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Pennsylvania wineries may soon compete with state store monopoly

October 15, 2013

Joe Greff owns Blue Mountain Vineyards, a 50-acre, 35,000-gallon producing winery along the Lehigh Valley Wine Trail. Greff began selling his products in the state store system about 15 years ago, he estimates. Today, the Pennsylvania Liquor Control Board inventory carries about 10 Blue Mountain varietals, from Red Victoria’s Passion, a red table wine, priced at $9.99, to a 2009 Petit Syrah for $26.99. He hasn’t been allowed to sell below those price points at his Lehigh Valley tasting room, at the Reading Terminal Market in Philadelphia or at his stores in Giant grocery stores in Willow Grove and Hershey. “It’s been a concern for me because it seems like it’s unfair to the consumer that we are restricted in that manner,” Greff said. “We may not sell that much to the state stores, but if we sell a bottle we have to conform to that regulation.”

In Pennsylvania, wineries can’t sell their products for less than the PLCB sticker price, which comes with markups and taxes specific to the state-run system. But a regulatory change could soon allow wineries to compete with the state’s wine and liquor system, allowing wineries selling their products in PLCB retail stores to price them lower in their private retail operations.

Stacy Kriedeman, director of external affairs for the PLCB, said in an email to PA Independent the proposed change came after hearing from Pennsylvania wineries.

“Under the current regulations, a winery could not sell a bottle of wine the PLCB was selling in Fine Wine & Good Spirits stores for a different price which meant the winery would have to sell it to the PLCB for much less to account for the agencies’ mark-up and the liquor tax,” Kriedeman said. “The Board wanted to do what it could to help those in-state wineries while also providing consumers access to some of the best wines Pennsylvania has to offer.”

The PLCB carries about 150 different Pennsylvania wines in it state store system. Throughout 2013, the PLCB has worked on a program to make it easier for in-state wineries, especially smaller ones, to get PLCB shelf space.

The new program allows wines designated “PA Preferred” to place up to 10 of their wine varieties in up to 10 stores. At least 75 wineries in the state carry that designation, and around 43 items of PLCB’s Pennsylvania wine inventory is a result of the program.

The pricing change was announced in the Oct. 5 edition of the PA Bulletin. From there begins a 30-day comment period, and the board could change the proposal based on any comments before the change becomes final.

Kriedeman said that final change is probably still a couple of months away.

Greff said he wasn’t familiar with the news of the upcoming change, but he thinks it will benefit his business and consumers. If he wants to sell 500 cases to a restaurant, for example, Greff can now offer a lower price than the PLCB price regulation would otherwise require. Or, if a nearby winery doesn’t sell its products in the PLCB stores, Greff can price competitively at his location.

“It would help us to be able to offer our products at a more affordable price,” he said.

Pennsylvania has some 250 “limited wineries”— those that produce fewer than 200,000 gallons a year and can sell at up to five locations — which could be affected by the rule change, according to PLCB estimates.

Nathan Benefield is director of policy analysis at the Commonwealth Foundation, a free-market think tank leading advocacy efforts for liquor privatization. He said the regulation change is in response to those proposals; he’s seen this kind of response from state agencies to privatization proposals before.

Benefield called the price-control regulation “anti-competition,” but he said ideas to change such measures “only happen when there’s pressure to get rid of the entire system.”

In March, the House passed House Bill 790, a plan to sell off the 600 or so retail wine and spirit shops and the PLCB’s wholesale system. The Senate watered down the plan later that year to a proposal that would retain the wholesale operation, though discussions are ongoing this fall.

Meanwhile, Benefield said the PLCB may continue work toward running more like a private business. Following failed privatization efforts by Gov. Dick Thornburgh and Gov. Tom Ridge, the PLCB modernized its stores and offered a more upscale selection, Benefield said.

“Whether it’s talking about lottery privatization or eliminating the turnpike or with liquor privatization, their response to the privatization is to try to make a change that would make them better, allow more competition, or things like that,” he said.