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LCB's wine kiosk experiment may be ending

HARRISBURG - The state Liquor Control Board's one-year experiment with wine kiosks may soon be coming to an end at a supermarket near you.

HARRISBURG - The state Liquor Control Board's one-year experiment with wine kiosks may soon be coming to an end at a supermarket near you.

The LCB claims the Conshohocken-based contractor that provided the kiosks owes the state nearly $1 million.

The contractor disputes this. But the liquor board has warned that if its differences with Simple Brands L.L.C. can't be resolved within the next 45 days, it will "cease all kiosk operations," according to letters between the board and the company obtained by The Inquirer.

Though ending the kiosk era would deliver a hard knock to the board's effort to operate more like a business, particularly as it tries to fend off threats of privatization, it might ease some criticism leveled at the agency. The LCB has endured jokes and ridicule for the 10-foot-high machines that require customers to blow into Breathalyzers.

Asked about the money dispute Thursday, Joe Conti, the board's chief executive officer, said: "We are going to continue working in good faith to try to make this program work . . . but it appears the working relationship [between the LCB and Simple Brands] has diminished in recent weeks."

Calls to Simple Brands officials were not returned Thursday. A woman who said she was unaffiliated with the company answered the door at its office in Conshohocken and said nobody from Simple Brands was there. The office looked empty. The lettering on the glass door said "Simple," and that aptly described the reception area.

Under the contract, Simple Brands was to provide the machines at no cost to the state but would share in the proceeds. The LCB contends it was to be reimbursed for any expenses it incurred, such as for stocking or wiring the kiosks.

That has not happened, according to a letter sent Wednesday by Faith Smith Diehl, chief LCB counsel, to the lawyer for Simple Brands.

Diehl wrote that the LCB and the company had ironed out an agreement designed to minimize any risk for the state in "undertaking this novel and exciting - but clearly untested endeavor." Pennsylvania is the first state to experiment with wine kiosks.

The attorney's letter went on to state: "Please be advised that if Simple Brands does not cure the problems within 45 days of this notice," which would be Sept. 20, "the board will terminate the contract . . . and cease all kiosk operations."

Not so fast, Simple Brands countered.

In a recent letter to the LCB, the company's attorney claimed the state agency had incurred unnecessary expenses and "improperly" billed them to Simple Brands. One example, according to the company: The board charged $184,888 for various kiosk-related hardware and software, including 97 routers, plus maintenance, during a period when only three wine kiosks were up and running.

Another example it gave: The board charged $30,000 so it could hire an outside consultant to ensure that Simple Brands was encrypting data from customers' credit cards even after the company had spent a lot of its own money doing so.

"There is another side to this story," Simple Brands' attorney, Alan S. Fellheimer, said Thursday. He declined to elaborate.

Under the contract, the LCB pays Simple Brands 50 cents for every bottle sold, and must lease space for the machines and monitor them by video link. Customers pay an added $1 fee on every transaction that goes to the company. Simple Brands also makes money by selling advertising on the machines.

Despite the elaborate terms of the contract - and high expectations from both sides - the kiosks have not fared well.

The idea grew out of the liquor board's aggressive strategy over the last few years to operate more like a business and less like a bureaucracy. The agency has spent tens of thousands of dollars to spiff up stores, boost wine selection, and train employees to be more customer-friendly. It has also opened upscale stores to cater to a more discriminating crowd.

The kiosk program was launched last summer as a way to offer consumers one-stop shopping: pick up a bottle of wine while at the grocery store.

There were problems from the start. The contract came under fire because Simple Brands was the only bidder and two of its investors had ties to former Gov. Ed Rendell, having contributed nearly a half-million dollars to his political campaigns over a decade.

On the consumer end, it took time for shoppers to get used to buying wine from a machine - one, in particular, that required them to show ID and take a breath test.

Then, the LCB abruptly shut the kiosks down last year right before the winter holidays. It cited mechanical problems, including kiosks that took customers' money but failed to give up the wine.

The shutdown prompted Auditor General Jack Wagner to launch an audit of how the kiosks were working and how much money they were making for the state. The audit is not yet complete.

The machines were brought back online, but consumer confidence has lagged, along with sales in some spots. And in June, a major supermarket chain pulled out of the program. Wegmans said the machines often malfunctioned, leading to a significant number of customer complaints. Wegmans had hosted 10 of the 32 wine kiosks statewide; those 10 included stores in Warrington, Downingtown, and Easton.

"We had hoped that our customers would find the kiosks to be a valuable addition to their shopping experience," Wegmans said in a statement at the time, "but that proved not to be the case."