November 29, 2010

Store wine kiosks could be short-lived

HARRISBURG -- If proposals to privatize state liquor stores gain momentum, new self-serve wine kiosks could go away.

Store wine kiosks could be short-lived

The wine-dispensing contraptions first appeared in Pennsylvania grocery stores just five months ago, and already some lawmakers warn they could become obsolete.

"I think those kiosks are coming to an end," said newly elected House Majority Leader Mike Turzai, sponsor of the latest proposal to sell off state Wine and Spirits stores.

Manufactured by Conshohocken-based Simple Brands, the machines have been described as Rube Goldberg machines that incorporate a Breathalyzer, identification card scanner and security cameras monitored in real time to prevent purchase by the intoxicated or the under-aged.

"It's a silly type of an idea that only government bureaucracy could come up with," Mr. Turzai said.

Simple Brands's CEO Jim Lesser, though, said the machines include only the elements required to satisfy state regulators.

While criticism over machine design stings, Mr. Lesser is more focused now on what he'll do if Mr. Turzai's privatization plan becomes law.

"I was always concerned that it could happen, but not as much as I am today. I didn't think privatization had a real chance of occurring," he said.

With a Republican-controlled Legislature and a privatization-minded governor-elect, the idea to sell of the 621 Wine and Spirits stores isn't so far-fetched anymore.

"I do believe that privatization is still a long shot, but it's more of a possibility than it was a few years ago when we proposed the wine kiosks, that's for sure," Mr. Lesser said.

Mr. Turzai said he's convinced it will happen. State senate leaders, too, have promised to consider privatization during the next legislative session.

The last time the idea was under serious consideration was 14 years ago when Tom Ridge was governor. A lot has changed since then, most significantly, the state's finances, Mr. Turzai said.

"Gov. Ridge was in during flush times. We're not in flush times now; we're in belt-tightening times," he said.

Mr. Turzai has a plan to generate $2 billion by auctioning 100 wholesale distribution licenses and 750 retail licenses.

Mr. Lesser said the plan is short-sighted because the $2 billion would disappear quickly and the state would lose out on revenue from the mark-up on wine and spirits.

Mr. Turzai disagrees.

He said the $2 billion could be invested to generate a steady stream of revenue. And, he said, while the state would lose about $90 million annually from sales mark-ups, alcohol tax collections, which approach $400 million annually, would not change.

Mr. Lesser said he hopes policy-makers who want to sell the liquor stores would make provisions for the kiosks to remain.

"We could lose the bulk of our investment in Pennsylvania, so we would hope there would be some consideration for the sums of money we've invested, though certainly there's no obligation for the state to do so," he said.

Simple Brands has placed 35 machines in grocery stores throughout the state and plans to roll out 65 more.

Mr. Turzai said grocery stores and other businesses that may win license auctions could choose to use kiosks, but there's little reason they would want to.

"I don't think there's a place for it in privately owned stores. I can't imagine anyone who would want to do that," he said.

Even Mr. Lesser says that, if given the choice, he would rather buy wine off a shelf than a kiosk. But, he said, the kiosks are convenient and, currently are the only option for grocery stores that want to sell wine.

Pennsylvanians, though, "are loving the kiosks. We're doing a lot better than we initially expected," he said, noting that 90 percent of kiosk users are repeat customers.

"Do the wine connoisseurs of the world like it? No. But it's not really made for them," he said. "It may not be perfect, but it's far better than what Pennsylvania had a year ago. Now you can buy a bottle of wine in the supermarket."

Stacy Kriedeman of the Pennsylvania Liquor Control Board declined to comment on whether the machines would become obsolete if liquor stores were privatized. She said policy issues are a matter for the Legislature, not the LCB.

If the machines disappear, taxpayers won't be out any money, she said. That's because tax dollars didn't pay for them.

Rather, Simple Brands developed them under an exclusive contract that involved no payment from the commonwealth. The company is recouping its investment by selling advertising on the machines' video screens and by charging a $1 transaction fee to consumers.

The contract has a provision that allows for termination if the state privatizes wine sales.

The contract has come under fire because Simple Brands was the only bidder and two of its four investors have close ties to Gov. Ed Rendell and contributed nearly half a million dollars to his political campaigns over the last decade.

Investor Herbert Vederman gave Mr. Rendell $346,276, including a $100,000 lump sum in 2002, campaign finance records show. Mr. Vederman also served as the governor's campaign finance chairman.

His business partner, Ira Lubert, meanwhile, gave Mr. Rendell $140,980 in that time period.

Mr. Vederman said he owns only about 1 percent of Simple Brands and isn't involved enough in its operations to comment on how privatization would affect the wine kiosk business.

Mr. Lubert did not return calls. He owns only a small percentage of the business, according to Mr. Vederman and Mr. Lesser.

The vast majority of Simple Brands, they said, is owned by Philadelphia businessman Warren Weiner, who operates the clothing store chain Deb Shops.

Mr. Weiner, too, is a Rendell contributor, having given a total of $6,000 in 2001 and 2002.

"Everybody who has suggested this is an inside deal because of Herb and Ira's relationship with the governor really has no idea. They are very minor investors," he said.

Rendell spokesman Gary Tuma said the campaign contributions did not influence the awarding of the contract. He said the decision was made by the Liquor Control Board, not Mr. Rendell.

Wine kiosks are Simple Brands' only product and Pennsylvania is the only state that has them, but the company is looking to expand into other states and to develop beer dispensers as well.

"Pennsylvania was never the end-all of what we were trying to accomplish," Mr. Lesser said. "This was an opportunity to prove our model to other jurisdictions that are interested in expanding their distribution model."

Read more:

Posted by staff at November 29, 2010 09:28 AM