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1 HOUSE OF REPRESENTATIVES COMMONWEALTH OF PENNSYLVANIA 2
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4 Budget Hearing 5 Liquor Control Board 6
7 House Appropriations Committee 8
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10 Main Capitol Building 11 Majority Caucus Room 140 Harrisburg, Pennsylvania 12
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14 Monday, February 24, 2014 - 11:48 a.m.
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21 1300 Garrison Drive, York, PA 17404
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Key Reporters keyreporters@comcast.net 2
1 COMMITTEE MEMBERS PRESENT:
2 Honorable William F. Adolph, Majority Chairman Honorable Ryan Aument 3 Honorable Karen Boback Honorable Jim Christiana 4 Honorable Gary Day Honorable Gordon Denlinger 5 Honorable Brian Ellis Honorable Garth Everett 6 Honorable Glen Grell Honorable Seth M. Grove 7 Honorable Adam Harris Honorable Tom Killion 8 Honorable David Millard Honorable Mark Mustio 9 Honorable Donna Oberlander Honorable Bernie O'Neill 10 Honorable Mike Peifer Honorable Scott Petri 11 Honorable Jeffrey Pyle Honorable Curtis G. Sonney 12 Honorable Joseph F. Markosek, Minority Chairman Honorable Brendan Boyle 13 Honorable Matthew Bradford Honorable Michelle Brownlee 14 Honorable Mike Carroll Honorable Scott Conklin 15 Honorable Madeleine Dean Honorable Deberah Kula 16 Honorable Tim Mahoney Honorable Michael H. O'Brien 17 Honorable Cherelle Parker Honorable John Sabatina 18 Honorable Jake Wheatley
19 REPUBLICAN NON-COMMITTEE MEMBERS PRESENT: 20 Honorable Matt Baker 21 Honorable Sheryl Delozier Honorable Gene DiGirolamo 22 Honorable Jerry Stern Honorable Joe Hackett 23 Honorable John Taylor Honorable Rick Saccone 24 Honorable Mark Keller Honorable Mindy Fee 25 Honorable Mike Turzai, Republican Majority Leader
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1 DEMOCRATIC NON-COMMITTEE MEMBERS PRESENT:
2 Honorable Flo Fabrizio Honorable Pam DeLissio 3 Honorable Michael Schlossberg Honorable Paul Costa 4 Honorable Dom Costa Honorable Frank Burns 5 Honorable Tom Caltagirone
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8 STAFF MEMBERS PRESENT:
9 David Donley 10 Majority Deputy Executive Director
11 Daniel Clark, Esquire 12 Majority Chief Counsel
13 Miriam Fox 14 Minority Executive Director
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Key Reporters [email protected] 4
1 INDEX OF TESTIFIERS
2 TESTIFIERS
3 LIQUOR CONTROL BOARD 4 Joseph E. Brion, Chairman 5 John Metzger, Acting Executive Director 6 Bob Marcus, board member 7 Tim Holden, board member 8
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12 REQUEST FOR INFORMATION
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1 MAJORITY CHAIRMAN ADOLPH: Thank you.
2 I'd like to reconvene the House Appropriations
3 Committee meeting, our budget hearings.
4 Our next testifiers are the Pennsylvania Liquor
5 Control Board. Good morning, gentlemen.
6 (Good morning response by all
7 testifiers).
8 MAJORITY CHAIRMAN ADOLPH: Nice to see
9 you. Chairman Brion, if you would like to
10 introduce the distinguished panel, and we'll get
11 right into questions.
12 MR. BRION: I would. To my immediate
13 left is Robert Marcus. Bob has been on the board,
14 I believe, since about 2006. Is that correct,
15 Robert?
16 MR. MARCUS: 2007.
17 MR. BRION: Seven. To his left is our
18 new member, Tim Holden. Tim, as you know, was a
19 Congressman. I want to thank the Governor and the
20 Senate for appointing Tim. As a former
21 Congressman, he was held in very high esteem, as
22 you know. He's been a valuable addition. He's
23 been at the building a lot, learning what I call
24 the ropes, Mr. Chairman, and he's jumping right
25 into it with regard to the operation.
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1 To my right is John Metzger. John was
2 appointed back in January by the board as our
3 acting executive director. John was a Supply Chain
4 Director prior to taking over the Executive
5 Director position. He's doing a great job for us,
6 and I want to introduce him. He'll be testifying
7 on some specific numbers if you have any questions.
8 MAJORITY CHAIRMAN ADOLPH: Would you
9 care to give a brief opening statement?
10 MR. BRION: I would. Thank you.
11 MAJORITY CHAIRMAN ADOLPH: Thank you.
12 MR. BRION: Chairman Adolph, Chairman
13 Markosek and the House Appropriations Committee,
14 all good morning. We were out in the hallway and
15 we wrote this up in 10 minutes, so thank you for
16 giving us some extra time to be ready for you.
17 Before we begin, I'll just go over where
18 we are with some of the background of the PLCB. We
19 have had a very good year. We come before you as
20 the representatives of a self-funding agency that
21 has transferred $80 million in profits and 432.3
22 million in state tax revenues to the General Fund
23 in the last fiscal year. We also provided $39
24 million to other state agencies, such as the state
25 police, and local entities for total financial
Key Reporters [email protected] 7
1 contributions to the Commonwealth of approximately
2 $551 million during the last fiscal year.
3 The board and John and the rest of the
4 employees that are here today, they're here before
5 you on behalf of the agency, and we request no
6 appropriation from the General Fund in the fiscal
7 year 2014-2015. In fact, the fiscal year 2012-
8 2013 was a very strong financial year for the PLCB.
9 Not only what I said before, but through the
10 operation of 606 brick-and-mortar stores and an
11 Internet store, for a total of 607 stores, the
12 board generated nearly 2.2 billion in gross sales,
13 a 4.5 percent more than the previous fiscal year.
14 As a result of our strong sales growth
15 and operational expense control, we experienced a
16 24 percent increase in net income when compared to
17 the fiscal year 2011-2012.
18 In addition, we capitalized on the
19 operational change led by John, to my right, that
20 gave ownership of the warehouse inventory back to
21 the vendors, enabling the agency to repay a
22 110-million revolving operational loan to the state
23 treasury, in place since 1968. So that loan was
24 given to PLCB in 1968. The loan was paid off in
25 February of 2013, and we don't anticipate needing
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1 that loan in the future.
2 Obviously, the PLCB is unique because
3 it's not just a retailer but a regulator. The
4 agency oversees the regulation of more than 23,000
5 liquor licenses and permittees statewide, including
6 restaurants, clubs and beer distributors. Our
7 staff processes thousands of applications annually
8 with limited resources and works tirelessly
9 educating the public about the responsibility of
10 alcohol consumption, which we take very, very
11 seriously; responsible alcohol consumption. Our
12 employees remain committed to protecting the
13 health, welfare and safety of the community that we
14 serve.
15 In closing, PLCB's most valuable
16 resource has been and will continue to be the hard-
17 working, innovative employees, some of them in the
18 room today, who work for the agency. We, as the
19 board, understand our mission to serve the citizens
20 of the Commonwealth of Pennsylvania.
21 I'll address any questions you have.
22 MAJORITY CHAIRMAN ADOLPH: Thank you,
23 Chairman. As is the custom of the Appropriation
24 budget hearings, Chairman Markosek and I, we invite
25 the committee chairs of the standing committees.
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1 With us for this hearing is Chairman Taylor, the
2 Republican Chair of the Liquor Committee, as well
3 as the Democratic Chair, Representative Paul Costa.
4 Thank you, gentlemen, for being here.
5 Also, I'd like to acknowledge the
6 presence of Representative O'Neill and
7 Representative Gordon Denlinger, members of the
8 House Appropriations Committee that have also
9 joined us.
10 Chairman Brion, I was very interested in
11 hearing and, obviously, excited about the
12 possibility of receiving some additional money in
13 this year's budget. I heard that in the Senate
14 Appropriations hearings--not that I pay much
15 attention to what's going on on the other side of
16 the building, but this one got my attention--a
17 possible increase. The Governor has budgeted an
18 80-million-dollar transfer from the Liquor Control
19 Board, and you said possibly it could be as high as
20 a hundred million.
21 I guess my question is, is the press
22 reporting that correctly, and what should we budget
23 for?
24 MR. BRION: Mr. Chairman, the question
25 was, can we provide more than $80 million in this
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1 fiscal budget? I believe, when they were looking
2 at our books and whatnot, my answer was exactly
3 what you just suggested; that we think, obviously,
4 projecting out at this point in time, we could
5 project that we could provide another $20 million.
6 But that is based on some issues that we,
7 obviously, are trying to wrestle with right now.
8 Representative Taylor and I talk about it all the
9 time. And that is the restriction on Sunday sales
10 and, also, the issues with regard to pricing.
11 We are doing very well, as you can see
12 from my opening statement, from a fiscal stand-
13 point, and we are projecting out that additional
14 $20 million, that is correct.
15 MAJORITY CHAIRMAN ADOLPH: Thank you.
16 That's also very good news, which leads me to my
17 next question regarding the restrictions of Sunday
18 sales. Some of the facts that were given to me is
19 that we have 606 state stores, of which 161 of
20 those stores are open on Sunday, and that we
21 generate about $67 million a year on Sunday sales,
22 an average of about $420,000 a day.
23 Could you explain to the committee why
24 we don't have more state stores open on Sundays if
25 we generate on an average of about $420,000?
Key Reporters [email protected] 11
1 MR. MARCUS: We'll try to pass some of
2 the answers around, if it's okay with you, Mr.
3 Chairman.
4 MAJORITY CHAIRMAN ADOLPH: Thank you.
5 MR. MARCUS: It's a 25 percent cap on
6 the stores that we're supposed to be allowed to be
7 open, so we really try to adhere to that. It's not
8 always easy because we're opening and closing
9 stores. We're under an obligation to the
10 legislature to keep it at 25 percent. We didn't
11 create that; we didn't ask for it. We have been
12 asking for about four years now to let us decide
13 how many stores should be open. We don't
14 anticipate 605 stores being open, but we might
15 anticipate 450.
16 So, the convenience factor for people,
17 it's the second biggest shopping day of the week.
18 That's just the way it is now. It never used to
19 be, but it is. We're only permitted to be open 12
20 to 5. So, there's a double restriction there.
21 For the convenience of everyone, the
22 hours need to be upped across the board. Let us
23 decide how many hours it should be open, and we
24 should be able to decide how many stores should be
25 open. We would do that in a prudent fashion.
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1 We're there to make money.
2 But we projected out, with certainty,
3 that we believe it would be between 18 and 20
4 million. So it's about 20 million net profit. The
5 net profit literally would be about 12. The taxes,
6 24 percent taxes on what is sold, would be about
7 8 million. About 20 million in cash that we would
8 get from doing that. But the increased convenience
9 to our customers, particularly on Sunday, would be
10 very, very helpful.
11 MAJORITY CHAIRMAN ADOLPH: Any other
12 board members want to add to that?
13 MR. HOLDEN: No.
14 MAJORITY CHAIRMAN ADOLPH: Thank you.
15 Chairman Markosek.
16 MINORITY CHAIRMAN MARKOSEK: Thank you,
17 Chairman Adolph, and welcome, gentlemen. Glad to
18 have you here, and I'm glad we got this hearing
19 started off talking about all the profits that the
20 LCB provides for the Commonwealth, which we all
21 know are substantial.
22 We've touched on it here a little bit.
23 In order to increase those profits, there are some
24 recommendations and some ideas floating around out
25 there relative to consumer convenience. That's the
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1 new buzz word, I guess. We used to say
2 modernization and things like that; but consumer
3 convenience, which is a good thing, certainly. We
4 mentioned Sunday sales.
5 But maybe as a general question, and
6 whoever -- Perhaps I'll get our newest member,
7 former Congressman Holden, to take the first shot,
8 and there's no specific answer that I'm looking
9 for. But, in our mind, that whole area of consumer
10 convenience, what are the things we should be
11 doing? What are some of the other things that
12 haven't been mentioned here yet that we can do to
13 increase not only convenience but profits, and to
14 make the LCB more profitable?
15 MR. HOLDEN: Well, on convenience,
16 there's been an ongoing effort by the Liquor
17 Control Board to have all our stores be as close to
18 other retail operations as possible, particularly
19 grocery stores.
20 On the issue of what can we do to be
21 more profitable besides Sunday sales, if we could
22 have more flexibility in our price -- Now we have
23 proportional pricing, which we have set at 30
24 percent markup for every product. If we could have
25 some flexibility in that, where the product would
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1 cost the same in Erie as it does in Philadelphia,
2 but we'd have ability to mark up some more than
3 another, that would also be very, very beneficial.
4 MINORITY CHAIRMAN MARKOSEK: Okay.
5 MR. BRION: If I could just respond as
6 well, and I said this at the Senate.
7 Representative, I don't know what modernization and
8 the other word that has buzzed around the Capitol,
9 privatization, means anymore. Obviously, when you
10 talk to somebody, they mean different things to
11 different people.
12 So you are correct. We have taken an
13 approach at the PLCB that we serve the citizens of
14 the Commonwealth, and that's the oath that we took.
15 Based on that, it really comes down to the 21st
16 Century and what do we do with a system that was
17 designed and adopted the Liquor Code in 1933, as
18 people are two working people in the family, busy
19 trying to shop on weekends. And we now have a
20 system where they go to three different places to
21 get ready for a Sunday afternoon barbecue in the
22 summertime, like a Steelers or an Eagles games or,
23 for that matter, a party on a Saturday night.
24 So, it's really up to you to make
25 decisions on not only how you make issues more
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1 profitable at the PLCB, but also, as a lot of us
2 are suggesting, making some way of having people to
3 go one-stop shop for all three products: their
4 groceries, their spirits and wine and their beer.
5 MINORITY CHAIRMAN MARKOSEK: I
6 appreciate that. Just for the information of the
7 folks here, I started my legislative career
8 somewhat into the last century, about 20 years into
9 the last century, so I've seen the changes in the
10 LCB and how we provide our products. We've made
11 huge, huge strides, to the extent that some of you
12 on the board, staff and, certainly, employees here
13 have been responsible for that. Congratulations,
14 because I think we've come a long way.
15 MR. MARCUS: Mr. Chairman, if I could
16 add, I think one of the major initiatives we've had
17 for convenience has been the rebranding of our
18 stores. We almost take that for granted now
19 because we've been at it for four years. It's been
20 tremendously successful. It's all about consumer
21 convenience.
22 We've expanded the offerings that we
23 have. We've really been able to increase our
24 Internet presence. We've done everything that a
25 responsible retailer would do. The training of our
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1 employees has gone from zero to on-boarding
2 everyone that we hire. They're trained more
3 effectively. We retrain. We try to give
4 informative information to them in an enjoyable
5 fashion.
6 Recently there's home delivery. We
7 didn't have home delivery. We created home
8 delivery. So if you call, you can pick it up at
9 your store, or you can have it delivered to your
10 home. We are implementing a new service to
11 licensees that we're rolling out. If you have
12 questions on that, John can answer that for you in
13 detail because he's been working on that. It's
14 going to be a real tremendous service and success.
15 So, not only are we trying to serve
16 customers better, our consumers, the people of
17 Pennsylvania, but our licensees, our taverns. I
18 think we've tried to -- Our real purpose is to
19 protect the public. So, there's been a whole lot
20 from that standpoint.
21 I don't know if that answers your
22 question yet, and I don't want to drag on. But,
23 hopefully, we'll get to those issues, and we'd love
24 to fill you in on other things that we're doing.
25 MINORITY CHAIRMAN MARKOSEK: I
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1 appreciate that. I just want to thank the board or
2 their stewardship of this very profitable state
3 agency and, also, one that provides about 5,000
4 pretty good family-sustaining jobs. Thank you very
5 much for that.
6 MAJORITY CHAIRMAN ADOLPH: Thank you.
7 The next question will be asked by House Chairman
8 of the Liquor Committee, John Taylor.
9 REPRESENTATIVE TAYLOR: Thank you, Mr.
10 Chairman. To Chairman Brion and the members of the
11 board, you certainly have to be commended for
12 operating in a legislative limbo that we've
13 provided for you. To operate an agency while so
14 many things are under discussion can be very
15 difficult. But even under the most aggressive
16 legislative scenario, these stores will be in
17 operation for some time to come. Even if a bill
18 was enacted tomorrow, you would still be in
19 operation.
20 In our situation of needing revenue, can
21 you talk a little bit about pricing? That's one of
22 the legislative initiatives that we've danced
23 around with. We've had it in committee. We talked
24 about it over and over. But, what would be your
25 priority in terms of pricing if you could get that
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1 entertained by the legislature?
2 MR. METZGER: Yes, sir. I'll attempt to
3 address that. Just to refresh the numbers for
4 everybody, our estimate between additional net
5 income and taxes would be having the ability to
6 price products differently. We provide between 47
7 and $75 million to the state revenue once it
8 achieved a full run rate. That would take, we
9 believe, up to two years to get to that full run
10 rate, because we'd be transitioning our staff,
11 training our staff and dealing with suppliers, that
12 type of thing.
13 This would give us the ability to price
14 low-priced wines differently than the highest-value
15 scotches, which is the way in private industry
16 retail they would approach. It's based on price
17 point, location; all those things. We think, and
18 in having come out of private industry myself,
19 having the ability to price appropriately based on
20 the type of product, the price point, the range of
21 price, could add substantial profits to the agency.
22 REPRESENTATIVE TAYLOR: For the sake of
23 the audience, can you just explain why you can't do
24 that now?
25 MR. METZGER: As I understand it, the
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1 legislation is, we have to offer proportional
2 pricing. The board has set 30 percent for a
3 substantial period of time. I don't know how many
4 years.
5 REPRESENTATIVE TAYLOR: So you would
6 suggest that that be part of a legislative package
7 in the near future?
8 MR. METZGER: Yes, we would.
9 MR. BRION: John, the price has not
10 changed. What's interesting is, you read in the
11 newspapers a lot of times about the PLCB raises its
12 prices. The LCB doesn't raise its prices. What
13 happens is, the industry provides us with price
14 increases that we accept at a board meeting. So
15 it's really the industry that raises the price to
16 us.
17 Our prices have stayed the same with a
18 30 percent markup since 1993. So there has not
19 been any increases to the citizens of the
20 Commonwealth, from the Commonwealth of
21 Pennsylvania's perspective, since 1993.
22 MR. MARCUS: At one point, a couple
23 years ago, we held prices and didn't allow that
24 increase right after the recession, essentially.
25 With the industry, we held prices from that and
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1 didn't permit them to raise.
2 MR. HOLDEN: For two years, right?
3 MR. MARCUS: Year and a half.
4 REPRESENTATIVE TAYLOR: Thanks. I've
5 asked this question last year and in our
6 committees. I know there's been huge strides made
7 in terms of more modern stores. But in the course
8 of the discussion last year, we projected out about
9 how long it would take to get every store into that
10 situation. It was 20 years, if I recall.
11 What do you think now, in terms of the
12 possible new stores that are in play or
13 transitioning out of either current leases into new
14 leases, how long would that take? Because we've
15 also talked about convenient locations, but with
16 the terms that exist now in a number of stores,
17 what's your projection on how long that would take?
18 MR. METZGER: With the rebranding effort
19 that the board has had the last year and a half,
20 we've upgraded 57 stores in that year and a half.
21 This calendar year we're in now, we're planning to
22 do an additional 40. So, we've not looked out at a
23 20-year plan. We do have a plan that we want to
24 achieve; where possible, touch as many stores we
25 can, but we don't have a specific plan at this
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1 point.
2 MR. MARCUS: The plan, if there was one,
3 would be to spend about $5 million a year. So, we
4 don't want to be aggressive to the point that we're
5 hurting our profitability and our inability to give
6 you what you need for the Commonwealth. So, it's
7 an organized plan; something we can handle.
8 Remember, we have limited resources and limited
9 people. So, when we find the right opportunity, we
10 jump on it.
11 We have 40 projects we're touching this
12 year. So, we've geared up; started off slowly,
13 geared up; we have 57. Profitability in these
14 stores is unbelievable. We certainly want to do as
15 quick as possible, but we're not going out there
16 and taking a loan. We're working within our means,
17 and we're trying to get to as many in a responsible
18 fashion as we can.
19 REPRESENTATIVE TAYLOR: Finally, Mr.
20 Chairman, I don't know if anybody on the board can
21 answer whether or not, in discussions with the
22 Governor's office, we've gotten beyond the word
23 transfer to the Commonwealth. Every year we sort
24 of have a request that comes from the executive
25 branch as opposed to actual profits. I think it's
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1 been bewildering to many members that you sometimes
2 get asked for less than what you have; sometimes
3 you get asked for more than what you have in a
4 budget season. When, in fact, being the only
5 revenue-producing agency, you would think that you
6 would just turn over what you have; what's profit
7 at the end of the year. Any difference in that
8 going forward?
9 MR. BRION: Well, there have been
10 differences with this Governor than before;
11 obviously, the turning over of funds that occurred
12 with a different administration. When there was
13 more asked than what we had, but we turned it over
14 and that really showed for a few months a negative
15 cash flow, which, obviously, people were concerned
16 about, but that was people looking at a monthly
17 cash flow and not an annual cash flow, John.
18 Last year we had turned over
19 $110 million in February and then $80 million in
20 June. So last year's, because of bailment, was
21 $190 million. To turn over, quote, what we have,
22 as the agency is formulated today, would be
23 difficult because, obviously, we have a licensing
24 department. We have to give money to enforcement,
25 $24 million to the state police, and we have to
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1 keep going in July, August and September with our
2 internal people and our salaries and personnel.
3 So, we would like to be able to work
4 with the Governor's office, and we truly do
5 continue to work with this Governor's office. When
6 they ask for something, if it's capable of doing,
7 we talk about it. If it's something we have to
8 talk to them further about, we do that.
9 REPRESENTATIVE TAYLOR: That's all I
10 have, Mr. Chairman.
11 MAJORITY CHAIRMAN ADOLPH: Thank you,
12 Chairman Taylor. Next question will be asked by
13 Chairman Costa.
14 REPRESENTATIVE P. COSTA: Thank you,
15 Chairman Adolph. It's a pleasure to be back with
16 the Appropriations Committee.
17 Gentlemen, I want to thank you all for
18 being here, and I particularly want to welcome
19 Congressman Holden. Congratulations on being
20 nominated and confirmed.
21 Mr. Metzger, congratulations on you
22 being appointed. Hopefully, you'll be confirmed
23 also. I look forward to working with you and Tim
24 and the rest of the board, but you have big shoes
25 to fill. The gentleman that was there before you,
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1 we had a great working relationship. There's no
2 doubt that we'll have one with you, too. I look
3 forwarding to working with you.
4 Couple questions I have. The first one
5 I have has to do with border bleed. In the
6 Governor's budget address, he mentioned that we
7 lose about $80 million a year to border bleed,
8 which means our citizens are going to New Jersey,
9 Delaware, Maryland, New York, Ohio, West Virginia,
10 wherever the case may be, to purchase alcohol and
11 bring it back in.
12 Where does he come up with that number?
13 In fact, is there actually an accurate way to
14 determine how much we lose on border bleed?
15 MR. MARCUS: I guess I'll take this one.
16 It's in the eye of the beholder, that question.
17 I'm not sure why the Governor had to say that. It
18 was written for him and he said it. You could pick
19 a number. I don't know how you'd defend it.
20 But, prior to that statement, there was
21 a border bleed study that was conducted by two
22 professors from Swarthmore. It came out January
23 20th. A speech was written and delivered early
24 February. It discussed the issue in detail of
25 border bleed. It indicated that border bleed is
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1 actually not that big. It would not be greatly
2 reduced with privatization. They go on to say that
3 the 10 to 30 percent which is projected by some
4 people would be 3 to 8 percent and definitely under
5 10 percent. They conclude by saying: There may be
6 good reasons to privatize Pennsylvania liquor
7 sales, but regarding many millions of dollars lost
8 in state revenue, that's not among them in terms of
9 the issue of border bleed.
10 One of the reasons is, price-sensitive
11 people who drive to Delaware, where there's no tax,
12 are going to continue to do so. So, we could
13 debate this and talk about this all day long. I
14 will tell you that this year alone we increased
15 sales by $97 million. We continue, on a compound
16 basis, to increase sales by 4.5 percent. The sales
17 have to come from somewhere.
18 If border bleed existed to any great
19 extent in the past, which it might have, we went
20 from 1.6 billion six years ago to 2.2 billion in
21 revenue. So, the best way we can attack something
22 like that is by facts. The best thing we can do is
23 by hard work. We have great selection. We have
24 great price. We're not going to keep someone from
25 going to the shore and buying a bottle down there.
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1 The other aspect of that is, and we have
2 figures on this that we can provide you, we don't
3 hear the people that come into Pennsylvania. I
4 know --
5 REPRESENTATIVE P. COSTA: That was
6 actually going to be the second part of my
7 question. Is there border gain?
8 MR. MARCUS: In western Pennsylvania
9 there's a lot of border gain. They come from West
10 Virginia; they come from Ohio. They do come over
11 from the Philadelphia-bordering states.
12 REPRESENTATIVE P. COSTA: Is there an
13 accurate way to determine how much that is?
14 MR. MARCUS: We have one. I can share
15 it with you, but it was our own study, I have to
16 say, a 30-day study. Our people tried to do a good
17 job, but it wouldn't be fair to them or us to throw
18 it out there. But it's significant, and I'll be
19 glad to get that to --
20 REPRESENTATIVE P. COSTA: Thank you.
21 MR. MARCUS: -- the Appropriations
22 Committee. But it's as substantiated as anything
23 else you read. But I would highly recommend--we
24 included this in the attachment--the Swarthmore
25 professors' detailed study. And, of course, it's
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1 the most up-to-date study that's there.
2 Remember, if 80 million -- I'm not sure
3 if that 80 million -- I guess it would be in total
4 sales. Well, we can recoup 80 million in sales in
5 one year. 80 million in sales might be
6 20 million in net profit. So I'm not sure, really,
7 what it means. But you will never keep people from
8 driving down Route 95, I guess it is--I'm not from
9 that area--and keep them from going to Delaware and
10 buying booze at the shore. But, they do come to us
11 for our pricing.
12 Our Internet sales, people buy from out
13 of our state all the time, all the time, because of
14 our pricing.
15 REPRESENTATIVE P. COSTA: Good. Like I
16 said, the 80-million-dollar number sounded like a
17 pretty high number, and I was curious where he got
18 it and, again, assuming there was border gain in
19 some points.
20 MR. BRION: Representative Costa, if we
21 can stay focused, I think, as we keep talking on.
22 I live 15 minutes from the Delaware border in
23 Chester County, right outside of West Chester.
24 Border bleed not only is money; border bleed is
25 what I suggested earlier today, and that is the
Key Reporters [email protected] 28
1 ability of someone to go south from me and purchase
2 all three items at one location.
3 So as the legislature wrestles, as I
4 know Representative Taylor does with what changes
5 to the system should occur, that seems to be, from
6 the convenience of the consumer, the biggest.
7 Secondly, I think it's important for us
8 to suggest that this study that has been done was
9 not board approved, so the board would have to make
10 a determination as to whether it will be released
11 or not.
12 REPRESENTATIVE P. COSTA: Thank you. My
13 other question has to do with your budget.
14 Somewhere in your request you're asking for money
15 for new windows for your building. I'm curious as
16 to why that's coming out of your budget and not the
17 Department of General Services. I realize at the
18 end of the day it's all government. But, to me, if
19 it's coming out of your budget, it makes it look
20 like you're not generating as much revenue as you
21 could be if you're responsible for fixing the
22 windows in the building that you're located in.
23 MR. METZGER: Representative Costa, the
24 short answer is, I believe, correct me if I'm
25 wrong, our building is owned by DGS. The windows
Key Reporters [email protected] 29
1 that are there are the original 1934 windows. We
2 have a terrifically bad energy issue in the
3 building, both heating season and cooling season.
4 It's extremely uncomfortable for employees, not to
5 mention the money we're spending on our utility
6 bills. We think there is a significant return to
7 fixing those windows. Of the three and a half
8 million we've put in for the Northwest Office
9 Building, 1.9 million is for the replacement of the
10 windows. There are literally hundreds of them,
11 single-pane windows, that are quite old.
12 REPRESENTATIVE P. COSTA: I want to be
13 clear. I'm not questioning why you guys are
14 putting in new windows. I agree, we do need to be
15 more efficient when it comes to energy costs and
16 things like that.
17 My question is, why is it coming out of
18 your budget instead of DGS's? I'm sure all the
19 operations of the House don't come out of
20 particular offices; or the Governor's if his
21 building gets fixed, those aren't coming out of his
22 budget.
23 MR. MARCUS: We pay for everything.
24 REPRESENTATIVE P. COSTA: I would
25 imagine they come out of DGS.
Key Reporters [email protected] 30
1 MR. HOLDEN: I guess because we have the
2 money.
3 MR. METZGER: We're self-funding and we
4 have the money.
5 REPRESENTATIVE P. COSTA: That's what
6 I'm saying. At the end of the day, it's still
7 government money. I realize that. But it makes it
8 look like you guys aren't turning over as much of a
9 profit as you really are, and I'm wondering if
10 that's the reasoning behind it.
11 MR. METZGER: I can't speak for DGS.
12 REPRESENTATIVE P. COSTA: Well, again, I
13 want to thank you all for being here. I know the
14 last several years have been difficult of the
15 uncertainty of what's going on with you guys, and
16 the numbers you are producing are phenomenal. I
17 think you and your employees do a great job. I
18 appreciate the hard work that you do for our
19 Commonwealth, So thank you.
20 MR. HOLDEN: Thank you.
21 MR. BRION: Thank you.
22 REPRESENTATIVE COSTA: Thank you, Mr.
23 Chairman.
24 MAJORITY CHAIRMAN ADOLPH: Thank you,
25 Chairman Costa.
Key Reporters [email protected] 31
1 I'd like to acknowledge the presence of
2 Representative Frank Burns and Representative
3 Sheryl Delozier, who have joined us.
4 Next question will be offered by
5 Representative Mark Mustio.
6 REPRESENTATIVE MUSTIO: Thank you, Mr.
7 Chairman. This may not be as much of a lovefest.
8 First, I do want to compliment you on
9 your staff's excellent work as far as permitting
10 processes go, transferring licenses; any complaints
11 that my constituents have as far as those lines, as
12 opposed to the retail side. But I do want to make
13 sure that those individuals that are working in
14 those areas get the correct amount that they are
15 due.
16 I guess most of my questioning will be
17 going towards Mr. Metzger since I think a lot of
18 this has to do with the financial side of things.
19 What's the approximate total number of sales at the
20 PLCB; liquor and wine sales?
21 MR. METZGER: Gross sales net of taxes
22 last fiscal year was just over $1.7 billion.
23 REPRESENTATIVE MUSTIO: Mr. Marcus, you
24 had indicated that--and maybe I didn't hear this
25 correctly. If not, please do correct me--sales
Key Reporters [email protected] 32
1 were going up at 4 a half percent year after year.
2 Did I hear that correctly?
3 MR. MARCUS: They did last year 4.5 on a
4 compounded basis; in the last six years, about
5 that.
6 MAN IN AUDIENCE: The fiscal year
7 '11-'12 was 5 percent, so --
8 MAJORITY CHAIRMAN ADOLPH: Excuse me,
9 sir. We can't hear you. Those on television
10 certainly can't hear you. If you'd like to bring
11 your chair up to the table, you certainly --
12 MR. MARCUS: I'm sorry. I asked him to
13 confirm. He shouldn't have spoke to him. He
14 should have spoken to me. But thank you.
15 REPRESENTATIVE MUSTIO: Go ahead.
16 MR. MARCUS: The last three fiscal years
17 our sales have increased 4.5 percent, 5.55 and
18 4 percent. This year they're tracking, I believe,
19 through our January month at 3.7 percent.
20 REPRESENTATIVE MUSTIO: Coming from the
21 private sector--I'm looking at your resume here
22 which is very impressive--would you be satisfied
23 with $80 million on almost $2 billion in sales as
24 profit?
25 MR. METZGER: You're talking about
Key Reporters [email protected] 33
1 giving back to the --
2 REPRESENTATIVE MUSTIO: Whatever we're
3 calling that. We've heard how profitable that is.
4 MR. METZGER: As you heard the chairman
5 say, we can never give back all of our profits
6 because we have to have the cash to reinvest in the
7 business, renovate the stores, make payroll through
8 the summer months. The decision of whether it
9 should be 80 or some other number is between the
10 board and the Governor's office, as far as I know.
11 MR. MARCUS: We were very happy with our
12 127-million-dollar net profit this year. It's the
13 highest that we've ever had. The misnomer on that
14 is, we got 18 percent, what you call the Johnstown
15 Flood Tax. It's built-in profit. That's what it
16 is. It makes money; it's collected; it gets
17 transferred to the General Fund.
18 As far as I'm concerned, you can't
19 separate the two. But, it's separated. So, it's
20 the total amount.
21 We gave $551 million this year, plus
22 110; never been done before. On 2.2 billion
23 revenue, you got $660 million back. We're real
24 proud of that. And I'm really proud of my --
25 REPRESENTATIVE MUSTIO: I would totally
Key Reporters [email protected] 34
1 dispute that. I would totally dispute that because
2 a lot of that is tax. And --
3 MR. MARCUS: It's revenue.
4 REPRESENTATIVE MUSTIO: -- regardless of
5 whether it was a government system -- You can look
6 the other way you want. But whether it's a
7 government system --
8 MR. MARCUS: I'm looking at you.
9 REPRESENTATIVE MUSTIO: Whether it's a
10 government system or a private system, the
11 legislation that passed this House that went to the
12 Senate included those numbers in there. What we're
13 trying to work with is, we're trying to get a
14 system that's not as expensive, not as inconvenient
15 and has a much better selection.
16 I just think it's unconscionable, for a
17 system that controls 600 stores, for a consumer to
18 come in and ask for one bottle that you don't have,
19 and you tell them you've got to go order it,
20 special liquor order to buy five or 12 bottles;
21 when, if you did go across the border to Delaware,
22 and you went into a retailer that has not nearly as
23 many stores as this state does, and they say to
24 you, I'm sorry we don't have it, but we can get you
25 that one bottle.
Key Reporters [email protected] 35
1 For those people that are watching, what
2 that means is, instead of buying 12 bottles at $40
3 a pop, $480 plus tax, you can buy one bottle at $40
4 a pop. That's the difference when you have a
5 totally different mindset of being consumer-
6 oriented.
7 MR. MARCUS: There's no tax in Delaware,
8 sir.
9 REPRESENTATIVE MUSTIO: What does that
10 have to do with whether you can buy one bottle or
11 12 bottles?
12 MR. MARCUS: You know, we have a
13 tremendous selection here. I dare say that, in
14 probably 80 percent of our stores, that selection
15 that we have is far superior to the selection in
16 most stores, particularly in most of the state. We
17 have access to over 25,000 different variety of
18 bottles, and we can get most anything anybody
19 wants.
20 REPRESENTATIVE MUSTIO: From a
21 consumer's standpoint, would it not make more
22 sense, if you're interested in the consumer, that
23 has 600 stores, to buy the case of wine and
24 distribute it among your other 600 stores, the
25 other 11 that the consumer maybe wanted that one;
Key Reporters [email protected] 36
1 or if the case came in, maybe they would buy two.
2 And maybe you'd find that you have a product that
3 other consumers in Pennsylvania would want. Just
4 an idea.
5 MR. MARCUS: We'll look into it.
6 REPRESENTATIVE MUSTIO: Let's get back
7 to the budget. As far as the cost of your product
8 that the Pennsylvania consumer is paying, how much
9 of that cost, what percentage are employee
10 benefits, health care costs and pension?
11 MR. BRION: I don't have that
12 information right in front of me, but we can get
13 you that information, Representative.
14 REPRESENTATIVE MUSTIO: Okay. Wow.
15 Do you pay health insurance for part-
16 time employees?
17 MR. HOLDEN: No, sir.
18 MR. BRION: No.
19 REPRESENTATIVE MUSTIO: You do not
20 contribute to part-time employees' health
21 insurance? MR. BRION: Not to my knowledge.
22 REPRESENTATIVE MUSTIO: So if the union
23 contract says you pay 50 percent of the employee
24 cost for health insurance, you don't do that?
25 MR. BRION: Actually, if it's a union
Key Reporters [email protected] 37
1 now --
2 REPRESENTATIVE MUSTIO: That's what I'm
3 talking about. That's the --
4 MR. BRION: We adhere to the union
5 contract that the Commonwealth obviously negotiates
6 for us. We don't negotiate our own union contract.
7 The union contracts are negotiated by the
8 Commonwealth, and we adhere to them, you are
9 correct.
10 REPRESENTATIVE MUSTIO: But you
11 determine how many part-time and full-time
12 employees you have.
13 MR. BRION: We make that determination,
14 that is correct; during the holiday seasons and
15 summer vacation seasons, you are correct.
16 REPRESENTATIVE MUSTIO: So, just in
17 conclusion, then, you're satisfied that $80 million
18 a year is a good profit number, and you'll get back
19 to me on what the cost of benefits are for your
20 employees?
21 MR. BRION: I'm not suggesting to you --
22 Let me just say this as Chairman of the PLCB.
23 Everyone in this room knows the philosophy that I
24 have with regard to the issue that you're talking
25 about. But I don't adhere to criticizing the
Key Reporters [email protected] 38
1 employees of an agency in the Commonwealth that, in
2 my opinion, on the average, are doing a very good
3 job. Let me finish as I listen to you.
4 REPRESENTATIVE MUSTIO: There's nothing
5 that I said, sir, that criticized an employee
6 before applause started. I want to make sure
7 that's clear.
8 MR. BRION: But, by the same token, if
9 you listen to my earlier conversation with this
10 assembly about variable pricing and how we price
11 up, there has not been an increase in pricing at
12 the PLCB from the Commonwealth's standpoint, money
13 in the Commonwealth's pocket, since 1993.
14 Your question was, as private retailers,
15 what is our thought process with regard to an 80-
16 million-dollar profit on $2.2 billion in sales, and
17 my comment back to you would be, I am not satisfied
18 with that. But, by the same token, we live within
19 the constraints of the legislation that we have.
20 So we can't make a lot of changes, as a government
21 agency, that we would like to make based on
22 legislation that we've been handed.
23 The 1933 Liquor Code that we operate
24 under is as thick as a phone book, as you all know,
25 with amendments constantly. When I look at it, I
Key Reporters [email protected] 39
1 think to myself, if I was a private retailer I
2 would do this or I'd do that. And then, we are not
3 able to do that legislatively.
4 So, to answer the question very
5 quickly, something has to break, and I keep saying
6 that; whether you want to make a change that does
7 something different with the system, and that's
8 what you've been debating now for two years, and
9 the cloud that this agency falls under is trying to
10 operate under the rules and regulations that you
11 give us right now. If there's an idea in the
12 House, an idea in the Senate, and it's signed by my
13 Governor, that changes the system, we will operate
14 that system at that point in time.
15 But I think the criticism of profits is
16 not founded completely, because we operate under
17 the rules that you give us.
18 REPRESENTATIVE MUSTIO: I would
19 acknowledge some of that. I would say that the
20 80 million is on 1.7 billion, so that makes you
21 look a little better. But, I did offer a
22 suggestion on how you could help the consumer sell
23 more. Thank you.
24 MR. MARCUS: Here's my suggestion: Pass
25 the modernization issues and you'll get another 80
Key Reporters [email protected] 40
1 million. We could have done that four years ago,
2 and you haven't done it yet.
3 REPRESENTATIVE MUSTIO: We passed a bill
4 out of the House that would do a lot more.
5 MR. MARCUS: I'm just saying.
6 REPRESENTATIVE MUSTIO: I'm saying. We
7 said.
8 MAJORITY CHAIRMAN ADOLPH: All right.
9 Thank you.
10 REPRESENTATIVE MUSTIO: We said.
11 MAJORITY CHAIRMAN ADOLPH: Chairman,
12 thank you. What I would like to see go on here is
13 less of a conversation among the board members.
14 Chairman Brion, as he's addressed the questions, he
15 can answer it. Board Member Marcus, I understand
16 it's tough not to speak up at times, but in order
17 to keep everybody on track here, I'd like you to
18 comment when asked. Thank you.
19 Representative Sabatina.
20 REPRESENTATIVE SABATINA: Thank you, Mr.
21 Chairman. Thank you, gentlemen, for the fine work
22 that you do. Chairman Brion, I first met you at
23 the grand opening of one of the stores, at Grant
24 Avenue and Roosevelt Boulevard. I want to build on
25 a question Chairman Taylor had earlier.
Key Reporters [email protected] 41
1 I have two stores that I can think of;
2 two state stores that I can think of. One is that
3 one, which is a fine establishment. It's
4 well-polished and it's kind of state of the art.
5 The other one I have in my district is
6 not as polished. I just wanted to know, just
7 building on the question that Chairman Taylor just
8 asked previously, when can we expect, or if I can
9 expect at all, for the other store to, I guess,
10 undergo the same revitalization as the new store?
11 Thank you.
12 MR. BRION: Representative, the Grant
13 Avenue store is a great store. Mr. Adolph doesn't
14 know this, although Bill and I have been friends
15 for years. That's my home turf. I grew up in
16 there. Father Judge High School, right?
17 REPRESENTATIVE SABATINA: Yes, sir.
18 MR. BRION: So my parents lived there
19 for many years.
20 REPRESENTATIVE SABATINA: Father Judge
21 Crusader.
22 MR. BRION: Crusader.
23 REPRESENTATIVE SABATINA: Yes, sir.
24 MR. BRION: He was the Father Judge,
25 that's right.
Key Reporters [email protected] 42
1 MR. MARCUS: What's the name of the
2 store he's talking about?
3 MR. BRION: Grant Avenue.
4 MR. MARCUS: I'll see if we're working
5 on it.
6 REPRESENTATIVE SABATINA: There's
7 another one on Roosevelt Boulevard and Solly Avenue
8 or Holme Avenue.
9 MR. BRION: The difficulty we have,
10 besides the budgetary issues of the cost of doing
11 these stores, is determining which stores would be
12 remodeled into the type of store we're talking
13 about, what I call the premium stores, and which
14 wouldn't be. A lot of times, those stores now are
15 next to a grocery store, which that is, next to the
16 Giant where the new shopping center is.
17 Giving the opportunity and new shopping
18 centers to do that, we try to do that for the
19 convenience of the consumer because, although we're
20 not in the same building, it gives them the
21 opportunity to at least walk out and go right next
22 door and not have to drive somewhere else to find
23 the premium store.
24 So, we are picking and choosing. We'd
25 have to determine whether that store -- as we do
Key Reporters [email protected] 43
1 our own internal surveys, to determine whether that
2 store would support the kind of cost of doing a
3 premium store would have to be determined. Not
4 every 606 stores will be turned into a store like
5 you see at Grant Avenue. Even in what I call the
6 urban areas of Philadelphia and the five-county
7 region and Allegheny County, it is determined which
8 stores will be able to sustain that kind of cost
9 and which stores would not.
10 REPRESENTATIVE SABATINA: Thank you,
11 gentlemen. Please keep up the good work. Thank
12 you.
13 MAJORITY CHAIRMAN ADOLPH: Thank you.
14 Representative Tom Killion.
15 REPRESENTATIVE KILLION: Thank you, Mr.
16 Chairman. Good to see everyone. A couple
17 questions. And I want to follow up with Chairman
18 Taylor; that you're operating under a legislative
19 limbo, and I give you a lot of credit for doing
20 that. With a bill sitting in the Senate that
21 completely changes, you don't know what's going to
22 happen. It's good to see my good friend, Chairman
23 Brion, from the neighboring county, Chester County.
24 Question on the leases. If, in fact, we
25 should go down a privatization route, Chairman
Key Reporters [email protected] 44
1 Taylor touched on it, but are there out-clauses in
2 the leases, or are we locked in for those for
3 extended periods of time?
4 MR. BRION: It's a 90-day out-clause.
5 REPRESENTATIVE KILLION: Thank you.
6 That's helpful.
7 And then, I have to talk a little bit
8 about border bleed. And I agree with the Chairman.
9 It's more about convenience than about the
10 6 percent sales tax. I live about 13 miles from
11 the Delaware border. And to get here, we all have
12 to get elected. We represent only 65,000 people,
13 so we do that by talking to our neighbors. And I
14 can tell you where my neighbors are shopping.
15 Mostly, they're going to Delaware. They're going
16 to Total Wines not far from where we live.
17 If they could go here in Pennsylvania
18 where they could get in one-stop shop, I think
19 that's driving it more than the 6 percent. If
20 you're gonna stop for a bottle of wine, a case of
21 beer, you do it in one place, you're going to spend
22 a hundred dollars, say. You're not driving to
23 Delaware to save six bucks. You're going to buy it
24 here if the selection is good, the price is good,
25 and you're getting good service.
Key Reporters [email protected] 45
1 I don't have a study like you quoted the
2 Swarthmore study. We heard differently, I believe,
3 in the PFM study. But just from a day-to-day basis
4 and talking to my neighbors, I'm telling you,
5 there's a lot of border bleed from where we live.
6 If you drive down to Delaware, you can look at the
7 tags and you'll see Pennsylvania tags. They just
8 had a sting operation recently where they arrested
9 people coming back into Pennsylvania.
10 Now, I shop in the Media store in
11 Delaware County. I've never seen a Delaware tag
12 there. Same with the Jersey Shore. Many of us
13 have places or vacation in Jersey Shore. Folks
14 don't stop here before they go. They wait until
15 they get over there and they go to Joe Canal's.
16 It's what they do. We know they do it.
17 So, I agree with the Chairman that we
18 need to work, whether it's this bill or some other
19 version of the bill, but we need to modernize the
20 system. But we need more convenience because
21 that's what folks want. They want convenience.
22 Thank you.
23 MR. BRION: Let me just give you a
24 number, Tommy, that is interesting to this panel.
25 We have approved 189 supermarkets that have, now,
Key Reporters [email protected] 46
1 R licenses. So, a supermarket today, Giant Eagle,
2 Weis, Wegmans, Giant Foods, Whole Foods, what they
3 do now is, they obtain an R license and they open
4 up a cafe and, obviously, then they can sell their
5 two six-packs or 12 beer.
6 That is a very big thing with the
7 consumers today. If the House and Senate would
8 determine how to, again, expand to the convenience
9 of letting the rest of the alcoholic beverages be
10 sold somehow -- We're not here to tell you how to
11 do it, we're here to implement what you do. But I
12 agree with Representative Killion. To me, the
13 people go someplace because they can go once and
14 get it over with and go home.
15 MAJORITY CHAIRMAN ADOLPH: I was telling
16 Chairman Markosek also about the border bleed. I'm
17 sure it gets back to the same type of lease
18 contracts that -- your problem is that, I know
19 these liquor stores that are over in Jersey and
20 Delaware, they're stand-only stores with their own
21 parking and so forth right next to the road. It
22 makes it very, very convenient for Pennsylvanians
23 to pull over on the way down to the shore or way
24 down to Delaware.
25 I don't think it's the tax. I agree
Key Reporters [email protected] 47
1 with the chairman. It's all about convenience, and
2 your hands are tied. I also understand that as
3 well.
4 Next question will be by Representative
5 Mike Carroll.
6 REPRESENTATIVE CARROLL: Thank you, Mr.
7 Chairman. Good afternoon, board members. Thank
8 you for being here today.
9 When I contemplate the 80-million-dollar
10 transfer to the General Fund and things that can be
11 done in order to make that a larger number, I look
12 at the range of options that have been offered by
13 folks in this building and at the board. It seems
14 to me that the flexible pricing option seems to
15 generate the most when I look at the information
16 that I have; almost three times greater than the
17 Sunday sales option.
18 My question is, and I know that in the
19 end, the General Assembly and the Governor will
20 decide what the law is. But from the perspective
21 of offering a recommendation, can you share with
22 me, anybody on the board, what the downside is to
23 flexible pricing?
24 MR. HOLDEN: We just can't do it.
25 REPRESENTATIVE CARROLL: No, no.
Key Reporters [email protected] 48
1 Assuming that the General Assembly was going to
2 change the law to allow for flexible pricing, is
3 there a downside that should be measured against
4 the potential increase in revenues?
5 MR. HOLDEN: No, in my opinion.
6 MR. MARCUS: John, do you want to render
7 an opinion?
8 MR. METZGER: I'll attempt to answer
9 that, Mr. Representative. We think the ability to
10 price on a variable basis is nothing but an upside
11 for the agency. We don't see a downside. We would
12 not anticipate people's prices going up because of
13 that action just to make more profit. We would be
14 negotiating better with the suppliers. We would be
15 doing a whole bunch of things that would be more
16 akin to what people would do in private industry in
17 running a business.
18 REPRESENTATIVE CARROLL: Well, then,
19 absent any policy downside to the flexible pricing,
20 and considering the financial challenges that we
21 face here in the General Assembly with respect to a
22 budget, it seems to me that this is sort of obvious
23 and that there really is no good reason for us not
24 to move forward with flexible pricing, and it
25 baffles me that we haven't done it to this point.
Key Reporters [email protected] 49
1 I had to ask because it seemed to me that there
2 must have been some barrier or impediment as to why
3 we might not go forward with this, but it sure
4 doesn't sound like there is one.
5 So I'll stop there, Mr. Chairman. Thank
6 you.
7 MAJORITY CHAIRMAN ADOLPH: Thank you.
8 Representative Jeff Pyle.
9 REPRESENTATIVE PYLE: Thank you,
10 Chairman. Thank you, Commissioners, Congressman.
11 I have a question for you.
12 I know any business you're looking at,
13 the overhead cost and personnel is a big part of
14 this. That may not be as controllable as we'd
15 like. But, this summer, I was fortunate to have a
16 discussion with one of your colleagues who gave me
17 a really great idea in this discussion.
18 Could you, please, for the sake of the
19 audience here, discus store-within-a-store? I
20 think that's an exciting proposal, especially for
21 those of us in rural areas that may not have the
22 sales figures to justify a stand-alone open store,
23 which we had about five years ago.
24 MR. MARCUS: It's a great concept.
25 We're trying, as always, to create convenience.
Key Reporters [email protected] 50
1 REPRESENTATIVE PYLE: Perfect.
2 MR. MARCUS: We recognize that working
3 within grocery stores or some box store would be
4 the way to go, particularly if you could also offer
5 beer.
6 The store-within-a-store concept, we
7 have about, essentially, 18 or 19 of them
8 functioning right now within grocery stores or
9 something similar. And so, we did some work
10 in-house to create a concept, and it's a
11 stand-alone store. It's prefab; easy to move in,
12 easy to move out; easy to expand, dependent upon
13 how it goes; be operated by one of our people with
14 our cash register is one of the concepts. It's
15 open for discussion as to that.
16 But how do we work within the system and
17 get convenience achieved? So, I have some plans
18 with me right now. It's a beautiful concept. It
19 looks good, and it's very doable; could be up and
20 running fairly quickly.
21 But the way things work, it doesn't
22 happen as quick as you want, our procurement
23 procedures and whatnot. That's something we've
24 asked to be adjusted for similar situations such as
25 this. We need to move quicker. That's one of the
Key Reporters [email protected] 51
1 other initiatives we've asked for.
2 We're really not asked, in these
3 situations, to provide as much input as we'd like
4 to try to increase convenience, but we do it as
5 much as we can. The store-within-a-store concept
6 is alive and well and could be done.
7 MR. BRION: The 18 stores that we have
8 have been around for a while. The concept today,
9 just so you know, is something that has been talked
10 about depending on what legislation comes forward.
11 It does have some downsides.
12 The first is, as we would negotiate what
13 I call floor space in a supermarket or something,
14 A, they would have to have the space to give us in
15 the front of the store. Secondly, we don't know
16 what that square footage would be because we have
17 not determined whether it's even affordable in the
18 sense of utilizing it. And lastly, it is a
19 convenience store. It cannot, at that size, have
20 all the products of a normal fine wine and good
21 spirits store.
22 So, it is something that is, as Mr.
23 Marcus said, debated in our building for the
24 convenience of the consumer, because you hear us
25 continue to talk about being able to shop at one
Key Reporters [email protected] 52
1 location for things. But it would not be what I
2 call a store-store that you're used to.
3 REPRESENTATIVE PYLE: Thank you for that
4 explanation. In keeping with what you said
5 earlier, that you have been limited by legislative
6 tenets, I'm very excited about this store-within-a-
7 store concept. Again, I had a store shut down.
8 Now we have to drive 13 miles to go buy a bottle of
9 Maker's Mark or fine wine for dinner, Chairman,
10 sorry.
11 MR. BRION: Always Chairman's Selection.
12 REPRESENTATIVE PYLE: No, we don't have
13 those either. That's Fox Chapel. That's 30 miles.
14 Thank you.
15 MR. MARCUS: Just come over to my house,
16 Representative.
17 MAJORITY CHAIRMAN ADOLPH: Thank you.
18 Representative Scott Conklin.
19 REPRESENTATIVE CONKLIN: I want to thank
20 you, Mr. Chairman. You have to look to your left
21 to find us over here. First off, I want to start
22 off with a big thank you.
23 I represent State College, which, for
24 those who don't know, we have the annual event
25 called State Patty's Day, which is basically tens
Key Reporters [email protected] 53
1 of thousands of young people coming in for a
2 drunken weekend which costs us a lot of money.
3 What you did at the state stores by closing down in
4 that area; what our local bars did by closing down
5 helped out greatly.
6 The problem was, those large box outlets
7 that sell volume in those national chains that may
8 have, as you said, the beers next door did not
9 close down. So, having the local taverns who had
10 something invested was a great help. Having the
11 state store that had a vested interest in
12 Pennsylvania citizens was a great help. I want to
13 thank you for that.
14 The second comment I want to make is,
15 I'm one of those individuals that have walked into
16 your state stores; asked your well-qualified
17 individuals, who are very courteous, for something
18 you did not have on the shelf. I'm surprised when
19 people say they can't get it because, within a week
20 they had that in for me, a single bottle. I want
21 to thank you for doing that. It was a great help.
22 It's happened a few times.
23 The last comment I want to make before I
24 ask the question is, as somebody who's in the
25 retail business, if we buy 25 of something and only
Key Reporters [email protected] 54
1 12 sells at the 30 percent markup, we are able to
2 discount that to 50 cents to 25 cents on the
3 dollar; clear the shelf; get our original
4 investment back, and I would love to see you all
5 have the same opportunity to actually run a
6 business like a business. It would be absolutely
7 wonderful. But now for my question.
8 When we looked at the Governor's budget,
9 we see Keno in the budget, but no one is sure if
10 they're going to run Keno or not, but it's in the
11 budget. Has anyone come to talk to you about
12 individuals sitting in bars, being intoxicated and
13 gambling their money away? Is this something
14 that's on your radar screen? Has anybody from the
15 Administration talked to you about this, to have
16 your input put in?
17 MR. BRION: Nobody talked to us about
18 people sitting in casinos, in front of a slot
19 machine, gambling in some type of inebriated state.
20 The answer is no.
21 REPRESENTATIVE CONKLIN: Thank you very
22 much. I want to thank you, Mr. Chairman.
23 MAJORITY CHAIRMAN ADOLPH: Thank you.
24 Representative Jim Christiana.
25 REPRESENTATIVE CHRISTIANA: Thank you,
Key Reporters [email protected] 55
1 Mr. Chairman. Gentlemen, good afternoon. I have a
2 few questions about variable pricing.
3 If I'm understanding you correctly, you
4 want the flexibility to be able to reduce the
5 markup on your product, correct? In theory, that
6 means you're going to increase sales and increase
7 revenue by reducing the markup. Can you explain
8 how you're going to accomplish that?
9 MR. METZGER: It really comes down to
10 the elasticity of pricing depending on the product.
11 If you're a connoisseur of fine Scotch, the price
12 doesn't matter that much to you. For someone that
13 is buying a 10-dollar 1.5 milliliter bottle of
14 wine, price matters a lot. They shop the price.
15 So we would be working in both directions,
16 depending on consumers' behavior towards those type
17 of products.
18 REPRESENTATIVE CHRISTIANA: But the idea
19 that you're going to reduce the markup on that
20 lower price means you're going to have to increase
21 volume in order to make money, correct; to make
22 more money to increase revenue, correct? You're
23 going to need to increase the volume. If you're
24 going to reduce the markup and you're going to make
25 more money, clearly, you have to increase your
Key Reporters [email protected] 56
1 volume, correct?
2 MR. METZGER: That would be part of the
3 equation, yes.
4 REPRESENTATIVE CHRISTIANA: And where is
5 that additional volume coming from?
6 MR. METZGER: At the 10-to-15-dollar
7 price range in wine, people trade out brand names.
8 They shop on price. When something's on promotion
9 now, they'll buy that brand this month, and next
10 month they'll buy the other brand on promotion.
11 That's consumer behavior that we see all the time
12 and measure. We don't see volume increasing
13 necessarily on those products. They're going to
14 shop depending on what's on promotion that month.
15 Where we see the opportunities here is,
16 to get better pricing from suppliers, which
17 increases that margin.
18 REPRESENTATIVE CHRISTIANA: You're the
19 largest purchaser of alcohol in the world, correct?
20 How are you going to negotiate a better price than
21 you already have? Okay, sorry. The third largest
22 producer of alcohol in the world, how in the world
23 are you going to negotiate a better price than
24 you're already negotiating?
25 MR. METZGER: Because it's fixed right
Key Reporters [email protected] 57
1 now. We do the markup, which is the uniform
2 markup.
3 REPRESENTATIVE CHRISTIANA: Okay. What
4 I'm hearing, also, is that you want the flexibility
5 to increase the markup higher than it already is,
6 correct; thus, increasing price on more expensive
7 bottles, correct?
8 MR. METZGER: It could be a combination
9 of increasing price and also lowering cost.
10 REPRESENTATIVE CHRISTIANA: The flexible
11 pricing, I didn't hear the lowering of cost. I
12 clearly heard the desire to increase the price,
13 which, from my constituents' standpoint, whether
14 they're buying a hundred-dollar bottle of wine or a
15 10-dollar bottle of wine, the price has continued
16 to be a frustration. But, we will move on from
17 there because clearly --
18 MR. MARCUS: Some prices go up, some
19 prices go down. That's the answer to the question.
20 REPRESENTATIVE CHRISTIANA: Thank you,
21 Mr. Marcus. I got the gentleman's answer. I do
22 have a question --
23 MR. MARCUS: I just wanted to make sure
24 you understood that.
25 REPRESENTATIVE CHRISTIANA: I do have a
Key Reporters [email protected] 58
1 question for you, though, Mr. Marcus. Roughly
2 about 12 months ago, you and I had a spirited
3 debate about TableLeaf. You were a strong defender
4 of Tableleaf. We talked about the millions of
5 dollars that the taxpayers of Pennsylvania were
6 investing and advertising for a Pennsylvania
7 vineyard wine --
8 MR. MARCUS: Millions of dollars?
9 REPRESENTATIVE CHRISTIANA: Yes.
10 MR. MARCUS: We weren't talking about
11 millions of dollars investing in TableLeaf.
12 REPRESENTATIVE CHRISTIANA: Okay. Just
13 for the committee and folks at home, the TableLeaf
14 acquisition and the advertising specifically to
15 TableLeaf, how much has it cost since that business
16 decision was made; one that you said 12 months ago
17 that you were very proud of?
18 MR. MARCUS: Well, I'm still proud of
19 it. The TableLeaf has made significant money.
20 REPRESENTATIVE CHRISTIANA: How much did
21 that acquisition cost, and how much have we spent
22 on advertising for that particular brand that was a
23 California-based vineyard --
24 MR. MARCUS: Let me first start off by
25 saying that the sales volume has been $12 million
Key Reporters [email protected] 59
1 for those TableLeaf products.
2 REPRESENTATIVE CHRISTIANA: The sales
3 volume. I'm sorry. I was on the expense side of
4 the legislature; not the revenue side.
5 MR. MARCUS: Well, the sales amount was
6 approximately $12 million; as a sales quantity of
7 1,312,000 bottles. The board spent approximately
8 $173,000 on advertising. And because we wanted to
9 license and register the name, we did spend 238,000
10 in legal fees, because we had plans to take this a
11 lot of different directions.
12 So, we made a lot of money on TableLeaf,
13 and we'll continue to make --
14 REPRESENTATIVE CHRISTIANA: Mr.
15 Chairman, could the gentleman just answer my
16 question? I asked how much they've spent on the
17 Tableleaf.
18 MR. MARCUS: I just answered that.
19 REPRESENTATIVE CHRISTIANA: No, one part
20 of that.
21 MR. MARCUS: Didn't I just say 238,000
22 in legal fees and $173,000 in advertising?
23 REPRESENTATIVE CHRISTIANA: And how much
24 was the product, Mr. Marcus? How much did the
25 product cost to buy? I'm sure that's not all we
Key Reporters [email protected] 60
1 spent for the Tableleaf product to put it on the
2 shelf.
3 MR. MARCUS: On the 12 million in sales
4 amount, we would have made -- We make a little
5 bit -- about 33 percent on that, so we're talking
6 about $4 million net profit. Does that include the
7 tax, that revenue?
8 MAN IN AUDIENCE: That does not include
9 the tax.
10 MR. MARCUS: So now we have to add 24
11 percent onto the 12 million, so we'd be -- We made
12 about $8 million on that investment.
13 REPRESENTATIVE CHRISTIANA: So we just
14 throw out 8 million, okay.
15 MR. MARCUS: Is that okay? That
16 8 million on about 500,000?
17 REPRESENTATIVE CHRISTIANA: Mr. Marcus,
18 I understand you like to count taxes as sales, but,
19 with all due respect, taxes are taxes, and revenue
20 and profit are a separate category.
21 MR. MARCUS: We're glad to earn that.
22 REPRESENTATIVE CHRISTIANA: I know
23 you've been a proud supporter of TableLeaf. Can
24 you comment on the decision to drop that business
25 venture?
Key Reporters [email protected] 61
1 MR. MARCUS: We listened to you last
2 year, and others, and we're not going to fight you
3 on it. What are we supposed to do? If you don't
4 want us to do it, we've got enough things to be
5 concerned about. We're trying to be responsive to
6 the legislature.
7 Do I think we should do it? Not
8 necessarily. I don't think we should get out of
9 it, but it's a board decision, and I'm okay with
10 it. We'll make money selling it out. We're in
11 good shape on that.
12 REPRESENTATIVE CHRISTIANA: Mr.
13 Chairman, if I may have one answer. Representative
14 Mustio had asked a question. I just want to make
15 sure I heard it correctly.
16 You don't have a percentage of your
17 profit that you can identify as to going towards
18 operation costs and personnel costs; is that
19 correct? You don't know what percentage of your
20 profit goes to personnel costs?
21 MR. O'BRIEN: I thought the question
22 was, Representative, what was it, for benefits or
23 personnel costs; not just personnel costs.
24 REPRESENTATIVE CHRISTIANA: I was
25 looking at salaries, benefit and pension costs.
Key Reporters [email protected] 62
1 That cost, how much is represented of your profit
2 margin goes to pay that?
3 MR. METZGER: Representative, I don't
4 have that number, but can I share one number with
5 you that's fairly similar to that? We went back 10
6 years and looked at operating expense as a percent
7 of gross sales. In fiscal year 2003 and 4, 21.8
8 percent of our gross sales was operating expense,
9 which includes wages, benefits and all that. This
10 past fiscal year it dropped to 17.8 percent. That
11 4 percent increase is an 18 percent improvement.
12 In private industry, they would put facts like that
13 in their annual report.
14 REPRESENTATIVE CHRISTIANA: Thank you.
15 Thank you, Mr. Chairman.
16 MAJORITY CHAIRMAN ADOLPH: Thank you.
17 I've been advised that Representative Brendan Boyle
18 has arrived.
19 The next question will be by
20 Representative Dean.
21 REPRESENTATIVE DEAN: Thank you, Mr.
22 Chairman. Good afternoon, gentlemen.
23 I guess whether we call it modernization
24 or customer convenience, I think what we're really
25 talking about is improvement. So it's improvement
Key Reporters [email protected] 63
1 from the business side, from the state side, and
2 improvement for the customers. That's really what
3 I think we're talking about here. So I'm open and
4 welcome to the ideas that the board is looking for
5 from the legislature for improvement. And we've
6 talked about some of them; the flexible pricing.
7 One I'm interested in, is there anything
8 legislatively we can do to help you with buying
9 better?
10 MR. BRION: Well, flexible pricing is
11 what's buying better, and I don't think that's been
12 explained very well. John can chime in when he'd
13 like, but it's my understanding, as we talk about
14 this within the building, although it's a 30
15 percent guaranteed markup -- So we mark up 48
16 percent. Let's just be frank with everybody in the
17 room. We mark up 30 percent, and then we mark up
18 18 percent Johnstown Flood Tax. So, the markup
19 that we get is 48 percent.
20 When you get into buying at that point
21 in time, if your markup is 30 percent, then, in
22 theory, even though the markup is 30 percent, when
23 you're going to the industry, the industry doesn't
24 give you the ability to be flexible in the
25 wholesale purchase because the markup we know is
Key Reporters [email protected] 64
1 fixed at that point in time. If you could do it on
2 both ends, the wholesale purchase and then markup
3 differently on the shelf, that would be able to
4 create some more profit.
5 REPRESENTATIVE DEAN: From some of the
6 estimates that you gentlemen gave, it looks like
7 flexible pricing would give anywhere from a
8 45-million-to-75-million-a-year increase to the
9 bottom line. Sunday sales, another 20 million or
10 so, if we could increase Sunday sales.
11 Some of the important initiatives that I
12 see, customer relations management; what does that
13 mean? I see an estimate that if we would do a
14 better job there, we would get another 16 or so
15 million a year?
16 MR. METZGER: Our definition of customer
17 relationship management, as it was put here in the
18 modernization proposals, was really to give us the
19 ability to run loyalty programs, for example, as
20 most retailers do; couponing specifically to our
21 good customers; things to reward our good customers
22 frequently and commonly. We don't have that
23 ability right now. That's what that means.
24 REPRESENTATIVE DEAN: As I said, that's
25 about a 16-million-dollar-a-year estimate increase.
Key Reporters [email protected] 65
1 If we were to change or update licensing fees and
2 fines, another 15 million or so; all to the tune of
3 improving, about $125 million to the bottom line
4 each year.
5 If you add that on top of the numbers,
6 let's take a look at this year, it's impressive.
7 Total contributions from the state stores,
8 $542 million; half a billion dollars. Made up, of
9 course, the liquor sales tax of 443 million; the
10 state police liquor controlling enforcement,
11 another 26 million; the Health Department of Drug
12 and Alcohol programs, 2.5 million; all told,
13 $542 million. If we could put in another, through
14 improvement, through modernization, another 125 or
15 so million, we're talking substantial state
16 revenues, and this is a group looking for state
17 revenues.
18 From your perspective, what are the most
19 important areas of improvement or modernization
20 that you would like to see the legislature come up
21 with this season?
22 MR. BRION: If the legislature is not
23 going to discuss amongst the two chambers what I
24 keep talking about, and that is one-stop shopping
25 for consumers, which wasn't part of what you had
Key Reporters [email protected] 66
1 just discussed right now, Representative, and the
2 system stays as we know it today, which I
3 personally think is a mistake, then I would say, if
4 you want immediate ability to create additional
5 revenue, Sunday sales would be your immediate
6 ability.
7 The other items that you talked about,
8 as we had said earlier, is really a two- to
9 three-year ramp-up to get to those numbers. That
10 is not something that would happen within this
11 budgetary item. But if you were to pass Sunday
12 sales, have the Governor sign Sunday sales, we
13 could probably start to open up more stores almost
14 immediately and create additional revenue.
15 REPRESENTATIVE DEAN: And the Sunday
16 sales is to increase the numbers of stores that
17 would able to sell Sunday. How about the expansion
18 of hours across the whole system?
19 MR. BRION: We would request that that
20 happen as well.
21 REPRESENTATIVE DEAN: And what kind of
22 dollar amount would that contribute?
23 MR. BRION: 20 million.
24 REPRESENTATIVE DEAN: That's the
25 20 million; hours and Sunday.
Key Reporters [email protected] 67
1 MR. BRION: Over a period of time,
2 though.
3 REPRESENTATIVE DEAN: Correct.
4 MR. BRION: But we could begin the
5 operation by opening stores on Sunday if that were
6 allowed immediately.
7 REPRESENTATIVE DEAN: So we're talking
8 about a movement from what's already pretty doggone
9 healthy in terms of revenues and profits of 542
10 million, moving toward 700 million annually.
11 First, one of the things we've been
12 asked to look at is a one-time sale of the system.
13 It seems to me it would be forfeiting an awful lot
14 of profit and revenues if we do that.
15 MR. MARCUS: Representative, I believe
16 it was 551 that we delivered this year, plus the
17 110, and we were up 30 million from the year
18 before. So, we could bring it up at least another
19 30 million, probably with between efficiencies that
20 we keep getting, which we haven't talked about how
21 efficient we've become, plus the 20 million just
22 from Sunday sales. We continue to improve;
23 continue to give more and more money every year.
24 REPRESENTATIVE DEAN: Thank you all for
25 your work.
Key Reporters [email protected] 68
1 MAJORITY CHAIRMAN ADOLPH: Thank you.
2 Representative Scott Petri.
3 REPRESENTATIVE PETRI: Thank you, Mr.
4 Chairman. And thank you, gentlemen, for being
5 here.
6 I want to continue the debate a little
7 bit about where we are and where we're going.
8 Perhaps you guys can help; commissioners can help
9 us understand some facts and figures as to what
10 your intentions are, assuming that there is no real
11 change in legislative process.
12 First of all, how many of your stores
13 are currently located immediately adjacent to
14 grocery stores?
15 MR. BRION: 50 some, I think.
16 REPRESENTATIVE PETRI: About 50?
17 MR. BRION: Yeah.
18 REPRESENTATIVE PETRI: And how many are
19 immediately adjacent to beer distributorships?
20 MR. BRION: Less. I would say in the 20
21 range, maybe.
22 REPRESENTATIVE PETRI: Have there been
23 any discussions, or is there any thought process of
24 relocating stores, as the leases become renewed,
25 adjacent to either of those two type of entities,
Key Reporters [email protected] 69
1 beer distributors and/or stores; and if so, what is
2 the plan?
3 MR. BRION: Yes. As I said earlier, we
4 try to do that every time we possibly can.
5 Obviously, there are three things that have to
6 occur at that point in time. If it is a new
7 location with a new shopping center -- And we just
8 opened up at Bakers Square, next to a ShopRite
9 where the old Tastykake bakery was in Philadelphia.
10 Representative Taylor knows exactly where that is,
11 and that was put next to the store.
12 There are times with new shopping
13 centers that we can come in immediately and do
14 that. There are other times when a vacancy may
15 occur that puts us there. But, obviously, the
16 other issue is price. If we're already given a
17 location and the lease is being renewed or
18 renegotiated for an option, the question has to be
19 as to whether the move is worth the financial
20 expenditure of creating a new store, building a new
21 store and, on top of that, probably increasing the
22 price of the leasing.
23 So, it really becomes a business
24 decision internally. We have a great staff that
25 goes over that real estate department. DGS
Key Reporters [email protected] 70
1 obviously gets involved in negotiations of the
2 leases, as we have to deal with them with regard to
3 the leases. They are the ones that negotiate
4 leases for us. And then we, at the board level,
5 then approve that when it comes to us.
6 But, it is something that we look at on
7 a continual basis as to if we can find a better
8 location adjacent to other retailers that are
9 beneficial to our product.
10 MR. HOLDEN: Could I add something, Mr.
11 Chairman?
12 MR. BRION: Go ahead.
13 MR. HOLDEN: In my three months on the
14 board, I have been at three new store openings and
15 all have been adjacent to other retail outlets.
16 REPRESENTATIVE PETRI: Do you track the
17 number of leases that would be subject to renewal,
18 say, within the next year, two years or three
19 years?
20 MR. BRION: Oh, definitely. Yes. And
21 we start that early because we're trying to
22 determine, A, whether we renew; or B, we look for a
23 another location.
24 REPRESENTATIVE PETRI: Okay. Can you
25 tell us, based upon those projections, is there a
Key Reporters [email protected] 71
1 likelihood that a substantial number of stores
2 would be moving so that they are co-located next to
3 grocery stores or beer distributors?
4 MR. MARCUS: We have to put those out
5 for bid if we are going to move a store. This
6 department we have is sophisticated from the
7 standpoint that we really believe they give us a
8 lot of great explanations for what we can do, and
9 there's options. But, I'll refer back to the
10 chairman to answer the rest of it.
11 MR. BRION: To answer your question, I
12 don't have that number. I could easily go to the
13 real estate department and get it for you as to
14 whether they have it on their desk, because they
15 come up with the idea or they're out in the field
16 looking. They then, in turn, determine whether
17 financially it makes sense, and then it comes to
18 the board. So they could be working on a few
19 things now that didn't come to our level at this
20 point. If you would like to hear that we might
21 have a few that may be changing, I can do that.
22 REPRESENTATIVE PETRI: I'd be interested
23 in more information, but I want to move to another
24 topic because I know our time is running quickly.
25 How many states other than Pennsylvania,
Key Reporters [email protected] 72
1 to your knowledge, have a tax other than a sales
2 tax on alcohol, such as a Johnstown Flood Tax?
3 MR. BRION: There are 17 controlled
4 states in the United States. Only two are totally
5 controlled, Utah and Pennsylvania. Utah has one.
6 The other controlled states, some of them control
7 wholesale; some of them have agency stores, but
8 they all have a tax.
9 REPRESENTATIVE PETRI: What I'm asking
10 is, over and above the sales tax.
11 MR. MARCUS: Almost every state has a
12 gallonage tax that is over the sales tax. Some are
13 extraordinarily higher than Pennsylvania is. As I
14 said, they call it the Johnstown Flood Tax, but I
15 think 10 percent of it was, I guess, when the flood
16 occurred. They added 5 percent 30 years later.
17 They added another 3 percent sometime.
18 But it's built-in profit, and it's not
19 going away. In a private system, I don't hear
20 anybody taking it away. So, it's here.
21 MR. BRION: To answer your question, all
22 of them do in some form.
23 REPRESENTATIVE PETRI: Okay. How many
24 limited wineries do we presently have in
25 Pennsylvania, if you know?
Key Reporters [email protected] 73
1 MR. MARCUS: We have 234 limited
2 wineries. That is up from approximately 164--this
3 is active--as of last year. So, December 2013, we
4 had 234 limited wineries. December 2012, we had
5 164. It seems like people want to be in the winery
6 business, which is a good thing for Pennsylvania
7 because, in the last five years, there's been 4,000
8 farms lost. That is conservatively estimated to be
9 $124,000 per farm, at approximately close to $500
10 million of lost revenue for the state.
11 REPRESENTATIVE PETRI: Last question for
12 you. In considering this concept of flexible
13 pricing on your product and authority from the
14 legislature, have you given any consideration
15 whether you would have more elasticity in your
16 pricing, better ability to create variable pricing,
17 if we had relief from the Johnstown Flood Tax from
18 our citizens?
19 MR. BRION: We have not looked at that
20 because we felt that was something that was really
21 up to you to make those decisions on. Again, when
22 it comes to the taxation end, we will administer
23 what you provide.
24 REPRESENTATIVE PETRI: I'll just end by
25 saying, Mr. Chairman, to me it makes some sense.
Key Reporters [email protected] 74
1 We have in-state entities such as wineries and beer
2 manufacturers, and all those folks are going to be
3 subject to the Johnstown Flood Tax if we do direct
4 shipment, which is extremely popular.
5 In my district, it's 90 percent approval
6 rating on direct shipment of wine, and I think
7 that's something we have to look at. If we're
8 going to do variable pricing, we need to give some
9 relief on the Johnstown Flood Tax for both the
10 consumer and the manufacturers. Thank you.
11 MAJORITY CHAIRMAN ADOLPH: Thank you,
12 Representative. Representative Brownlee.
13 REPRESENTATIVE BROWNLEE: Good
14 afternoon, gentlemen. How are you?
15 First of all, let me say that I believe
16 the PLCB, indeed, does a good job as a revenue
17 generator for the Commonwealth, and the employees
18 employed by PLCB are courteous, professional and
19 very knowledgeable about their product.
20 I want to kind of switch gears a little
21 bit, because it's my understanding that the PLCB is
22 starting a pilot program to direct-ship to
23 licensees. Can you tell us a little bit about this
24 program? Is there going to be a cost associated
25 with it? Who will be doing the deliveries and what
Key Reporters [email protected] 75
1 licensees will be eligible?
2 MR. METZGER: I'll answer that, Madam.
3 This was a program, after talking to many of our
4 licensees, we felt needed to be offered to the
5 larger licensees in the state. That is a starting
6 point for this program. I'll try to answer all
7 your questions with the different parameters the
8 way we're looking at it.
9 We're targeting the top hundred
10 licensees in the state, which represents over half
11 of the licensee volume. We're looking at a 50-
12 case minimum for a delivery, which is approximately
13 a pallet, to make it cost-effective to have a truck
14 go to their back dock. I'm trying to make sure I
15 cover the questions.
16 There is going to be a delivery charge,
17 but it's going to be extremely -- based on our
18 purchasing power, it's going to be extremely
19 attractive. Right now, all those licensees have to
20 take their jobber or their truck or their employees
21 and go to the local store that they buy from, at
22 their expense and their liability. So we think
23 it's going to be very attractive.
24 We've actually had test groups of
25 licensees from the biggest in the state, which is
Key Reporters [email protected] 76
1 the Sands Casino in Bethlehem, to the Rivers Casino
2 in Pittsburgh, to Sturges Speakeasy here locally;
3 the biggest to the smallest, having them in to make
4 sure we're doing this right.
5 Why I bring up the small ones; a very
6 important part of this program is to offer an
7 Internet-ordering portal that is as easy to use as
8 Amazon. That's part of this. When you hear of the
9 large licensee program, we're doing that for all
10 licensees where they can order online. The system
11 will remember what they ordered last week, because
12 they don't typically switch out their offerings
13 week to week. So they can order off their iPads at
14 home, anywhere they choose to, and the receptivity
15 has been extremely positive.
16 REPRESENTATIVE BROWNLEE: Thank you.
17 Thank you, Mr. Chairman.
18 MAJORITY CHAIRMAN ADOLPH: Thank you.
19 Representative Karen Boback.
20 REPRESENTATIVE BOBACK: Thank you, Mr.
21 Chair.
22 With regard to tavern game licenses,
23 what is the application process, because there was
24 a lot of anticipation before this became a law.
25 Looking at the stats, very few people were taking
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1 advantage of this to this point. So, is it the
2 process? Is it the fee? What do you think?
3 MR. BRION: I think there's four issues.
4 We had seven seminars throughout the state in
5 different locations; one here in Harrisburg, the
6 east, the west, north, south. We tried to explain
7 to the licensees the Tavern Gaming Law. I've read
8 it two or three times. I'll just make a few
9 comments from my perspective as chairman of the
10 PLCB.
11 I think Jerry Waters and the staff in
12 our licensing department has done a great job in
13 trying to figure out how to create the application
14 process. The application process as you know it
15 or, allegedly, the three applications that you see,
16 with the determination by gaming; not by us. And
17 the other thing we have to deal with is the
18 fingerprinting, and that has taken some time.
19 We were on the phone with gaming this
20 morning for about 45 minutes. They read the
21 statute that it would have to be fingerprinted in
22 order to get FBI criminal background checks. That
23 the fingerprinting is an issue that takes some time
24 to get done, and that's what you probably heard
25 from some licensees.
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1 What we're hearing from licensees is two
2 other major issues, and that is the way the act is
3 set up and what I call the 65 percentage going to
4 the state and the local. When they pay for the
5 tickets, which I'm told is about seven, $800; when
6 they pay the 65 percent up front and when they pay
7 the fees to who's printing the tickets, then they
8 go into what I call the gaming itself. Their
9 concern is that if they don't sell out that
10 particular gaming, there's no refund or anything
11 because they paid all the cost up front, and
12 there's really not enough money in it for them.
13 That's what we heard during the process.
14 The second issue that we hear, if you
15 read the act, club licensees who have been able to
16 have the gaming for quite some time have what I
17 call the 3 balk (phonetic), or the 3 mulligan,
18 where, if they have three issues that occur with
19 regard to their gaming, those issues do not affect
20 their liquor license. So, when they come up for
21 renewal, those three issues, if they only have
22 three or under doesn't get involved. Here they
23 have one.
24 So the restaurant licenses only have
25 one, and their concern was they did not want to
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1 create any problem with regard to what they call
2 their main revenue source, and that's their
3 R license because of tavern gaming.
4 So, that's what we're hearing. We are
5 here and gaming is here, I know. We had a long
6 talk this morning. I suggested at the Senate, if
7 you heard those hearings, and I'll suggest at the
8 House, we're more than happy to sit with the
9 representatives of the Senate, the representatives
10 of the House, and with gaming, and come up with
11 ideas of amendments that maybe could generate the
12 revenue that was discussed and was the intent of
13 this particular act.
14 REPRESENTATIVE BOBACK: Thank you. Then
15 the last follow-up. Maybe you could dispel this
16 rumor. We've been told that some applicants, they
17 put in the $2,000 initial fee. And if something is
18 missing or something needs to be added or repaired
19 on their application, they lose the $2,000 and they
20 have to start all over.
21 MR. BRION: Only if they withdraw.
22 That's really a misnomer.
23 We have six applications now. Out of
24 those six, three are at gaming right now; one is
25 back to us and will be before the board on March
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1 5th to determine whether the board would approve
2 that one or not. So one may be approved on March
3 5th, and two are incomplete and back to the
4 applicant to tell the applicant what they need to
5 do. We only have six.
6 Those two that have an incomplete
7 application, if they don't follow through and
8 complete their application, they do lose the
9 application fee. But if it takes them a while to
10 get their application completed, they don't lose
11 anything.
12 REPRESENTATIVE BOBACK: But you will
13 assist them in repairing it?
14 MR. O'BRIEN: Yes, we do.
15 REPRESENTATIVE BOBACK: Thank you very
16 much. Thank you, Mr. Chair.
17 MAJORITY CHAIRMAN ADOLPH: Thank you,
18 Representative. Representative Parker.
19 REPRESENTATIVE PARKER: Thank you, Mr.
20 Chair. Good afternoon, gentlemen.
21 Let's sort of go back. Chairman Brion,
22 I think you may have mentioned this a little
23 earlier, but I came in just a few seconds late.
24 Did you all touch on the fact that the PLCB paid
25 off a decade-long loan of $110 million? And if you
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1 did, talk to us about, briefly, how this was
2 accomplished and how warehouse consolidation and
3 that RFP, where does that stand at this moment in
4 particular?
5 In addition to that, I'm looking at
6 notes from last year regarding the instituting of a
7 bailment system. If you can sort of, just for my
8 benefit, again, because I did come in a few minutes
9 late and you may have mentioned it, where you stand
10 with that issue.
11 MR. BRION: Well, I mentioned in my
12 opening statement about the $110 million. I don't
13 want the legislature to start wondering why we
14 never did that before. Bailment was the issue that
15 arose. John was very instrumental in bailment.
16 When bailment was instituted, whereby, basically,
17 the industry bought back its inventory in the
18 warehouse, so the industry maintains the inventory
19 and not the Commonwealth of Pennsylvania and the
20 PLCB, we were refunded the money.
21 That loan was out on the books since
22 1968 from the General Fund to the PLCB. And
23 because we were refunded the money, we immediately
24 thought in February to pay that loan off and get it
25 off the books. As I said earlier, we do not intend
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1 or, right now, we don't think -- not need that
2 money again. That's how that happened. That's a
3 one-stop bailment issue.
4 With regard to the RFP on the
5 warehouses, it's very simple. There's a
6 determination right now as to whether we would have
7 two warehouses, three warehouses or one warehouse.
8 We had an RFP on the street that was asking people
9 in the industry, private people that would lease us
10 space for warehousing and/or build us a warehouse.
11 But because there has been so much
12 discussion in the legislature and in this building
13 about the future of the LCB and whether we would
14 even need a warehouse or not, there was nobody that
15 really wanted to answer that RFP at this point in
16 time, if I'm correct. John, is that correct?
17 So what we ended up doing was just
18 pulling that RFP back, and we're awaiting final
19 determination by the legislature as to how the
20 system changes, and then we can put a better RFP on
21 the street on how alcoholic beverages are stored in
22 Pennsylvania.
23 REPRESENTATIVE PARKER: My follow-up
24 question, Mr. Chairman, is, so, obviously, it was
25 documented on the record that you've contributed
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1 over 550 million to the state treasury. Whether or
2 not that's taxes and/or profit, 550 million was the
3 number that I received earlier today.
4 But I also wanted to know if you could
5 help me, for the record -- And last year you all
6 were very helpful in forwarding some data to us
7 regarding your employees, and I just want to see if
8 there has been a change in that range. How many
9 full-time and how many part-time employees?
10 MR. BRION: Give us one second to try to
11 find it.
12 REPRESENTATIVE PARKER: Sure. And, Mr.
13 Chair, help me here, and you may have already noted
14 this earlier. But when you all refer to part-time
15 employees, are these also seasonal employees? Are
16 they like one and the same?
17 MR. METZGER: I think I have these
18 numbers for you. We have a total of 5,237
19 employees. Of those, 3,100 are full time. The
20 balance of 2,137 are part time or seasonal
21 employees.
22 REPRESENTATIVE PARKER: Okay; part time
23 and/or seasonal. When I think about the overall
24 economic investment that the PLCB has here in the
25 Commonwealth, obviously, that 550-million-dollar
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1 contribution to the state treasury is on my mind.
2 But maybe, executive director, this will be
3 something that you could -- and it may not be
4 something that you can do overnight. I just want
5 to state that for the record.
6 But when and if you can, it would be
7 interesting to see, of this 5,237 employees that
8 you mentioned, the 3,100 that are full time, 2,137
9 part time and/or seasonal, I would like to know how
10 many of them are homeowners in the Commonwealth of
11 Pennsylvania. The reason why I ask that is because
12 that, too, you were talking earlier, and I was
13 happy to hear Chairman Brion talk about the forward
14 thinking of making sure that any new stores coming
15 online, particularly where we have commercial
16 quarters that I'm a big fan of, that you put them
17 near supermarkets to promote convenience.
18 But that is also a neighborhood economic
19 development driver and tool. While I want you to
20 be successful in what you do, I really want you to
21 be successful if you can build and occupy a
22 building in my district, because Philadelphia needs
23 a whole lot of them. We have enough stores, but we
24 need as much economic development as possible. So,
25 build PLCB; build when you can.
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1 In addition to that, if you show us
2 whether or not your employees are homeowners, it
3 helps us to sort of quantify their contribution to
4 neighborhood stabilization throughout the
5 Commonwealth of Pennsylvania. So, aside from that
6 550-million-dollar contribution, I think that's
7 great, but I want to see the human cost and how
8 much skin do the people who work for the PLCB; how
9 much skin in the game do they have in the economy
10 of the Commonwealth. So thank you, Mr. Chair, for
11 your patience.
12 MR. MARCUS: Thank you.
13 MAJORITY CHAIRMAN ADOLPH: Thank you.
14 Representative Bradford.
15 REPRESENTATIVE BRADFORD: Thank you,
16 Chairman Adolph.
17 Chairman Brion, I just wanted to follow
18 up, if I could, on when you had mentioned,
19 basically, what the markup is. The market, when
20 you get behind the curtain a little bit, you have
21 an 18 percent Johnstown Flood Tax and then you have
22 the 30 percent statutory, so it's 48 percent, give
23 or take.
24 So if you buy a bottle for $10 from some
25 producer or some winery in California, $10 becomes
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1 14, whatever; basically, $15. Is that a fair
2 assessment?
3 MR. BRION: That is.
4 REPRESENTATIVE BRADFORD: The 18
5 percent, that tax, that becomes revenue to you
6 guys, revenue to the Commonwealth. That's 18
7 percent straight. We get that right off the top?
8 MR. BRION: Each month the account is
9 swept of that money. Our account is swept of that
10 money and sent over to the General Fund; that is
11 correct.
12 REPRESENTATIVE BRADFORD: The 30
13 percent, we had talked a little bit about the
14 operational cost. Does the operational cost come
15 out of that 30 percent? The 30 percent, is that
16 where we're clearing the 50 million a year?
17 MR. BRION: Yes.
18 REPRESENTATIVE BRADFORD: We get 18
19 percent off the top. Then, of the 30 percent, we
20 bring in another 50 million. How much does that 18
21 percent generate to the Commonwealth? How much
22 revenue is it to the Commonwealth?
23 MR. BRION: The 18 percent itself?
24 REPRESENTATIVE BRADFORD: Yes.
25 MR. BRION: For last year, 311 million.
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1 REPRESENTATIVE BRADFORD: 311 million.
2 So you get 360 million pretty quick coming right to
3 the General Fund of the Commonwealth; the 50 plus
4 that 311?
5 MR. BRION: Correct.
6 REPRESENTATIVE BRADFORD: I think that
7 helps explain it, because there was a little bit of
8 a discrepancy about what you call a tax versus a
9 fee versus a revenue. I think it makes it clear to
10 people what's really coming into the Commonwealth
11 in terms of a sale.
12 Mr. Marcus, do you have something to
13 add?
14 MR. MARCUS: Then there's a 6 percent
15 sales tax on the sale.
16 REPRESENTATIVE BRADFORD: Six percent,
17 does that include on the Johnstown Flood Tax? Do
18 we tax the tax, or do we just tax on the --
19 MR. BRION: We tax the tax.
20 REPRESENTATIVE BRADFORD: We tax the
21 tax. How much does that 6 percent bring in?
22 MR. MARCUS: The total is 423.3, so I
23 guess you'd subtract the --
24 REPRESENTATIVE BRADFORD: So if you add
25 the 50, the 311 and the 6 percent?
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1 MR. MARCUS: 121 million.
2 REPRESENTATIVE BRADFORD: So again,
3 sometimes, especially in the last couple years, we
4 get into semantics about what's a fee, what's an
5 impact fee, what's a tax. That tax is revenue to
6 the Commonwealth. That's what we're paying our
7 bills with. The 6 percent, the 18 percent, and
8 then after overhead cost, the 50 million we're
9 bringing in from taxes. Is that a fair assessment?
10 MR. MARCUS: Well, yes, but there's a
11 few more, because we contribute about -- If we're
12 looking at the state police, approximately 24
13 million this year comes out of our pocket;
14 contributed 2.57 million to the Department of
15 Health; 4.8 million, alcohol ed. So that's why we
16 get up to 511 in terms of our contribution to --
17 out of our revenue.
18 REPRESENTATIVE BRADFORD: Right. But
19 understanding, again, I'm not one of the critics
20 that typically -- But I will say, there is social
21 cost to selling your product. Some of those costs
22 have to be absorbed, so it's the impact you have
23 that has to be dealt with.
24 Let me follow up with Chairman Brion on
25 something that he specifically mentioned. I know
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1 there's a disagreement between the two gentlemen
2 about the TableLeaf brand. Chairman Brion, why do
3 you think it was inappropriate to proceed with the
4 TableLeaf brand?
5 MR. BRION: Now you're getting into
6 debates that happened in the building between the
7 board, aren't you, Representative?
8 When I first came to the PLCB,
9 obviously, there were the merchant label brand, and
10 there was discussion as to what that was and how it
11 was approved and some approvals took place. Let me
12 go on to say that, there were a few brands there
13 that we had. Some of them were not merchant label.
14 Some of them were labels that were sold to the
15 PLCB, but again, eventually sold to other states,
16 which, in my opinion, did not make them merchant
17 label.
18 TableLeaf was a merchant label brand.
19 The issue became as to what is the PLCB, and that's
20 the debate that we have constantly between the
21 three of us. I think that's why we have a really
22 spirited group of members on the board between Tim
23 and Bob, because we sometimes agree to disagree,
24 but I think it creates a healthy atmosphere to be
25 able to run the PLCB in a good way.
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1 It was my position, and just my
2 position, that, we are a government agency with a
3 charge, in 1933 and moving forward, with many
4 amendments, to not only license and do what we need
5 to do, and responsible drinking and create all the
6 other issues we create that Bob has talked about,
7 the enforcement and whatnot; but also to provide
8 alcoholic beverages to the citizens of the
9 Commonwealth. As a kid in Philadelphia, that was
10 done a lot differently in the '50's with our
11 counter stores, right John, than it is being done
12 today.
13 We are a retail operation, but we are a
14 retail operation that is owned by the citizens of
15 the Commonwealth of Pennsylvania. And I didn't
16 know whether we should get into our own branding as
17 private retailers do. I didn't think that was part
18 of the charge of the liquor code. Obviously, there
19 was discussion on the board as to whether that is
20 correct or not. That was just my personal opinion
21 as to the merchant label.
22 REPRESENTATIVE BRADFORD: Can I ask how
23 that played out, though, on the back end? You guys
24 just stopped; You're not going to purchase it
25 anymore; you're not going to market it anymore;
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1 you're not going to sell it anymore?
2 MR. BRION: After last year's hearings
3 and after the hearings with regard to privatization
4 that occurred last year, at that point in time, it
5 was just Bob and I on the board. There was not a
6 third member, if you recollect. Bob and I, he
7 agreed that it -- we should not move forward in a
8 way, even though he thinks it was a very profitable
9 brand as he ran his numbers.
10 REPRESENTATIVE BRADFORD: Do you agree
11 it was profitable?
12 MR. BRION: I really have not looked at
13 the numbers as closely as Bob has, to be very frank
14 with you, and I'm not evading that question. It
15 didn't matter to me whether it was profitable or
16 not because, again, we're a government agency. So,
17 although we talked profits all day today, you've
18 heard me talk about consumer convenience. You've
19 heard me talk about a lot of different ideas that
20 the PLCB and the legislature and the Governor
21 should have. The Governor's had some great ideas
22 on where we should go. So I didn't get into
23 whether it was a profitable brand or not, because,
24 to me, that became irrelevant based on what we
25 heard in the Senate and we heard in the House and
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1 we heard from the Governor's Office.
2 So, the bottom line became, what do we
3 do at that point in time. If you recollect, what
4 we had said we were going to do was, we were not
5 going to, using my terminology, eat the brands we
6 have now. We were going to sell them. We had
7 bottles. We had suppliers that brought bottles in.
8 We were not going to make our suppliers do away
9 with the brand, and we weren't going to do away
10 with the brand. So, over the last year, we have
11 been selling the brand out, and now we're just not
12 going to buy any more I'll call it.
13 REPRESENTATIVE BRADFORD: The numbers
14 would seem to me that it did make a lot of money.
15 I mean, the numbers are what they are. I
16 understand your issue, and your issue as the
17 regulatory body, I can understand, is almost aside
18 from the dollars and cents. But it seems like we
19 created and marketed a brand that there was a
20 market for.
21 Did we ever think about selling that
22 product or putting it out to market? If
23 privatization is the charge of the day from the
24 Governor, it seems like you had half a million
25 dollar in, 5 million dollar out. It seems like, if
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1 you're going to go down that road, a sale of that
2 asset would have been better for the taxpayers than
3 just an ideological reluctance. Did anyone ever
4 consider selling it?
5 MR. BRION: I never did, Representative,
6 as far as trying to sell it from a brand. The
7 brand is still our brand. It is a trademarked
8 brand. But, no, we never thought about selling it
9 to another supplier.
10 REPRESENTATIVE BRADFORD: Mr. Marcus?
11 MR. MARCUS: Well, when we got into
12 this, we really thought about going big with it.
13 We've asked to be given the ability to direct-sell
14 out of the Commonwealth as opposed to letting
15 people sell into us.
16 TableLeaf would have been a product that
17 would have made a lot of money for the Commonwealth
18 of Pennsylvania. At one point we talked to QVC.
19 We were thinking of doing that. There are many
20 states that we could sell into. We could probably
21 have sold that brand eventually if we would have
22 stayed with it.
23 From a board decision, for now, we're
24 selling out of the brand. The whole issue that was
25 very sensitive to me, in particular, being from out
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1 in the country, is the whole issue of, did it
2 affect our homegrown wineries? Were we stealing
3 from them? It bothered me greatly to think that we
4 did. It makes me feel good that the winery
5 business in the last year went up from 164 to 234.
6 It's incredible. They obviously weren't concerned
7 about that. We're trying to help our wineries in
8 other ways.
9 But, you can see that it drives a stake
10 between the legislature. It's not worth the
11 hassle. Maybe in the future, if everybody gets on
12 the same page, we'll bring it back. I will tell
13 you this: In a privatized state, half of the
14 things that are going to be on the shelf are going
15 to be private label, and they won't be kind to our
16 wineries.
17 REPRESENTATIVE BRADFORD: Let me throw
18 this out there. I sit on the PHEAA board.
19 Obviously, under Chairman Adolph's leadership,
20 PHEAA has started out with one charge and really
21 has become a national servicer of loans. Now,
22 granted, it's a different context. But if we ask
23 government to think outside the box and to run like
24 a private sector business to do what's right for
25 the taxpayers, it would seem to me that, if we're
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1 going to ideological disagreements -- Look, I think
2 there's ideological disagreements about how did we
3 wind up in the liquor business to begin with. But
4 once we're there, it seems like, if we have an
5 asset, the appropriate way to divest ourselves of
6 it is a way that maximizes profit to the
7 Commonwealth.
8 One of the things I've seen with
9 TableLeaf or whatever, it seemed like we didn't
10 even try to maximize profit for the Commonwealth on
11 that because of an ideological difference. And
12 then because we have an ideological concern with
13 the Commonwealth being in the liquor business, and
14 we're in it because of 1933, it seems like, as
15 opposed to going about figuring out how do we
16 maximize revenue to the Commonwealth, what's
17 driving this is political concerns or ideological
18 considerations.
19 If we want to deal with the liquor
20 privatization issue, then let's talk about what the
21 value of the actual asset is to the Commonwealth.
22 It seems like we're not doing that. This is all
23 being driven by narrow, ideological considerations
24 as opposed to the dollars and cents that taxpayers
25 have; over three-quarters of a century, invested
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1 into this asset, and continues to generate revenue
2 to the Commonwealth. It seems like that
3 conversation never takes place.
4 Chairman Brion, you've raised the issue
5 a couple times. Again, I don't want to upset my
6 beer distributors. I don't think it's on the
7 table. But you said, well, the issue with border
8 bleed is the ability to sell all three products.
9 It would almost seem to an outsider who's listening
10 that you're asking for the ability to sell beer. I
11 don't think you are, but if that's one way to cure
12 the concern you have -- Again, because it seems
13 like this whole conversation is taking place within
14 the constructs of ideological considerations
15 without really consideration for 5,000 state
16 workers, without concern for the beer distributors
17 who potentially could be damaged by the bills that
18 have been proposed.
19 I just think there needs to be a little
20 more straight talk in regards to this debate and
21 has equal concern for state workers as there is for
22 the private sector, beer distributors and, really,
23 a larger concern for the taxpayer who has footed
24 the bill and, frankly, generates a lot of revenue
25 from this. It seems like their concerns have
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1 suffered second tier to, frankly, the ideological
2 considerations of people who have their own views
3 of the proper role of government.
4 MR. BRION: Well, I think the
5 ideological debate goes on across the street here
6 and not in our building. I think these three board
7 members and everybody --
8 REPRESENTATIVE BRADFORD: TableLeaf
9 seems to be to the opposite.
10 MR. BRION: Now, Tableleaf wasn't an
11 ideological concern. Tableleaf just was something
12 that, and Bob said it best, we listened to the
13 legislature last year, and both of us decided that
14 based on the legislature's criticism of TableLeaf,
15 coupled with the fact of the issue with regard to
16 the Pennsylvania wineries, we thought it best not
17 to do it anymore. That's on ideological,
18 privatization, modernization or keeping the system
19 the way it is.
20 But, we are charged. We, the board
21 members and the people behind me, are charged with
22 running a system that the legislature has created.
23 And we run it, I think, very well, as you can see
24 from my opening statement and from the answers we
25 gave you today from a financial standpoint on what
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1 we have to deal with today.
2 Have we been under a cloud for the last
3 two years as to where it will go and where it
4 doesn't go, and there's all kinds of debates
5 outside of our building?
6 I can tell you, the issues with regard
7 to ideology within the building, don't even enter
8 into it. On a daily basis, we are charged with how
9 much money can we make for the state and how can we
10 better the system ourselves. Bob talked about the
11 stores within the stores and some of the ideas that
12 we may have if nothing happens over here. Our RFP
13 has not been sent out on new warehousing space
14 because we don't know what's happening over here,
15 and nobody will answer it.
16 But the truth of the matter is, if you
17 do something different, whatever you want to call
18 it, we will then implement that.
19 REPRESENTATIVE BRADFORD: And, chairman,
20 thank you for your time and consideration.
21 MAJORITY CHAIRMAN ADOLPH: We're going
22 on 15 minutes. I understand it's back and forth,
23 but we have two more members of the committee that
24 want to ask questions, so any other questions we
25 can submit in writing. I do apologize. I've
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1 already delayed the next hearing to 2:30. I know
2 these morning sessions get long, but we do have
3 other sessions and other hearings we have to get
4 to.
5 So the next question will be asked by
6 Representative Brian Ellis.
7 REPRESENTATIVE ELLIS: Thank you, Mr.
8 Chairman. Gentlemen, thank you very much for
9 coming today.
10 I'll start off by just staying, I
11 disagree entirely with the last speaker. He says
12 we haven't come up with a way to divest out of the
13 liquor business and it's all on ideology. Well,
14 absolutely it's on ideology, because that's what
15 politics is. Everything we do is based on
16 ideology, and what is best in one person's mind may
17 not be in the other's. So I'm going to take
18 umbrage with that statement.
19 But we have come up with a plan. The
20 House of Representatives passed a historic plan
21 that was going to actually do what the people of
22 Pennsylvania overwhelmingly support. You gentlemen
23 didn't pass judgment on whether that was a good
24 plan or a bad plan because that's not your role.
25 You told how you would be affected. We spoke and
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1 we talked about it.
2 Myself, personally, I'm strongly in
3 favor of the private label because I know what the
4 private industry does with private label in other
5 states. I know that they can take it and increase
6 their profit margin. We were not successful with
7 that venture here in Pennsylvania to the extent
8 that the private sector is, whenever they moved to
9 a private label.
10 But what we did in Pennsylvania -- And I
11 just want to kind of get your thoughts about, are
12 you mindful of the fact that we passed historic
13 legislation to remove the state from being in the
14 sales and distribution, the wholesale specifically.
15 You said you're not making plans for new
16 warehouses. But whenever we pass a plan that is
17 going to provide convenience and what we believe
18 lower costs; choice; gonna stop the border bleed;
19 bring the people that are driving out of our state
20 to buy their alcoholic products back into the
21 state, and we're going to collect the revenue.
22 That plan that is going to allow
23 consumers to go to one place and get beer, wine and
24 spirits for the first time, like they can when
25 they're on vacation in Florida or North Carolina,
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1 or if they go to Ohio or almost every other state
2 in the country; that ideological battle we already
3 fought in the House of Representatives, and it
4 passed. Now, the Senate chose not to do it, and
5 I'm hoping that down the road they'll see that is
6 the right thing to do.
7 But when you guys are looking at long-
8 term decisions, are you mindful of the fact that
9 the House of Representatives passed historic liquor
10 privatization bill?
11 MR. BRION: Representative, we are
12 mindful of House Bill 790. I read it front to
13 cover.
14 REPRESENTATIVE ELLIS: I imagine you
15 did.
16 MR. BRION: So we knew exactly where it
17 was, and we waited to see what the Senate was going
18 to do. A conversation between Representative
19 Taylor and I took place at that point in time as to
20 how we would begin implementation if that was
21 passed.
22 REPRESENTATIVE ELLIS: So you're ready
23 if we do it?
24 MR. BRION: We are ready if you do it.
25 What occurred at that point in time and why I
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1 talked about the warehousing was very simple. We
2 deal not only with the legislature; we deal with
3 the industry. The industry, obviously, then when
4 House Bill 790 was not passed by the Senate and did
5 not move on to the Governor's desk, the question
6 was, we have three warehouses now; one in Scranton,
7 one out in Pittsburgh and one in Philadelphia. The
8 question was, are we going to be in the warehouse
9 business at all. Or, in the alternative, if we are
10 going to be with some modification of House Bill
11 790 that the Senate may entertain and then send on
12 to the Governor's desk, do we need one warehouse
13 then, or do we need three or four or five?
14 For instance, not to get into debate of
15 the issue, but Senator McIlhinney's idea was to
16 provide all our licenses with the ability to sell
17 retail alcohol. If we were involved in having to
18 supply that through the wholesale of the PLCB, the
19 wholesale distribution center, we may need six or
20 seven or eight warehouses. So, it was hard for us
21 to make those determinations, from a board's
22 standpoint and an employee's standpoint as to how
23 you would distribute alcohol.
24 We have this new pilot program we talked
25 about with licensees. We told the legislature, the
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1 House and the Senate came to terms with what they
2 both would agree to to put something on the
3 Governor's desk. But, we're well aware of what you
4 do over here, believe me. We're well aware of it.
5 REPRESENTATIVE ELLIS: I just wanted to
6 remind the viewing public because what we've heard
7 today about what you've done and this. They know
8 and they tell us, I thought we were privatizing. I
9 thought we were doing this. I said, well, yes, the
10 House of Representatives passed the historic
11 language; the Senate doesn't. Unfortunately, we
12 have two bodies sometimes that don't get along.
13 But I am confident that, at the end of
14 the day, there are solutions to our problems, and I
15 want to commend you gentlemen for taking what we
16 give you and doing the best with it you can.
17 Specifically on the enforcement side, I think you
18 have shown and demonstrated throughout the years
19 that that role of the LCB is strong and will
20 continue to be, and hopefully we'll be able to
21 provide you with the resources going forward to
22 make sure you continue to handle that side of the
23 business no matter what.
24 MR. BRION: Thank you.
25 MAJORITY CHAIRMAN ADOLPH: Thank you.
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1 The last questions will be offered by
2 Representative Jake Wheatley.
3 REPRESENTATIVE WHEATLEY: And I will try
4 to make them very quick, Mr. Chairman. Thank you
5 all for being here.
6 One I wanted to follow up. Last year
7 Rep Parker asked a question around brokers. She
8 wanted to know, and I also want to know, how many
9 minority, women brokers we had. Last year it was
10 reported that there were three known African-
11 American brokers; perhaps one additional one, but
12 no information could be offered on women. Do you
13 have any additional information this year?
14 MR. MARCUS: I don't have that
15 information.
16 MR. BRION: We can get for you. We know
17 employees, but we don't know the breakdown. When
18 you say brokers, you're talking about employees?
19 REPRESENTATIVE WHEATLEY: No. I think
20 we're talking about the actual vendors. I think
21 you had 139 vendors, and you had 75 importers or
22 brokers. So I'm talking about those who are
23 supplying to the --
24 MR. MARCUS: We have information on the
25 employees. I don't have the information on the
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1 brokers.
2 REPRESENTATIVE WHEATLEY: Now I want to
3 switch a little bit because I heard the chairman
4 mention about the other role that the PLCB plays
5 for Pennsylvania, and that's really to make sure
6 that some of our values are being shared, in that
7 we have some oversight, and we're looking for
8 employers and individuals who are licensed by us to
9 be treating our citizens and their employees well.
10 I wonder, when you are thinking about
11 either in this model of privatizing our stores or
12 licensing or those who are coming in in various
13 parts of our licensing system, do you have any
14 other stipulations on them; for example, pay scale;
15 what they're offering as health benefits; how they
16 perform as corporate citizens in our Commonwealth?
17 Do you have any other stipulations that you place
18 on them outside of just their ability to meet our
19 financial obligation to apply the license, words of
20 this and that, that perspective?
21 MR. O'BRIEN: Are you talking about our
22 licensees?
23 REPRESENTATIVE WHEATLEY: Yes.
24 MR. BRION: Licensees, obviously, are
25 vetted; making sure that there is no criminal
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1 background issues; making sure they're people of
2 good repute. Their finances are looked at very
3 carefully. We have tax clearance certificates from
4 the Department of Revenue before anything is
5 approved in the licensee or renewed in a licensee;
6 background checks on all of the officers.
7 We try to have them do the RAMP program,
8 which is to have their bartenders and their servers
9 go through our program with regard to intoxicated
10 people and not to serve minors, and all the
11 different issues we have in the RAMP program.
12 Whether they're members of a given community's
13 chamber of commerce or whether they have some kind
14 of community background and whatnot, we do not do
15 that.
16 REPRESENTATIVE WHEATLEY: I guess I was
17 heading down a different path. I was heading down
18 the path of now we're allowing supermarkets to be a
19 part of the mix, and we might be talking about
20 expanding options that they would have. Do we have
21 any vision about them being better corporate
22 citizens, or are we asking them about their
23 policies as it relates to that?
24 MR. BRION: Representative, again, back
25 to the legislature, you would have to amend the act
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1 to require something like that of us. We do not do
2 that as a regulation or as part of our charge when
3 you read the act. What we do is, if someone meets
4 the criteria of the act and meets the criteria of
5 enforcement, and upon inspection and whatnot, they
6 are approved.
7 REPRESENTATIVE WHEATLEY: I'm glad you
8 brought that up, because this is my final question.
9 And then, I promise you, I'm out of here.
10 Recently, back in my area in the west,
11 Pittsburgh, I've been discussing some stuff with
12 some distributors and others. One of the questions
13 they keep bringing up to me is, why are
14 supermarkets allowed to use their R licenses, in
15 effect, using them as if they were E licenses
16 without the partition, without the separation and
17 without enforcement?
18 MR. BRION: That is the way the act is
19 drafted. The supermarkets do have separate
20 registers, if you recollect, for those products.
21 But the supermarkets can create a cafe and can then
22 sell beer; you are correct.
23 But that is part of the R license
24 ability, no more than taverns have that ability to
25 do that as well. That's part of your act.
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1 Let me just say this to you. We don't
2 create this. What happens is, it's created in this
3 building, as tavern gaming was, and then we're
4 handed it to us to try to figure out how to do it.
5 REPRESENTATIVE WHEATLEY: And I
6 appreciate that. Really, I'm trying to ask you,
7 maybe you can suggest to me, as one legislator,
8 ways to clean it up so that, if, in fact, this is
9 kind of a murky area, then what can we do to make
10 it unmurky or less murky?
11 MR. MARCUS: There's 187 that we've
12 approved. They're all in grocery stores. Giant
13 Eagle has 35 or so. I'm not sure what facility
14 you're talking about, because there does have to be
15 a passageway of certain width. They're separated.
16 You have to be able to serve people in there.
17 There's a separate cash register. They actually do
18 a great job under those circumstances in terms of
19 protecting the public. So I'm not sure what
20 alternative to that that you're talking about.
21 REPRESENTATIVE WHEATLEY: What I'd like
22 to do, if you will allow me, is maybe set up a
23 tour. You'll come out and we'll go tour some of
24 these establishments, and then you can tell me --
25 MR. MARCUS: I'm your guy because I'm
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1 from Indiana, Pennsylvania, about an hour away.
2 REPRESENTATIVE WHEATLEY: Thank you.
3 We'll follow up. Thank you, Mr. Chairman.
4 MAJORITY CHAIRMAN ADOLPH: Thank you.
5 Gentlemen, I want to thank you for you
6 coming before our committee today. I know it's
7 sometimes an awkward position to be put in, but I
8 certainly do appreciate your forthright answers to
9 some difficult questions. As Chairman Brion said,
10 sometimes you agree to disagree. Well, with 203
11 members of the House, that often happens here. I
12 wish things were a little smoother at times, but
13 we're working on that.
14 I think Chairman Taylor said it best:
15 Right now, this issue is in limbo. Hopefully, we
16 can get off of that one way or the other, whatever
17 that is, so we can improve this industry.
18 I'm looking forward to working with you
19 between now and June 30th. Thank you once again.
20 For the members' information, we will
21 reconvene at 2:30 with the judiciary. Thank you.
22 (At 1:53 p.m., the budget hearing
23 concluded).
24 * * * *
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1 C E R T I F I C A T E
2
3 I, Karen J. Meister, Reporter, Notary
4 Public, duly commissioned and qualified in and for
5 the County of York, Commonwealth of Pennsylvania,
6 hereby certify that the foregoing is a true and
7 accurate transcript, to the best of my ability, of
8 a public hearing taken from a videotape recording
9 and reduced to computer printout under my
10 supervision.
11 This certification does not apply to any
12 reproduction of the same by any means unless under
13 my direct control and/or supervision.
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17 Karen J. Meister Reporter, Notary Public 18
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