The Pennsylvania Liquor Control Board’s (PLCB) flexible pricing system has created a financial windfall for the No.-2 control state, but critics claim it’s at the expense of consumers paying excessive mark-ups. Pennsylvania state Rep. Jesse Topper is sponsoring proposed legislation (HB 1512) for the 2019-20 legislative session to repeal flexible pricing and revert to proportional pricing. “Prior to the passage of Act 39, the PLCB had to follow a strict pricing formula that required prices to be proportional,” said Topper in a memorandum introducing his bill. “Under the proportional pricing formula, the PLCB was required to pass on savings onto the consumer any time suppliers discounted their prices. This offered the consumer a level of protection.”
As part of sweeping spirits industry modernization changes made through Act 39 in 2016, the PLCB was given permission to leverage its buying power and negotiate prices with suppliers. Topper notes that the PCLB’s negotiating successes haven’t necessarily benefited consumers. “After seeing the impact of flexible pricing, I have not been convinced that this change has led to lower prices for the consumer, nor has the Board convincingly shown that this provision has provided our Commonwealth with increased revenue,” he stated.
PLCB Chairman Tim Holden says since being granted flexible pricing authority, the board has maintained fair and competitive prices while growing profit and revenue to meet increased funding requests. The PLCB’s net income increased from $103.9 million in fiscal year 2015-16 to $158.2 million in 2017-18 and $191 million for the most recent fiscal year. “While the PLCB has raised some retail prices and lowered other retail prices over the last few years, retail prices on the vast majority of everyday products carried in our 600 Fine Wine & Good Spirits stores across Pennsylvania have remained the same since flexible pricing was authorized,” Holden says.
After a joint hearing on the issue before the Pennsylvania Senate Law and Justice Committee and the House Liquor Control Committee on June 3 and a public hearing on September 10, the House Liquor Control Committee passed HB 1512 on September 19 by a vote of 15-10.
The Wine Institute and Distilled Spirits Council both oppose the PLCB’s flexible pricing system. Terri Cofer Beirne of the Wine Institute says Pennsylvania’s flexible pricing has cost some California wineries from $100,000 to more than $1 million. David Ozgo, chief economist at the Distilled Spirits Council, encouraged lawmakers to reinstate proportional pricing. “The so-called ‘flexible pricing program’ has allowed this government-run agency to operate in the shadows, placing excessive pricing mark-ups on spirits and passing those costs onto hardworking Pennsylvania consumers,” he says.
Major international beverage alcohol trade groups have also joined together in opposition to the PLCB’s flexible pricing, writing a letter to state officials and legislators urging them to repeal the policy because it’s inconsistent with international trade law. Holden notes international trade law actions cannot be taken by industry trade groups. “We are unaware of any government seeking review or repeal of Pennsylvania’s flexible pricing law, and we question the General Agreement on Tariffs and Trade’s applicability to state governments and the PLCB,” he says. “Regardless, the PLCB has reached out to both the National Alcohol Beverage Control Association and the Office of the U.S. Trade representative to pursue conversations ensuring Pennsylvania’s law doesn’t run afoul of international rules.”
Unless Pennsylvania lawmakers pass the legislation to revert to proportional pricing, the PLCB remains steadfast in its flexible pricing authority. “The PLCB remains open to feedback on its flexible pricing strategy from suppliers and other stakeholders, but it hasn’t materially changed its approach to flexible pricing in the last few months, nor are there any major changes in strategy planned for the future,” Holden says.