NABCA CONFERENCE ROUNDUP

“Elevating Expectations” was the theme for the 67th National Alcohol Beverage Control Association’s Annual Conference, held May 22-26 at the Marco Island Marriott Resort. And though the theme refers to the business of running the control states, anyone who attended the conference would certainly agree that expectations for this industry meeting were met, if not surpassed, with a wonderful program that provided a wealth of information, some inspiration and plenty of lighthearted yucks along the way.


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The final count, according to NABCA officials, was 926 attendees, a record, eclipsing the previous mark of 848 attendees set two years ago. And while the weather cooperated — allowing those who wanted to enjoy the Gulf Coast recreational possibilities — it seemed that most control state officials and representatives of many major beverage alcohol suppliers chose to take care of business. Indeed, attendance at the various sessions and seminars was terrific, in many instances easily outnumbering participation in past years, at least according to my unofficial observations. Even a two-hour power blackout on Monday night couldn’t darken the outlook.


NABCA President Dyke Nally (Superintendent of the Idaho State Liquor Dispensary) presided over the conference, while the NABCA staff, headed by NABCA Executive Director Jim Sgueo (ably assisted by NABCA Administrative Director Patty LaCava), kept the program flowing smoothly.


Following the Saturday night Welcome Reception, NABCA President Nally kicked off the conference Sunday morning by introducing one of America’s most beloved athletes — Sugar Ray Leonard, who won just about every boxing title out there, from the Golden Gloves to an Olympic Gold Medal to five professional division titles, ranging from welterweight to light heavyweight. Leonard’s motivational speech, “Elevating Personal Expectations,” was a knockout with the overflowing crowd.


Combining video clips of a selection of his historic matches with his insights into attaining success, Leonard stated that focusing on one’s goals and the determination to follow through is key for personal development. “You have to do the roadwork and believe in yourself,” he said. That control that you gain by believing in yourself allows you to maintain composure in many difficult situations, he said. “You should have no fear of failure; only a fear of doing nothing,” Leonard stated.


Business Session I followed, titled, “Industry Expectations,” and moderated by George F. Griffin, director of the Montgomery County, MD, Department of Liquor Control. The panelists included a quartet of industry luminaries: Eduardo Sardinia, president and CEO of Bacardi USA; Max Shapira, president of Heaven Hill Distilleries; John Esposito, president & CEO of Schieffelin & Co.; and Mark Brown, president and CEO of Sazerac Company.


After each participant gave an overview of his company, Griffin presented them with a series of evocative questions. For example, Shapira addressed the issue of the pros and cons of launching new products in the control states. “In some senses it’s very effective,” he said. “It provides a good, controlled distribution system, which allows quick feedback to see how consumers are reacting to the product.” On the other hand, he noted that the negatives continue to be limited opportunities for listings and size expansions. Still, Shapira added, “One never knows where a successful new product will come from. Still new products are the lifeblood of all consumer package companies.”


Mark Brown responded to the effects mergers and acquisitions by major companies have on mid-sized companies like his own. Interestingly, he noted that these actions often result in opportunities for the smaller companies. “When new portfolios are examined, larger companies see that some brands don’t fit into their plans,” he said, and then companies like his can “pick up ‘cast-off’ brands.”


For his part, Esposito described the recent changes in his company [Moet Hennessy and Diageo agreed to end their joint U.S. marketing agreement, which resulted in Schieffelin & Somerset transferring brands such as Johnnie Walker and Tanqueray, among others, to Diageo North America; at the same time, the company took on a new name, Schieffelin & Co.], emphasizing that he expects the continued growth of the “luxury goods business.” Esposito explained that “there is a tendency among consumers to be attracted to affordable luxuries, such as Hennessy Cognac,” and other superpremium spirits.


Bacardi’s Sardinia pointed out that rum is still the only category without a vibrant superpremium segment, although those products do exist. Still, he said he believes that high-end rum will eventually find a market. Later on in the discussion, Sardinia noted that he has “seen a tremendous evolution in the control states. In fact,” he added, “overall, the control states are actually more progressive than the open states in areas such as shelf and category management.”


The other executives agreed and noted that they expected “tremendous growth in the control states” in the coming years.


In addition, all the executives noted that there has to be long-range planning among industry, the states and various organizations to focus efforts on educating the public on the responsible use of beverage alcohol products.


Following the Industry Trade Show and lunch, the conference continued with a “Regulatory and Legislative Update,” featuring Jim Goldberg, NABCA General Counsel, and Art Libertucci, Administrator of the Alcohol and Tobacco Tax and Trade Bureau (TTB).


Libertucci reviewed the almost two-year-long process of arriving at a ruling for how much of the alcohol content in a malt-based beverage should be derived from malt. More than 16,000 comments were received by the TTB, more than any other issue had ever generated. There are basically two choices: either 51% or more of the alcohol content should be derived from malt or 90% of the alcohol content should be derived from malt. The decision process is still ongoing, but Libertucci said, “It’s safe to say we’ll have a new standard.”


Libertucci also discussed the April ruling that gives interim guidance for low-carbohydrate claims made by beverage alcohol companies. The ruling states that to be labeled low-carb the product must contain 7 grams of carbohydrates or less per serving (the servings used are 12 oz. for beer, 5 oz. for wine and 1.5 oz. for spirits).


In addition, Libertucci noted that Internet web sites are considered advertising. Thus, the information contained on those sites has to be accurate and follow the rules for health-related statements. At this point, he said, “our focus is voluntary compliance, not confrontational.”


Goldberg touched on a variety of legal issues, the most pressing of which is the probability that the U.S. Supreme Court will review the direct shipping cases that have been brought in both New York and Michigan. A decision on whether the Court will take the case is due sometime after January 2005; however, “the conventional wisdom is that the Court will take the case,” Goldberg said. Obviously, Goldberg added, the Supreme Court decision would have a major impact on the three-tier system, though it’s three to four years from resolution, he believes.


This year’s Product Knowledge seminar on Brandy & Cognac filled up a huge hall with attendees, who were treated to an hour-long presentation by beverage alcohol expert and writer F. Paul Pacult. In his inimitable entertaining style, Pacult took attendees through a history of brandy and spirits production, then led them on a tasting of four distinctive brandies.


General Session II led off Monday morning with author and political analyst Jeff Greenfield giving the conference a “Political Update” on the upcoming presidential election. Greenfield noted, “The idea that we know what is going to happen is a crippling illusion in politics. Politics are not static.”


He emphasized that we now live in a country that is more polarized than during the 2000 election year. “We live in counties with those who agree with our views; we read and view things which reinforce our views,” he said.


President Bush received enormous political benefit from the events of 9/11, Greenfield stated, but now both candidates have some problems. At this point he believes that events are going to drive the ultimate outcome of the election.


“The Future of the Control System” was the topic for Business Session II, moderated by Jonathan H. Newman, chairman of the Pennsylvania Liquor Control Board. The panel included James Bareuther, executive vice president and COO of Brown-Forman Beverages; Barry O’Brien, of the Liquor Control Board of Ontario (LCBO); Dr. Harold Holder, senior research scientist of the Prevention Research Center of the Pacific Institute for Research and Evaluation; and Vern Danielsen, chairman of the Virginia Alcoholic Beverage Control Board.


With the privatization issue a compelling topic, Danielsen said, “The primary complaint is that state government should not be in the business of doing something that the private sector can do as well. But alcohol is different. It’s legal but can be abused. The state can do a good job of both control and retail. When separated, the control aspect can become more difficult.”


Holder pointed out that “monopoly systems are better equipped to enforce laws about underage consumption,” but at the same time added that North American monopolies are at greater risk than those of Scandinavia (which had been challenged by the EU). “A recent study,” Holder said, “showed that control states have 15% to 18% lower binge-drinking incidences than in open states. The control states establish an environment that informs youth about public health issues.”


Bareuther said that, in actuality, some control states are more open than some open states. “All states really have some degree of control, some more than others.”


Bareuther went on to describe what he saw as some pros and cons of the control system, noting that over the past 10 years the control states have done a terrific job modernizing and responding to the market.


The pros include: a centralized purchasing system, which is a competitive advantage; the ability to implement statewide decisions; the ability to publicize responsibility messages and beverage alcohol education programs; and the ability to gather data and exchange it with suppliers through the NABCA.


The cons include: the unilateral ability to raise prices without the checks and balances of open states; the fact that control boards are political entities and must respond to a variety of interest groups; the fact that a state government agency has a vested interest in maintaining the status quo; the price filing system is fairly arduous; and the control states would like suppliers to absorb the bulk of the discounting cost.


One of the more entertaining segments of the conference was Seminar III, “Control State Squares,” which was a take-off on the Hollywood Squares TV show with all the questions having to do with Alcohol Education. The contestants were NABCA President Dyke Nally and Incoming NABCA President Lynn Walding. The panelists were nine members of the NABCA Board of Directors.


On Tuesday morning, General Session III featured Captain Dick Couch, a retired Navy SEAL. His address, “In the Line of Fire” touched on character development and the nature of being a warrior.


The final Business Session, “Elevating Business Practices in the Control States,” included a panel of members of the NABCA Products and Procedures Committee, the Industry Steering Committee and the Brokers Task Force. They explored how communicating about common issues can often result in a variety of business improvements for everybody concerned.


At the Gala Banquet on Tuesday night, Lynn Walding officially accepted the duties of President of the NABCA, 2004-2005, from Dyke Nally, while George Griffin, Director of the Montgomery County, MD, Department of Liquor Control, was officially designated NABCA President-Elect, for 2004-2005.


Next year the annual conference will take place at the Biltmore Hotel in Phoenix, AZ, May 11-15.

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