Wednesday, January 9, 2008

Is Pennsylvania better off WITH the case law?

My buddy -- and frequent STAG commenter -- Sam Komlenic sent the following as a response to my post on Pennsylvania's initiative to get rid of the case law; he's against it. Hear him out, he's got some interesting angles, interesting enough that I thought it would work better as a post than as a comment. I don't buy much of what he says, though: I'm going to insert my responses in the text, and then we invite you to join in.


OK, I've done my research; here goes. Those who have been paying attention know that some retail entities have been doing yeoman's work to get beer put into their establishments here in PA. The Sheetz convenience store chain and Wegman's grocery have both purchased PLCB "E" retail licenses (I think I've got that right, if not, my bad). These permit the sale of beer on-premise in restaurant-oriented operations.

Sheetz, in their huge Altoona location, is now selling six packs only, prohibiting on-premise consumption entirely, pending a PA Supreme Court ruling on the issue. Wegman's. in their State College location, applied for transfer of a license, purportedly to offer the "convenience" of on-premise beer sales as an option to customers in the restaurant area of the store. This has not yet happened, and I'll bet they're waiting for the court's ruling.

Neither of these entities really wants to assume the liability involved in on-premise consumption, as evidenced by Sheetz's intentional and blatant disregard for the parameters of the license they were granted, even though their initial intent was to provide customers the option of a beer with their hoagie (on-premise, to get the license, then let the court decide). They want to sell six packs, and six packs only, out the door.

I don't really see this as an issue. There are plenty of similar licenses already being used this way in the state's "bottleshops." People assume that there is a special license for places like this, my former state legislator did, he told me they had a "deli license": there isn't such a thing. They've simply bought a tavern license and made it a store policy that you can't drink on-premises, a way to make the state's laws allow a sixpack shop. It's an expensive way to do it in some areas -- these licenses aren't cheap -- but it's hardly new or particularly underhanded.

Now, take this a step further. Once distributors are granted the luxury of selling six packs, what's to prevent Wegman's, or Sheetz, or Weis, or any other retail entity to purchase a distributor's license? Keep in mind that there are somewhere in the neighborhood of 2,000 distributor licenses in PA, many (most?) of which are not massive operations mastering the brands of large brewing companies. Many (most?) are small, mom and pop "D" distributors with little or no influence in the market, buying all of their beer from master distributors in their territory, and whose licenses would immediately be worth more than their entire business, property included.

As I understand it -- as you said, if I'm wrong, my bad -- D distributors are very limited in the items they can sell besides beer -- snacks, beer glasses and books/magazines, lottery tickets, soft drinks, and smokes, I think -- precisely to prevent grocery stores from 'back-dooring' their way in like this. If the grocery store went to the extent of setting up a separate corporation to buy the license, and put a beer distributor right next door with their name over the door...well, the state already encourages the co-positioning of distributors and State Stores.

One more step: what's to prevent the grocery/convenience chains from buying the more influential "ID" licenses, which permit importation of beer from out of state? This could potentially make Wegman's the master distributor for A-B, Miller, or whatever in your county(ies). Also note that it is not hard to convert any "D" license to an "ID" simply by applying for the change.

Why is a grocery store buying that ID any more threatening than a large and growing wholesaler buying it up? If one wholesaler had A-B for the whole state, would that be different than if Wegman's bought it?

I'll accept this legislation with one small and seemingly insignificant change that will NEVER happen: that it strictly prohibit sales of beer in grocery/convenience stores. That simple. It protects the distributor network as we know it without allowing the transfer of licenses surreptitiously, which has already begun to occur. It would also fulfill the intent of the law that is now being presented: to allow distributors ONLY to enjoy this privilege. These guys are already knocking on the door, the legislature is in their pocket, and they have the funds to beat this horse until they get what they want, and I don't want what they do.

You won't see that, you're right, but why not go whole hog: let's go to a package store system. Break up the damned State Store system and make ONE type of license to sell beer, wine, liquor and all alcohol off-premise, in any amounts, without artificial restraint. Put reasonable limits on the number of licenses per capita per county if you feel you have to -- and they will -- but give these guys a chance. I'd love to see a package store system in PA.

My craft distributor told me that if this law is passed, he will move toward selling by the six and twelve pack only. Space is a major issue, margins are another.

Is that all bad? If he doesn't offer case discounts, someone will. It's his business, Sam.

Let's also look at draft availability. Supermarkets in states that permit their selling beer, in my experience, place very little import on a good selection of kegs. If the distributor system diminishes significantly, where will you go for a good selection of halves, quarters, and sixtels? Pennsylvania may currently be the most draft-friendly state in the Union. Don't expect that to continue.

That's assuming that this will lead inevitably to supermarket sales. As I said above, I don't buy that premise, so I'm not overly concerned about this prospect.

For now, I stand by my initial observation, that this legislation is a back door avenue for grocery store sales in Pennsylvania, nothing more. Once this occurs, the majors will gain exponential influence in the market, which is WHAT THEY WANT.

Also keep in mind that PA is one of the only (perhaps THE only) states where distribution is granted in very small chunks, one (or a few) county(ies) at a time. The big guys HATE this! Many states have one or two distributors for the whole state. It's easier, more convenient (there's that word again), and more profitable for them. This legislation could easily begin the dismantling of that landscape, as well.

Many craft and import brands have granted rights to the whole state to one wholesaler...because it's easier and more convenient. Distribution rights CAN be granted in very small chunks; they aren't always, it's up to the producer and wholesaler. Most other states work the same way...but their wholesalers have consolidated and merged. Pennsylvania is a big, populous state, with a long history of geographic division: we've got chunks of population separated by a lot of open land. That's got more to do with it than laws.

Having been in beer sales in the past, it was my experience that even under the present regulations, when a new bottle shop was being opened, the distributors with clout called the shots. They would lay out the cooler placements for the retailer, to the point of minimizing or excluding the placement of minor brands they did not themselves represent. They buy equipment for the licensee, flaunting existing regulations. They get the tap placements they want. They control it to whatever extent they can. Think this will change for the better with even greater freedom?

This is all too true. I'd love to see more PLCB enforcement of these regulations, instead of looking for domestic animals on premises and registration of brands.

Call me a cynic (I am), but this whole thing is designed to look beneficial to the beer consumer, when in fact, it is only and entirely about convenience(!) and corporate influence, not selection and diversity for the consumer.

Be careful what you wish for...you might get it!

I'm fully behind that statement. We don't know what this law will eventually come out to, what all the effects will be: no one does. But I still don't see it leading directly or indirectly to supermarket sales.

Call for discussion!

24 comments:

Dean said...

From the craft brewer's standpoint; the cost to put together a six-pack case is at least $2.00 more than a loose case. This law will most certainly increase the demand for six-pack cases. Some brewers may be hesitant to pile this increase on to their case price along with the huge malt and hop increases that are already under way. Let's face it - 2 bucks is enough to influence many purchase decisions in an already competitive market.

Anna van Schurman said...

There are lots of states where beer is sold in the grocery store, in six packs, by the bottle even. I really don't understand what Pennsylvania's laws are doing...for anyone...

Bill in Harrisburg said...

Sorry if this sounds harsh but as a consumer I HATE that my choices must be sacrificed to keep the mom and pop distributors in business. Allow the free market to figure out what beer drinkers in the commonwealth want. When I visit Maine, where I grew up, I can purchase a six pack of craft beer at a RITE AID! (among other places; gas station c-stores, supermarkets, etc).
If the distributors can't survive a law change then it'll be likely that they went out of business because a better option opened up down the street.
If the distributors are good business people they'll figure out how to thrive under the new system.

Rich said...

Lew, I'm with you on this one. I don't see these arguments as being all that compelling, it is just FUD.

Other states that have grocery store sales did not just magically implode because of it. I like the idea of the package stores, like you mentioned.

I believe MD has a setup like this. One of my favorite stops on the way down to the Chesapeake is at Weaver's, in Elkton MD, where you can get beer, wine, and liquor from the single bottle to the keg and all their prices are decent and they have a good selection.

S.Johansen said...

With my apologies to Sam...

I vacation in DE. Right off Route 1, several miles north of Rehoboth Beach, there is a liquor store, Cape Wine and Spirits I believe. It is fairly new, but has been there the past two times I've been in the area. Do I get excited that I get to eat great crab chowder and seafood, visit historic Lewes' beaches, or shop at the outlets when I'm on vacation. No... I get excited to stop at that store and by three six packs and a couple bombers of several different craft beers that I get to try out and enjoy over the course of my week away.

Why can't I have this privilege at home. I understand that it is going to be a huge pain in the but for distributors, and so what if it opens the doors to other venues selling booze (it certainly works in other states.) I'm not even asking to pick up a sixer at a gas station or a Wawa. All I want is to spend 10 bucks on a sixer, instead of 35 on a case so I can try as many different craft brews as possible.

Jim Russell said...

I'm confused. I've lived in states where one can buy beer at the supermarket. As a consumer of craft beer, I liked my options in Virginia much better than I did in Pennsylvania.

Is there something about PA that would inform a different outcome than one would experience in VA?

As the law stands right now, the consumer is getting the shaft. That much is clear.

PNeifert said...

I don't understand why there is this misconception that you can't find good craft beers by the sixpack in PA. In my area on the outskirts of Philadelphia, that's just about the only way you can find a good beer. The distributors are slaves to the Bud/Miller/Coors and often don't have the floor space or the turnover for expensive crafts. The local bars will have hundreds available, however. On another note, several posts wonder why distributors in PA are any different from VA or that Mom and Pops shouldn't interfere with choice. If Mom and Pop didn't lay out a million bucks for the license, bricks and business, surely putting up their entire net worth, along with their grandkids' education, that would be fine. The fact that they do put up this kind of ante makes it an entirely different situation - one that can be squashed and deemed worthless with irresponsible legislature that would allow superpower retailers to come in and buy - and sell - at much lower cost.

Lew Bryson said...

PNeifert,

I'm afraid you exaggerate. The distributors I see with the biggest selection of crafts are often, if not always, the ones with the smallest amount of floorspace. They've made a choice, one which leads me to believe that if the sixpack law does pass, they will make a choice and put in shelving and coolers and sell sixpacks at a great rate. They made an informed choice: when everyone else is selling hamburgers, you'd better sell steaks. That choice will still be open under sixpack rules.

Within 20 minutes drive, I can get to three excellent bottleshops with over 200 beers available. I can get to two distributors with a similar selection. But the fact of the matter is: good beer selections, notable beer selections, aren't really a function of sixpack or case laws. They're a function of retailers building or recognizing a market, and putting in the investment to serve it. And high-end beers -- like high-end wines, or high-end automobiles -- have a finite market. You can't have a fantastic selection at every store: doesn't happen now, won't happen in the future. Adequate, maybe even good, okay. But fantastic? Never.

And a million for license, bricks, and business? Sounds high on what I've heard for distributors, but even so: How does this law make that investment worthless? I sure don't see that. Explain, please.

Anonymous said...

There is no misconception that you can't find good beer by the six-pack in PA. Of course you can. The problem is that, because the only place this is possible is in a bar, you pay two to three times the price for this six-pack as you would in NJ or DE. Why?

To Lew's buddy, I really don't see why supermarkets selling beer would at all be a problem. it works just fine in many other states. In fact, I don't see why any retail establishment that can demonstrate the ability to screen for age shouldn't be allowed to sell alcohol. Beer, wine, the hard stuff... it just shouldn't matter. The market will dictate how it goes down.

Small shops that don't cater exclusively to alcohol (convenience stores, supermarkets, gas stations and the like) would most certainly limit what they carry to major brands. Dedicated shops, and those who cater to enthusiasts and discriminating consumers will carry what their customers want to buy. Everybody wins in that scenario: the consumer, the retailer interested in selling alcohol, the wholesalers and the manufacturers big and small.

What's the issue here?

Anonymous said...

Oh, and one more thing: I totally agree that this legislation (or any other) should in no way be written or amended to provide added protection for mom and pop shops, or any other existing business.

Markets change, and if you can't adapt to those changes then that's their problem. Keeping an archaic system in place solely for the benefit of those who won't adapt is ludicrous.

THOMAS 'Tom' CIZAUSKAS said...

One commenter mentions the better better-beer selection in Maryland. It's interesting to note that Maryland forbids multiple location beer/wine/liquor chain stores and limits grocery stores to one beer/wine location. There are no state liquor stores (even though Montgomery County, bordering on D.C., does reserve to itself the sale of liquor). I don't know if the good selection is a result of or a despite of, but the regs have protected Mom & Pops, even though those licenses are more often held by --wink-wink-- 'extended-families'.

Sam's Craft Buddy said...

It does come down to enforcement. That's why the Sheetz case is in court. Liquor Control Enforcement (LCE) and Licensing has turned a blind eye to enforcement. Why? Our Governor wants it. But that is another but related issue. When Wegeman's receives their license, the restrictions on the license (barriers between grocery items and beer - seperate cash registers for beer and grocery sales, for example) will be enforced just like Sheetz. They aren't! What would happen to the wholesalers if they decided to sell on premise or start selling groceries? With the preceeding as background, it's not a stretch for this wholesaler to conceive the same will happen if grocery stores purchases wholesaler licenses which are now allowed to sell 6-packs.
Small wholesales and taverns and "bottle shops" will now have to compete with grocers who sell thousands if not tens of thousand of items. "Lose leader" is very threatning to small mom and pops!
I agree it could be good for the consumer, provided we don't lose some of our in-state brewers and some of our selection(part of the related issue above). Maybe that is a fair trade-off for convience. But being one of those mom and pops, it's more difficult to re-invent ones business(being "good business people")then to just make that statement. I wonder how good Bill would be at training at a new job?
Bottom line is , the state played by a set of rules that a lot of people invested in, some small sums, some millions and now it wants to change the rules. Legislative rule changes like the 6 pack law I can live with. It's the backdoor changes, judicial and non-enforcement, that tip the playing field. A good case, no pun intended , can be made that what we have now is closer to free market then what will emerge.

bill in harrisburg said...

Well, Sam, are you trying to tell us the state must continue to have laws on the books that protect the livelihood of the mom and pops? And if so, for how long? 30 years? 100?
Shouldn't the greater good win out?
In my business we've had to make big-time changes over the past 20 years because of new technology and A TON of new competition- I've lost one job because of downsizing already- but I moved on.
It's not just a matter of convenience it's a matter of price- and the laws of supply and demand would suggest the more people selling beer the better the prices will be for those of us who want to drink that beer.
Or, to put it another way, should the commonwealth outlaw grocery stores altogether to keep the corner store and butcher shop in business?

PNeifert said...

Lew,
I wasn't exaggerating when I say "just about the only way." I have one distributor and ten bars within a ten minute drive. The distributor buys 400 cases of Bud at a time (to get a discount) but one case of Winter Welcome. If I don't get there at exactly the right moment, that case may not be there. Don't get me wrong - I'm all for six packs in distributors. My comments were more directed at the "why not have beer in supermarkets?" crowd. Mom and Pop spend $300k for a distributor license in Montgomery County, and it comes with restrictions and privileges. To change the rules after they laid out that kind of cash is like a bait and switch. It would be like going to your local Mercedes dealer and shelling out $80k and they pull a Yugo up to the door and say, "sorry, adapt - markets change." According to anonymous' logic this would be okay. As far as potentially becoming worthless, supermarkets have 10-50 times the space which allows them to buy at larger quantity discounts. Beer distributors would not be able to compete on price and their business (and maybe license) would gradually deteriorate in value. And yes, $1m (actually $1.2m is what the one down the street went for 5 years ago).

Sam's Craft Buddy said...

Bill, what's wrong with protecting mom and pops? You're not anti-family are you? (attempt at humor) Some would think that mom and pops is the greater good vs the wegmens and weises. When it comes to price,one can hardly imagine selling cheaper than mom and pops. In Altoona where the Sheetz store is located, wholesalers work on a 17% margin.When they take a credit card as payment they give up 2% of that! There will not be more beer sold becauses there are more outlets. There is a finite number of licenses, and choice will become more limited as big brewers pay for shelf space. And lastly Bill, we're not asking for the State to outlaw anything. Just for It to enforce the existing regulations and maintain a fair playing field for all that wish to participate. What's happening now has more to do with political pay back and corperate greed then price,convience and selection.

Lew Bryson said...

SCB,

"What's happening now has more to do with political pay back and corperate greed then price,convience and selection."

You got anything to back that up, or are you just slandering these guys on a guess? Because what I see is pretty much every brewer and importer except MillerCoors, and almost every consumer in PA, behind being able to buy sixpacks at mom and pop distributors.

I still have not heard any argument that comes close to convincing me how this will lead to open supermarket sales -- leaving aside for now whether that's a good or bad thing. It's a small and focused change: distributors will be allowed to sell beer by the sixpack, and tavern owners will be allowed to sell three sixpacks at a time instead of two. Oh, and the holiday package thing, which isn't a slippery slope to supermarket sales either, far as I can tell.

Supermarkets in other states have great beer selections. I'm real familiar with Wegman's; my wife's family's from up there, and I've been to a lot of Wegman's. They are ALL about choice and selection. I don't know what will happen if PA gets supermarket sales of beer, but it won't be a Total Beer Apocalypse!

This is not black and white. But like I keep saying: as a consumer? It sure would be nice to be able to buy a sixpack at the distributor...and a case, and a keg. And if PA does get supermarket sales, I'm still betting that the best selection will be at independent beer stores, whatever we call them at that point. Supermarket sales will not make distributors illegal, will they.

Anonymous said...

Oh just pass the darn law already. I am tired of having this argument. Distributors, suck it up!!!! It will happen and YOU shall be forced to deal with it, or you'll go out of business. End of story. God I am so sick of the conspiracy theorists who "know it will lead to beer sales supermarkets." NO YOU DON'T, that's the malt beverage tavern association lobbyist spin talking. Its time for your million dollar investments to take one for the team!!

Jim Russell said...

A changing legal landscape is part of the risk of investment. Big agribusiness often argues, successfully, that subsidies should be left in place.

Protecting that investment is done at the expense of the consumer, the people whom the politicians purportedly represent.

Restating the terms of investment is not a substantive argument. The Case Law is parochial politics at its worst. Time to deep-six the pork and better serve the consumers of beer.

Free the Beer!

Anonymous said...

As a consumer, I like cases and sixtels from distributors. However, with all the different varieties available, I just want one thing.
And that is to buy a bottle or somehow get a taste of the beer I'm thinking of trying before making a big purchase. I think that is all that matters. If you advertise it, then let me taste it.

Curtis said...

I don't live in PA (I live in Chicago), but I visit there often (in-laws) and I grew up in DE. I've never understood how the PA laws help anybody, it's a big pain in the ass when I visit to get beer. I get that because of the screwed up system, the mom and pop distributors will get screwed if things change, but it's got to change eventually. Such an antiquated system, can't believe it has survived this long. and don't get me started on the state-run liquor stores.

PNeifert said...

I disagree that the current legislature being considered (six packs at distributors and up to three sixes at bars) will hurt distributors in any way. On the contrary, I think it will help considerably. My local choices are a distributor or a bar. If I don't want to come home smelling like I rolled around in an ashtray - or seen coming out of a bar in the middle of the day by fellow PTA members - then I'd much prefer to buy my sixes at a distributor. Currently, they have shorter hours but if the bill passes, I'm guessing that will change some.

Native now in NoVa said...

From a Pennsylvania native who now lives in Northern Virginia; I dread going home to PA because of the selection/accessibility/cost of good beer available.

I understand that uncertainty breeds fear – but don't fear the grocery store/large chain. I couldn't be happier (ok, I will always want more) with the selection of great craft beers that I can bring home by the sixer from Wegman's, Harris Teeter, or any other grocer chain. This also pleases my wife because the frig isn’t overflowing with beer bottles – I buy only as much as I really want of any one label at a time. In addition to the grocers which have a good-to-great (read: sixer, twelve, case, and keg!!) selection, other large beverage chains (Total Wine for one) carry an amazing and diverse selection of craft beers and they will also sell by the individual bottle!

As I understand the current laws and situation in Virginia, the system remains good for the Mom ‘n Pop distributor because they now also sell to the grocer chains and big box beverage chains who in turn sell more beer than the distributors would have before. I hope that the impending change in PA would be similar to the 3 tier brewery-to-consumer environment here in VA: brewers can only sell to wholesalers (sans brewpubs), only wholesalers can sell to retailers, and only retailers can sell direct to consumer.

Policing plays an important role in that wholesalers must treat each retailer equally regardless of size. The wholesaler must charge Wegmans the same price as it charges the corner Mom ‘n Pop deli for the sixer of HopDevil.

Anonymous said...

I am totally against supermarkets and convenience stores like Sheetz selling beer, I DO NOT want to walk into a grocery store or Sheetz and have my children see alcohol on the shelf! Also these places have a lot of younger workers that can be influenced into selling to underage kids. Beer does NOT belong in Sheetz it is a family store.

Lew Bryson said...

See, I don't even understand that last sentence: "Beer does NOT belong in Sheetz it is a family store." There is beer at my family events, always has been; there is beer at my family table, always has been, and there are no alcoholics in my family, not one. I have two very well-behaved teenaged children who grew up with beer, wine, and spirits around them on a daily basis, often eating with their parents in brewpubs. We celebrated my parents' 45th anniversary at Victory's brewpub, we toured the Yuengling brewery on my son's 1st birthday, with all four grandparents and his great aunt and uncle along. Both he and my daughter have GPAs over 4.0, both are active in academic competitions at a national level. Being around alcohol all their lives certainly hasn't caused them any problems.

I have no idea why you would be scared to have your kids even see alcohol. What's so terrible about that? If nothing else, it gives you a teaching opportunity, a chance to tell your kids why you don't want them to drink. It's much less offensive, for instance, than the radio news. I stopped listening to the local AM news station in the car when my kids were young because there was so much violence in the news. But a six-pack on the shelf? You can tell them as much or as little as you want. Tell them too much beer can lead them to do things they shouldn't, tell them it leads to heroin, if you want to.

But taking it off the shelf so I can't buy it there just because you don't even want your kids to see it...that I don't get. What if a vegetarian wanted to take meat off the shelf so it wouldn't scare her children? Or if someone wanted to take condoms off the shelf in drugstores (like they used to be) so his kids wouldn't ask embarrassing questions? I think that day is past. It should have been past years ago in Pennsylvania.

As for the young people in grocery stores selling to their friends... other states don't have any more problem with that than we do. That's conjecture, and it doesn't really happen that much. What really happens, in over two-thirds of the cases, is that booze is given to underage drinkers -- usually by family or friends -- or they steal it from family supplies. There are some easy things to do to tighten up underage sales anyway: rewards for confiscation of false IDs, required ID magstrip scan for alcohol sales (which Wegmans is doing already in PA...at 51, I get carded every time), clear policies of immediate termination for selling to underage. It's not rocket science, and other states have dealt with it.