Privatizing the Liquor System in Pennsylvania

February 5, 2013
Aaron K. Zeamer

The idea of getting the State of Pennsylvania out of the alcohol business has been kicked around by numerous legislatures over the last couple of years although, to date, none of the proposals have gained enough support to really spark a serious debate.  That may be changing. Governor Corbett’s major initiatives for 2013 include ensuring that the privatization of all of the state’s alcohol sales becomes a reality. The big question being asked right now is whether the idea is good for Pennsylvania. The answer to that question seems to depend entirely on your perspective. Whether you are a consumer, a restaurateur, a business owner or simply an interested taxpayer, the answer to whether this idea is a positive thing for the State of Pennsylvania can be drastically different.      

As of right now,  the proposal is over 200 pages but the following are a few of the specifics which have been circulated thus far:

  • Full privatization of wholesale and retail alcohol sales;
  • Wholesale will be brokered by brand, with a valuation formula used to determine the cost of each item;
  • The holder of a wholesale license has the right to distribute the brand statewide;
  • The creation of five retail licenses:
    • Wine and spirits retail license;
    • Big box stores;
    • Grocery stores;
    • Pharmacies; and
    • Convenience stores;
  • Limits will be set for some of the foregoing license categories while others will be application based with no set limit;
  • Beer distributors will have the ability to enhance their licenses in order to sell wine and they will be able to purchase a wine and spirits retail license to sell a mixed six pack; and
  • Restaurants and hotels will be able to sell six bottles of wine and up to a thirty pack of malt or brewed beverage for off-premise consumption by paying an annual fee.

Looking at the above proposals, from a consumer’s perspective, the privatization and the above additional options for consumers would provide significant convenience and conceivably would result in better prices because of increased competition. Furthermore, adding additional retailers to include some of the large retail outlets which appear in many other states would also likely provide for additional selection and larger inventories for some retailers. 

From the perspective of an individual or a business who is already involved in alcohol sales, there is likely to be significant opposition and pessimism with regard to the proposed plan.  Currently, as consumers are well aware, options to purchase alcohol are generally limited in Pennsylvania. The current licensees and business owners likely will want to keep it that way to protect their market. There also seems to be limited incentives for current licensees under the new program. Specifically, while restaurants have the ability to sell additional quantities of alcohol under the new proposal, it is unlikely that the vast majority of restaurants will be interested in selling thirty packs or multiple bottles of wine. Also, individuals who currently own or operate a retail distributor, unless they wish to enhance their license to sell wine and mixed six packs, there is little benefit to them as well. More specifically, for the current retail distributors, there is going to be significant added competition by the big box stores, grocery stores and even pharmacies and convenience stores. Customers may not be able to purchase larger quantities of alcohol at the pharmacies or convenience stores; however, simply having the option is likely to cut into some of the business that current distributors enjoy.

From a taxpayer’s perspective, and depending on your ideological alignment, some individuals may just desire for the state to remove itself from the alcohol sales business. There has long been a debate about whether a state should be in the business of selling alcohol and the privatization plan would certainly eliminate that concern. From a purely tax perspective, the Governor’s office has indicated that there would be no significant loss in revenue to the state as a result of the privatization.  The initial projections are that the state would lose approximately $500,000,000. in revenue from alcohol sales but would have significant cost savings in not having to operate the stores and employ the workers to run them. There is also an expected increase to the state in application fees and fines collected in enforcement of the liquor laws.

Whether the privatization of the sale of all alcohol in Pennsylvania will generate enough support to become a reality in 2013 remains to be seen. A Sunday News article summarizes opinions of some local residents and legislators.  You can be certain that you will hear about this issue throughout the remainder of this year from all sides of the debate.

Aaron Zeamer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. He received his law degree from Widener University and practices in a variety of areas including Business Law and Liquor License matters.