Pennsylvania set to raise prices on some liquor, wine brands
The Pennsylvania Liquor Control Board is flexing its new price-negotiating powers with suppliers of best-selling brands. The result could end up costing consumers more starting next month.
Dale Horst, PLCB's director of marketing and merchandising, notified suppliers that impending price changes will take effect Aug. 28 or possibly later in September.
Suppliers have the “opportunity to reduce product acquisition costs in advance of the price changes,” Horst wrote in a letter dated July 20 and obtained by the Tribune-Review.
“We look forward to your ongoing support so that we may continue to build sales in Pennsylvania in a manner where we can both flourish,” he said.
If suppliers choose not to offer lower product costs for PLCB, a price increase is unavoidable, agency spokeswoman Elizabeth Brassell said.
“The PLCB has made a business decision to institute modest price increases on certain products subject to flexible pricing, unless the suppliers of those products opt to offer lower product acquisition costs to avoid the retail price increases,” she said. “Suppliers have until the end of July to determine if they'll offer cost concessions.”
In reforming state laws in 2016, lawmakers granted the PLCB authority to negotiate prices with suppliers and charge different markups on products for the first time.
Prior to Act 39, PLCB was required to apply markups at an equal percentage on all products. The agency priced wine and spirits products with a 1 percent markup, a 30 percent standard markup and a handling fee. The statutorily mandated 18 percent Johnstown Flood Tax (a liquor tax) is applied after PLCB markups and is included as part of the shelf price, according to the agency.
This put the PLCB at a disadvantage, as suppliers would use a formula, working backward from the manufacturer's suggested retail price and applying the rigid markup structure, to achieve an ideal retail price for the product.
“We are in a card game with the industry, and our cards are on the table and their cards are down,” PLCB Chairman Tim Holden said of the prior pricing model during a 2015 legislative hearing. “They know exactly what we could do, and we have no room to negotiate with them.”
Brassell said the PLCB now has the authority to negotiate product costs on the best-selling 150 brands of wines and 150 brands of liquor.
Terri Cofer Beirne, eastern counsel with The Wine Institute, an advocacy group for California wineries, said there is a direct connection between the products whose supplier didn't negotiate a discount with the PLCB and a price increase.
She called it “unsettling.”
Some of her members who refused to negotiate a discount with the PLCB received letters about a price increase on their products while those who negotiated received no letter, she said.
“They're a monopoly,” she said. “It's not like we could choose a different wholesaler who would be more agreeable to whatever it is we want to do.”
David Wojnar, vice president of state government relations for the Washington D.C.-based Distilled Spirits Council, said the new pricing authority is “a fatal flaw” in Act 39. Instead, the PLCB should have added more retail outlets.
“More outlets would mean more profits. Adding 900 spirits outlets would net Pennsylvania $100 million in additional revenue,” Wojnar said in a statement. “Instead, the PLCB is raising prices — exactly as we warned when this was introduced last year. Consumers want the convenience of additional outlets, not higher prices.”
Brassell said the PLCB will know next week how many prices will increase.
They could amount to $1 per bottle in the vast majority of situations, Brassell said. The PLCB is confident the increases will “maintain competitive prices for Pennsylvanians and can be comfortably born by the market.”
She noted the agency has avoided across-the-board increases while trying to increase revenues and provide competitive prices.
The PLCB is one of the nation's largest purchasers of wine and liquor.