September 22, 2017
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After Lewiston bottler blows top, Maine reduces proposed liquor price hikes

By Steve Collins, Sun Journal
Bill Trotter | BDN | BDN
Bill Trotter | BDN | BDN
Lawyers for the Louisiana-based Sazerac Co., which owns a 124-employee bottling plant in Lewiston, said proposals to hike prices sharply are unfair.

Maine is scaling back its proposal to hike the prices of many low-end “value” spirits.

Gregg Mineo, executive director of the Bureau of Alcoholic Beverages and Lottery Operations, said Thursday that after hearing from companies in the liquor business he agreed to cap the increase to any particular product so that nothing would go up in price more than $1.

Though the move won’t change the price increase for tiny bottles known as “nips,” which are slated to rise from 99 cents to $1.49, it will reduce the bottom line for many larger bottles that had been slated for larger hikes on Oct. 1.

Even so, there is still considerable agitation about the proposal to create the value pricing category as a way of bolstering state profit levels that have remained stagnant despite rising spirits sales.

Lawyers for the Louisiana-based Sazerac Co., which owns a 124-employee bottling plant in Lewiston, said proposals to hike prices sharply are unfair and appear to be “retaliation” for the firm’s successful opposition to a proposed ban on the 50-milliliter nips.

Three days after the Liquor and Lottery Commission refused last month to go along with Gov. Paul LePage’s effort to ban the smallest, cheapest bottles of alcohol, regulators quietly announced a big price hike for nearly 1,000 products they lumped into a new “value” category.

The price hikes would push up the cost for a range of lower end spirits, including a 50 percent increase for most of the increasingly popular single-sip liquor bottles.

Attorneys representing Sazerac said two-thirds of the products offered in Maine by their client — 245 different ones — will get socked with price hikes under the plan.

“This is clearly discriminatory and unfair,” attorneys Edmond Bearor and Joshua Tardy wrote in a July 25 letter obtained by the Sun Journal through a Freedom of Access Act request.

Mineo called their words “insulting and demeaning” given the extensive back-and-forth he’s had with Sazerac and other companies since last fall over the possible price hikes. He said the new pricing was in the works before the nips issue arose and had nothing to do with it.

Sazerac’s lawyers called the move “a $10 million stealth tax increase on Maine consumers” that will drive people to purchase alcohol more cheaply in New Hampshire or switch to other brands.

Maine Chamber of Commerce President Dana Connors said in another letter that the chamber worries “that such a dramatic price increase could negatively impact sales and, in turn, impact jobs here in Maine.”

“Talk about a gift to New Hampshire!” Nels Kramer of Enfield told regulators. “This is by far the stupidest idea yet in this child’s play with the governor’s office.”

Mineo said that he doubts Maine will see any loss of sales to New Hampshire or anywhere else with price hikes capped at no more than $1 a bottle.

Critics said that the proposal isn’t the best way to raise more revenue.

“Targeting value price points not only discriminates against certain consumers, but targets specific brands and producers as well,” said Craig Wolf, president of the Wine and Spirits Wholesalers of America.

He said the price changes will wind up losing Maine nearly $23 million in gross sales while consumers would ultimately pay $21 million more for their spirits.

“In other words, consumers will pay $2.40 for every additional dollar that the state collects in profits and taxes” from the new pricing scheme, Wolf said. He said it is “not a very efficient way to raise revenue.”

Wolf called on regulators to “reconsider the impact of this misguided proposal and instead seek more fair, equitable and consumer-friendly solutions.”

State liquor regulators have been trying to figure out a way to bring in more revenue to state coffers since last fall.

Mineo said he asked the bureau’s experts to do “a deep dive” into the numbers to figure out how come state profits — which total more than $140 million during the past three years — were flat while sales were growing 4 or 5 percent annually. There were, he said, “significant soft spots in our profit” that had to be addressed.

The proposal to create a new value category is a consequence of that effort, he said, and one that most of the people in the industry knew was in the works.

Still, though, the value pricing scheme came as a surprise to some.

The rollout of a new pricing scheme created confusion among producers because regulators didn’t have the prices figured out when they announced the change. An online pricing calculator and vendor portal weren’t ready when officials disclosed the creation of the value category in a Friday afternoon email on July 14.

A July 21 email from Tracy Willett, manager of liquor operations, recapped some of the problems the seemingly rushed announcement created.

For instance, an online price calculator they use to figure out the bottom line wasn’t updated when the new values sector was first added.

Willett said on the morning of July 19 in another email that the figures could be arrived at by hand.

“Excel isn’t working for us to do this, and I am not a programmer,” Willett said, so the bureau asked Pine Tree Spirits, the state’s contractor for the liquor business, to develop one.

Later that day, Willett notified officials from six companies that the contractor had come through with one they could use.

A vendor portal the liquor industry uses in its dealing with the state wasn’t updated fully until July 20, halfway through the 10-day comment period set by law for a response to the value pricing arrangement that Willett announced on July 14.

Mineo said the agency hurried to get information about the price adjustments out soon enough for suppliers to consider possible price changes before an Aug. 1 deadline. After that, he said, they wouldn’t have another shot at changing the price on their end until February.

There are other ways to approach the problem of making more profits for the state.

Sazerac’s president, Mark Brown, laid out one alternative in a Dec. 7, 2016, email to Mineo.

After speaking with Mineo, Brown wrote him to say he’d been thinking over the conversation that had focused on a key issue: that Maine’s liquor profits have not been keeping pace with the growth in sales since a 2014 shift meant to make the state’s prices more competitive.

Brown suggested that “the simplest way to solve the issue” would be to create a target profit number and then convert that into a percentage profit margin that could be applied to all of the liquor sold in Maine, something that could be easily adjusted annually.

Brown said it would treat every product equally, foster transparency and remove the ability of anyone to “accuse the governor or the administration of discrimination” against any segment of the population.

It would also eliminate the guesswork at trying to figure out the impact of setting particular prices, he said.

Brown said that because the percentage hike that would be required would be small, it would likely create little negative publicity and avoid distorting the market.

Brown also said that his alternative “avoid a scenario whereby value brands are more heavily impacted, which in turn could lead to job layoffs at our Maine plant” that has been “a great economic and job creation story.”

Maine is one of 18 states that control the sale of alcohol within its borders. It regulates the liquor business entirely, including figuring out which spirits can be sold and how much they cost, decisions made by BABLO with input from the Liquor and Lottery Commission.

LePage and regulators sought to ban nips because, they said, the tiny bottles made it too easy for people to drink and drive. They can easily chug one down and toss it out the car window, officials said, contributing to both litter and drunk driving.

But liquor commissioners declined on a 4-1 vote to back the ban. A new nickel deposit on nip bottles takes effect in 2019.

It is possible the commission will discuss the value pricing changes at its next meeting on Aug. 8.

 


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