LCB pulls the plug on wine vending machines

HARRISBURG - Pennsylvania's wine kiosk era quietly went off-line Tuesday morning.

That is when officials from the state Liquor Control Board made the last call to pull the plug on the remaining 21 wine vending machines in supermarkets scattered across the state.

The reason: a dispute over money with Simple Brands L.L.C., the Conshohocken company that owns the machines. The LCB contends that Simple Brands owes nearly $1 million for expenses incurred setting up the kiosk program. Simple Brands officials dispute that, saying the LCB charged the company for frivolous and inappropriate expenses.

The result: the agency's barely one-year-old experiment with the 10-foot machines is history, closing a controversial - and, at times, embarrassing - chapter for the LCB. The state agency was often criticized, and sometimes mocked, for taking a chance on the kiosks, which required customers, among other things, to blow into Breathalyzers.

Joe Conti, the liquor board's chief executive officer, said he was disappointed, but insisted that the experiment was an "innovative attempt to marry the convenience of buying wine with buying food in a supermarket."

Was it a failure?

"It certainly wasn't a failure," he said. "It didn't end up successful, but we learned a lot and we will end up better for it."

Pennsylvania is the first state to experiment with wine kiosks.

Alan Fellheimer, the attorney representing Simple Brands, contends that the LCB did not live up to its side of the contract, which included ensuring that kiosks were placed in 100 supermarkets. At the program's zenith, there were just over 30 machines.

Simple Brands is now seeking $81 million in damages.

"They didn't do their job," Fellheimer said of the LCB. "They didn't do what they said they would do."

Fellheimer called the LCB's claim that Simple Brands owes $1 million "malarkey."

In paperwork it filed with the agency last month, the company alleged that the state agency had incurred unnecessary expenses and improperly billed them to Simple Brands. One example, according to the company: The board charged $184,888 for kiosk-related hardware and software, including 97 routers, plus maintenance during a period when only three wine kiosks were up and running.

"They just want money," Fellheimer said.

Conti said the company had 30 days to haul away the machines.

That may just be the easy part. The ensuing legal wrangling could last years.

Conti said the dispute would be sent to the state's Board of Claims, a quasi-judicial board that administers all claims against state contracts worth $300 or more.

The process can be slow. One of the LCB's cases before the board took 18 years, Conti said.

Depending on the Board of Claims decision, the case could then be taken to Commonwealth Court.

"This won't be quick," Conti said.

The Chardonnay was not even warm before critics of the LCB stood in line to take a shot at the failed program.

"The kiosk program was a joke from the very beginning and the [LCB] knew it," said House Majority Leader Mike Turzai (R., Allegheny), who is pushing to privatize liquor sales in the state. "This is just another example of why a government agency should not be attempting to mimic private industry."

The kiosks were launched in the summer of 2010, but there were problems from the start.

The contract came under fire because Simple Brands was the only bidder and two of its investors had ties to former Gov. Ed Rendell, having contributed nearly a half-million dollars to his political campaigns.

On the consumer end, it took shoppers time to warm to the idea of buying wine from a machine that required them to show ID and take a breath test.

Then the LCB had to shut the kiosks down because of mechanical problems. By the time the kiosks were brought back online, consumer confidence had lagged. So had that of the supermarket owners. Wegmans announced this summer that it was pulling out of the program.

Auditor General Jack Wagner last month released an audit of the LCB's kiosk program that found that the machines never lived up to the goal of making it more convenient for customers to buy wine, and also did not deliver on the promise of making money for the LCB and state government.

As of this summer, the LCB has spent more to operate the kiosks than it took in, resulting in an operating shortfall of about $1.1 million, the audit concluded.