On July 3, the Pennsylvania Liquor Control Board launched a new version of its licensee online order portal, a digital system that bars and restaurants use to place orders for wine and spirits.
The rollout of the system known as LOOP — already over budget and delivered about six months late — was riddled with bugs and confusing prompts, creating a three-week nightmare for Pennsylvania’s hospitality industry and businesses trying to sell or buy alcohol.
“I’m guessing, but we’ll probably do a third of the business we normally do this month. Every dime matters and every bottle we sell matters, but they don’t seem to care much about that,” says John D’Andrea, co-owner of D’Andrea Wines, founded by his father, Joseph, in Penn Hills in 1982.
Those in the industry also are unhappy about new fees built into the system that they say they didn’t see coming and might be passed on to consumers.
While state officials defend improvements they say the new system will deliver, the disruption has many in the commercial wine and spirits world once again asking: Why does state government continue to be directly involved in wholesale alcohol sales at all?
Questions and fees
The PLCB shut down ordering for a week at the end of June to swap in the new system, forcing bar and restaurant owners to stock up early for the extended July 4 weekend.
Then, just when businesses thought they could resume buying cases of wine and spirits, the system’s limited functionality made it almost impossible to place orders, particularly for items in the special liquor order category.
Some vendors and importers had waited months to list their special order products with the state as a result of a moratorium on new additions leading up to the launch. When they tried to get back to adding special order products, they ran into trouble, too.
“Here’s how stupid it is. When you apply to add a new bottle, one of the questions is, ‘Were any salmon harmed in the making of this product?’ That’s not a joke. I’m dead serious,” says Deb Mortillaro, manager of Dreadnought Wines and co-owner of Palate Partners in Lawrenceville.
Dreadnought, opened by Bob Gonze and Shawn Beck in 1980 and owned by Mike Gonze since 1986, has a history of trying to expand the products available to Pennsylvania customers. It was among the trailblazers in prompting the PLCB to allow the distribution of wine not listed in the standard catalog.
“There are maybe 20 similar questions that you later find out you don’t have to answer. But you don’t know that at first because there’s an asterisk next to them. In most places, an asterisk means you do have to answer it,” Ms. Mortillaro says.
And even if restaurateurs and vendors could pick up a special liquor order, there was a surprise with the bill — an 80% hike in a fee called “logistics, transportation and merchandising factor.”
The botched system launch and the unexpected fee hike are seen by many as the latest slight to merchants and licensees operating in a state where a bottle of wine can, in some cases, cost up to 55% more than in neighboring states.
“The general consumer isn’t as aware of the issues a licensee deals with,” says Joe Mastro, president of the Pennsylvania Restaurant & Lodging Association. “However, they’re impacted by their purchase choices and purchase prices when things like this happen.”
A necessary fix
The update to the licensee online order portal is part of phase two of a four-phase, estimated $120 million effort by the PLCB to modernize its systems. Called Project New Horizon, it will, according to an explanatory YouTube video, “enable a business transformation from a traditional retail model to a wholesale/distribution, e-commerce and retail-focused business.”
“The legacy system was an out-of-date system we kept customizing to make work for our wholesale functions,” says Elizabeth Brassell, PLCB deputy assistant director.
“This moves the entire system to the cloud. It comes with out-of-the-box functionality that allows us to operate in different lines of business without shoving it all into a retail system held together with paper clips and duct tape, and there are seamless upgrades and enhancements available as we need them.”
Ms. Brassell says most of the phase two digital components — such as new modules for supply chain management that interact with distribution centers, a new front and back end to the Fine Wine & Good Spirits website and new order management tools — came online seamlessly.
LOOP didn’t.
“They’re never going to go without hiccups and challenges. But big picture, it was as successful as an implementation can be when replacing everything soup to nuts,” she says.
Three weeks later, things are starting to fall into place, but people who use the system have been less kind in assessing the procedure.
“To shut us down for three weeks during a summer holiday is wild. On top of that, there were whole systems that weren’t functioning when it finally did launch and that continued for several weeks,” says Alyssa McGrath, Western Pennsylvania sales representative for specialty importer and distributor Skurnik Wines & Spirits.
“I wasn’t surprised this rollout was bad. This is a state-run system that’s been wholly unresponsive to anything. It’s at best inept, at worst corrupt,” says Tomasz Skowronski, co-owner of Apteka in Bloomfield.
Mr. Skowronski and his partner, Kate Lasky, were 2023 James Beard Award co-finalists for Best Chef: Mid-Atlantic, and their restaurant has an ambitious wine program and retail bottle shop.
They stocked their establishments with extra bottles in anticipation of the system launch. But few businesses have the space or the liquid capital to keep a month’s worth of wine and spirits in stock.
“[The PLCB is] in so much control of the very way we are able to receive the lifeline in which we sell to our customers. And you don’t even invest the money to make sure it’s a seamless, user-friendly new system? It’s an insult to injury,” says Sarah Shaffer, owner of tina’s in Bloomfield.
System upgrade?
“We spent more than a year testing various aspects of it,” counters Ms. Brassell.
She notes the PLCB pushed the launch date of phase two from January until July because testers felt the system wasn’t ready. The board added four rounds of system integration testing and 18 weeks of user acceptance testing.
Despite all that, vendors say they are finding the product unwieldy.
“This new system added numerous steps and hours of work to anyone who is trying to sell wine in Pennsylvania,” says Jason Malumed, a partner of MFW Wine Co.
His Philadelphia-based business imports and distributes wine to establishments in New York, New Jersey, Washington, D.C. and Pennsylvania.
Among their complaints is that users now have to log into three platforms: The central system (where they can see accounting and other information), and two sales systems (one for special liquor retail orders placed, one for licensees).
There are more steps for creating shipping labels, and more steps for invoices — they used to be able to use an online form that would tell you the price automatically. Now users have to manually add every cost point and calculate it before they sell it to customers.
“The overwhelming question is what is the point of this? What were they trying to improve?” says Ms. Mortillaro.
The tutorial provided by the PLCB on how to enter a new product is 45 pages long.
On the subject of the salmon question and other such prompts, Ms. Brassell says, “We have customers that want to know that information. But it’s an optional field.”
The PLCB says much of the user-end slowdown is because people are learning a new system. Once the kinks are worked out, it’ll be better than the old one, Ms. Brassell says.
“These are completely new platforms and processes, so there’s going to be a learning curve at the outset,” she says.
The PLCB says it is taking feedback and making real-time adjustments.
Ms. Brassell announced at a July 20 PLCB meeting that there will be an extension of the hypercare period with its project contractor, Oracle. Set to expire 30 days from the July 3 launch, that extra attention now is expected to last through the end of December, at an additional cost of $4.1 million.
Many licensees and vendors seek accountability. Some politicians in Harrisburg are, too.
“Anyone in the private sector would have been fired for this disaster,” says Gene Mangrum, co-owner of Shilo Gastro on Mount Washington. “But with this system, I bet nobody will suffer any consequences except for us.”
State Sen. Mike Regan, R-Cumberland and York counties and the majority leader of the Senate Law and Justice Committee that oversees the PLCB, says he’s open to holding hearings.
“There’s been an overspend in the modernization of the system,” he says. “One of the major problems is the lack of communication between the PLCB and the licensee. There’s a lack of transparency.”
Nearly every vendor of wine interviewed for this story, including several who spoke on background, echoed a similar sentiment: the PLCB isn’t working in the best interest of the hospitality industry and its customers.
“They’ll never say, ‘We want to get rid of all the small distributors who bring in special products.’ But clearly this process of making the listing and ordering process so hard and having restaurants do cumbersome things on their end is aimed at doing just that,” says Ms. Mortillaro.
Systems of control
Seventeen states exercise some degree of control over the sale of alcohol, but only two maintain complete control over wholesale and retail sales and distribution of wine.
“A lot of states have weird alcohol laws. But it’s only us and Utah that have the state control wine for wholesale purposes,” says Mr. Skowronski. “It’s a relic created by Prohibition-principled people and it’s stayed that way for nearly 100 years now.”
The PLCB was founded Nov. 29, 1933, and took authority a few days after the ratification of the 21st Amendment, which repealed Prohibition. It regulates the manufacturing, importation, sales and distribution of all alcohol in the commonwealth, with beer and other malt beverages less controlled than wine and spirits.
The PLCB is a boon to Pennsylvania’s coffers. In the past fiscal year, total sales, including taxes, topped $3 billion for the first time.
Of that, $786 million was returned to the state’s general fund: $421 million from an 18% liquor tax formerly known as the Johnstown Flood Tax, $167.7 million in state sales tax, and $185.1 million in mark-up fees. The PLCB contributed an additional $42.6 million to other agencies and grantees, including $30.7 million to State Police Liquor Control Enforcement and $63 million sent to the PLCB’s administration and the Office of Administrative Law Judge.
It’s also a monopoly.
Every bottle of wine or spirits sold in the state has, at some point, passed through the hands of the PLCB, regardless of whether it goes through state warehouses or stores.
Pennsylvania is one of the largest buyers of wine and spirits in the United States. In fiscal year 2021-22 it spent $1,653.5 billion, including federal tax, on alcohol. Allegheny County is the top purchasing county in the state, representing 14.26% of overall sales.
There are some advantages to a system this massive. In some circumstances, particularly with mass-market wine and spirits sold at more than 600 Fine Wine & Good Spirits stores, Pennsylvania consumers can get a good deal.
“There are some bottles in Pennsylvania that are priced really well because the PLCB is such a big buyer they can negotiate a good price,” says Ms. Mortillaro of Dreadnought.
Pricey wine
Even so, many wines are significantly more expensive here. That higher cost is passed on to consumers in higher menu prices and fewer choices.
“It’s not expensive for any reason other than they are squeezing so much money out of the product. And that means we have to pay for it and the customer has to pay for it in the end,” Mr. Skowronski says.
Here’s how it breaks down: If suppliers want to sell a bottle of special order wine for $6.32, they have to add a 10% mark-up fee for the state, bringing the total to $6.95. The 18% liquor tax adds another $1.25.
There’s also a $3 per bottle freight charge. Vendors used to be able to offer freight discounts to customers who purchased in bulk, but the new system doesn’t easily allow for entering quantity markdowns.
The higher logistics, transportation and merchandising factor fee, which is subject to tax, adds another $2.91. With sales tax, the bottle that started at $6.32 now costs $14.88.
Mr. Malumed says a customer in New York or New Jersey would pay $9.32 for the same bottle from his company.
And that’s all before the final mark-up from the proprietor to the retail customer, from which the state also takes a 6% sales tax plus an additional 1% in Allegheny County.
“If we were able to deal directly with customers, it would cost everyone a lot less money. We bring you something to sell, you buy it and that’s it. But this system adds so much complexity and they just keep making it worse,” says Ms. McGrath.
Special order solution
Although special orders are a small percentage of the PLCB’s overall sales, they’re essential to the hospitality industry as well as to boutique wine stores that are run as offshoots of liquor license holders.
“This is the wine the top restaurants enjoy buying because they’re not in the stores. They’re not widely available,” says Mr. Malumed.
In fiscal year 2018-19, special liquor order sales totaled $112.8 million. After dropping during the pandemic, that jumped to $116.2 million when the hospitality industry began to rebound in 2021-22.
Apteka specializes in hard-to-find products from small producers in Eastern Europe. Adding a new wine, even from the same grower, can take months to get coded.
“You’re talking half a year for a wine that’s already in other states to be sold at a much higher price than anyone else, and now they’re adding another cost,” says Mr. Skowronski.
Mr. Mangrum noticed the new mark-up when he got his first bill from a vendor earlier this month. “The first order that comes in, everything is a lot more than I thought I was paying for it.”
Restaurants and bars are low-margin businesses and any hike can be a hit.
“You based your prices on what you thought they were going to cost,” Mr. Mangrum says.
Surprise fee increase
It’s an oversight the PLBC acknowledges.
“I will give you this. It fell off the radar about communicating the specific change to licensees and suppliers. It’s an opportunity that we missed and we apologize for that. We did not do what we could have and should have done to communicate at go-live,” Ms. Brassell says.
An extra $1.29 per bottle might not sound like much, but when a business is dealing with thousands of bottles per year, that lost revenue adds up.
The PLCB says the hike in the logistics, transportation and merchandising factor fee reflects the actual cost of receiving special order products in its warehouses, storing and transporting them to stores.
Ms. Brassel says it was the first increase since 2015.
The 2015 rise was approved by the PLCB board of directors and only on new items registered after a specific date. “It was well defined. They sent out notice ahead of time,” says Mr. Malumed.
This time the fee increase is across the board and came without public comment.
The PLCB says its executive director, Michael G. Demko, has such authority following a 2016 directive that allows “the executive director or his assignees, subject to certain conditions, to approve any decisions regarding the cost at which to acquire such products from suppliers and the prices at which and the manner in which such products will be sold by the PLCB.”
“Given that pricing authority was delegated by the board to the executive director in a public meeting, the change to the LTMF did not require board approval, although the board is aware and supportive of the change,” PLCB press secretary Shawn M. Kelly wrote in an email to the Post-Gazette. “The board agreed in October 2022 that the new rate would be effective at the start of the next phase of the ... project.”
It appears the fee now can be raised at any time without notice. In the new special liquor order language, a clause reads: “The PLCB will review the LTMF rate regularly and update when necessary, so that the fee fairly reflects the PLCB’s costs of handling SOs.”
Direct attack
One way restaurant and bar owners can circumvent the additional logistics, transportation and merchandising factor hike is to use direct delivery of purchases from vendors.
“As soon as we were allowed to deliver, I bought more trucks and hired more people. The majority of our orders go direct delivery to restaurants or grocery stores,” says Mr. D’Andrea.
Direct delivery was part of Act 39, the most significant reform of PLCB oversight ever. The 2016 bipartisan legislation had a lot packed in.
It’s why wine is now sold in grocery and convenience stores. Restaurant owners were authorized to sell bottles of wine for takeaway without having to open them first. It allowed for expanded Sunday sales at Fine Wine & Good Spirits stores.
It reduced the mark-up on special liquor orders to 10% from 30% (but also disallowed the 10% discount licensees received on listed products, meaning wholesale customers pay the same prices as retail customers).
Mr. Kelly says that in working through the Act 39 changes, the PLCB decided it could wait until it next upgraded its systems to open the doors to direct delivery, relying on language in the law that said it “may” allow for direct delivery rather than “shall” allow for it.
“We’d heard there wasn’t a lot of appetite for direct delivery. So when we implemented the changes, it was lower on the priority scale,” he says.
That wasn’t how the hospitality industry saw it, a concern heightened during the greatest challenge to the industry in modern history. “It was so disheartening when they didn’t implement direct delivery during COVID,” says Ms. McGrath.
Since the state’s stores were closed, vendors looked to Act 39 to get products to their customers. The PLCB fought them. Some, including MFW Wine Co., sued.
“We had orders. We wanted to deliver them directly to restaurants,” says Mr. Malumed. “We sued them and we won.”
An emergency order said the PLCB couldn’t add handling fees for directly delivered products. The PLCB appealed, and the lawsuit went to the Pennsylvania Supreme Court. Direct delivery was finally allowed in June 2022.
On top of that, the businesses were awarded damages and attorney fees, although the PLCB fought that by claiming sovereign immunity. This lawsuit is on appeal to the Pennsylvania Supreme Court.
Call for change
“A year or two ago I could defend this system. I really could. But I can’t say that today. It’s a big shift for me,” says Ms. Mortillaro.
In the case of direct delivery, hospitality professionals want to know why the state continues to take a cut of a sale that it’s not facilitating. Why stifle the creativity of importers, sommeliers and bartenders who might find an exciting product and don’t want to pay extra fees and wait months for permission?
“I’m not talking to the PLCB. I’m not getting my wine delivered to a state store. All I’m doing is using their awful online ordering system, which is buggy, when there’s a waiting period, when you’re not even sure they will carry what you want,” Mr. Skowronski said.
The solution, some say, is to liberalize control over wholesale sales and allow for direct relationships between vendors and licensees.
“Let us invoice the customers directly. Cut out the 10% mark-up, cut out the LTMF fee. I’m not even advocating for getting rid of the 18% liquor tax because it goes directly to the general fund,” says Mr. Malumed.
Change might not be coming any time soon.
“I’m a ‘privatize it’ guy. I believe that’s the best way. Why are we only one of two states that do it this way? They’re driving prices up every step of the way,” says Sen. Regan. “However, they’re an entity on their own. We don’t have the votes to make sweeping changes. If anything, it’s going to be incremental.”
For now, Ms. Shaffer of tina’s in Bloomfield says, “It continues to make it more and more difficult for the people of Pennsylvania to have access to global spirits and wine. What a bummer.”
Hal B. Klein: hklein@post-gazette.com, Twitter @halbklein and IG @halbklein.
First Published: July 29, 2023, 9:30 a.m.
Updated: July 31, 2023, 1:20 p.m.
