The Pennsylvania Liquor Control Board told some of its suppliers in a July 20 letter that they had until Monday to cut the prices they charge the agency that runs the state’s more than 600 wine and liquor outlets.
If the alcoholic beverage companies do not give in and reduce prices, the PLCB plans to increase prices to consumers on as many as 450 products by the end of August, according to the Pennsylvania Restaurant & Lodging Association.
“The PLCB is confident these price increases on items in various categories and varietals — which could amount to $1 per bottle in the vast majority of situations — maintain competitive prices for Pennsylvanians and can be comfortably borne by the market,” a board spokeswoman said.
The PLCB move is part of a series of negotiations that started last September after the agency was freed from its standard 30 percent markup on what it pays for products. That fixed increase had been in place since 1993. Under that regimen, the PLCB had no motivation to negotiate lower prices from suppliers because doing so would only mean less gross profit to the state (30 percent of $9 is less than 30 percent of $10).
Under the new so-called flexible-pricing model, which took effect Aug. 8 of last year, the gross margin could expand beyond 30 percent if the state used its buying power to get lower prices. The PLCB could also boost its margin by increasing prices to consumers.
During a May hearing of the House Liquor Control Committee and the Senate Law and Justice Committee, PLCB officials said they had gotten lower prices from suppliers for 700 products. It decreased retail prices on more than 120 products and increased them on 125 products.
For example, the PLCB said, it used flexible pricing to boost expected gross profits on a popular 1.5 liter bottle of Pinot Grigio by $210,000 in a year, if historical sales patterns continue. The board did not specify if that gain came from paying the supplier less, charging consumers more, or a combination.
However, board member Michael Negra said at the May hearing that seven or eight suppliers from a total of 80 had not been willing to negotiate. Those are the companies that likely received the July 20 letter and could see prices for their products go up in Pennsylvania.
At a PLCB public meeting Wednesday, board members are expected to get an earful from industry representatives about the pending price increases.