LCB Defends Promotion, Questioned For Overstating Figures

The Liquor Control Board for Worcester County (LCB) defended the liquor promotion that has sparked a new array of investigations and accusations against it in hopes of proving no law was broken.
Unfortunately for the LCB, the supplier who sold it the liquor shot a gaping hole in that defense when it said the numbers the LCB quoted were “severely overstated.”

As per Article 2B of Maryland State Law, the LCB must offer all licensees the same pricing for alcohol and they can’t sell a product for below cost unless the product in question has been discontinued.
In the instance of the March Stoli promotion that has sparked a controversy throughout Worcester County, three licensees claim to have paid three different prices on the same day and the promotion itself came into question when it was argued that selling a bottle of Stoli at $5 a bottle was far below cost, thus making it illegal from the start.

LCB Board member and spokesperson Larry Wilkinson provided the invoices from March 31, 2010, the last day of the promotion, which shows when the vodka was delivered to the LCB’s Snow Hill headquarters from the supplier William Grant & Sons.

The total invoice was for 4,236 bottles of Stoli at $17.17 (gross cost per bottle) or $72,699.08.  However, after a massive depletion allowance/promotional credit of $52,663.98 was allegedly given back to the LCB, according to a summary of the transaction prepared by the LCB, the net cost for the LCB stood at $20,035.10 or $4.73 per bottle.

These numbers would affirm the LCB’s claim that it knew the numbers and didn’t violate any of the laws by setting the price at $5, which is still technically above the $4.73 a bottle that they quoted.
However, William Grant & Sons spokesperson James Curich, who said last week the company had no knowledge of the $5 promotion, said the more than $52,000 in depletion allowances was incorrect.

“That number that they are quoting for a depletion allowance is severely overstated, said Curich via phone interview yesterday afternoon. “Our records show that we paid them significantly less than what they are projecting.  In fact, it was less than $10,000.”

As per the March 2010 Maryland Beverage Journal, a one-liter bottle of Stoli sold to its distributor, Reliable Churchill, was offered wholesale for $22.99. It is estimated that distributor’s tack on anywhere from 28-35 percent for markup, so with that being said, the price of the bottle at cost is in the $15-$17 range when purchased directly from the supplier.

Other distributors throughout the industry, such as Terry Loughlin of Carey Distributors and Robert Kenney of FP Winner Ltd, said that in most cases, the general practice is to credit back a dollar or two per bottle as a depletion allowance or promotional credit.
If the LCB’s numbers are in fact true, then it received more than $12 per bottle in depletion allowance.

“That’s just unheard of to me,” said Loughlin. “I can’t understand why someone would give back basically all the profits in a depletion allowance.”

Historically, industry insiders say that William Grant & Sons is on the conservative side when it comes to such depletion or promotional credits, a claim that Curich confirmed.

It also surfaced this week that a $1 a bottle wine promotion that was also offered by the LCB at the same time as the Stoli promotion left some licensees out in the cold as well, but seething with anger.

“It’s amazing to me that I’ve been one of the biggest sellers of wine in this whole county for a long time and I just keep getting left off the email list when these promotions come along,” said Cheers Owner Chris Denny. “I’ve been in this business for 25 years and I’ve never been offered a bottle of wine for a dollar, and I want to know what it cost them, because it’s not in the beverage journal.”

The $1 bottle of wine promotion was for Stonebarn and Oak Vineyards wines, which are a lower tier brand that is owned by Bronco Wine Company in California, which is part of the huge conglomerate owned by the purveyors of the Franzia and Gallo brands.

Denny said the wholesale price for the aforementioned bottles was more than the $1 the LCB moved the wine for (the wholesale price ranged from $2.88 to $5 per bottle).

The LCB defended the wine promotion as well, claiming that it moved the last 55 of 330 cases of the wine that was purchased at the $1 a bottle special in hopes of “getting people to try the wine and avoid having it sit on our warehouse and spoil”, citing that wine, unlike liquor, has a shelf life.

Just on the Route 50 corridor alone, Trader Lee’s and The Green Room (located next to an LCB retail store) in addition to Denny at Cheers were not offered the deal.

“It’s totally against the law, and they should have alerted everyone,” said Dave Hambury, owner of The Green Room.

Wilkinson said that with wine, the LCB isn’t required to notify everyone personally of the deal, but rather, all it must do is post the deal and make it available for everyone.

The LCB also claims that the $2,210.80 in net profit that it earned with the wine promotion proves that they didn’t sell it below cost. It should be noted that of the 330 cases purchased, 85 cases were sold at retail price ($47.99), 190 cases sold at $31.90 and the remaining 55 at the $12 a case, or $1 per bottle.

However, Ocean Petroleum owner Ed Ellis, who also has the Wine Rack inside his gas stations, said that his company had taken the LCB up on the wine deal and had done well with it, moving a very large amount of that particular wine. Still, Ellis is amongst the growing majority that believes the LCB’s days should be numbered.

“This is a classic case of government run amok,” said Ellis. “It’s an egregious abuse of power in this county and I think it’s nothing but a patronage system. Just because it’s been done like this for years, it doesn’t make it right.”

In both cases of controversy, the products in question are bought direct from the supplier, thus removing the distributor from the equation.

Kenney, a veteran of FP Winner and the industry as a whole for two decades, estimates that in the past five years the business that he used to do with the LCB has been cut by more than 90%.

“That’s like two of my guys,” said Kenney. “The LCB always talks about how if they go away too many people would be out of work. Well, they are trying to put distributors out of work by buying direct, and if they come out and say that they are knowingly making less money because they are buying direct, then why are they pushing a product that they know they are going to take a loss on? I’d like to see the business model that says how they expected to break even on this Stoli or wine promotion.”

One name in the industry that has been dealing in the world of alcohol for more than three decades said that he was one of the biggest supporters of Brian Sturgeon, current head of the LCB, but has since changed his mind.

“When he took over, [Brian] was helping the licensees, and he did a good job to save the licensees a lot of money and he always had my support,” said Don Pelletier, beverage manager at Fager’s Island, “but when he didn’t offer me the Stoli promotion, I was furious, and then he came to me in May, two months after the promotion ended and offered me the deal, and I told him no thanks and that I was done supporting him.”

Source; MDcoastDispatch