has five levels of mark-up."

"We also don’t have the selection that a lot of states have ... And it’s hard to mark up a product that already has five levels of mark-up."

Steve Wildy, the beverage director for the Vetri Family group, which operates seven restaurants in Pennsylvania and one in New Jersey, explained his stance: "I started with Vetri around nine years ago, handling small purchases—we were a small scale restaurant group then. Now we have eight restaurants, and we’ve seen a big uptake in volume with the PLCB, and a big uptake in issues arising with service." The main frustration, he said, is the cost of wine and spirits. "It’s also the lack of a wholesale distribution system."

In Pennsylvania, restaurants and retailers can’t receive bottle deliveries—they have to send someone to the State-run stores to pick up orders. "These are additional expenses, time and labor," said Wildy. "We get a parking ticket while we’re picking up, for example. We have to pay delivery drivers." And now that Vetri operates a restaurant in New Jersey, said Wildy, they really see how antiquated and inefficient Pennsylvania’s system is.

Phil Colicchio, a lawyer who represents hospitality industry clients across the country, and who has been providing pro-bono advice to the industry professionals that testified, said that Pennsylvania is "by far the most frustrating state in which to do business in wine and spirits." In his opinion, "the business of selling alcohol is not really a business [the state] should be in" at all—but more importantly, he wondered, "how many jobs does this system preclude from ever being created?"

Wine importer and winery owner Scott Braunschweig of Artisan’s Cellar, as well as broker Jason Malumed of Chalkboard Wine and Spirits, who each work with small producers and national importers to bring their wines into Pennsylvania and surrounding states, also testified. Both companies focus on distributing boutique wines in other states like New York or California where it’s easy to find retail shops selling such bottles. But in Pennsylvania and other "control states," it is the job of the State to decide what to sell through their State-run stores.

Storm, speaking on behalf of Artisan’s Cellar where she works, said that "What we’re fighting in Harrisburg right now is no wholesale tier for restaurants; so restaurants can pay retail. They get a lot of shit from the consumers because the mark-ups too high." Malumed highlighted his focus on distributing the boutique natural wines that importers like Louis/Dressner and Selection Massale bring into the U.S. "Small importers have a difficult time navigating the PA system and getting their wine sold to restaurants; none of them have any idea how to do it," he said. "It’s impossible for a distributor to compete on volume in Pennsylvania because of pricing."

Stacy Kriedeman, Director of External Affairs for the PLCB, who testified before the House, provided the State's perspective on the questions of mark-ups and distribution. "The PLCB is committed to providing the best customer service we can. We continue to look for ways to streamline the system for licensees to make it easier and more efficient to use." She mentioned a new online ordering portal, which will make it easier for licensees to order wine and spirits. Kriedeman said the PLCB has also "started a program to deliver product from the warehouse directly to our largest licensees, those who are ordering at least 50 cases at a time." She added, "We understand how important the licensees are to local economies and to our business. We continue to look for ways to improve their wine and spirits buying experience and the distribution system as a whole."

"Small importers have a difficult time navigating the PA system and getting their wine sold to restaurants; none of them have any idea how to do it ..."

Those who testified on behalf of wine and spirits distributors and associations, as well as restaurants, are hoping to convince the State Senate to see that their points are valid. For Malumed, the PLCB’s new online ordering system is a step in the right direction, but it’s not enough. "There are some hints that the PLCB wants to change, but they seem overly focused on retail," he said. "Also, their hands are a little bit tied" because they can’t change the pricing structure without legislation being passed.

The PLCB offered this statement about their pricing system: "Like all businesses, the PLCB has a mark-up on its products to cover costs and to make a profit. The taxes and profit that the agency makes is sent to the Pennsylvania Treasury to pay for Pennsylvania State Police Bureau of Liquor Enforcement, drug and alcohol programs and other essential state services. Last year, the agency contributed approximately $566 million to the state Treasury. The PLCB’s base mark-up of 30 percent hasn’t been changed since 1993, more than 20 years ago. Licensees do get a discount of 10 percent on the products they buy. That discount is dictated by state law and not at the discretion of the board." Regarding this discount, licensees have to pay six to eight percent taxes at the point of sale, and then they pay another tax when buying the wine, which, in Storm’s opinion, negates the 10 percent discount. And regarding the revenue question, Malumed wondered, "What if the PLCB didn’t even exist; how much additional tax revenue would be generated by having this system be private?"

Regardless what comes of today's hearing, it’s clear that Pennsylvania’s dining and drinking scenes are on the rise and that those involved are passionate about their work. In the meantime, anyone who dines in Philadelphia or Pittsburgh might as well celebrate the one positive byproduct of the high mark-ups on booze at restaurants: the wealth of BYOB restaurants in these cities. Hopefully though, the state will catch up to its neighbors in the near future so that wine and spirits enthusiasts on the consumer and industry sides alike can have access to the bottles they love.

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