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Liquor Board launched wine kiosks without independent research to determine sales estimates
Board's business judgment brought into question
By Eric Boehm | PA Independent
HARRISBURG — Perhaps they should have seen this coming, if only they had bothered to look.
Low sales figures continue to plague the Pennsylvania Liquor Control Board’s wine kiosk program, which allows consumers to purchase bottles of wine from vending machines in grocery stores instead of state liquor stores.
After being rolled out last summer, the kiosks have fallen short of the board’s estimated sales of 30 bottles per day from each kiosk.
The Pennsylvania Liquor Control Board, or PLCB, is charged with operating, regulating and enforcing the sale of liquor and wine in the state.
This week, Stacey Witalec, a PLCB spokeswoman, said the board did not conduct formal research to determine how the public would receive the machines or what level of sales could be expected.
Instead, the board relied on sales estimates provided by Simple Brands LLC, the kiosk manufacturer in Montgomery County.
“As … Simple Brands modified the business model for the program, the bottle number changed,” Witalec wrote in an email Tuesday in response to a request for information about the board’s marketing plan for the kiosks.
The only review of the program — an internal review completed by the board’s Evaluation Committee in July 2008 — recommended the board “not enter into contract negotiations with the sole proposer, Simple Brands LLC, for wine kiosks.”
The committee said Simple Brands “has not presented a well-founded business plan” and continued to shift its plan as the committee asked questions about operations of the kiosks. The review committee also cited concerns about public distrust of the vending machines, which require a user to blow into a breathalyzer-like devise and scan a drivers’ license.
Despite those concerns — and the lack of any assurances about the viability of sales from anyone besides the company providing the kiosks — the PLCB went ahead with the program.
Importance of market research
Jennifer Chang Coupland, a clinical associate professor of marketing at Pennsylvania State University, said market research is important when dealing with a brand new way of delivering a product like wine.
“Wine is one of those things that people buy for very intangible reasons,” Coupland said. “A lot of it is about the feeling that people get from the product, and I think that feeling gets stomped on when you’re buying it from a vending machine.”
Coupland said research should have included focus groups to determine why people buy wine, what makes them enjoy the product and how they would react to the strangeness of the kiosks. In particular, the kiosks’ breathalyzer-like apparatus raised some red flags for Coupland.
“It seems like they are criminalizing you before you even make the purpose,” she said. “For a purchase that is status seeking or social, making it criminalized is something that doesn’t bode well.”
Another reason to privatize liquor stores
Opponents of the PLCB have pointed to the failure of the wine kiosks as an example of why they believe state government should not be in the business of selling wine and spirits. Pennsylvania is one of two states with full government control of liquor sales.
“It's another example where the management of the liquor control board misled the General Assembly and the public,” said Steve Miskin, spokesman for House Majority Leader Mike Turzai, R-Allegheny. “It's another example that the Liquor Control Board doesn't know how to run a business well.”
Turzai is the lead sponsor of a bill to privatize the state liquor stores and relegate the PLCB to the role of education and enforcement.
Jay Ostrich, communications director for the Commonwealth Foundation, a Harrisburg-based free market think tank calling for an end of the state liquor store system, said the lack of market research is further evidence of the failure of the PLCB bureaucracy.
“It’s not really even a surprise,” Ostrich said. “Just further proof that this program was implemented for the benefit of a company and a contract, not for the consumers and taxpayers of Pennsylvania.”
Missed goals and lost opportunities
While the wine kiosks came close to meeting sales goals in the first few months of operation, sales have declined since last fall, according to the PLCB’s sales statistics.
One kiosk, in Westmoreland County, sold 19 bottles during March. A kiosk in Allegheny County has sold 98 bottles since the beginning of June.
During the past three months, the best performing kiosk is a Pittsburgh location that sold 970 bottles in August, for an average of 31 bottles per day — only slightly above the PLCB’s estimated sales goal.
In July, Wegmans Food Markets, a chain of grocery stores, dealt the kiosks another blow by announcing they were removing the kiosks from their 10 locations in eastern and central Pennsylvania, which had been some of the top performing locations for the PLCB. Wegmans said the kiosks did not fit well with the atmosphere of their stores because of customer complaints and a lack of selection.
In August, Walmart informed the PLCB that it was no longer interested in having the kiosks installed at 23 of its Pennsylvania stores.
The PLCB originally planned to have 100 wine kiosks in grocery stores statewide, but only 32 were installed, almost exclusively in the Philadelphia, Pittsburgh and Harrisburg areas. After Wegmans pulled out of the program, only 22 kiosks are in operation.
Republicans and Democrats in the state General Assembly have called for an end to the kiosk program, citing various technological and economic problems plaguing the machines.
The PLCB also is considering taking Simple Brands to court because of alleged missed repayments of funds.
Two investors in Simple Brands have ties to former Gov. Ed Rendell, who was in office when the PLCB approved the contract. Together, the two men gave more than $400,000 to Rendell’s two gubernatorial campaigns.
Simple Brands proposed the idea of the wine kiosks, and after an open bidding period, it was the only company to supply bids to the PLCB for the contract.
Simple Brands did not return calls for comment.
Rendell also appointed PLCB CEO Joe Conti, a former Republican state Senator from Bucks County.