Colonel BULLINGTON. No, sir. I do not think that there is any regular formula as to profits that the monopoly States charge. I think it is a question of merchandising and what a man feels you should get out of an operation of that kind. In other words, in our State we figure that to do a retail business profitably and handle it in a manner in which it should be handled we want a profit of 3313 percent on the selling price, which is a mark-up of 50 percent. Some of the States have a high mark-up, some have a low mark-up. This association of which I happen to be president doesn't dictate any question of terms or prices or anything of that character.

Mr. Davis. To you.

Colonel BULLINGTON. We meet and consult, and that is about all. Each one is a sovereign State, each State handles its own business as it sees fit.

Mr. Davis. You made no investigation whatever of the prices to the consumer in any of the other States.

Colonel BULLINGTON. No; but we know that our prices, as a rule, are lower. In Virginia, for instance, it is lower than in some of the other States, than in the open license States. We don't follow any ups and downs in the market. We have no cut prices; we don't have any cut sales. It is a straight price, and they pay that or leave it. There is no effort made to promote sales. Mr. Davis. You don't do any advertising?

. Colonel BULLINGTON. No, sir. Speaking for my own State, .we would be very happy if our sales were a million or two million dollars less if we knew that business wasn't going into illegitimate channels. We are not interested in promoting or furthering the sale of whiskies; we are simply interested in supplying an actual demand that is there.

Mr. DAVIS. You don't handle beer?

Colonel BULLINGTON. No; we handle beer in our State but not through our commission. We issue the licenses and police it, but that goes into the tax

department. Mr. Buck. Judge Davis, on the point you have asked, we have a chart, and I would just as soon set it up now and put it in the record so long as you have raised the question.

This chart represents what we believe to be the consumer's cost on a given-type brand of whisky in a monopoly State as against the consumer's cost in what is known as an open State, the same product, per quart. The figures are based on a blended whisky, 20 percent, 114 years old, straight whisky; 5-percent 5-year-old straight whisky; 75-percent grain neutral spirits, ethyl alcohol; and a quart is 90 proof. It gives the rectifier's cost and profit. You see, in this case you will notice the terms are “Rectifier's cost” and “Profit,” whereas in the other charts it was “Distiller's costs” and “Profits.” The reason for that is that the maker of blended whisky is known as a rectifier, whereas the other is a straight whisky.

(The chart referred to was marked “Exhibit No. 418” and is included in the appendix on p. 2698.)

Mr. BUCK. The tax difference is due to the fact that in the open State there is a State tax, whereas in the monopoly_State that tax is charged into the profit if it is a tax, of course. The total figure is $2.05 a quart as distinguished from $1.55 a quart. I just put that in because you raised that point.

Mr. Davis. Is that based upon the price quotation made the

Mr. BUCK (interposing). That is based on current market; I would say,

a few days old. Acting Chairman REECE. I notice in the license State column, Mr. Buck, State and Federal taxes are shown to be 88 cents.

Mr. BUCK. That is right.

Acting Chairman REECE. In the monopoly State column, the Federal tax would be only 63 cents. That means then, that the State tax is the difference.

Mr. BUCK. No.
Acting Chairman REECE. Twenty-five cents?

Mr. Buck. Under the monopoly State system, where the State buys the liquor and distributes it, of course, there is no tax levied; the monopoly is operated to take the place of the tax, and that item is charged in. The State derives its profit.

Acting Chairman REECE. Yes; I understand that, but in the license State column, as a part of the cost of manufacture and distribution there is an item of State tax of 25 cents a quart. That is my question.

Mr. Buck. That is right. That is based on the highest State tax that I know of—that is a dollar-a-gallon tax.

Acting Chairman REECE. So to get on an equal basis, whatever the profit which might be charged by the commission in a monopoly State, there should be a reduction of 25 cents, which was comparable to the average State tax.

Mr. Buck. That is true as to profit. Of course, that wouldn't affect the consumer's price.

Representative WILLIAMS. Do I understand that you deal only in blended whiskies?

Mr. BUCK. Oh, no. This chart is only blends.

Representative WILLIAMS. You deal in straight whisky and bottledin-bond?

Colonel BULLINGTON. We carry everything in the alcoholic-bever,
Representative WILLIAMS. How do you get your prices?
Colonel BULLINGTON. When we ask for prices?
Representative WILLIAMS. Yes.

age line.

METHOD OF PURCHASE BY VIRGINIA ALCOHOL BEVERAGE CONTROL BOARD

Colonel BULLINGTON. We have a form that we submit to the distiller. We ask for a lot of information as to his financial rating, his representative, the number of the distillery, a lot of information of that kind. Then we ask for prices. We send in this thing; he fills in his prices and gives us his base price, f. o. b. distillery, and then he gives us the freight rates in cars and less than cars and then carried out to its logical conclusion to the delivered price at Richmond.

Representative WILLIAMS. Do you ask for prices from different companies?

Colonel BULLINGTON. We are purchasing probably from 150 companies, so naturally we have prices from all of them.

Representative WILLIAMS. How has the price varied, say, on blended whisky?

X

in-bond rye.

Colonel BULLINGTON. Well, the price has been gradually going down right straight along.

Representative WILLIAMS. I mean on different brands. What is the range of price of the different brands that you pay?

Colonel BULLINGTON. I can give you my sales price, which will give you some idea as to the cost price.

Representative WILLIAMS. That would be your cost price with 3313 percent added.

Colonel BULLINGTON. This is our sales price. Our sales price, for instance, oh, we will say, runs on rye whiskies, bottled in bond, from $2.40 today to $2.75 in quarts. There will be material changes in those prices on the issuance of our next list. We issue a list next month, and they will be lower by 10, 15, or 20 cents.

Representative WILLIAMS. What is the range on bourbons?

Colonel BULLINGTON. On bourbons they run from $2.60 to $3.10, and there would be materially lower prices on those goods probably within the next 30 or 60 days.

Representative WILLIAMS. Approximately how many brands would that cover?

Colonel BULLINGTON. In bourbons it would cover two, three, four, five brands of bourbons; one, two, three, four, five brands of bottled

Representative WILLIAMS. And you get those different brands from different companies ?

Colonel BULLINGTON. Yes, sir.

Mr. BUCK. Mr. Bullington, would you file that price list with the committee,

so that it might be printed in the record ?
Colonel BULLINGTON. If you desire it; yes, sir.
Mr. BUCK. This is for the State of Virginia.
Mr. Davis. That is the current price list ?

Colonel BULLINGTON. The prices effective February 1, which will be in effect until we issue another list, which will probably be May 1.

(The Retail Price List No. 50 for Commonwealth of Virginia was marked "Exhibit No. 419" and is included in the appendix on p. 2698.)

Acting Chairman REECE. As I understood, you made your prices so as to allow for a 3313-percent profit.

Colonel BULLINGTON. Profit; that is, profit on selling.
Acting Chairman REECE. That is, so to speak, a gross profit.
Colonel BULLINGTON. Yes, sir.

Acting Chairman REECE. Out of that should be deducted the cost of administrative, rentals, and so forth.

Colonel BULLINGTON. Yes, sir; that is the gross profit. Am I a witness for Virginia or for the conference? I am mixing things up here for the organization. I didn't know which was which. As far as Virginia is concerned, that is the profit, and out of that go all expenses; for instance, we have an inspection and enforcement division of over 100 men. We find that with all of the activity, with all the stores, with the low prices at which we are selling whisky, bootlegging is still going on in our State in a big way. I think last year we closed up about 1,400 stills.

Acting Chairman REECE. Do you have the information or are you able to estimate what part of the 331/2 percent profit would be consumed by the cost of distribution?

Colonel BULLINGTON. I think I can tell you what the profit is; yes, sir. Our profit last year for the fiscal year ending June 30, 1938, was $4,940,000, speaking for Virginia.

Mr. Davis. That was your net profit?
Colonel BULLINGTON. That was our net profit.
Acting Chairman REECE. What was the volume of the business?

Colonel BULLINGTON. The volume of our business was $17,000,000 in net sales. We made on our operation about 27 cents on the dollar sales.

Mr. Davis. In other words, the cost of distribution averaged 8 cents on the sales.

Colonel BULLINGTON. No. Our expense of doing business, yes.

Mr. Davis. No; it would be 6 cents. In other words, you said there was a gross profit of 33 and your net profit was 27.

Colonel BULLINGTON. Our total administrative and general expenses; for instance, it cost us $0.26 to operate the stores; it cost us less than 112 percent for general office expenses; it cost us about the same money for inspection and enforcement expenses; for garage expenses it cost us 3.162; the direct selling expense was 6.217, which made a total expense of less than 912 percent on the total volume of business.

Mr. BERGE. You said a few minutes ago that you bought from about 150 different companies.

Colonel BULLINGTON. I can tell you exactly.
Mr. BERGE. Approximately, I don't care.

Colonel BULLINGTON. We probably purchased from less than 100 companies during the fiscal year ending 1938.

Mr. BERGE. You get price quotations from each company?
Colonel BULLINGTON. Yes, sir.

Mr. BERGE. Is there ever' any bargaining over prices or do you accept the quotations they send to you the first time?

Colonel BULLINGTON. They may quote, but we buy what we think will sell on our market, and what we think is salable and at what we think is a fair and right price.

Mr. BERGE. Do you know whether you are getting quotations that are comparable to the same as they quote dealers in Štates that are on the license system?

Colonel BULLINGTON. We have no way of definitely proving that, but we are doing this, we are checking on that very closely and we know that the policy of some of the concerns is to quote the same base price at distillery—that is the information that comes to us.

Mr. BERGE. You think then that now you are getting whisky at the same prices that they are quoting?

Colonel BULLINGTON. We hope so.

Mr. BERGE. Have you ever had any reason to believe that they were charging you more than dealers in States in the license system?

Colonel BULLINGTON. That is one of the reasons for the formation of this organization of States so that we could get that information. We are setting up today an exchange of price information so we will have that data, we hope.

Mr. BERGE. Prior to the formation of that association, at any time since Virginia has permitted the sale of liquor, have there been any differences with the distillers over prices of liquors?

Colonel BULLINGTON. If we are not satisfied with the price we don't pay it; we are in this position, that we don't have to buy a brand we don't think there is a demand for. We don't allow any promotion work of any kind.

Mr. BERGE. Have there been any major controversies with the distillers?

Colonel BULLINGTON. We have had no major controversy, but questions that have come up that have generally been adjusted satisfactorily.

Mr. BERGE. Have there ever been any instances of rebating on sales that were previously made at a figure which the State thought was too high, or thought subsequently was too high?

Colonel BULLINGTON. I think we have had probably one or two cases of that kind, but it has been adjusted and, as a rule, an explanation has been made and we thought it was satisfactory. If it wasn't we would discontinue doing business with that concern.

Mr. BERGE. Those were instances where the State thought it was overcharged and insisted on a rebate ?

Colonel BULLINGTON. Insisted on an adjustment if we felt we were entitled to it. In some instances we were not entitled to it and we didn't get it, but in the main our relations with the distillers have been, I think, fairly fair and equitable.

Mr. Davis. Do you happen to have on hand a price list of approximately a year ago, or say 2 years ago?

Colonel BULLINGTON. Yes, sir.

Mr. Davis. Would you furnish those to the committee, or to Mr. Buck to file with the committee?

Colonel BULLINGTON. I would be very glad to send them to you.

Mr. Davis. I think when they are received they should go in. In other words, the price lists of a year ago and 2 years ago, or approximately that.1

Colonel BULLINGTON. Of course, there has been a change in brands in that time. I might say there has been a change of course in the formula of some of those whiskies, in proof and quality.

Acting Chairman REECE. How much whisky do you sell, measured in gallons in a year? That is last year, for instance ?

Colonel BULLINGTON. We sold the year, not the fiscal year but the calendar year 1938, a total of 2,614,000 gallons, which was purchased in brands which amounted to 272 brands, that is calling a quart as a brand and a pint as a brand, as an item.

Acting Chairman REECE. Are there any other questions?

Mr. BUCK. Colonel, I am still not entirely clear on what happened as a result of these conferences with the distillers. You say that you found that they were giving one price to the open States and another price to your State, for instance. That was the cause of the organization of the committee.

Colonel BULLINGTON. That is one of the causes of the organization of our association, the question of prices, and the question of exchange of information between the different States on laws and this thing and that thing.