The Pennsylvania Liquor Control Board (PLCB) not only runs the largest control-state system in the country – with 621 stores and some 3,000 full- and part-time employees – it is also the single largest purchaser of wine and liquor in the world. In Fiscal Year 2009-2010, it had sales of almost $1.9 billion and transferred $105 million in profits to the Pennsylvania State Treasury, in addition to collecting approximately $383 million in state and local taxes. And this year, despite the economy, its dollar sales were up by 3.65 percent.
The PLCB has also always been an innovator among control-state agencies. It was the first, for example, to offer online renewals to its licensees. It opened its first superstore in 1990, its e-commerce website in the early 2000’s. It has long prided itself on its wine selections: it had already vastly expanded its selection and added climate-controlled storage to its warehouses, trucks and some of its stores by 2003. In 1997, it was the first retailer of any type to use ID-checking devices to read the information on drivers’ licenses and confirm a customer’s age. That technology is now routinely integrated into retail point-of-sale systems. But now the agency is at something of a crossroads.
The incoming Republican governor, Tom Corbett, campaigned on the idea of privatizing the sale of wine and spirits in his state. With the state of Pennsylvania facing budget deficits of as much as $4 billion, Corbett and House Majority Leader Mike Turzai, who is sponsoring a privatization bill, argue that shutting down the state’s stores and warehouse operations and selling wholesale distribution and retail licenses to the private sector could generate $2 billion.
Opponents of the plan point out that the state can only sell the control system once, but if kept, it generates approximately $100 million in profits every year. That’s in addition to the collection of state liquor and sales taxes, which privatization opponents point out, the PLCB, as a government agency, collects at the rate of 100 percent. The PLCB also currently fully funds, out of its operational revenues, the enforcement of the state’s liquor laws by the Pennsylvania State Police’s Bureau of Liquor Control Enforcement. In addition, according to PLCB’s figures, the agency helps the state’s economy by leasing its stores, to the tune of over $40.5 million per year, from private landlords and by outsourcing the management of its three warehouse/distribution centers to private companies, for over $35.8 million per year. Also, closing down the PLCB’s operations would throw 3,000 state employees out of work.
Heather Long, in a December 4th op/ed piece in The Patriot-News, pointed out that two states that privatized their retail operations, Iowa in 1986 and West Virginia in 1991, made less than $20 million when they sold their state stores. “While we all like to focus on how much easier a private system could make it to buy alcohol, no one should forget that taxpayers own the current system, and we get a healthy $105 million a year profit from it in addition to liquor tax revenues,” she wrote. “If elected officials give away the state liquor cabinet for free – or anywhere close to it – taxpayers will get screwed.”
As elected officials gear up to argue over this issue, the PLCB itself continues to do what it has always done: strive to run as efficiently and effectively as it can. Since about 2002, when former Governor Rendell’s transition team first issued a report about how to improve the LCB, the agency has been busily implementing what PLCB chief executive officer (CEO) Joe Conti calls “the renaissance of the agency.”
One of the first steps was to create the position of CEO and hire Conti, a former state senator, a former restaurateur (“I am a bartender by birth,” he quipped) and a former licensee, from 1976 to 1999, for it.
“Before that, the structure of the LCB was very unusual,” he explained. “Two directors – a director of administration and a director of marketing – reported to the three-member board.” In the current structure, Conti reports to the board and six directors, each of whom runs a division – Regulatory Affairs, Retail Operations, Supply Chain & Distribution, Marketing & Merchandising, Administration and Finance – report to Conti. “Our consultants benchmarked a number of operations, including the Liquor Control Board of Ontario, ABC Liquors in Florida and the Pennsylvania-based Sheetz Convenience Stores, and recommended this structure as more efficient than our old one,” explained Conti.
Most recently, the PLCB has been focusing on three improvement projects. One was the initial implementation of a $25-million enterprise resource planning (ERP) system from Oracle. While use of the system is still in its infancy – “It will take two to three years to get it to a ‘stable state,’ where all our data is in” and the system is being used to its full potential, explained Conti – it is already producing benefits for the agency. “We are making better business decisions,” Conti said.
Currently, the marketing & merchandising division is using it for “SKU rationalization.” “We are looking at categories and price segments and sale trends over the next couple of weeks for products that we can eliminate,” explained Jim Short, director of marketing and merchandising. “After the first of the year, we will start using it to look at areas where we should add products. And its suggestions will be very specific, not ‘You need more California chardonnays’ but ‘You need more chardonnays from Sonoma Valley at this price point.'”
A second area of change has been in store design. The PLCB has opened three new store-design prototypes: a 12,000- square-foot stand-alone store, a 10,000-square-foot store located in a shopping center, and a 3,000-square-foot location. The first opened in September and the third in November. Already, these refurbished stores are showing sales increases of 30 percent. And that is not coming from cannibalization of sales from other nearby state stores, according to Dale Horst, director of retail operations. “People are buying additional products and the average price per bottle is higher,” he said. “People are upgrading the products they are buying and they are buying more.” Conti attributes the change to a better shopping experience. “People linger and feel better about shopping,” he said.
These new stores – which, like all the state stores, go by the brand name “Fine Wines & Good Spirits” – include a feature called the “center table.” A focal point of the design, this center table is where customers can always find a staff member to answer questions. New and featured products are on display at the center table and customers can also find information such as a vintage chart, a food-pairing outline, a party-planning guide, a calorie chart and a list of tips about responsible hosting. “These stores also feature wider aisles to encourage shopping and browsing,” said Horst, “and they are more ‘green.’ They use no plastic bags, only paper, and we’ve used green materials and fixtures, such as LED lights, in them.”
In January, the PLCB started replacing the POS system in its stores. “Our registers were beyond their useful life, beyond serviceability,” Horst explained. Conti said, “I don’t know how they were still working, some of them dated back to ’87. We had bought all [the registers] we could and were pirating them for parts.”
The new POS system will interface more easily with the ERP system, according to Conti. And it will provide “a lot more information at the associate level,” Horst said. “They’ll be able to do product look-up right at the register and sales receipts will contain barcodes that can be scanned to bring the whole order up.” The POS registers will be fitted with touchscreens and a screen to show customers a rolling receipt while their purchases are being made as well as marketing information.
The third recent focus of the PLCB’s renaissance is a commitment to employee training. “We want to raise the standards of customer service and did a complete review of procedures and policies,” said Horst. “And, starting last year, we increased the training of associates and management.” He continued, “In the stores, we are changing the mindset from a state-run business to a best-of-class retail operation.” Horst pointed out this was a particular challenge because, even though dollar sales are increasing at a rate of 3.5 percent and unit sales are increasing at 4 percent each year, the PLCB cannot increase its staff. “The staff has to increase their efficiency,” he said.
On the line
In keeping with its quest to improve service to customers, the PLCB has worked continually on its e-commerce website, www.finewineandgoodspirits.com. Customers can order products through the website, to be delivered to the state store of their choice. “The marketplace is changing,” said Conti. “Many wine enthusiasts prefer to buy online, which is a big change. People used to want to be in the store: to pick up the bottle, look at it, speak to someone. Now, they are already knowledgeable about wine and prefer to shop online.” The PLCB lists some wines, both exclusives and close-outs, only on its website.
The website offers a range of information. Customers can search for in-store tastings by date, store, city, zip code or product. They can keep a wish list of favorites. There are glossaries, a glassware guide, evaluation charts and tasting mats. There are articles, such as “Wine Pairing for Herbivores: Vegetarian Food & Wine Pairing” and “Waiter, There’s a Flaw in My Wine: Shopping Common Wine Faults.” They can look up the monthly in-store sales and also look up online-only sales, which often sell out within 24 hours. Customers can even sign up to have advanced notice of sales sent to them by email.
The e-commerce website falls under the purview of the marketing & merchandising division. That division also handles the marketing and advertising of the PLCB’s stores, including the agency’s three annual wine festivals (held, in May, in the east, west and central parts of the state) as well as its two whiskey festivals (held in November, in the east and the west), its schedule of in-store tastings and a range of other events.
“Our celebrity events are very popular,” noted Jim Short, director of marketing and merchandising. On December 15th, for example, actor Dan Aykroyd, signed bottles of his vodka, Crystal Head, for customers in a state store in Pittsburgh. In October, the hiphop star Ludacris signed bottles of his cognac, Conjure, at a store in Bala Cynwyd.
Up next for the marketing & merchandising division: the use of social-networking sites, such as Facebook and Twitter, to spread the word about new products, promotions and events at the PLCB. “We started trying this right before Christmas,” said Short.
The division of marketing & merchandising is also in charge of product selection and product marketing and promotion within the stores. As products have proliferated in the beverage-alcohol industry, as they have for other types of consumer products, the process of product selection has become more complex for a retailer like the PLCB. The shopping experience has also become more complex for the consumer. “It’s to the point where I am seeing, in retail in general, a shift toward the thinking that ‘less is more,'” said Short. “Sometimes there can be so much product choice that it becomes confusing – and consumers are forced to move from shopping to making decisions.”
Next summer, using the PLCB’s ERP system, Short’s marketing & merchandising division will look at “promotion optimization” or how well the PLCB’s system of product sales work for consumers in the stores. “Once you have up to 600 sales a month, the sales items just begin to cannibalize each other,” explained Short. “Customers just begin trading from one product to another, as they go on sale.” In other words, customers are forced to make decisions, to figure out what’s on sale this time in their favorite category. The PLCB has 900 sale items a month. “When you have that many, people begin to wonder whether the sales prices really are sales prices,” said Short, “and the whole thing becomes overwhelming to the consumer.”
Using the ERP system to analyze the data, the PLCB is going to begin to take a look at its sales and how they are working. “We are going to have more control and be able to maximize opportunities,” said Short. “We think we can maximize our promotion dollars and what suppliers are paying to offer discounts on their products.”
The PLCB’s division of regulatory affairs is in charge of licensing, alcohol education and consumer relations. It is headed by director Jerry Waters, Sr.
The PLCB keeps track of over 30,000 license-holders of various types, including about 17,000 retail licensees: restaurants, bars, hotels, clubs and distributorships (for beer). And the licensing process has become more complex for the PLCB. “Thirty years ago, 90 percent of the applicants were sole proprietors,” said Waters. “Most are now corporate LLC (limited-liability companies) and we end up working with their various attorneys to get the information required to make the [licensing] decision.”
Even still, the PLCB has worked to streamline the process for licensees. “Fifty percent of the licensing work is now done online,” said CEO Conti, “which we can do within the current code.”
And much more information is available online as well. “You can do a licensee search online,” said Waters. “You can go to our website (http://www.lcb.state.pa.us) and search by county/municipality, address, business name, license type to get information, including names of the officers, contact info and citation case information, on licensees.”
The regulatory affairs division’s educational efforts include its RAMP (Responsible Alcohol Management Program). That is an owner/manager training program that is free to licensees. To become RAMP-certified, a licensee must have 50 percent or more of its servers and sellers trained about responsible alcohol service. The PLCB certifies a number of trainers using these programs across the state. The licensee must also display signage about responsible-alcohol consumption in the business and do new-employee orientation about the subject. In Fiscal Year 2009-2010, the PLCB reported that 2,424 owners and managers underwent RAMP training as did over 23,000 servers and sellers.
The PLCB also gives away over $1 million dollars a year in grants to organizations such as police departments, colleges and community groups to fund alcohol-education programs aimed at preventing underage and dangerous drinking. This year, the PLCB gave away 72 of these mini-grants. The maximum amount of a PLCB mini-grant is $15,000. This past year, 22 of these grants were awarded to local law-enforcement agencies, to fund things such as DUI stops, 18 went to support alcohol-education campaigns aimed at children and 32 went to colleges and universities for programs ranging from enforcement efforts and social-norms campaigns to counseling efforts and risk assessments. “The PLCB remains committed to the fight against alcohol misuse and abuse,” said Waters. “So long as binge drinking among college students and other misuse of alcohol remains a problem in Pennsylvania communities, we will support research and programs to address it.”
When it comes to the PLCB’s constant efforts to improve its operations, CEO Conti reflects on his experience in the restaurant industry. “Just like in the restaurant business, we’re only as good as our last review,” he said. “We’re never through with improving.”
The Latest Machinations
While they have been derided in the local press as Rube Goldberg contraptions that only a government bureaucrat could devise, the PLCB’s new wine kiosks are really an effort to allow customers to pick up a bottle of wine while grocery-shopping – and keep in compliance with Pennsylvania law about the transaction.
Developed by a Pennsylvania company called Simple Brands, the Pronto wine kiosks are vending machines that can hold up to 40 different wines in a climate-controlled atmosphere.
Here’s where it gets complicated, though: to comply with state law, the PLCB itself must oversee the transaction, verifying that the person is of-age and is not intoxicated. So, the kiosks are equipped with closed-circuit cameras that are monitored remotely by a PLCB employee located in Harrisburg. When the customer inserts his or her driver’s license into the machine, its encrypted information, included its picture, is read. The PLCB employee then verifies visually that the person standing at the kiosk is the person pictured by the license.
But that’s not all. The PLCB employee, back in Harrisburg, must verify that the customer is not intoxicated. How to do that? The machine is equipped with breathalyzer equipment. The customer must blow into the machine. (Their lips do not have to come into contact with the machine to do so, the PLCB points out.) The instant reading is sent to that employee in Harrisburg. If the customer blows a breath-alcohol level of more than 0.2 percent, the transaction will not be allowed.
According to state law, “every sale has to be done in a state store by an LCB employee,” explained Horst. “The kiosk is literally a self-contained store.”
The PLCB currently has 26 of the Pronto kiosks operating in supermarkets, with the goal of rolling out 100 of them.
“The kiosks have proven to be safe and reliable and we are looking forward to giving consumers across Pennsylvania the opportunity to do one-stop shopping,” said Patrick “PJ” Stapleton, LCB chairman.
The Pennsylvania Liquor Control Board
The actual board of the Pennsylvania Liquor Control Board is a three-person body. Its members are appointed by the governor and confirmed by the state senate. They serve staggered, four-year terms and cannot all be from the same political party.
The board is headed by Patrick “PJ” Stapleton III, who has been on the board since 1997, when he was appointed by then-governor Tom Ridge. He was named chairman, by then-governor Edward Rendell in 2007. Stapleton is a lawyer who began his career as an assistant district attorney in 1982, served on the Pennsylvania Supreme Court Mediation Task Force and was named one of Pennsylvania’s “Super Lawyers” by Philadelphia Magazine.
Thomas Goldsmith was appointed to the board by Governor Rendell in 2003 and re-appointed for a second term in 2007. Goldsmith served three terms as the mayor of Easton, PA and, before that, served for 20 years on the Easton City Council.
Robert Marcus is the newest member of the board, having been appointed in 2007. He is an attorney and also the chairman of Apangea Learning, an online math tutoring company used by school districts around the country. He is also on the board of the Foundation for Indiana University of Pennsylvania.