ANNUAL 2021 2020 REPORT

1 REPORT20202021 ANNUALCONTROL BOARDPENNSYLVANIA LIQUORThe 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 MISSIONANNUAL REPORT FY 2020 20210304-09 Introduction04-05 Message from the Board06-07 Board Biographies08 Executive Director Biography08 Executive Team09 Organizational Structure10-11 Financial Highlights12-19 Fine Wine & Good Spirits Sales Highlights20 Legislative Synopsis21-2 3 Retail Operations24-35 Marketing & Merchandising36-37 Distribution 38-40 Wholesale Operations41 Information Technology Services42-51 Regulatory Affairs52-55

2 pennsylvania Producers56-57 Administration58-61 PLCB Management s Discussion and Analysis62-89 Financial Statements90-104 Appendix: Stores Ranked by Total Dollar Sales, FY 2020-21105 Research NotesTABLE OF CONTENTSANNUAL REPORT FY 2020 202104 MESSAGE FROM THE BOARDDear Fellow Pennsylvanians: We re pleased to present you with the pennsylvania Liquor Control Board s (PLCB) Fiscal Year 2020-21 ANNUAL REPORT . This publication outlines the PLCB s operations, highlights popular products and sales trends and shares financial results for the period of July 1, 2020, to June 30, fiscal year 2020-21, the PLCB achieved record net income and the largest ANNUAL sales increase in PLCB history, with sales of $ billion (including liquor and sales taxes) reflecting a $ million or increase over the prior year.

3 Additionally, fiscal year 2020-21 sales were $ million or higher than the PLCB s previous (pre-COVID-19) record sales of $ billion in fiscal year 2018-19. Net income for the year totaled a record $ million, $ million or higher than fiscal year 2019-20. Contributions to the General Fund, which finances pennsylvania s schools, health and human services programs, law enforcement and public safety initiatives, among other important public services, totaled $ million. Revenues and contributions are summarized on pages 10-11 of this REPORT , while detailed financial reports are available beginning on page 62.

4 As the PLCB continued to navigate the impacts of the COVID-19 pandemic, activities for fiscal year 2020-21 focused on adapting to a new normal for conducting business and making strategic investments and plans to modernize infrastructure to enable continued growth. Ongoing communication among employees, suppliers and licensees enabled the PLCB to adapt strategically to sustained supply chain constraints to optimize product availability for customers. The opening of a new distribution center in Philadelphia allowed the PLCB to serve southeastern pennsylvania through a larger, state-of-the-art facility better located for receiving and delivering goods.

5 The new facility which serves Fine Wine & Good Spirits (FW&GS) stores, licensee service centers and licensees participating in the Licensee Delivery Program (LDP) holds double the amount of product as the former distribution facility and is equipped to accommodate projected growth for the Philadelphia-area market. See pages 36-37 for new facility e-commerce growth prompted the commission of an independent analysis of the PLCB s e-commerce fulfillment center that resulted in the implementation of new strategies that yielded significant gains in terms of operational efficiencies, process improvements and cost savings.

6 We hope Pennsylvanians have taken advantage of the broad selection and exclusive offerings at More information on these changes is available on page reopening of the majority of FW&GS stores as of the beginning of the 2020-21 fiscal year marked a return to in-store shopping and the chance for customers to experience products in a traditional retail setting, as well as online through Ongoing safety protocols instituted at the outset of the pandemic remained in place through 2020-21, facilitating consumer confidence in a safe return to shopping in REPORT FY 2020 202105To position the agency to successfully meet future growth, the PLCB instituted changes to its organizational structure.

7 Under leadership of the PLCB Board and newly appointed executive director Michael Demko, business units were realigned with organizational needs in support of current projects and future the goal of modernizing technology and organizational infrastructure through 2023, the PLCB embarked in fiscal year 2020-21 on design of an entirely new enterprise resource planning (ERP) platform. Through the design and implementation of new, integrated, cloud-based systems dubbed Project New Horizon the PLCB will transform the way it does business and reports sales and revenues through various channels.

8 As part of the new ERP, the PLCB will replace its current retail e-commerce platform, , as well as its Licensee Online Order Portal (LOOP). Other highlights and key PLCB achievements during the fiscal year include: The opening of two new Premium Collection stores within historic landmarks The Granary in Philadelphia and the Produce Terminal Building in Pittsburgh marked exciting milestones for the PLCB in 2020-21 and allow customers to experience history while shopping in FW&GS stores. For photos and highlights, see page 22. FW&GS store renovation efforts, which continued throughout the pandemic, resulted in more than 80% of stores statewide remodeled as of the close of the fiscal year.

9 Information on store operations and enhancements is available on pages 21-23. Dollar sales for canned and non-canned ready-to-drink (RTD) beverages increased by over the prior year with sales of canned RTD wines and spirits increasing by To learn more about the increasing popularity and growth of this product segment, see page 27. Continued wholesale business growth resulted in a increase in the number of licensees holding wine expanded permits, with the addition of new grocery and convenience stores accounting for 70% of total year-over-year growth.

10 Read more on pages 38-40. The release of the PLCB s biennial REPORT on Underage and High-Risk Drinking detailed trends and rates of consumption for underage and college students and outlines statewide education and prevention programming by various organizations to address alcohol-related issues. The REPORT is available under the Education section of The PLCB awarded $ million in grant funding to support alcohol education initiatives to reduce underage and dangerous drinking and approved $2 million in grants in support of pennsylvania s wine and beer industries.