Wine and spirits producers warn new Pennsylvania warehousing fee will lead to higher prices

A coalition of wine and spirits producers this week criticized a new fee approved by the Pennsylvania Liquor Control Board that the group says will cost them millions and ultimately will result in higher prices for consumers.

The PLCB responded by saying the fee was needed because the agency has, for years, absorbed the costs of inventory and warehousing for the producers. If the fee gets passed along to consumers, the cost will be small, an agency spokesperson said.

Under the state-owned liquor sales system in Pennsylvania, a legal arrangement known as “bailment” allows suppliers to store their products at the PLCB’s two contracted distribution centers prior to purchase by the agency and shipment to state stores.

On July 16, the PLCB voted to approve a $1-per-case “bailment fee” that will take effect at the beginning of next year.

According to the PLCB’s agenda for that meeting: “The fee will help to partially offset warehousing costs and provide an additional tool” for the agency to manage inventory levels and supplier performance.

In a statement issued Thursday by the coalition — which includes the Pennsylvania Wine and Spirits Association, the Distilled Spirits Council of the United States, American Distilled Spirits Alliance, and Wine Institute — the producers said the new fee was made public only two days before the vote.

The fee “was imposed with barely any notice and no opportunity for producers to discuss its consequences, ask questions, or propose alternatives,” the coalition said.

The fee will cost alcohol producers $15 million to $17 million annually, the coalition said.

Competition from recreational marijuana is fierce, the coalition said, and “tariffs have increased the price of imported alcohol and sharply reduced revenue from U.S. exports, and global alcohol consumption is down. This new fee is yet another hit to the cost of doing business in Pennsylvania.”

Shawn M. Kelly, press secretary for the Pennsylvania Liquor Control Board, did not address the timing of the vote in an email responding to questions from The Inquirer.

Kelly said the agency has used the bailment process since 2012 for the two centers that distribute to the 580 Fine Wine & Good Spirits stores, 13 licensee service centers, and the FWGS.com fulfillment center.

“Every product shipped into a distribution center by a bailment vendor incurs a cost to receive, handle, and store it, regardless of how much of that product is ultimately purchased, distributed, and sold by the PLCB,” Kelly said. “The PLCB has absorbed that cost for 13 years, essentially providing free warehousing for bailment vendors.

“Given the current economic climate, the PLCB is no longer able to continue absorbing these operational costs as it has for the last 13 years. The $1-per-case fee is intended to help offset the operational costs involved with warehousing services provided to bailment suppliers,” Kelly said.

Bailment fees are used by other states with government-run liquor systems, he said.

For Pennsylvania, the $1 fee per case works out to just over 8 cents a bottle for a standard 12-bottle case, Kelly said.

“The PLCB has no plans to raise prices for consumers or licensees on the products it currently sells because of imposing this $1-per-case fee on bailment suppliers — unless a price increase is requested by those suppliers,” Kelly said.

In response to an Inquirer question about passing the cost of the fee to consumers, the coalition said in an email: “Every supplier will have to make determinations about how they will manage the new cost, and many will likely have to pass that new cost on to consumers given the very short time frame.”

The Pennsylvania state liquor system recorded total sales of $3.2 billion, including liquor and sales taxes, in the state’s 2023-24 fiscal year, according to the most recent PLCB annual report available on the agency’s website.

The sales led to contributions to the state’s general fund totaling $811.2 million to help pay for schools, health and human services programs, law enforcement and public safety initiatives, and other programs, the report said.

The PLCB’s net income declined by $18.7 million or 7.2%, the report said. The prior fiscal year net income had declined by $70.1 million, or 21.2%

“Increases in payroll and benefits and unfavorable changes to PLCB’s pension and other post-employment benefit actuarial valuation expenses were the biggest contributing factors to the decrease in net income,” the 2024 report said.

The coalition said price increases on alcohol at the PLCB “are being driven by the escalating cost of running the agency, not rising costs of spirits and wines.”

Kelly said the revenue from the fee will help the agency “more effectively manage inventory levels and supplier performance, avoiding surplus inventory,” and partially offset rising warehousing costs.