INSIGHT. Helping Lift the Spirits: Pennsylvania s Newspapers and Alcoholic Beverage Advertising. Marketing and Research Newsletter PAGE 4 PAGE 8

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1 Learn more about the liquor stores and beer distributors in PA PAGE 3 Volume 3, Issue 1 September/October 2009 Find out where PA s beer, wine and liquor stores are advertising PAGE 4 Newspapers are the preferred medium of beer purchasers PAGE 8 INSIGHT Marketing and Research Newsletter Helping Lift the Spirits: Pennsylvania s Newspapers and Alcoholic Beverage Advertising by PNA Legal Department Great news for Pennsylvania s newspapers! In a Dec. 6, 2006, opinion from the Pennsylvania Attorney General s office (which was requested by the Liquor Control Board), the Attorney General found that the Liquor Code does not prevent licensees from advertising alcohol products and prices in newspapers, including community papers, as long as the paper is not owned, operated, or controlled by the liquor licensee. Although the term community paper is not defined in the Liquor Code, the LCB interprets the term broadly to include publications, free or paid, that are not owned, operated, or controlled by the liquor licensee. Based on this opinion, it should also be permissible to distribute a price list as an insert in newspapers or other publications (as long as they are not owned, operated, or controlled by the liquor licensee). To ensure that your advertisers are compliant with the regulations set forth regarding alcoholic beverage advertising, please review and follow the general rules listed below: Any advertisements of price may not contain any of the following: False, deceptive or misleading statements Statements disparaging the products of competitors continued on page 6

2 Page 2 Facts about Pennsylvania s Liquor Control Board The PLCB is the largest purchaser of wine and spirits in the United States, and passes significant volume purchase discounts on to customers. The PLCB operates approximately 621 stores, which are leased from private landlords, infusing more than $38 million into the Pennsylvania economy. There are more than 20,000 businesses in Pennsylvania licensed by the PLCB to handle beverage alcohol. The PLCB has an established formal bureau for alcohol education, which provides educational material to youth, legal consumers and beverage alcohol servers. The PLCB funds grants to colleges and universities, communities that host these institutions, municipalities, and their organizations such as law enforcement departments and non-profit organizations to develop and/or maintain environmental management prevention strategies and other prevention strategies proven to reduce dangerous and underage drinking. The Pennsylvania State Police Bureau of Liquor Control Enforcement is responsible for the enforcement of all liquor laws. The PLCB fully funds this function out of operational revenues. The PLCB policy of zero tolerance for sales to minors and intoxicated individuals has resulted in store employees challenging, or carding, 1,001,000 suspected minors in fiscal year This policy and effective implementation are considered to be an excellent deterrent to underage drinking in Pennsylvania. There is NO incentive to sell to minors. ANNUAL ADVERTISING BUDGET for beer, wine and liquor stores in Pennsylvania is approximately 4.9 percent of retail sales. IRS SOI TAX STATS for beer, wine, and liquor stores [ ] ALCOHOLIC BEVERAGE FUN FACTS: Among the 64 percent of Americans who consume alcohol, 34 percent name wine as their beverage of choice (up from 27 percent in 1992), versus 40 percent for beer and 22 percent for hard liquor. [Source: MarketingDaily, Millennials Taste For Approachable Wines Drives Growth. Karlene Lukovitz, August 17, 2007.] Approximately 33 percent of all wine sold in 2007 in the United States was imported. Australia imported the most wine by volume. [Source: The Nielsen Company, May 2008.] Three-liter premium boxed wine is the fastest-growing wine packaging format, with sales increasing more than 46 percent from the previous year. [Source: Wine Business Insider, Retail Sales: Three-Liter Boxed Wine Sales an Emerging Category. April 16, 2007.] This amounts to an estimated ad budget of $89,154 per location for average size beer, wine and liquor stores in the state of Pennsylvania. To be average in this market, beer, wine and liquor stores need to spend at $23,143 per employee on advertising every year. [Source: 2009 EASI/Ad-ology Annual Receipts Analysis based the latest reported data from the IRS, US Bureau of Economic Analysis and the US Census Bureau.] Reprinted with permission 2009 AdMall and Sales Development Services, Inc.

3 Some Background on Liquor Stores and Beer Distributors in Pennsylvania Liquor stores and beer distributors in Pennsylvania sell wine, beer, and/or distilled liquors in addition to related supplies and equipment. Traditionally, the alcoholic beverages market has been subjected to a three-tier distribution system producer, distributor, retailer. But that is starting to change. The wine market is increasingly moving online. Online sales of wine in Pennsylvania are done through the Pennsylvania Liquor Control board s Web site at Out-of-state wine shipments were prohibited in Pennsylvania until Now, any winery with a limited winery license can ship directly to consumers, whether it is in state or out of state. According to Nick Hays, PLCB press secretary, the number of out-of-state wineries that have applied for a Pennsylvania limited winery license is very small. Consumers can also purchase wine online through a licensed direct wine shipper and have it delivered to the Wine & Spirits store of their choice. Because of online direct selling to consumers, some wholesalers and retailers are finding themselves left out of a loop that was set up 70 years ago - one that required producers of alcoholic beverages to sell to distributors who then sell to state-sanctioned outlets. Pricing and mark-ups were also controlled by states. As these laws begin to change and pricing becomes more competitive, wine producers are cutting out distributors and retailers. In addition, the alcoholic beverages market is still heavily regulated in that sales are restricted to consumers over the age of 21 and retailers must be specially licensed to sell alcoholic beverages. Beer is legally sold in Pennsylvania by beer distributors, bars and restaurants, and grocery stores that have a restaurant license. Wine & Spirits stores are the only retailer of wine and spirits in the state. This includes Wine & Spirits One Stop Shops located at some 19 grocery stores across the state. These retailers must correctly predict market demand and buy inventory to match demand. In addition, their marketing practices must be successful in generating demand but not be seen as influencing underage drinking. Some of the specialty retailers use tasting events as a way to generate consumer interest and in this way they compete with wineries and distilleries directly. Wine & Spirits hosts tastings in its stores as a marketing tool for wineries. Traditionally, more consumers have preferred beer over wine but the wine market has grown rapidly recently while interest in distilled beverages is usually limited to a smaller market segment. In 2007, U.S. sales of beer increased 3.4 percent, and consumption grew 1.4 percent. Wine purchases totaled million cases of wine, with sales increasing 6 percent over There are approximately 41,513 liquor stores in the United States. Page 3 [Sources:National Beer Wholesalers Association; The Nielsen Company; Wall Street Journal, Wine Sales Thrive as Old Barriers Start to Crumble. August 25, 2006, Wine Business Insider, April 7, 2008.] The average annual sales per location for beer, wine and liquor stores is $1,819,479 in the state of Pennsylvania. [Source: 2009 EASI/Ad-ology Annual Receipts Analysis based the latest reported data from the IRS, US Bureau of Economic Analysis, and the US Census Bureau.]

4 Where They re Advertising Page 4 by Marie Elena Howe, PNA According to a 2007 study by the Nielsen Co., consumers ages 21 to 30 are willing to pay a premium for alcoholic beverages. Ultra-premium spirits rank highest among millennials, as opposed to the value-priced spirits, which are preferred by consumers older than 50. [Source: Nielsen, Millennial Consumers Seek New Tastes, Willing to Pay a Premium for Alcoholic Beverages. November 26, 2007.] Reprinted with permission 2009 AdMall and Sales Development Services, Inc. NEWSPAPERS ARE ONE OF THE TOP MEDIUMS USED FOR BEER, WINE AND LIQUOR STORE ADVERTISING The top advertising mediums used by beer, wine and liquor stores in Pennsylvania are: Radio, newspaper, magazines, television, onsite special events, Web sites, direct mail and special events. [Source: Ad-ology.net. 2008] Reprinted with permission 2009 AdMall and Sales Development Services, Inc. Ever feel like reaching for that bottle of beer on Wednesdays? There might be a reason. According to Ken Wirth, hump day is the prime day for beer distributors to advertise in newspapers. Why? Wednesday ads are something papers have just always done, he said. People have come to know that when they want to look for a beer ad, they should look in Wednesday s paper. People who are looking at the ads are likely doing their shopping early in the week in preparation for the weekend. Wirth owns Beer Centre in Harrisburg, one of the local beer distributors. He said he has the same advertising options that anyone else does, including large and small newspapers, radio, television, billboards and direct mail. Though he says he hasn t done advertising through television, he finds that newspaper ads are the most effective. I was very disappointed in radio advertising. It s nice to hear your name on there, but people say hearing you isn t the same as seeing the ad in a newspaper. Ask someone over at Breski Beverage in Harrisburg which form of advertising is most effective, and you ll hear an answer that s not surprising: It depends on the age group. It also depends on the competition. Newspaper advertising works best for distributors when there are no other distributors advertising specials. When the competition is high, newspaper advertising is less valuable than radio, billboard or Internet ads. Co-op dollars also play a role in alcohol advertising. From small brewing companies, like Tröegs in Harrisburg, to large brewing companies like Anheuser-Busch based in St. Louis, retailers who mention the specific brands get a payment for the advertisement. Wholesalers help distributors get advertising and set up certain requirements that distributors must meet to get the co-op funds. The funds trickle through the whole three-tier alcohol distribution system with the brand getting the mention also playing a part. Ed Yashinsky, brewery manager at Tröegs, said that although the small microbrewery has a small marketing budget with very little going toward traditional advertising, Tröegs does participate in co-op advertising. We are in contact with wholesalers for certain periods during the year, and they tell us how much co-op advertising they will do, Yashinksy said. Wholesalers are co-opping with distributors, and we re taking on part of that responsibility. If Tröegs beers are mentioned in the ads, we jump in and support them by cutting a check to the distributor. The Pennsylvania Liquor Control Board has a comprehensive advertising program that includes the purchase of newspaper, magazine and radio ads. A current marketing arrangement with the Philadelphia Eagles allows the PLCB to place ads in the stadium at games. The PLCB does not advertise on television currently. Because the PLCB is a state agency and the only retailer of wine and spirits in the state, it uses the state s contracted ad firm and media purchasing group to place ads. Any state agency can use the services of Nieman Group for creative and Harmelin Media for placement.

5 Page 5 Raise Your Glass by Jane Hugarter, PNA Whether your preference is red or white, Pennsylvania s newspapers are a great place to advertise wine. Based on the most recent Scarborough Research reports, Pennsylvanians who have purchased wine at a Wine & Spirits store in the past month prefer their newspaper to any other competitive medium. Adults 18+ who purchased wine at a Wine & Spirits store in the past month who have used selected media in the past week: Harrisburg/Lancaster/Lebanon/York DMA Adams, Cumberland, Dauphin, Franklin, Juniata, Lancaster, Lebanon, Mifflin, Perry and York Counties 1 Philadelphia DMA Berks, Bucks, Chester, Delaware, Lehigh, Montgomery, Northampton and Philadelphia Counties 2 Pittsburgh DMA Allegheny, Armstrong, Beaver, Butler, Clarion, Fayette, Forest, Greene, Indiana, Lawrence, Venango, Washington and Westmoreland Counties 3 Newspapers (read a daily or Sunday newspaper) 250,850 Television (watched morning or evening local news) 233,822 Radio (listened to morning drive radio) 198,194 Online (visited any newspaper Web site) 67,694 Newspapers (read a daily or Sunday newspaper) 973,506 Television (watched morning or evening local news) 962,596 Radio (listened to morning drive radio) 702,656 Online (visited any newspaper Web site) 351,852 Newspapers (read a daily or Sunday newspaper) 433,342 Television (watched morning or evening local news) 418,342 Radio (listened to morning drive radio) 357,792 Online (visited any newspaper Web site) 148,756 Wilkes-Barre/Scranton DMA Bradford, Carbon, Clinton, Columbia, Lackawanna, Luzerne, Lycoming, Monroe, Montour, Northumberland, Schuylkill, Snyder, Sullivan, Susquehanna, Union, Wayne and Wyoming Counties 4 Newspapers (read a daily or Sunday newspaper) 255,144 Television (watched morning or evening local news) 241,258 Radio (listened to morning drive radio) 181,744 Online (visited any newspaper Web site) 50,224 Copyright 2009 Scarborough Research. All rights reserved. 1 Source: 2009 Release 1 Oct 08 Mar 09 Scarborough Report.; 2 Source: 2009 Release 1 Aug 08 Jan 09 Scarborough Report.; 3 Source: 2009 Release 1 Sep 08 Feb 09 Scarborough Report.; 4 Source: 2009 Release 1 Oct 08 Mar 09 Scarborough Report. From the Editor As advertising sales professionals from all mediums struggle to earn their share of the relatively limited ad dollars up for grabs in the marketplace right now, it s become more important than ever to distinguish one s self from his or her competition. Increased emphasis has been placed on relationship building and consultative sales strategies as a means of securing a piece of the pie. Another successful strategy employed by many of PNA s members in their quest to secure additional advertising dollars is to provide current and potential advertisers with quality and relevant research information that demonstrates the value and strength of newspaper advertising over that of our competition. Since the inception of Insight, information from Scarborough Research has been shared with Insight readers in hopes of helping our members facilitate an advertising sale. In this issue, we ve raised the bar by providing you with information from a second source of quality research AdMall. As always, the PNA is committed to providing our members with information that is useful as you pursue new business opportunities and secure existing ones. Please let us know if you find value in the information that we provide to you or if you have any suggestions for how we can better support you in your day-to-day advertising sales activities. Jane Hungarter Vice President of Marketing & Revenue Development Pennsylvania Newspaper Association

6 Top Product Categories For Beer, Wine And Liquor Stores In Pennsylvania Page 6 Based on sales data from 1,697 beer, wine and liquor stores in Pennsylvania, compiled by the U.S. Census Bureau s latest Economic Census, the top sales categories include: MERCHANDISE LINE % OF SALES Beer and ale 33.7% Distilled spirits (including liquor, brandy, & liqueurs) 31% Wine 27.8% Bottled, canned, or packaged soft drinks 2.4% All Others Including: All other foods (includes dry groceries, canned & bottled foods, candy, packaged snacks, bakery products, etc) 5.1% continued from page 1 Monetary comparisons of brands Bars and restaurants may: Offer one drink special per day (drink of the day), which must end by midnight Offer one two-hour happy hour each day, which must end by midnight Bars and restaurants may not: Offer two drinks for the price of one Sell an unlimited amount of alcohol for a set price (EXCEPT at catered events arranged at least 24 hours in advance by a third party) Discriminate on the basis of sex, race, national origin, or disability (No Ladies Night specials exclusively for women) Offer any discount pricing (happy hour, drink of the day) after midnight The following restrictions apply to all advertisements for alcoholic or malt beverages: The advertiser must be clearly identified in the ad. No printed advertisements are permitted within 300 feet of a church, school or public playground. No advertisements may be directed at minors to promote the illegal consumption of alcoholic beverages. Obscene advertisements are prohibited. Advertisements may not contradict the ideals of safety or safe driving programs. Licensees may not advertise any alcoholic beverages if they do not actually have a sufficient supply of the beverages on hand to meet the normally expected demands. Advertisements may not refer to the alcoholic strength of a malt beverage in any manner in order to induce consumers to buy the product. Terms such as full strength, extra strength, high proof, etc., are prohibited. This information is not intended and should not be construed as legal advice. Member newspapers should consult the PNA Legal Hotline (717) or private counsel with specific questions about alcohol advertising. Sunday Sales In 2005, Governor Rendell approved the Pennsylvania Legislature s amendments to the Pennsylvania Liquor Code that allow Sunday beer and liquor sales. Pursuant to law, the Commonwealth owns and operates wine and spirit stores while beer is sold by licensed distributors. The 2005 amendments to the Liquor Code allow the Commonwealth to sell wine and spirits at up to 25% of its state stores between the hours of noon and 5 p.m. Likewise, beer distributors can purchase a Sunday sales permit from the Pennsylvania Liquor Control Board to allow sales on Sundays between noon and 5 p.m. Prior to the 2005 amendments, state stores and beer distributors were prohibited from selling alcohol on Sunday.

7 Page 7 Pennsylvania s Newspapers Can Help Advertisers Reach Those Who are Heading Out for a Night on the Town by Jane Hugarter, PNA The most recent Scarborough Research reports demonstrate that people who have purchased beer or wine at a bar or nightclub or at a sit-down restaurant in the past month are big newspaper users. Adults 18+ who purchased beer or wine at a bar or night club or at a sit-down restaurant in the past month who have used selected media in the past week: Harrisburg/Lancaster/Lebanon/York DMA Adams, Cumberland, Dauphin, Franklin, Juniata, Lancaster, Lebanon, Mifflin, Perry and York Counties 1 Philadelphia DMA Berks, Bucks, Chester, Delaware, Lehigh, Montgomery, Northampton and Philadelphia Counties 2 Newspapers (read a daily or Sunday newspaper) 256,510 Television (watched morning or evening local news) 213,044 Radio (listened to morning drive radio) 204,284 Online (visited any newspaper Web site) 74,674 Newspapers (read a daily or Sunday newspaper) 725,698 Television (watched morning or evening local news) 764,230 Radio (listened to morning drive radio) 617,362 Online (visited any newspaper Web site) 244,126 Pittsburgh DMA Allegheny, Armstrong, Beaver, Butler, Clarion, Fayette, Forest, Greene, Indiana, Lawrence, Venango, Washington and Westmoreland Counties 3 Newspapers (read a daily or Sunday newspaper) 402,124 Television (watched morning or evening local news) 383,838 Radio (listened to morning drive radio) 313,918 Online (visited any newspaper Web site) 117,298 Wilkes-Barre/Scranton DMA Bradford, Carbon, Clinton, Columbia, Lackawanna, Luzerne, Lycoming, Monroe, Montour, Northumberland, Schuylkill, Snyder, Sullivan, Susquehanna, Union, Wayne and Wyoming Counties 4 Newspapers (read a daily or Sunday newspaper) 197,830 Television (watched morning or evening local news) 200,756 Radio (listened to morning drive radio) 131,844 Online (visited any newspaper Web site) 48,170 Copyright 2009 Scarborough Research. All rights reserved. 1 Source: 2009 Release 1 Oct 08 Mar 09 Scarborough Report.; 2 Source: 2009 Release 1 Aug 08 Jan 09 Scarborough Report.; 3 Source: 2009 Release 1 Sep 08 Feb 09 Scarborough Report.; 4 Source: 2009 Release 1 Oct 08 Mar 09 Scarborough Report.

8 Page 8 According to the most recent Scarborough Research reports, Pennsylvanians who have purchased beer at a grocery store or at a beer distributor in the past month read newspapers more than they engage with any other media type. Adults 18+ who purchased beer at a grocery store or at a beer distributor in the past month who have used selected media in the past week: Selling the Suds Harrisburg/Lancaster/Lebanon/York DMA Adams, Cumberland, Dauphin, Franklin, Juniata, Lancaster, Lebanon, Mifflin, Perry and York Counties 1 Newspapers (read a daily or Sunday newspaper) 110,604 Television (watched morning or evening local news) 103,374 Radio (listened to morning drive radio) 100,696 Online (visited any newspaper Web site) 34,188 Philadelphia DMA Berks, Bucks, Chester, Delaware, Lehigh, Montgomery, Northampton and Philadelphia Counties 2 Newspapers (read a daily or Sunday newspaper) 482,306 Television (watched morning or evening local news) 402,296 Radio (listened to morning drive radio) 327,226 Online (visited any newspaper Web site) 196,106 Pennsylvania s Newspapers Can Help! by Jane Hugarter, PNA Pittsburgh DMA Allegheny, Armstrong, Beaver, Butler, Clarion, Fayette, Forest, Greene, Indiana, Lawrence, Venango, Washington and Westmoreland Counties 3 Newspapers (read a daily or Sunday newspaper) 177,964 Television (watched morning or evening local news) 129,678 Radio (listened to morning drive radio) 128,330 Online (visited any newspaper Web site) 47,036 Wilkes-Barre/Scranton DMA Bradford, Carbon, Clinton, Columbia, Lackawanna, Luzerne, Lycoming, Monroe, Montour, Northumberland, Schuylkill, Snyder, Sullivan, Susquehanna, Union, Wayne and Wyoming Counties 4 Newspapers (read a daily or Sunday newspaper) 106,818 Television (watched morning or evening local news) 103,192 Radio (listened to morning drive radio) 47,502 Online (visited any newspaper Web site) 24,322 Copyright 2009 Scarborough Research. All rights reserved. 1 Source: 2009 Release 1 Oct 08 Mar 09 Scarborough Report.; 2 Source: 2009 Release 1 Aug 08 Jan 09 Scarborough Report.; 3 Source: 2009 Release 1 Sep 08 Feb 09 Scarborough Report.; 4 Source: 2009 Release 1 Oct 08 Mar 09 Scarborough Report. Upping the Ante An advertiser can attract more attention to their ad by listing additional items available for sale at their location within their ad copy. These items might include: Domestic and imported beer, and wine Party supplies Spirits Crystal glassware Keg beer Gourmet foods Cigars and cigarettes Wine tasting Decanters Tim Williams, President, timw@pa-news.org Jane Hungarter, Vice President of Marketing and Revenue Development, janeh@pa-news.org Lisa Knight, Vice President of Advertising Sales, lisak@pa-news.org Kevin Wert, Director of New Business Development, kevinw@pa-news.org Matthew Caylor, Account Executive, Interactive, matthewc@pa-news.org