July 2008 memo warned of problems with system

 

By Eric Boehm | PA Independent

 

HERSHEY — The head of the state liquor board defended the decision to use controversial wine vending machines after a memo surfaced, showing the board was warned the kiosks would be a bad investment.

 

“Any modern retailer has to try new things,” said Joe Conti, CEO of the Pennsylvania Liquor Control Board, or PLCB, during a House Liquor Control Committee meeting Thursday. “Not everything works. I would certainly say the success of the kiosk program is questionable.”

 

A PLCB internal evaluation committee reviewed the proposed wine kiosk contract in 2008 and recommended that the PLCB not negotiate with Simple Brands LP, the sole company to respond to the state’s request for proposals on the wine kiosk program. In a July 2008 memo, the committee criticized Simple Brands’ business plan and suggested that the wine kiosks would be met with public disapproval for various reasons.

 

Still, the PLCB went ahead with the contract. More than three years later, the board is preparing to take Simple Brands to court for more than $1.1 million, the PLCB claims, Simple Brands owes it, and the wine kiosks have turned in poor sales figures.  No legal claims have been filed.

 

On Thursday, Conti disputed that the committee recommended against contracting with Simple Brands and said the memo’s recommendations were “very appropriate.”

 

The wine kiosk program, launched this past summer, was intended to increase convenience for customers who may not have easy access to the state’s 620 liquor stores.

 

However, many of the concerns in the 2008 evaluation were found to be accurate. The memo was obtained and released by the office of House Majority Leader Mike Turzai, R-Allegheny, who is pushing a plan to privatize the state liquor stores.

 

“If it was a private company receiving that report, the investment would not have been made,” said state Rep. Mark Mustio, R-Allegheny. “That’s one of the other aspects that privatization brings to the table.”

 

The review committee had “a general concern that the proposed process for purchasing products via the kiosk is cumbersome and may meet with public criticism for not being user-friendly,” according to the memo. 

 

The committee specifically identified “public angst over blood alcohol level scanning” and “general distrust over having to register with the government to use the kiosk,” according to the memo.

 

Public criticism of the machines — which require a user to swipe his driver's license or state-issued identification and blow into a breathalyzer-like mouthpiece before making a purchase — has been widespread. In July, Wegman’s Food Markets announced they would be removing the wine kiosks from their 14 Pennsylvania stores, because they created a negative atmosphere for customers.

 

The committee also pointed out that Simple Brands did not meet some of the requirements of the state’s request for proposal and has “continued to change its business plan on the fly” when the review commission broached operational concerns.

 

The state did not pay any money to Simple Brands for the machines, according to the PLCB. The company would make a profit off convenience fees charged to those who used the machines.

 

The PLCB initially planned to have 100 kiosks opened in grocery stores statewide. Prior to Wegman’s removing the machines, only 32 had been installed.

 

The kiosks in use have been plagued by mechanical issues and poor sales. Seventeen of the 32 kiosks have not had a single week in which they met the PLCB’s stated goal of at least 180 bottles sold per week. Since May, only three machines have hit that target, as overall sales across the system have declined in recent months.

 

Conti acknowledged Thursday that sales have been beneath expectations, but said the PLCB remained committed to the wine kiosk program, provided the pending litigation was concluded.

 

“We will continue to try efforts on behalf of our consumers,” Conti said. “We may have had an error in judgment, and this may be played out over years or decades in litigation, but this was not a faulty fiscal decision.”

 

Steve Miskin, spokesman for Turzai, said the kiosks were indicative of the systemic problems and ineptitude of a government agency selling alcohol.

 

Wendell Young IV, president of the United Food and Commercial Workers Local 1776, which represents the state liquor store employees, said he continued to support the wine kiosks, because they increase customer convenience, particularly in parts of the state with few liquor stores. He attributed the poor sales and negative reviews of the kiosks to a perception created by months of negative publicity from advocacy groups and the media.

 

The Independent State Store Union, which represents liquor store managers, opposes the use of the wine kiosks because they increase the availability of alcohol in the state. The union sued unsuccessfully to stop the wine kiosks from operating last year.

 

Simple Brands, which is based in Montgomery County, did not return calls for comment Thursday.