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Council voices support for the “Reform on Tap” Act

House Bill 518 supports the State’s breweries by lifting outdated restrictions on selling and purchasing craft beer

ROCKVILLE, Md., February 22, 2018—The Montgomery County Council sent a letter to the chair of the Economic Matters Committee, Delegate Dereck E. Davis, in unanimous support of Maryland House Bill (HB) 518, the Reform on Tap Act. HB 518 would lift restrictions on the selling and purchasing of beer at craft breweries throughout Maryland.

The House Economic Matters Committee has scheduled a hearing for HB 518 on February 23 at 1:00pm.

“Local breweries have a big impact on Montgomery County’s economy,” said Council President Hans Riemer. “Not only have they created good middle-income jobs, they have helped revitalize urban districts such as Silver Spring, bring life to industrial districts in Rockville, and create destination tourism in our farmland reserve communities such as Laytonsville and Brookeville. But there is much more to be done to make our State truly supportive to the industry. Our goal should be for Maryland beer to gain a much larger share of the market, both in Maryland and across the Country. The Reform on Tap proposals accomplish that objective.”

The complete text of the letter is below.


Dear Chair Davis,

I am writing as Council President to express the unanimous support of the Montgomery County Council for HB 518, “Reform on Tap.”

In recent years Montgomery County has been fortunate to benefit from the success of a number of new breweries, including Denizens, Seven Locks, Waredaca, Brookeville Beer Farm, and Saints Row. At least four more breweries will open their doors in 2018 (Silver Branch, Astro Lab, True Respite, and Brawling Bear). Nevertheless, we are presumably at the earliest stages of growth in our industry. Loudon County, by way of comparison, with just one third our population, has more than 30 breweries, cideries, and distilleries.

While our breweries may be small relative to the global corporate giants of the beer industry, they have a big impact on our local economic development. They have helped revitalize urban districts such as Silver Spring, bring life to industrial districts in Rockville, and create destination tourism in our farmland reserve communities such as Laytonsville and Brookeville. Breweries are a key part of our creative economy landscape. They naturally produce placemaking and night-time economy benefits that help us attract and retain talent by providing the quality of life that many employees and employers are looking for.

Our local breweries have also created their own good middle-income jobs in manufacturing, management, marketing, and sales. Statewide studies have shown that Maryland brewers alone will generate nearly a billion dollars in economic impact by 2019, contribute over eleven million dollars in state tax revenue, and capture between 7.6% – 11.5% of all beer sales. Those figures are sure to rise, and it should be our policy goal to see them rise.

That is why we have worked hard to support a brewery industry here, and look forward to its robust long-term growth. Working in partnership with our Maryland Delegation, the County has taken many steps to support breweries include:

  • Exempting breweries from water and sewer connection fees
  • Expanding a County economic development incentive program (a grant to defray the cost of new leases) to include breweries
  • Allowing breweries as a primary use in commercial and industrial zones
  • Allowing craft breweries to self-distribute
  • Reducing and/or eliminating food-to-alcohol ratios

These reforms, when taken as a whole, have made Montgomery County and the State much friendlier to local production. Many entrepreneurs in the sector call Montgomery County “the best place in the region” to open a business. But there is much more to be done to make our State truly supportive to the industry. Our goal should be for Maryland beer to gain a much larger share of the market, both in Maryland and across the Country. The Reform on Tap proposals would accomplish that objective.

Accordingly, the Montgomery County Council urges the General Assembly to adopt the business-friendly reforms in HB 518. Thank you for your careful consideration of our views.

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Councilmembers Applaud New Economic Development Incentive for Craft Breweries, Cideries, Wineries and Distilleries

Incentive program for filling Class A and B office space expands at request of Council President Riemer and Councilmember Leventhal

ROCKVILLE, Md., Feb. 1, 2018—County Executive Isiah Leggett expanded an economic development incentive for new businesses taking office space to include craft breweries, cideries, wineries, and distilleries, which is a change requested by Montgomery County Council President Hans Riemer and Councilmember George Leventhal.

Following a Council committee discussion, Council President Riemer and Councilmember Leventhal wrote to County Executive Leggett in October 2017 urging him to expand the eligibility criteria for the MOVE (Make Office Vacancy Extinct) Program, which is part of the County’s Economic Development Fund, to include businesses that produce alcohol, beer, cider, and wine. Their request noted the importance of the craft alcohol production sector to the County’s overall economic development goals and the significant financial barrier to entry for this business sector because of high capital costs. The County Executive sent a response letter on January 24, 2018 stating that he had made the change.

“Local alcohol producers such as breweries contribute to vibrant downtowns, where workers and companies want to be,” said Council President Riemer. “Because many breweries also sell beer directly to customers who walk in, they have a retail component. As a result of the retail component, these businesses were not eligible for the MOVE new lease incentive program when taking office space. Having a brewery take a ground level office space is a win-win for the County. I applaud the County Executive for changing the MOVE program to include them. This is another strong step forward for our local production industry and hopefully one more reason for entrepreneurs in this industry to call Montgomery County the best place in the DMV to start a business.”

Initial investments for craft breweries, wineries, and distilleries can reach several million dollars, which these entrepreneurs cite as one of the largest hurdles to launching successful businesses. In return for the County’s investment in these businesses, they produce good-paying jobs and contribute to the vitality of the neighborhoods they are located in.

“This regulatory change is an example of ‘government that works,’ said Councilmember Leventhal. “Craft alcohol business owners met with their local government representatives to find a new way that we could invest in their futures and the County’s economic prosperity. In addition to creating good middle-class jobs, these establishments also help to create a sense of place in our communities. This is a win-win proposition for businesses and the residents we represent.”

Building on work initiated by the County’s Night Time Economy Task Force, the Council has worked with State legislators and local businesses to address many regulatory and legal issues associated with the craft alcohol production industry including:

  • Eliminating water and sewer connection fees for craft breweries, wineries, and distilleries
  • Allowing craft brewers to self-distribute their own products;
  • Allowing craft brewers to sell growlers;
  • Repealing distance requirements of breweries from churches and schools;
  • Extending hours of operation for alcohol licenses to 2 a.m. on Sunday through Thursday and 3 a.m. on Friday and Saturday;
  • Reducing the food to alcohol ratios for alcohol licensees to allow for more flexibility;
  • Clarifying rules to allow craft breweries and distilleries in the County’s urban and light industrial areas; and
  • Allowing craft brewers to sell more beer on-premise and allowing farm brewers to self-distribute.

More information and an application for the MOVE Program

The October 2017 request from Council President Riemer and Councilmember Leventhal to County Executive Leggett

The January 2018 response from County Executive Leggett

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Testifying before Congress on Earned Sick and Safe Leave

Yesterday I was privileged to testify to Congress about Montgomery County’s Earned Sick and Safe Leave Law, which guarantees that most Montgomery County workers can earn at least seven sick days each year. The U.S. House Subcommittee on Health, Employment, Labor, and Pensions held a hearing on paid leave and I testified in opposition to a terrible proposal that would allow companies to opt out of our local law in favor of a much weaker federal standard. Please see the video below for more:

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DLC vs. Private Sector: A Wholesale Price Comparison

Throughout discussions on the Department of Liquor Control (DLC), there have been many assertions about DLC’s prices. Some claim they are too high, others claim they are lower than private competitors, but so far all of these claims have been anecdotal. Fortunately, this is an empirical question that can be tested. To provide all of us with an objective answer to this question, I asked my staff to undertake such a study. Through much painstaking work, Tommy Heyboer on my staff has completed a wholesale price study comparing the prices DLC charges Montgomery County licensees with the prices of the same products charged by private wholesalers elsewhere in Maryland. We compared DLC prices to private sector prices for 771 randomly selected products, enough to state the average price differences with 95% confidence.

The study finds that DLC’s wholesale prices on stock products are essentially equal with private sector prices elsewhere in Maryland, while DLC wholesale prices on special order products are about 10% more expensive than those products would be elsewhere in Maryland.

The Council’s Office of Legislative Oversight and staff from the County Executive’s office, CountyStat, and DLC have reviewed the study and provided extensive feedback. I want to thank them for their numerous comments, which greatly strengthened the narrative and conclusions.


DLC vs. Private Sector: A Wholesale Price Comparison1

Summary
Based on a careful analysis of Department of Liquor Control (DLC) and private sector pricing data, DLC’s wholesale stock prices are roughly equivalent to private sector prices in Maryland while DLC’s wholesale special order prices are about 10% more expensive than private sector prices. This empirical analysis a) confirms anecdotal evidence from restauranteurs and retailers and b) follows logically from the fact that DLC is layering an additional markup to special orders when purchasing them from other distributors while DLC buys most stock items directly from manufacturers. The Council’s Office of Legislative Oversight (OLO), CountyStat, and DLC reviewed this analysis and provided comments that were incorporated into the study.

Results
The following tables summarize the results.2 3

Wholesale Special Order Price Difference: DLC vs. Private Sector
Count May 2015
Price Difference
Post Markup Reduction
Price Difference
Special Order Beer 47 21.53% 12.15%
Special Order Keg 18 39.02% 39.02%
Special Order Liquor 36 -1.99% -1.99%
Special Order Wine 315 8.73% 8.73%
Total / Avg 416 10.56% 9.50%
Note: The individual product categories (special order beer, kegs etc..) price differences are not statistically valid in themselves because they do not have sufficient N. They are shown only to provide context.
Wholesale Stock Price Difference: DLC vs. Private Sector
Count May 2015
Price Difference
Stock Beer 89 -5.11%
Stock Keg 28 -7.41%
Stock Liquor 76 -0.69%
Stock Wine 162 4.51%
Total / Avg 355 0.04%
Note: The individual product categories (stock beer, kegs etc..) price differences are not statistically valid in themselves because they do not have sufficient N. They are shown only to provide context.

The data indicate that:

  • Stock prices are essentially equal between the DLC and the private sector
  • DLC special order prices are about 10% more expensive than the private sector
  • DLC stock and special order liquor prices are less than the private sector

Research Design and Methodology
DLC provided the wholesale prices for every product in its inventory. Private sector wholesale pricing data came from the Maryland Beverage Journal4 and directly from several distributors5. DLC’s inventory was separated into stock and special orders and then each list was randomized6 separately. To achieve a 95% confidence level with a 5% confidence interval, each sample had, at least, an N of 3557. Further, the samples’ split of wine, beer, and liquor closely aligns with the actual proportions of DLC’s inventory; if beer products comprised X% of the inventory, they comprised X% of the sample. This study uses frontline private sector prices from May 2015 and compares them to the DLC prices. To determine the overall price differences, this study used price differences in percentage terms of each item (where a positive percent indicates DLC being more expensive by that percent and a negative percent vice versa) and then averaged the differences for each sample.

It is important to note that DLC did decrease the markup on special order beer8 over the summer after the study was underway. To determine whether the markup reduction had a significant effect on the price difference, the study shows both the sample with May 2015 special order beer prices and the same sample with the markup-reduced prices on special order beer. The markup reduction on special order beer reduced the price difference from 21.53% to 12.15% on those products. However, it only reduced the overall special order price difference by 1%. Therefore, the markup reduction did not produce a significant effect on the overall analysis. The table above shows both results.

Since the table above shows that special order beer is between 12% or 21% more expensive and special order kegs are nearly 40% more expensive, one could argue those product types are driving the bulk of the overall price difference. While it is true that they are part of the sample, they do not “punch above their weight,” so to speak. First, special order beer and kegs comprise about 15% of the sample, which, not coincidentally, is the same percentage of special order beer and kegs in the entire inventory. Special order wine, however, comprises over 75% of the sample.

Previous Price Comparisons
While both OLO and CountyStat have performed separate price comparisons, these analyses lack the inferential power provided by a statistically significant sample. Rather, they focused on the most popular DLC products. Those analyses say some interesting things about price differences on these specific products. However, they cannot say whether the trends identified apply to moderately popular and less-popular products or more importantly, to stock and special order products more broadly. In other words, the real question, “are DLC prices more expensive?” was still largely unanswered.
Executive Branch staff asked whether the analysis should use weighted averages based on the volume of a product sold by DLC. This analysis does not follow this methodology, because it is designed to answer a very specific question: “are DLC wholesale prices higher or lower than the Maryland private sector?” A random sample of the entire DLC inventory captures the price differences over the full breadth of products.

CountyStat’s and OLO’s price analyses focused on the impact on licensees of the prices of the most popular, most high-volume items, which answers a slightly different question. It is best to view this analysis as supplementing the results of OLO and CountyStat.

If licensees are price-sensitive when making purchasing decisions (and they presumably are), relatively higher prices on special order products will likely depress sales of these products compared to lower-priced items. DLC’s sales numbers cannot reflect the absence of sales, so using weighted averages based on sales volume could skew the results. Testimony from licensees to the Ad Hoc Committee on Liquor Control supports the assertion that licensees take price into consideration when deciding which products to order.

Second and more importantly, this analysis calculates overall price difference by averaging the price differences of each individual product, not by simply averaging the average of each product category. Therefore, if one calculates the weighted average of each product category in the sample, they would find that it too equals 10.5%. That said, the price difference in each product category is not statistically significant, given the insufficient amount of N for each product category. Those numbers simply provide additional context.

It is important to note once again, that the price studies done by the Office of Legislative Oversight and CountyStat shed some insight on the question of, “What effect do price differences of the most popular items have on licensees?”. In discussions before the Ad Hoc Committee, representatives from the DLC and CountyStat sought to focus attention on price comparisons of popular items, such as the top 50 products sold in stock or special order. One key challenge for this methodology is that it does not allow us to draw strong conclusions because the sample sizes are small.

The goal was to go beyond this limited view of the pricing and draw stronger inferences on DLC pricing overall. As discussed above, this why a statistically significant sample is more appropriate.


Endnotes
1 Prepared by Tommy Heyboer, Deputy Chief of Staff to Councilmember Hans Riemer. Special thanks to the County Executive’s staff and the Council Office of Legislative Oversight for insightful comments and suggestions.
2 The average price differences of each product category (beer, kegs, liquor, and wine) are shown for context, but given the relatively small N for each individual product category, they do not constitute statistically significant results on their own.
3 Weighted averages must be used for the individual product category price differences to add up to the total average.
4 As of May 2015
5 Distributors include Bond Distributing, Legends Ltd., and the Country Vintner
6 Once separated into stock and special order lists, a random number (using the RAND() function) was assigned to each product and then the lists were ordered from small to large. The items included in each sample are, at least, the first 355 items with DLC and private sector prices.
7 An N of 355 for the sample is based on an inventory of ~4,700 stock products and ~27,000 special order products
8 The DLC reduced their special order beer markup by 28.5%. It went from 35% to 25%. See the August 2015 DLC Newslink here.