The pace of modernization for Pennsylvania’s alcohol industry has been accelerating over the past several years, with breakthroughs in the state’s liquor code expanding sales of spirits, wine and beer. The landscape in Pennsylvania is rapidly transforming, and the impact is reverberating. “We’ll actively monitor how consumers respond to opportunities for greater convenience in purchasing wine, spirits and beer and adapt appropriately to meet a changing marketplace,” says Tim Holden, chairman of the Pennsylvania Liquor Control Board (PLCB).
One key initiative, Act 39, went into effect August 8th, 2016, and expands wine sales beyond state-owned stores. The law allows retail businesses, including 190 grocery and convenience stores, to sell up to four 750-ml. bottles of wine per transaction. “Since the retail wine-to-go business is so new in Pennsylvania, 2017 will be a year of monitoring and measuring, so that we and our new wholesale partners can better manage inventories, product acquisition and delivery schedules,” Holden explains.
The initiative, among other things, eliminated restrictions on the number of the PLCB’s Fine Wine & Good Spirits stores allowed to open on Sundays. In addition, the stores can start selling at 9 a.m. instead of waiting until 11 a.m. The change is already paying dividends. Sunday sales increased in 2016, with transactions up 17.8 percent, units up 18.6 percent and dollar sales up 18.3 percent over the previous year. “Sunday sales growth between 2014 and 2015, prior to the lifting of restrictions, was in the range of 4 percent to 6 percent for transactions, units and dollars,” Holden says.
Major Changes
The PLCB is also developing a new special order process, including a direct shipping element and a customer relations management program. Another initiative, Act 166, went into effect in January and allows beer distributors to sell beer in any amount, including six-packs, growlers, single bottles or cans; before, distributors were limited to sales of 12-packs or larger. These changes come at a time when privatization forces have mustered a powerful battering ram against the control state establishment.
Governor Tom Wolf, a Democrat, opposes privatization, and his compromise measures were initially rebuffed. Former Pennsylvania Governor Tom Corbett, a Republican, supported privatization. Wolf, who’s in the third year of a four-year term, has vowed to veto any privatization legislation that reaches his desk, but it remains to be seen whether these recent steps will be enough to keep privatization advocates—mainly Republicans—at bay. Republicans currently control the Pennsylvania State Senate and House of Representatives. Considering Pennsylvania’s lack of population growth and an unemployment rate that’s slightly higher than the national average, it may only be a matter of a time before privatization forces make another effort to dismantle the control system.
Pivotal Year
The implementation of the new reforms in 2017 should prove to be pivotal for Governor Wolf’s re-election odds—and for the future of the PLCB. Pennsylvania has taken major steps to modernize its alcohol system since 2010, but the initiatives that went into effect in the past year were the first to significantly modernize the state’s liquor laws since Prohibition. Under the new measures, there are about 360 retail wine-to-go permit holders. In addition to grocery and convenience stores, hotel and restaurant license holders can also apply for permits to sell wine to-go. “These permit holders buy the wine they resell at retail from the PLCB, so we’ve developed a wholesale operations division and expanded our direct delivery program to help this new class of customers effectively forecast, plan and support their wine-to-go operations,” Holden explains.
On the e-commerce front, the PLCB is trying to make its entire portfolio of wines and spirits available online, and over the course of the next year, the agency will make improvements to Finewineandgoodspirits.com and its mobile app. In addition, the PLCB is looking to carry out about 50 store projects this year—a record number—including rebrands, relocations and additional units. “Having added 10 new stores in 2016, we now stand at 608 stores, and we want to grow our network to about 620 locations within the next couple of years,” says director of retail operations Carl Jolly. Holden adds that increasing consumer demand for information is pushing the PLCB to develop in-store and mobile education initiatives.
Healthy Growth
Overall, Pennsylvania’s wine and spirits sales advanced 4.5 percent to $2.3 billion in 2016, according to the PLCB. On-premise spirits sales, or PLCB sales to licensees, increased 2.6 percent to $324.2 million last year, compared to $315.7 million in 2015. “We have no reason to doubt that year-over-year growth, which we’ve seen for the last five years, will continue into 2017,” Holden says.
For spirits, the largest percentage of sales—58.1 percent by volume and 44.4 percent by value—comes from the $10-to-$19.99 range, according to director of marketing and merchandising Dale Horst. Next highest is the $20-to-$29.99 range, which accounts for 22.4 percent of sales by volume and 28.5 percent by value. “Overall, 97.2 percent of sales come from products priced at $59.99 and under,” Horst says. Jameson Irish whiskey ($29.99 a 750-ml.), Tito’s Handmade vodka ($17.99) and Hennessy V.S. Cognac ($33.99) all grew at double-digit rates in Pennsylvania. “These brands continue to have strong marketing campaigns supporting the products that resonate with consumers,” Horst adds.
The state’s wine sales increased 5 percent to $1 billion on a 3.4-percent volume gain to 9.3 million nine-liter cases. The top brands by volume were Kendall-Jackson Chardonnay (12.99 a 750-ml.), Cavit Pinot Grigio ($6.99), Apothic Red ($9.99), Woodbridge Chardonnay ($7.99) and Barefoot Moscato ($7.99). “The two largest trends in wine sales were the increased interest in rosé and sparkling wine,” Horst says. “Single-serve wine in cans, four-pack carriers and pouches is also growing. Consumers continue to want convenience and have gained confidence in these alternative packages.”
Retail Modernization
Since the PLCB began its retail modernization efforts in 2010, store redesigns have provided a face-lift through new paint, shelves, signage and lighting. Functional changes include wall colors that distinguish spirits from wine and signage more clearly identifying each category, region or varietal. The center of each store features a tasting bar and an area where customers can find staff to answer questions or offer recommendations. The center table also provides counters for highlighting promotional items and educational materials for customers, such as a vintage guide, food pairing ideas, party planning tips and a calorie chart.
Each of the PLCB’s 91 Premium Collection stores has at least one retail wine specialist to provide in-store customer service and product guidance related to wines. “We’ve continued to grow our staff of retail wine specialists, who have advanced knowledge of various types of wines, regions, varietals, geographic and organoleptic characteristics, and classification terms,” says PLCB executive director Charlie Mooney.
The PLCB also highlights its Chairman’s Selection and Chairman’s Advantage programs. “While Chairman’s Selection focuses on highly rated wines at deep discounts off nationally quoted prices, the Chairman’s Advantage features everyday wines for less than $10 a bottle that over-deliver on taste,” says PLCB board member Mike Negra. The Chairman’s Advantage program debuted in 2015 and expanded last year.
Many stores now also include a “Made in Pennsylvania” section to promote wines and spirits produced in the Commonwealth. The number of distilleries in Pennsylvania has grown from four in 2012 to approximately 60 today. “We’re proud to help Pennsylvania producers like Allegheny Distilling and Wigle Whiskey, both of which first debuted their products on our shelves in 2014, grow their businesses,” Negra says.
An average PLCB retail store is about 5,000 square feet, while smaller shops are less than 3,000 square feet and Premium Collection units are as large as 15,000 square feet. Inventory depends on store size and local demographics. Larger locations carry up to 5,000 wine and spirits SKUs, while smaller spaces have 1,000 SKUs or more. “One of the things the PLCB prides itself on is the variety of products we make available,” says board member Michael Newsome.
Prices for spirits range from $2.99 for a 750-ml. of Jacquin’s Royale vodka to $3,000 for Louis XIII de Rémy Martin Cognac and $6,200 for a special order of Patrón Tequila en Lalique. Over the course of a year, the PLCB offers more than 2,600 wines available at all of its stores and an additional 12,700 luxury wines through its e-commerce site and Premium Collection stores. Additionally, nearly 20,000 wines the PLCB doesn’t stock in its stores are available for special order. Prices range from $2.69 for Carne Humana White to $6,999.99 for the 2013 Domaine de la Romanée-Conti.
Marketing And Promotions
The PLCB operates a number of social media platforms, including Facebook, Twitter, Instagram, Pinterest and YouTube. “We use social media to inform consumers about events, promotions and sales, as well as to provide customer service and helpful information like cocktail recipes and entertaining tips,” Horst says.
Wine and spirits suppliers partner with the PLCB on in-store promotions and tastings throughout the year. “Generally, seasonal or holiday-based promotional concepts are developed by the PLCB, while product features and discounts are proposed and funded by suppliers,” Horst says. “The PLCB develops point-of-sale materials in support of the promotions in consultation with the suppliers.”
The agency drives and measures store traffic and purchases using bi-monthly, free-standing insert advertisements mailed to consumers to highlight product sales, new and seasonal items, recipes, and coupons. The PLCB’s largest promotional effort in recent years has been its “Happier Holidays” campaign in November and December. The comprehensive, multichannel campaign includes traditional advertising—including print, radio, television, digital and social media—as well as product promotions, in-store p-o-s tactics, and coupons and discounts. “The initiative also features a campaign-specific micro-website dedicated to holiday offerings, specials, recipes and entertaining tips,” Horst says.
Product innovation and the premiumization trend should continue to propel the alcohol industry forward in Pennsylvania. “As the millennial generation ages and their incomes increase, spirits sales should continue to increase,” Holden says. Horst anticipates Pennsylvania will maintain its industry growth rates in the on- and off-premise, noting, “The growth in new product offerings in the whisk(e)y and Tequila categories has increased consumer interest to try new products.”