This Economy: An unlevel playing field for beer sellers

State Sen. John C. Rafferty Jr.'s campaign to change the way beer is sold in Pennsylvania might sound like a step in the right direction for the state's convoluted alcoholic-beverage control system.

But to Paul Egonopoulos, owner of Brewer's Outlet of Chestnut Hill and Mount Airy, the plan to allow supermarkets to sell beer in cases and six-packs sounds more like a death sentence.

"Rafferty's bill essentially is a way for supermarkets to take an industry away from small businesses," said Egonopoulos, who bought his store in July 2007.

The overhaul proposal would also allow beer distributors to sell six-packs, a right that beer distributors have long sought, but that would go nowhere near giving them a decent shot at competing with giant supermarket and convenience store chains.

When Rafferty said of the reaction to his bill that "there is certain fear of change," as he was quoted in The Inquirer last week, he failed to see the significance of the tsunami that might be sweeping toward beer distributors.

It is one thing to have a business evaporate because of new competition from technological change (Internet anyone?) or from evolving consumer tastes. It is another to face the possibility of being wiped out because a politician in Harrisburg decides to reshape the market.

Consider a couple of the restrictions under which beer distributors have operated for decades.

For one, they are allowed to sell only beer (in certain package sizes), soda, juice, water, tobacco products, and lottery tickets. The proposed law would allow them to sell six-packs and 12-packs, just as it would do for supermarkets, but it would not allow beer distributors to compete with other supermarket aisles.

Here's another: Did you ever wonder why there are no chains of beer distributors in a world where all sorts of businesses consolidate to get better prices from suppliers? Pennsylvania law prevents beer distributors from having more than one store.

So how are beer distributors going to compete with the buying power of chains of 500 stores and more? "It's like going into a ring with 10 sumo wrestlers [and being told] you should fare well," Egonopoulos said.

Paul Farthing, who owns Chal-Brit Beverages in Chalfont, said he expected beer in supermarkets to go the way soda has gone.

Fifteen years ago, Farthing said, soda sales accounted for a quarter of his business. Now it might be 5 percent. "It's gotten eroded away by the supermarkets" that sell soda at retail for less than he can buy it wholesale, he said.

Michael Adelizzi, the second-generation owner of Narberth Beverage in Narberth, would love the chance to sell six-packs. With many craft beers from breweries such as Weyerbacher in Easton, Flying Fish in Cherry Hill, and Dogfish Head in Delaware costing more than $40 a case, he finds some customers hesitating to take the plunge on a new beer.

Selling six-packs would solve that problem - unless beer drinkers buy all their trial six-packs at the local supermarket.

The Pennsylvania legislature created a monster when it set up the state system to control the distribution and sale of liquor, wine, and beer more than 70 years ago. Because nearly every aspect of the system is controlled, any change is likely to hurt one or another of the system's players. Of course, they fight change tooth and nail, as the beer distributors are doing now with their limited resources.

There is a precedent for big changes in a regulated industry in Pennsylvania: electricity deregulation in the 1990s. What happened then? Peco Energy Co. was allowed to capture $5.26 billion in "stranded costs" - investments not expected to pay off because of the changes in the rules governing the electricity market.

Maybe we need a stranded-costs program for Egonopoulos and other beer distributors.