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Pa. LCB accused of using new 'flexible pricing' law to boost profits

| Wednesday, Oct. 5, 2016, 9:42 p.m.
The Pennsylvania Liquor Control Board is one of the nation’s largest purchasers of wine and liquor.
Heidi Murrin | Trib Total Media
The Pennsylvania Liquor Control Board is one of the nation’s largest purchasers of wine and liquor.

HARRISBURG — Alcohol industry officials on Wednesday accused the state Liquor Control Board of using a new pricing policy to bolster profits rather than benefit customers.

The LCB is “letting a cash grab be the driving force behind a policy,” David Ozgo, chief economist for the Washington, D.C.-based Distilled Spirits Council, told the three-member board.

Under Act 39, the LCB gained the ability to charge different markups on products for the first time in history. The agency previously had to mark up virtually every product 30 percent, whether it was an $8 bottle of wine or an $80 bottle of whiskey.

Now, wine and spirits suppliers are worried how the agency will apply its newfound pricing flexibility and whether any discounts wrung from suppliers will be passed on to shoppers.

The LCB plans to increase its profit margin to absorb a lower product cost rather than lowering the shelf price for customers in state stores, Ozgo said.

David Wojnar, vice president of state government relations with the national distilled spirits trade association, called on the LCB to delay implementing “flexible pricing” until after the holidays — historically the top sales period — and until stakeholders weighed in further.

“We are not in a position to push back any timetable,” Chairman Tim Holden said.

Board members and Executive Director John Metzger defended the agency and its implementation of Act 39, one of the biggest liquor code overhauls in state history.

Lawmakers provided a clear directive with the new law, Holden said.

“They expect more revenue. And they expect more consumer convenience,” he said.

After this year, flexible pricing is projected to generate an additional $65 million annually for the state.

If the LCB wants to generate more money for the state, the agency should open more stores and not raise revenue on the backs of liquor suppliers, Wojnar said.

“You're underserved. You need more outlets,” he said in a rare public exchange between industry officials and the LCB.

Board meetings are typically perfunctory, with members approving nearly everything on the agenda, often with little debate and few questions.

Dale Horst, LCB director of marketing, said his team will have held 63 meetings with vendors by mid-October to review the cost, sales volume and profit margin on every product they sell in Pennsylvania. The agency is not demanding discounts, but rather “asking for a fair (price),” he said.

Privately, though, wine and spirits officials said the LCB asked for specific percentage cuts in cost but without saying what markup would then be applied. That strategy means suppliers wouldn't know what the final shelf price would be for shoppers.

“We hope the discounts they get from wineries are passed on to consumers,” said Terri Cofer Beirne, eastern counsel with The Wine Institute, an advocacy group for California wineries.

Individual meetings with vendors are the first step for the agency in figuring out prices going forward, LCB spokeswoman Liz Brassell said.

She said it is unclear whether prices would increase, decrease or hold steady until suppliers come back with their final offer and that information is presented to the board.

“This is our first time ever to negotiate prices with suppliers,” Brassell said. “This is going to be an ongoing, continual process.”

The LCB has to balance the financial expectations imposed by the Legislature with what's best for customers, she said.

As for more stores, Brassell said 604 are open and there is no limit on how many more could be added. The agency is always looking for places where the market could support more outlets, she said.

Kari Andren is a Tribune-Review staff writer. Reach her at 724-850-2856 or kandren@tribweb.com.

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