LCB Defends Promotion, Questioned For Overstating Figures

OCEAN CITY — 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

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.”