Via Kari Andren, here comes the latest in a genre of controversy I don’t really understand:
Although state Liquor Control Board chief executive Joe Conti claimed his agency channeled no resources to promote its eight controversial in-house brands of wine and spirits, records obtained by the Tribune-Review tell a different story.
The LCB spent nearly a half-million dollars last fiscal year, about 10 percent of its advertising budget, to promote five of its own private-label brands — TableLeaf, Dialed In, LA MERIKA, Hayes Valley and Las Parcelas, records show. No money was spent on two other wine brands, Zita and Vinestone, or Copper Sun vodka.
Even though Conti said he was “99 percent sure” no LCB money was spent to promote or develop the brands, ads placed by his agency for its in-house products appeared in high-profile, hard-to-miss locations in newspapers and magazines, on billboards, public transit vehicles in Pittsburgh and Philadelphia, radio shows and the Internet radio service Pandora, as well as in online sponsorships, records show [...]
The move has been viewed unfavorably by wine industry experts and government watchdogs, some saying it is improper for a government agency to market its own items to compete with the private entities whose products it is charged with regulating and selling.
When you go to the grocery store to buy some peanut butter, it’s common to see a cheaper generic store brand alongside your pricier Skippys and Peter Pans, and it’s the same thing for most of the other packaged goods. This is a pretty unremarkable strategy that all supermarket chains employ to increase their profits. And it’s not just supermarkets – Trader Joe’s has lots of its own wine brands too.
The PLCB has a fiduciary responsibility to the taxpayers to maximize profits, and they evidently calculated that manufacturing and selling their own store brands would make good business sense. Politicians and PLCB apologists are always saying they want the PLCB to act “more like a business” and so that’s what they’re doing. They thought they could make some money offering in-house brands, and they invested in marketing to boost sales of those brands. Nothing wrong with that.
But take a step back, and it’s immediately obvious what’s wrong with that. You have a government agency making their own alcohol! And not only that but advertising their own alcohol, trying to get people to drink more of it.
The problem here isn’t that the PLCB is being mismanaged. It’s that there is no way to manage it well under the utterly insane framework that Harrisburg politicians have created for it. The PLCB has two mandates that are in direct contradiction – maximizing profits from alcohol, and reducing alcohol’s public health harms. If you’ve got a problem with this, then you’ve got a problem with state sale of alcohol in general. Nobody should be surprised to see the organization flailing trying to achieve the nonsensical goals state politicians have given it.
The economics of the alcohol market revolves around what’s known as the 80/20 ratio – 80% of the profits on alcohol come from about 20% of drinkers. Alcohol sellers make the vast bulk of their money from a hard core of alcoholics. Everything about their business model, from the pricing to the advertising, is targeted at maximizing sales to people who have lost control over their drinking habit.
A public agency that is trying in earnest to maximize alcohol profits has little choice but to adopt the 80/20 strategy. And that is exactly what we see from the PLCB. By taxing value instead of gallonage, the cheap bottom shelf brands that alcoholics buy end up being cheaper in PA than in other states.
The fact that PLCB advertises alcohol at all, let alone its own in-house brands, is a major scandal. According a recent NBER study, heavy drinkers are more receptive to advertising than prices. Here’s Suzy Khimm at the Washington Post with the summary:
Instead, researchers find that “heavy drinkers are more responsive to cues such as alcohol advertising and alcohol references in programming on TV and less responsive to price.” The study explains why: heavy drinkers have less ability to self-regulate, so the psychological cues that prompt them to drink in the first place (e.g. ads glorifying alcohol) are more important than the reward, or lack thereof, at the end. By contrast, “higher excise taxes on alcohol reduce consumption by moderate drinkers.”
The implication for PA alcohol policy should be clear – there is no way for the PLCB to fulfill its mandate to maximize alcohol profits without doing serious injury to its other goal of reducing alcohol-related harms to public health.
The only way to fix this problem is for the legislature to sell off the PLCB’s retail sales business to the private sector, and task the agency with a single mission to minimize public health harms. We don’t need a Rube Goldberg machine like the PLCB to combat alcohol-related harms, we just need a ban on alcohol advertising and high excise taxes.