THINKING EFFICIENTLY, ACTING LOCALLY

The control system in North Carolina is unique.


At the state level, there is the North Carolina Alcoholic Beverage Control Commission. The commission, with 45 full-time employees, is in charge of the listing and delisting of spirit products and of setting spirit prices, which are uniform throughout the state. The commission issues permits and handles violations, although it is not, itself, involved in enforcement. The state commission also oversees the operation of the state warehouse, which is operated by a private contractor, LB&B Associates. The spirits stored in the warehouse never officially belong to the state. Under North Carolina’s bailment system, the product in the warehouse belongs to the supplier until it is delivered to a local board’s stores, whereupon the local board takes over ownership.


North Carolina Alcoholic Beverage Control Commission Chairman Doug Fox (left) with Administrator Mike Herring, at the Commission’s offices in Raleigh, NC.


North Carolina is a “local option” state. Voters in each county, and within each county, each city and town, decide if alcohol will be sold in their communities. Therefore, in addition to the state commission, there are 154 local alcohol beverage control (ABC) boards: 47 county and 107 municipal. Four counties in the state remain totally dry, with neither the county nor any of its municipalities voting to approve the sale of spirits.


Each county has the option of voting on whether to allow the sale of alcohol within its borders. If a county decides not to do so, then its cities and towns, or municipalities, have the option of voting on the issue within their boundaries.


If a county or a municipality votes to allow spirits sales, a local ABC board, consisting of a chairman and from two to six members, is created. Board members are appointed by their city, town or county governing authority.


In some cases, there is an overlap of both county and municipal boards. This happens when a county that was once dry votes to allow spirits. In some cases, the municipal ABC boards that already exist within that county continue to run their own stores, while the county runs its own ABC stores in other areas. In other cases, for efficiency’s sake, the local and county ABC boards merge their operations, with the approval of the state commission.


Local Boards Operate Stores

It is the local boards that actually operate the ABC stores in the state of North Carolina. There are currently 390 ABC stores in the state. The local boards and their stores must conform to the state’s ABC laws and the policies, such as pricing, established by the state commission. The state commission also oversees the financial stability of the local boards, through the use of an annual independent audit of the local boards’ operations.


Within those parameters, however, the local boards have the authority to set their own policies. For example, while state law allows ABC stores to be open from 9 a.m. to 9 p.m., it is the local board that sets the hours of operation for its own stores, within the law.


Also, while the local boards determine where their stores will be located, they need the approval of the state commission. “Generally, we’re looking to see if there is opposition to it,” explained Mike Herring, State Administrator. “The site needs to be zoned properly. There can be no conflict of interest. For example, a board member can’t own the site. We check on its proximity to schools and churches.”


While the state commission is in charge of listing spirit products that can be sold within the state, the local boards can decide which of those products to actually carry in their stores. Currently, the state commission has approved approximately 1,650 different spirit products, representing about 800 different brands, that can be sold in North Carolina.


Each local board is required to invest at least 5% of its gross profits into local ABC law enforcement. This is in addition to the 104 agents, all sworn law-enforcement officers, who work for the state-level Alcohol Law Enforcement (ALE) division of the Department of Crime Control and Public Safety.


Enforcement Options

Some local boards hire their own law-enforcement officers; others contract out with local law-enforcement agencies. For example, the Forsyth-Municipal ABC Board, headquartered in Winston-Salem, runs 12 stores in the cities and towns of Winston-Salem, Clemmons, Kernersville, Bermuda Run, Lewisville and Oak Ridge, some of which are in Forsyth County and some of which are not. It employs six full-time law-enforcement officers of its own. “We just felt that we’d have better law enforcement than if we contracted out and had officers trying to split their time [between enforcement of alcohol laws and other duties],” explained James Waddell, general manager of the Forsyth-Municipal ABC Board. The Forsyth-Municipal officers, because they check on liquor-by-the-drink, or on-premise, establishments, also handle drug and gambling crimes. They do underage “sting” operations, including at the ABC stores, and have their own drug-sniffing dog.


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The Paris Ave., Store #3, High Point ABC board, features a clean, modern, upscale design and presentation.


Meanwhile, the New Hanover County ABC Board, with eight stores, contracts with the local sheriff’s office for its law enforcement. At one time, this board had its own law-enforcement officers — and the sheriff had been one of them. “We have a good rapport. If we didn’t, maybe we wouldn’t contract out,” said Billy Williams, the county ABC board administrator, “but we have three men [from the sheriff’s office] dedicated only to ABC work. It’s a bargain for us, considering the costs and liabilities of having an employee who carries a gun, for example.”


Dealing With Violations

Violations found by either ALE officers, or officers working for local ABC boards, are handled by the state commission’s legal division. Generally, the legal division of the state commission sends a notice to the permitee who has the violation. The notice contains an offer of a settlement. For example, the fine for a first offense of selling to an underage person is $1,000. In the majority of cases, the permittee accepts the settlement and pays the fine. They can, however, request a hearing before the board, though if they do that, they might end up with a greater penalty, such as the suspension of their license. However, they might also be able to argue that they deserve a lesser penalty. “The commission in its discretion can decide, if, for example, this is the permittee’s first offense in 20 years, to lower the penalty,” said Herring.


The result of this whole complex system is that voters are allowed to decide about spirit sales within their own communities, while those spirit sales take place in a controlled, efficient and, for the benefit of the state and local governments, profitable manner, with the enforcement of ABC laws paid for by the sale of the alcohol itself.


“Business Is Good”

“And business is good,” said Herring, noting that this year, spirit sales in North Carolina surpassed the $500 million mark for the first time. The latest figures available for the boards’ fiscal year ending on June 30th, 2004, shows total spirit sales in the state of North Carolina to be up by more than 7% over the previous year. This includes an almost 6% increase in “regular” liquor sales (purchases by consumers in ABC stores) and an increase of over 12% in “mixed beverage” sales (the sale of spirits to on-premise establishments).


George Humble (left), General Manager of the High Point ABC Board, meets NCABCC Administrator Mike Herring at the Paris Ave., Store #3.


“We are in a partnership [with the local boards],” said Herring. “We work together closely.” A recent example of this was the state commission and the North Carolina Association of ABC Boards working together to help local boards improve their operating efficiency. “The local boards are making a profit, in excess of $33 million,” said Doug Fox, chairman of the state commission. However, according to a recent article by the Star-News, a newspaper based in Wilmington, NC, some of the boards are much more profitable than others. While the average profit margin of the local boards was 9.35%, four had margins higher than that, 15% and above, while a third of the boards struggled to maintain profitability at all. Recently, Fox sent letters to 47 boards, ones that had a profit margin of 3% or less, asking them to examine their operations for inefficiencies that can be fixed.


Increasing Efficiency

“I’ve also been talking to Tom Novinc, [president of the North Carolina Association of ABC Boards and chairman of the Gastonia ABC Board],” said Fox. “The association has set up an efficiency committee. The members of this committee are willing to go to a store and help.”


Novinc explained, “The six members of the committees are all people running very successful boards. If anyone is struggling, they will go in, cost-free, and do what they can to help make improvements.”


The New Hanover County ABC Board is one of the most profitable in North Carolina, with its eight stores reporting $23 million in sales per year. Four of its stores ring up approximately $3 million a year in sales each. Billy Williams, administrator, advises other boards to look at some key areas of operations. “Try to control your inventory. If you see a chance to make some extra money — like when a supplier offers a special deal — take advantage of it. Control the amount of personnel you are using. If employees are standing around doing nothing [during a slow time], you’re spending a lot in terms of salary and benefits,” he said.


The New Hanover County ABC Board also owns all eight of its store’s sites. “That’s a nice savings, too,” pointed out Williams. And these stores are built to the board’s specifications. Most are around 3,500 square feet in size, though, recently when all the stores were renovated, some of them were enlarged. The Russell Beach store, for instance, is now 4,200 square feet. “Though in hindsight, we should have made it a little bigger,” said Williams. The board is also going to move two of its stores to better locations and, in one case, it is going to tear down an existing store and rebuild a much larger store, going from 2,500 square feet to 4,850 — on the same site.


Upscale Stores

The ABC Board for the city of High Point, which operates seven stores, also keeps its locations looking good. “Our stores look just like grocery stores,” reported George Humble, general manager of the Highpoint ABC Board. “What we strive for is a very upscale, very customer-friendly environment.” The stores range in size from 3,200 square feet to 7,500, which represents the biggest ABC store in the state. And each High Point store features a theme. One store’s theme, for example, is “Celebrate.” The cordial section is decorated with artwork showing a nice dinner, the vodka section with Martini artwork, the bourbon section with scenes of a tailgating party. And there is also a “Celebrate Responsibly” sign, showing a couple leaving a bar and getting into a cab. This store, which has a 40-foot high atrium, is also decorated with a custom-made chandelier, made out of Crown Royal bottles, and a large clock, all its moving gears visible, shaped like an Absolut bottle.


“All our stores have automatic doors and a mix of flooring — hardwood, tile, carpeting — like you might see in a higher-end clothing store,” said Humble. All stores have music playing in the background and, in the two newest, Corian countertops, instead of laminate or formica, were installed.


“An upscale, comfortable shopping environment causes people to browse and stay longer,” said Humble.


Learn, Learn, Learn

Another initiative Fox has put into effect since starting as state-commission chairman in February last year is in the area of education. The state commission first created an education and training division in 2000. However, budget cuts combined with a sluggish economy curtailed full implementation. “I was a director of one,” said Danny Sellers, director of education and training. The one person he oversaw was himself. Sellers, who had been involved with alcohol education for 14 years as a state ALE (alcohol law enforcement) agent, ran training programs for the sellers and servers of alcohol and educational programs at schools.


Now, under Chairman Fox, the state commission has been able to get approval from the North Carolina General Assembly to add education staff. A total of seven new employees — six trainers and an administrative person — will ultimately be added to the education and training division. Three of the trainers are already working. One starts in January and the commission is actively looking to fill the other two trainer positions.


The division’s work is divided into two main parts: the training of those in the business of selling alcohol, such as permitees and the employees of ABC stores, and the education of the general public. All trainers work on both, with their time divided roughly equally, Sellers said.


Because ALE already runs programs aimed at high-school students, Sellers is focusing his efforts on the education of younger children. For two weeks last October, for example, the education and training division brought its A.B. Cardinal program to 15 of the state’s elementary schools, reaching between 7,000 and 8,000 children in two weeks.


Strong Youth Program

The A.B. Cardinal and the ABCs of Alcohol is a program for kindergarten through third grade. The program, which is 40 minutes long, uses a multimedia presentation and a visit from the costumed mascot of the commission, A.B. Cardinal. During the presentation, trainers give out coloring books, bookmarks, posters, trading cards and pencils.


“Before reaching high school, a child will see 360,000 TV commercials and some 2,000 of them a year will be commercials for alcohol,” said Sellers. “I don’t think you can start with education at too young an age. Children should know what alcohol is and what it is not. We don’t teach them that it is not for adults, but we do teach them that it is not for children. Studies have shown that people who drink before they are 21 can suffer from permanent brain damage. It is a health issue.”


The ABCs of Alcohol covers topics including peer pressure, what it is and how to resist it and advertising, what it is and what it is trying to do. “Alcohol commercials can and have had talking frogs and talking lizards, things even children find funny,” said Sellers. The children are also told what to do if offered alcohol: “No, go and tell,” echoing the “Stop, drop and roll” they are taught in fire-safety programs.


Another topic covered: recognizing alcoholic beverages. “We show them six pictures: three are of beer products, then one is a Snapple, one is Mike’s Hard Lemonade and one is a Mystic product: all [of the last three] look like soft drinks but Mike’s Hard Lemonade is alcohol. There are a lot of unique products out there that don’t look, sound or taste like alcohol,” said Sellers.


Targeting Parents

Sellers’s next goal is to launch a training program targeting parents. “I think there is a gap there. And parents are the first line of defense or they can be part of the problem,” he said. According to the Century Council, 65% of underage drinkers report obtaining alcohol from adults. Sellers even remembers a participant at a recent underage prevention conference commenting that he let his teenager drink alcohol. “You can rationalize, but it is still against the law,” said Sellers.


Business is good in North Carolina, with total distilled spirits sales eclipsing $500 million for the first time in fiscal 2004.


The program he is developing is something that could be done at a school’s PTA meeting. “It would cover what the laws are, what the signs of intoxication are, but also what effects alcohol consumption can have on children’s brains, the studies, the health risks,” said Sellers. “This program will give facts. This is not just a social issue. This is a health issue.” Sellers has been looking at similar programs being done in other states, such as Ohio’s “Parents Who Host Lose the Most.” He has also just received a $3,000 grant from the National Alcohol Beverage Control Association (NABCA). And the North Carolina ABC Commission is also participating in a national campaign, run by the Century Council, aimed at informing adults about the dangers of underage drinking and reminding them that it is illegal to provide alcohol to a person under the age of 21.


Training Servers/Sellers

In the area of training people involved in the sale of alcohol, such as servers, convenience store workers and ABC employees, the North Carolina Alcoholic Beverage Control Commission has been just as busy. While server/seller training is not mandatory in the state of North Carolina, the state commission can make it a condition to be met to mitigate penalties when a permitee has had a violation.


“And we do suggest doing the training at least once a year and also if there is ever an incident,” said Sellers.


In May, the education and training division of the state commission, in conjunction with ALE, began conducting free responsibility training for on- and off-premise owners, managers and employees. Monthly sessions, in both an off-premise and an on-premise version, are held at the ABC Commission complex in Raleigh. The two-hour sessions cover preventing sales to underaged and intoxicated people and include topics such as acceptable IDs, fake, altered and borrowed IDs, dram-shop laws, and, for on-premise, happy-hour laws. The sessions include the use of video and “fatal vision” goggles.


Operators, including ABC boards, can also arrange to have a class taught exclusively for their business.


“We have an absolutely wonderful staff who expend an enormous amount of energy running the commission.”
— Doug Fox,
Chairman, NCABC Commission


One reason to add staff to the education and training division is to have more classes like these. “We want to expand so that everyone can undergo this training,” said Chairman Fox.


Technology-Related Initiatives

At the state level, technology-related initiatives are also afoot. North Carolina was recently highlighted at an NABCA “Best Practices” conference for its web-based pricing software program. In North Carolina, the pricing of spirits is determined by a complicated mark-up formula set by statute. Suppliers are able to submit a price-point that they would like for their brand, but it must work out in that formula. Enter North Carolina’s web-based program. It allows suppliers to enter the case cost and freight charges for their brand, hit a button and find out what the North Carolina retail price of their brand would be. “They can tweak their case-cost and freight to get the price-point they want and then submit it to us,” explained Herring.


The state commission has also harnessed the power of the Internet to communicate with the local boards. “One hundred and thirty five of the 154 boards are now hooked up to the Internet,” reported Herring. “We communicate at all times with them via email. We also post the information, such as a change in coding or pricing, on the web, and we send out a memo, once or twice a month, repeating the information sent by email, just to formalize it.”


Additionally, the local boards send their sales information electronically to the NABCA to be compiled. And then the NABCA sends the processed information to the state commission. “With the technology available, there’s no reason it has to go through us first,” explained Herring.


Another of Fox’s initiatives is to look into increasing the pay scale for commission employees. An outside consultant has been hired to study the issue. “We have an absolutely wonderful staff who expend an enormous amount of energy running the commission,” explained Fox.


As is usual in all the states, people both inside and outside the control agency are continually looking for the best, most efficient way to handle the sale of alcoholic beverages. “There’s always a little bit of talk about [privatization] every year,” said Herring, “discussions of ‘Would private enterprise do it better?'” Last year, the North Carolina Alcoholic Beverage Control Commission answered that question by presenting information to the State’s House Select Committee. Currently, there are no active campaigns to privatize. “To date, there are no drives to make changes,” said Herring. “If it’s not broken, you don’t need to fix it.”


And the North Carolina system, though a complex melding of state and local, is anything but broken. “Our mission is control, service and revenue,” said Herring. “Service we do without advertising. Revenue we maintain by operating the stores in an efficient manner. Our system’s profits are up 13%, distributions are up 14%. A little over $33 million was distributed locally this year, with additional monies — almost $96 million in excise tax, more than $25 million in sales tax and $10 million in mixed-beverage tax — going to the state.”


Summed up Humble of the High Point ABC Board, “We sell the product. If you break the law, we catch you. If you abuse the product, we rehabilitate you. It comes full circle: we take care of the problems that the product might cause — and the monies are there.”


In other words, complicated or not, the North Carolina system is working just the way it’s supposed to.

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