ANNUAL 201 2018 REPORT - Pennsylvania Liquor Control Board

PENNSY LV A N I A L I QUOR

ANNUAL

2018 2019

REPORT

CONTROL BOARD

OUR MISSION

The mission of the Pennsylvania Liquor Control Board is to responsibly sell wine and spirits as a retailer and wholesaler, regulate Pennsylvania's alcohol industry,

promote alcohol education and social responsibility and maximize financial returns for the benefit of all Pennsylvanians.

TABLE OF CONTENTS

04-09

Introduction

04-05

Message from the Board

06-07

Board Biographies

08

Executive Director Biography

08

Executive Team

09

Organizational Structure

10-11

Financial Highlights

12-19

Fine Wine & Good Spirits Sales Highlights

20-25

Retail Operations

26-39

Marketing & Merchandising

40-41

Supply Chain

42-44

Wholesale Operations

45

Information Technology Services

46-59

Regulatory Affairs

60-61

Administration

62-64

PLCB Management's Discussion and Analysis

65-86

Financial Statements

87-102

Appendix: Stores Ranked by Total Dollar Sales, FY 2018?19

103

Research Notes

03 A N N U A L R E P O R T

FY 2018 ? 2019

INTRODUCTION

MESSAGE FROM THE BOARD

Dear Fellow Pennsylvanians:

It is our pleasure to present to you the Pennsylvania Liquor Control Board's Fiscal Year 2018-19 Annual Report. This publication outlines the PLCB's operations, highlights popular products and retail sales trends and shares financial results for the period of July 1, 2018, to June 30, 2019.

In fiscal year 2018-19, the PLCB achieved record retail sales and record net income. Sales of $2.67 billion (including liquor and sales taxes) reflect a $75.2 million or 2.9% increase over the prior year and previous sales record, with the PLCB achieving year-over-year sales growth for at least the past two decades. Net income for the year totaled $191.0 million, $32.8 million or 20.7% higher than 2017-18 and exceeding the PLCB's $185.1 million cash contribution to the General Fund by nearly $6.0 million. Additionally, year-end cash and investments increased $20.3 million or 7.9% to $278.6 million. Increased gross profit from sales and reduced operating expenses related to workers compensation and post-employment benefits are largely accountable for the substantial increase. An outline of revenues and contributions is available on pages 10-11, while detailed financial reports are available beginning on page 65.

Other highlights and key achievements during the fiscal year include the following:

? A new, larger e-commerce fulfillment center opened in October 2018, allowing to quadruple its online product offerings. To learn more about the new facility and its impact on consumers and product sales, see page 20.

? The first Taste & Learn Centers debuted in two Fine Wine & Good Spirits Premium Collection stores, establishing dedicated education spaces for the public to experience tastings and learn about wine and spirits during special events held in small, intimate settings. Photos and additional details are available on page 20.

? Enhanced in-store merchandising of small-size products ? cans, Tetra Paks, single serves and trial sizes growing in consumer popularity ? expanded to 35 more stores in 2018-19, increasing the access and shopability of these products in nearly 100 stores across Pennsylvania. To learn more about the growth of this product segment, see page 28.

? F ine Wine & Good Spirits store renovation efforts surpassed the halfway mark in 2018-19, with 308 stores that have been redesigned or refreshed, including 67 remodels and three new stores completed in the fiscal year. For more information on store operations, see pages 21 - 23.

04 A N N U A L R E P O R T

FY 2018 ? 2019

INTRODUCTION

? Continued wholesale business growth saw the addition of nearly 250 new grocery and convenience stores selling wine to go over the year, plus Target's debut as the first mass merchant retailer to sell wine to go in Pennsylvania. Read more about this activity on pages 42-44.

? The release of the PLCB's biennial Report on Underage and Dangerous Drinking provided a snapshot of underage and dangerous drinking statistics in Pennsylvania and an outline of alcohol education programming and prevention initiatives throughout the state. The report is available under the Education section of lcb..

? Grants totaling $1.8 million were approved by the PLCB in support of Pennsylvania's wine and beer industries, and another $1.1 million in grant funding was awarded to support alcohol education initiatives to reduce underage and dangerous drinking. See more information about grants on pages 53 - 58.

? Three restaurant license auctions were held, resulting in the successful award of 67 licenses for a total bid amount of $5.8 million. More auction details are available on page 52.

? Dedicated to investing in the success of its employees, the PLCB launched LEAD ? a new professional development program imparting fundamental leadership knowledge and skills. For more on the program, see page 61.

? In June 2019, the PLCB welcomed Mary Isenhour ? the first female Board member in the agency's 86-year history. For an introduction, see page 7.

? The PLCB was recognized as a "Top 100 Retailer of the Year" for 2019 by Beverage Dynamics, a national beverage alcohol trade magazine, for its dedication to customer service and a superior retail shopping experience for Pennsylvania consumers.

During fiscal year 2018-19, no laws were enacted amending the Pennsylvania Liquor Code, nor were any regulations amended.

Our commitment to continually improve how we serve Pennsylvania consumers, licensees, partners in prevention, beverage alcohol industry members and other stakeholders is illustrated through the accomplishments detailed in this report.

We thank you for the opportunity to share this information with you.

Sincerely,

Tim Holden Chairman

Mike Negra Member

Mary Isenhour Member

05 A N N U A L R E P O R T

FY 2018 ? 2019

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