Wednesday, March 10, 2010

More bad arguments for keeping PA's beer out of grocery stores

In all the excitement over the PLCB/BLCE raids in Philly in the past five days, there's been very little comment on an opinion piece that ran in the Inquirer yesterday. It's by Ed Klunk, the vice president of the Malt Beverage Distributors Association, and we've seen pieces like this before.

Here's some of his argument (the best parts, really, though they're not much):
Each beer distributorship in Pennsylvania is individually owned and allowed to operate out of only one location, so there's no opportunity to monopolize malt-beverage sales. But the grocery and convenience stores that are seeking to act as distributors are not subject to the same limitations, which raises the prospect of unfair competition.
Actually that is unfair, and lifting the limits on distributors won't wholly make it fair. You can't expect them to suddenly come up with the cash to open five more stores. And grocery stores can sell anything they want, making them a more attractive stop than a place that sells beer, snacks, and lottery tickets. But the next argument is bogus.
Because grocery and convenience stores sell a wide variety of items, they would have the ability to sell selected beverages below cost, essentially undercutting any beer distributor in the area. We have seen Wal-Mart do the same with other goods, undercutting neighborhood retailers.
Wal-Mart does so partly by negotiating lower wholesale prices using its bulk purchasing power. But the company has also shut out the competition through "loss leader" pricing, willingly selling some items below cost so it can bring in customers and build market share.
That's just downright deceptive (which is not to say "lying." There, I didn't say it), because Pennsylvania law forbids selling beer for less than cost. Not to mention, Klunk only ever refers to these stores as "Wal-Mart," because he knows there's bad feeling about Wal-Mart. Wal-Mart, of course, doesn't currently sell beer in Pennsylvania. He doesn't say anything about Wegmans selling beer, because people love Wegmans. Hah? "Deceptive." In fact, some say "Downright deceptive." *

How about this howler:
Grocery and convenience-store chains argue that allowing them to sell beer will improve access and convenience for customers. That's a weak argument when you consider that beer is available for carryout or on-site consumption at approximately 1,200 distributors and 14,000 carry-outs, bars, and restaurants in Pennsylvania. 
Did he say "That's a weak argument"? Yes, yours is, Ed! Selling beer by the bottle, sixer, or 12-pack DOES improve access and convenience for customers, especially when it's right where they buy their groceries! That's such a slam-dunk argument, I don't know why you brought it up. Are you trying to scare weak-minded people into thinking there are too many retail beer outlets? Sorry.

But he saves his worst for last:
The current system also deters illegal sales to minors. It does so by limiting beer sales to licensed locations that are highly dependent on alcohol sales. If a grocery or convenience store is cited for underage sales, it may have to padlock the beer coolers for a week or a month. But it can keep selling other stuff and stay in business.
Cite a beer distributorship or a neighborhood bar, meanwhile, and it has to close its doors while its license is suspended. The financial penalty is severe.
Ed, Ed, Ed... Wegmans does 100% carding. I'm 51, and I get carded at Wegmans, every time. Do you card everyone at your store? (Ed Klunk also owns Thorndale Beverage, a beer distributor in Thorndale, PA.) I strongly doubt it. But don't worry. You can always drop a dime on Wegmans for selling unregistered brands; seems likely that everyone in the State is. Have you checked your stock against The List lately? (The phone number for the BLCE anonymous tipline is 800-ISQUEAL, kids!)

Okay, kidding aside, this is a lousy piece. Klunk really should have focused on that first argument and made the whole piece out of that. Like the case law or not (and apparently most of you don't), the state's distributors have worked under the often ridiculous strictures of The Almighty Liquor Code. Tons of paperwork, needle-nosed inspections, and they too, suffer from the case law. I worked beer retail in PA for a while in the early 1990s: throwing cases is a long day, and the customer always wants the case on the bottom of the stack. I remember one distributor telling me with heart-felt emotion how he'd really love to have a nicer store -- "with carpet, and wood shelves" -- but with the case law, they're stuck with concrete floors and pallet-jacks.

Is it a monopoly? Sure. Would they like to protect it? Of course. But to toss them aside like used Kleenex isn't fair either. We need to rewrite the Liquor Code to allow these guys a fair shake. Here's one plan: give them a free upgrade to an "all-alcohol" license when the state stores are privatized. Then they could be real liquor stores, with everything from beer to tequila, and the grocery stores would just have beer. Mmmmm....package store.

But if the MBDA and Krunk and our buddy Dave Shipula just keep fighting this without trying to compromise, they're going to wind up out in the cold. They need to see this coming, gear up, and go to Harrisburg to get the best deal they can. Not this kind of stuff.


*It was me, at the beginning of the paragraph. I wouldn't want to deceive you.

17 comments:

jp said...

even if his "best arguement" is weak, this is clear assumption of risk which I am sure is laid out quite clearly in the prospectus for an application for a license to distribute malt beverages. They have no right to expect on -going monoply on the sale of licenses if they did they would be in court right now filing suit in PA superior court for breech of those licenses are not 30 year conessions contract.

Bill in Harrisburg said...

I know we're supposed to feel sort of "bad" for the distributors because of the direction this is all heading, but I'm sorry...my sympathy has run its course. These guys don't give a damn about consumers so I've decided I no longer give a damn about them. Yes, there are some good distributors out there and I suspect they will survive. Smart businessmen and women will always work out how to make a living. And they'll do well in the new "beer economy", God willing there ever is one in Pennsylvania. But for the rest of them with their attitude about keeping beer limited because of underage drinking? I'll not shed a tear. They can go in the history books as a footnote in Governor Pinchot's biography for all I care.

Jeff Frane said...

I'm confused. In Oregon, a "distributor" is someone who, well, distributes. For the most part, it operates on a three-tier system: brewery sells to distributor who DISTRIBUTES to retailers (groceries, bars, beer stores). Within certain limits, breweries can sell directly (maybe just kegs) to retailers. Widmer Brothers got off to a good start because they handled all their own distribution in Portland (this before they bottled anything).

In PA, it sounds like a "distributor" is a beer store. Liquor store? I have a vague memory that you as a customer must buy by the case. Is that true?

Koozie questions said...

It 's a good idea!

Al Luccioni said...

Come on Lew god knows I love your blog and hold your opinion in very high regard, but unfair? This has been coming down the pike for years and these guys have seen the writing on the wall and many if not all were content to milk the cash cow for what it is worth without preparing for the massive capital expenditures necessary for free competition. We the Commonwealth are under no obligation to remedy or cure that reality. The distributor cartel (that is what they are) profited handsomely to say the least over a long period of government coercion at the expense of tax payers, that ship has sailed and it is not our fault nor our responsibility that many of these "businesses" will now need to compete. We do not owe these people anything, they owe us at the very least a hearty "thank you" for the opportunity to extract huge amounts of profit from our pockets that otherwise could of been allocated more efficiently. I think now it is time they move on. I would think that someone who subscribes to libertarian principals would not find that so radical.

Lew Bryson said...

It confuses everyone, Frane, including some Pennsylvanians. But yeah, a 'distributor' is off-premise retail, where you buy cases of beer, and cases only. The companies who sell them beer are called wholesalers. And yet...breweries that sell directly to bars and distributors are said to...self-distribute.
Don't ask me, I just live here.

Lew Bryson said...

Too mean, Al, too mean. I've suffered from bonehead distributors too, but there are some great ones. We can throw them a bone. I'm not talking about cash reparations, for God's sake.

xeno said...

I have never been carded at the Wilkes-Barre Wegmans, but I also have never been carded at the liquor store in the WB Walmart plaza either. I'm 31 and look it, but that's not the point.

Lew Bryson said...

Huh. Wegmans has stated the policy, and I have been carded, both in PA and NY, but...I have no reason to doubt you.

sam k said...

Mr. Frane,

May I expound? In PA the distributors are the direct and only conduit from any brewery to the retailer (bar or restaurant), and are also essentially a retail store where an individual can buy only a full case of beer. If you wants a lesser quantity (a six-pack, 40, whatever), you must head to a bar or six-pack shop, but the price difference usually justifies the case purchase. Lesser quantities are incrementally more costly due to additional markups.

There are actually two levels of distributors, too. An "ID" can bring in beer from another state, and who has an agreement with, say, AB-InBev to bring in beer from Newark.

The others are "D" distributors who can only represent in-state breweries or buy entirely from other "master distributors." Those who don't represent an in-state brewery are dependent on all the local "IDs." These are actually second-tier distributors, those who buy all their beer from others, and who function essentially as a "case beer" store. Their prices tend to be higher because none of the available brands in a given market are their own.

Confused yet??

Anonymous said...

So, we continue the corporatization of America by allowing the giant grocery chains: wegmans, giant, etc to control beer sales, thus taking it out of the hands of the small businessmen who run the distributors.

As much as I am frustrated by distributors sometimes, I hate to see the powerful get more power.

I was hoping with Bush gone we'd be moving in another direction.

Dylan said...

What I find especially frustrating is that every industry participant who has commented on proposed changes to retailing beer in the state has seems to do so in the name of what's best for the consumer when in reality, it's always about what is best for their industry segment.

sam k said...

State College Wegmans requires I.D. from every customer, every time.

I bought beer at the one near Eynon once, and they carded me, too.

Anonymous said...

.Sam a few years the prediction from some people in the Beer Biz and we will use the term loosely most of the brain surgeons who run these wholesalers you could here their brains rattle in a peanut eeshell.There might be one or two left standing in th next few years and they will be at the mercy of InBred Bud and Millercoors who will squeeze every nickle out of them and then they will just past the price increase onto to the ...Beer Distributors or the grocery stores that will be given new issues to sell beer in the state.
Pretty simple brewerys will screw the wholesalers and the wholesaler will pass it off to their customers until the brewery can bypass the wholesaler and sell it directly to the Box stores and the Wall Marts of the world and then see what these new laws in the state will be worth to all the new peole in the Biz...

Harry Spade said...

I don't understand the "allowed to operate out of only one location" argument. Here in Lancaster County there are three Brewer's Outlets. I always assumed they were one business with three locations; is that assumption incorrect?

Lew Bryson said...

Dunno, Harry, good point. Most likely answer: "separate" businesses with the same name owned by three different family members.

Rebecca Stephens said...

Oh I did see this the other night, and got a great laugh out of it! I immediately read it as a sales pitch for no change..sorry but we are more educated that you think Klunk! Ha