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Pennsylvania Opens its Wine Market

Act 39 Focuses on Supermarket sales, longer hours and DTC shipments
by Liza B. Zimmerman
November 15, 2016

Four years have passed since Washington State made the historic move of doing away with its control state system. Since then consumers across the country have made their desires to buy wine in more places known and this summer Pennsylvania responded by passing Act 39 on June 8.

It provides for supermarket sales of wine, longer opening hours, to-go sales of wine at restaurants and the auctioning off of expired restaurant licenses. All told, it represents quite a historic step in terms of updating and modernizing its wine laws.

Act 39 also permits legal-age, state resident to order up to 36 cases of wine delivered to their homes. This dramatic step is a real coup for well-known West Coast producers as it has effectively tripled the amount of wine individuals can order directly.

Carol Reber, senior vice president and chief marketing and business development officer at the St. Helena -based Duckhorn Vineyards said that the winery expected to sell more wine given the new accounts that would be coming online. Wendy Putman, president wholesale sales at the Geyserville-based Francis Ford Coppola Winery, also said she expected to sell more wine over time.

Most of the restaurateurs I spoke to had seen little change in pricing or supply since Act 39 was put into effect in August, but many were gearing up to welcome a broader selection of wines.

The effects have yet to have “been felt by our guests at all yet because the pricing changes have been relatively insignificant,” said Mariel Wega, wine director at a.kitchen+bar [ed: lower case] in Philadelphia. But on the positive side, she added that the new laws have allowed for more flexibility in pricing of wines by the glass.

She also said that she welcomed the new wine-to-go license that which will allow guests to purchase up to four bottles each. “We think it would be a great opportunity for guests to buy wine following special events. A lot of the wine we feature for our weekly wine cru tasting events are not available in the Fine Wine & Spirits Stores.”

Sales and Pricing

While some well-known wine brands may see sales increases others may loose market share. Supplying chain operators, such as Wegmans—who declined to comment for this story—will undoubtedly require bringing in more commercial, large-production wine brands.

The recently retired executive director of the Harrisburg, Pennsylvania-based Pennsylvania Liquor Control Board (PLCB) John Metzger said that he expects overall sales to increase by five to ten percent in the next fiscal year. He also admitted that, as a result, some groceries “will carry mass-produced, commercial products.”

Putman confirmed her belief that, as a result of the new laws, “in the short term, we anticipate that value brands and top SKUs will grow.”

Metzger said that these changes to the sales system were much-discussed and long-awaited by Pennsylvania residents. All restaurant licenses, estimated to be about 10,000 statewide; and approximately 1,200 hotels will be able to apply for a permit sell wine to go on-premise.

Metzger said that, as a result, some restaurants were offering different wine-to-go lists. Lauren Harris, the sommelier at French restaurant Townsend in Philadelphia said she was considering getting the to-go license and said that if the restaurant did offer take-away wines the selection and pricing would differ. The PLCB will continue to regulate prices so wines can not be sold at less than their purchase price at Fine Wine & Good Spirits stores.

As of early November 227 restaurant licensees had obtained wine expanded permits authorizing the sale of wine to go. At least one supermarket location for each chain slated to sell wine was doing so on a trial basis, with many other locations expected to be up and running by Thanksgiving. Some are choosing a longer lead time and will be adding wines to their inventory in December and throughout the New Year, according to Elizabeth Brassell, the PLCB’s Director of Communications.

In addition, 308 state Fine Wine & Good Spirits stores are currently open from 11am to 7pm on Sundays, according to the PLCB, as opposed to approximately half that number having previously been open from noon until 5pm.

“Most of the chains are selling the same wines we carry on our store shelves,” said Brassell. “There has been some interest among permittees in exploring wines available from suppliers through special liquor orders [as there has always been on the restaurant side], but the focus for most wine expanded permittees to date, particularly the chains, has been on initial set-up with wines we carry in our warehouses.”

Act 39 also provides for bringing back, and auctioning off, the estimated 1,200 restaurant licenses that have expired since 2000. A late October auction included 40 licenses across 21 counties. Winning bids—according to a press release— ranged from $51,500 for a license in Conemaugh Township, Somerset County, to $556,000 for a license in Carlisle, Cumberland County. The average winning bid was approximately $212,000. Top bidders have 14 days from the date of each notice of selection to remit their full payment to the PLCB.

What’s Familiar?

Almost no one I interviewed wanted to compare Act 39 to 1-1183 which passed in Washington in 2011. The changes made in Pennsylvania seem “much more sweeping and impactful,” said Christian Miller, the proprietor of the Berkeley-based Full Glass Research. “In Pennsylvania, you have much more limited and restrictive off-premise environment currently for all alcohol that will suddenly be opened up to broad distribution.”

The major difference is that Washington’s law primarily opened up the sales of spirits within the state and Pennsylvania has entirely been focused on wine. Some consumers in Washington, in hindsight, weren’t very happy with the results.

According to Bill Kerr, senior scientist with the Alcohol Research Group in Emeryville, CA, a program of the Public Health Institute, “The impression was that many people didn’t like seeing liquor in every type of store.” These findings were gleaned from a survey, called Washington Regrets Vote to End Monopoly of 3,000 people conducted in 2014

He added that what has happened in Pennsylvania is totally different as it is completely focused on making wine more available. However he does add that the state may be running the risk of commercializing the wine market, if too many licenses are given out. Prices could also increase, he noted, as a result of profits being added to state taxes.

Other Perspectives and What’s Ahead

Few of the operators I spoke to in Pennsylvania said they had seen many changes in the last few months. “I don’t anticipate real change in the market until restaurants are offered wholesale pricing,” said Townsend’s Harris. She added that she hasn’t had greater access to wine brands since August, nor has she seen major changes in pricing.

At the Philadelphia-based Richard DeShantz Restaurant Group, beverage consultant Marie Periello hasn’t noticed much of a change in purchasing options and pricing, but she has seen an up tick in wine sales. “I think it will be easier for the consumer to purchase certain wines that were not readily available at grocery stores,” she noted. “This will help them to education themselves more on the brand and decide what they like before coming to a restaurant to order.”

On the other hand, well-known producers seemed satisfied about the new legislation and the sales opportunity it may bring. Duckhorn’s Reber added that “taking a cue from Massachusetts, also new to DTC shipments, the Pennsylvania law should help cultivate more fine wine evangelists across the state which will benefit all fine wine purveyors.”

While many changes are in the pipeline it will take some time for them to come into effect. “While we are already seeing orders from PA residents, it will take some time to inform people that they can have some of their favorite small-lot wines delivered to their doorsteps,” said Reber.

Restaurants see the new changes in a positive light. Wega said that, “For guests to have the opportunity to taste the wine, talk to the wine maker, and buy a bottle to go would be pretty special. It is a great way for us to further expose the market to these wines we love and push the wine culture forward.”

Metzger was also upbeat about the changes he helped shepherd into the state before he retired. “The market is defining itself and it is going to take some time for it to transform itself,” he concluded. Although he noted that “The rising tide should lift all ships.”

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