Wholesale Grift?

Anyone who connects the overhaul of the PLCB solely with the push to privatize cannot be held entirely at fault. After all, read the coverage in the media and you’ll uncover no shortage of consumer and editorial puffery aimed at putting down the tired, indifferent practices of the agency Pennsylvanians love to hate. If you look at little closer, though, you’ll see another strain of thought – exposés on so-called price gouging by Pittsburgh restaurants and open letters from high-profile Philly sommelier types that deep-dive into the pricing matter.

What’s the angle here? There’s an underground swell, led by a small group of Philly food and beverage industry pros, to institute wholesale pricing for PLCB licensees – the restaurants and drinking establishments that re-sell wine at often-inflated, periodically-punishing list prices. They’re keen to push the issue into the naked light of day and crystallize their position for public review and consumption. A chief instigator, Tim Kweeder, came into our view back in March when a Twitter dust-up followed the aforementioned Pittsburgh coverage. Kweeder is general manager and wine director of the Philly restaurant Petruce et al. United with Jason Malumed, proprietor of wine brokerage Chalkboard Wine & Spirits, Megan Storm of importer/distributor The Artisan Cellar and Steve Wildy, beverage director of Vetri Family restaurants, Kweeder and company are taking their grievance to the halls of Harrisburg.

Earlier this year, Kweeder instigated a writing campaign and lobbed pointed, cheeky emails at the state’s wine and spirits leadership – people he dubbed the “Lords of the LCB.” He reasoned and needled, all the while pressing the issue: “Why are you charging us restaurant/bar owners retail pricing? The discount you throw us is puny and ludicrous.”

In an encouraging turn, the state responded and granted an initial, late-June meeting.

I spoke with Kweeder, Malumed and Storm to hear more about where they were coming from and how they’re gearing up for sit-downs with PLCB Executive Director John Metzger and Tony Mannino, chief of staff for State Senator Larry Farnese. During our discussion, it became clear that PA restaurants and those hoping to change the price structure suffer from a classic PR challenge. Their issue has yet to be sturdily framed to engage effective public buy-in – a problem, they seem to understand, that will continue to prompt emotional response to the perception of steep wine list prices. As a result, many, including this writer, will default to bringing their own bottles when dining out.

Typically, we hear consumers’ gripes about the outmoded PLCB: Lack of choice and convenience, and the perceived panacea of privatization. Why should consumers care about wholesale pricing for restaurants?

Tim Kweeder: I would hope that with restaurateurs that are not doing high price markups on bottles, that would mean even better pricing for (their customers) at the end of the day.

If you had 30 seconds to convince those who feel that “gouging” frequently occurs on restaurant wine lists, what do you say to them?

Megan Storm: I guess it’s become an industry standard that a three-times markup is accepted and it was probably Kevin Zraly of Windows of the World (who established this), but I think that model is based on systems where licensees or restaurateurs have wholesale pricing available to them. We’re still operating with that traditional model but the cost of doing business (in PA) is much higher. So three-times markup isn’t so bad to the consumer when the restaurant owner is paying wholesale pricing, which is not the case in this PA. They essentially pay retail or about 10% discount. It’s basic economics. We’re trying to price based on what the market will bear.

Explain the double taxation that takes place when wine is sold in a restaurant.

Jason Malumed: Typically in any other arrangement (outside of PA), when a wholesaler sells to a restaurant, that restaurant would be exempt from paying tax on that transaction. Sales tax would be charged only on the final transaction, when they’re selling to a customer. That’s the way food distribution is done in PA but for some reason alcohol experiences double taxation. When a restaurant goes to pick up wine (through the PLCB) that a distributor has sold them…they have to pay an 8% sales tax at that point. They take that wine, mark it up, put it on their wine list, and when they sell it to a consumer, the consumer again is going to pay tax on top of that. That’s also not counting any of the hidden taxes that the PLCB is making when they mark up a bottle of wine…There’s no logical reason why the PLCB should be getting a full retail markup on these wines. The retail markup is affecting cost more than the double taxation but it’s certainly a piece of it.

You’ve been busy and vocal in drumming up support for the issue of reform. What headway have you made to date and has it been successful? Are the complaints being heard?

TK: The three of us and Steve Wildy are going to be meeting with (Metzger) in a couple weeks. In mid-July, we have a meeting with the Philadelphia branch of the state senate that deals with the PLCB (Mannino). It made sense to start with the PLCB to get a better understanding of seeing things from their perspective before we take this to the Senate.
JM: If there’s going to be any change in the PLCB, meeting with them and saying “you guys really need to be changing this stuff” is going to do nothing because they have no power (to change legislation). In order to change anything the PLCB does, you have to write a new law, essentially…I think the PLCB are doing a decent job…They implemented certain changes throughout the years that I think have helped out, and I think they’re willing to make changes but it just takes a long time, a lot of lobbying and speaking with them.
MS: We’re really on a mission to discover what level of support we’ll gain and also their recommendations for our best avenues to create change.

Is there coordination with the Pittsburgh scene at this point?

MS: Yes, we’re reaching across the state. I got a phone call from a Pittsburgh restaurant owner asking for insight on Philadelphia markup and the PLCB markup as a whole…I know there is some interest from Pittsburgh.

Finally, are you hopeful? Does wholesale pricing have a chance?

JM: I imagine that the PLCB is making a ton of money to put into the general fund off of markup of (special order) wines. Certainly any logical person would see the merit in what we’re trying to say. But again, we’re dealing with the state and putting money into the general fund is a good thing, so they might not want to give that up. It’s certainly going to be a tough fight, and the (four of us) certainly aren’t going to privatize the PLCB. We’re going to pick our battles selectively.
MS: I’m pretty hopeful. Once wholesale pricing is available to licensees, demand will increase and, in return, they’ll purchase more wine. So that revenue loss, by granting licensees wholesale pricing, will be balanced by the increase in sales.
TK: We could all sit around and bitch about it or we could at least do our best and give it a shot.

Indeed, and the same challenge – to take action – could be posed to the consumer. Although many want a more market-attuned wine, beer and spirits retail experience, restaurant and bar patrons are touched daily by the disproportionate markup the hospitality industry is forced to bear (and, in turn, passes through). Even if you dine exclusively at BYO establishments, you’re forced to accept a limited range of choices due to the Commonwealth’s pricing paradigm.

I asked this group to share ways for the public to get involved but they struggled to offer clear suggestions, likely because their campaign is still in its infancy. To stay engaged, watch outlets like Philly.com, Post-Gazette.com and Foobooz for developments, or reach out to elected officials on the Appropriations Committee who can help influence PLCB-impacting legislation, like Senator Farnese or Senator John Eichelberger.