As we have for several years, StateWays again asked the members of the NABCA Executive Steering Committee to participate in a forum that, in this case, is centered around the topic of “meeting challenges” as it applies to issues relevant to suppliers and the control states. The Executive Steering Committee — comprised of industry leaders from distilled spirits companies — meets twice a year with the NABCA Board of Directors to consider, debate and help facilitate real business concerns. This year, Executive Steering Committee members who offered comments include the committee chairman Bob Biles, senior vice president, director of sales, control states, Brown-Forman Spirits Americas; William Anderson, vice president, sales, Bacardi USA; Paul Clinton, CEO for North America, Diageo; Brad Mundy, vice president, sales, control states, Future Brands LLC; Jeffrey S. Homel, vice president of sales, Heaven Hill Distilleries; Rick Przebieda, vice president, control states, Barton Brands, Ltd.; and Paul Criscuolo, vice president, control state sales, Allied Domecq Spirits & Wine North America.
SENIOR VICE PRESIDENT, DIRECTOR OF SALES, CONTROL STATES
BROWN-FORMAN SPIRITS AMERICAS
With only about 17% of the total U.S. population, the Control States provide approximately 25% of our total spirits business. And the Control States demographic trends indicate that their young adult population – ages 21 through 29 – is growing more rapidly now than at any other time since the Baby Boom generation came of age. It’s not hard to see why we recognize the Control States as our biggest business channel in the U.S, with continuing opportunity for growth.
Along with the business opportunity and potential for growth in this channel also comes the acknowledgment of the unique challenges and responsibilities inherent in it. Add to this mix the fact that adult consumers today have greater knowledge than ever before and access to more information than ever before, and they are demanding the right to make informed decisions about their consumer purchases, we raise the bar even higher in our mutual goals.
The question becomes then, how do we work together as an industry to meet the challenges in this environment? Certainly, there are some so-called “backroom” things that can be done. For example, we can all improve and fully utilize technology to become more efficient, which will in turn enhance all our revenue systems. The Control States can make electronic price filing systems mandatory in every jurisdiction, which will go a long way towards eliminating mistakes in the system, save time, and provide a common structure for suppliers. We can bring to you exciting and new products, and you can optimize your listing processes and policies.
But, if we bring our focus even tighter onto our consumers, and their needs, we can see that there’s more that can be done. Control States can work to normalize rules and regulations by adopting standard BATF regulations around off-premise merchandising and on-premise promotions. They can move to avoid additional tax burdens and price markups passed along to consumers by allowing Sunday sales and expanding hours of operation for retail stores. Along the same lines, and further recognizing consumers’ demands for convenience, Control States can allow debit and credit card sales.
Additionally, Control States can take several steps forward in answering adult consumers’ demand and desire to make informed decisions regarding their purchases. They can allow distilled spirits companies to set up promotional displays and provide the opportunity to hold in-store tastings to introduce consumers to new products.
But there is one area where the Control States could become even more active on behalf of consumers and their right to receive balanced representation and equal access to information regarding adult beverages, and that is in the area of television broadcast advertising. Strange politics and commercial pressures prompted NBC to pull out of its commitment to accept spirits ads. By doing so, it has perpetuated the current double standard that sends an irresponsible message to consumers, and especially young people. The NBC network, and other major broadcast networks, by refusing to run spirits ads while, in fact, they have been running billions of dollars of beer advertising for decades send an implicit message that beer is somehow a “soft” form of alcohol. The fact of the matter is that we need high standards for all.
We believe that NABCA, with both its commercial and control functions, would be an excellent forum to bring some sanity to this situation in a way that makes both good business sense and sound public policy. This became clear during the NABCA’s recent Alcohol Education Summit in Washington, D.C.
Under Chairman Eban Marsh’s leadership, the NABCA convened this diverse panel of alcohol policy experts for a day of lively discussion. Participants ranged from industry representatives like Brown-Forman Spirits Americas President Jim Bareuther to some of the nation’s most outspoken advocates for restrictive alcohol policies. While there were some issues where the panelists agreed to disagree, when it came to the matter of alcohol advertising, there was consensus that concluded, among other things:
Equivalence and responsibility should be the cornerstones of advertising policies. Beer, wine and spirits companies should play by the same rule book – a single voluntary code with meaningful provisions to protect young people by reasonable restrictions on the content and placement of all alcohol advertising; and,
There needs to be a meaningful enforcement mechanism — an independent system of third-party review — to assure that beer, wine, and spirits companies carefully abide by the provisions of this unified, voluntary code. In 1999, the Federal Trade Commission called on the beverage alcohol industry to adopt such a system. DISCUS immediately said yes. But, so far, the beer industry has refused to even talk about it.
We respectfully urge incoming President Smith and the rest of the NABCA leadership to maintain the momentum that came out of the Alcohol Education Summit. This can be accomplished by working with open state regulators and other public officials to bring the beer industry to the table with spirits and wine to develop a common “Kids Code” and a meaningful system of third-party review.
Brown-Forman and many other spirits and wine suppliers stand ready to act as partners in such a process. Now, all we need is for beer to come to the table.
VICE PRESIDENT, SALES
BACARDI U.S.A., INC.
Recent industry consolidation has forced suppliers and distributors to do a critical examination of our respective businesses. The goal of greater returns is driving consolidation in the supply side of the industry. This goal applies to the control states business, too.
The control states face the demands of state government for greater returns on beverage alcohol each year while maintaining selection and service, and in some cases improving the retail store appearance. They have to satisfy consumer demand while returning increased revenue to the state budget. Control state markets are well aware of their duty to contribute to the budget of their states with the additional challenge of doing so in a responsible manner. This is usually understood to mean without creating greater access and additional volume. Achieving a balance of increasing revenue with responsible selling techniques is the challenge facing the control states.
Currently, suppliers are attempting to rise to the challenge by offering new tools to the control states. The commitment to share wholesale and retail data with suppliers allows us to provide category management expertise to the control states. These efforts are rewarded when the products sold return a greater value to the state while maintaining or reducing the number of items carried, thereby reducing the cost of sales. While category management can help focus on an efficient assortment of brands, control state markets can help themselves by focusing on a premium brand portfolio.
If you examine the supply side of the industry, the top suppliers have gravitated toward a premium brand portfolio as a means to generate additional dollars and increase their market share. The rationale of equality over quantity can also work for the control states. With a focus on premium products, control states can generate additional funds without the specter of increased sales volume or spending. By focusing retailing on premium brands, control states can maintain a quality selection of products and increase their profit per unit. States that feature premium products that are promoted nationally have an advantage versus featuring low end/low margin brands with little or no brand spending. Control state markets can return additional dollars to their respective states by promoting these products without increasing inventories, SKU’s, volume or access. The premium portfolio approach should be a consideration of any market that aspires to the goals of achieving increasing return in a responsible manner and still meeting consumer demand.
As the top suppliers of the industry continue to focus on nationally advertised premium products for their added value, control markets should follow suit to deliver additional return for years to come. By focusing on a premium portfolio and using responsible selling techniques, control state markets can increase revenues back to their states while controlling costs and without necessarily increasing volume or access.
BARTON BRANDS, LTD.
Certainly, a year ago no one could have imagined the challenges we face today. Along with the events of last September, the dramatic budget deficits each state is facing, the slowdown of the economy and the increased cost of doing business pose challenges for us all. Meeting challenges head-on is essential for the survival and success of any organization. For the pessimist, challenges are insurmountable. For the optimist, challenges simply create opportunities. The attitude a company or organizations displays towards meeting today’s challenges will play a major role in determining their success or failure. Control jurisdictions and industry alike are facing a multitude of common challenges. Through an open, cooperative, give and take partnership, while working through the NABCA, Control States and industry can work together to find new opportunities in today’s challenging times.
At Barton Brands, we face new challenges head-on everyday. To address those challenges, we always search for new opportunities. Solutions to challenges may be as simple as a size extension, like the introduction of the 99 Bananas 375 ml or as involved as new product rollouts, like the introduction of Chi-Chi’s Cosmopolitan, 99 Apples or a dramatic upgrade of the Black Velvet Reserve packaging.
One common challenge faced by both industry and Control State jurisdictions is having the right product mix to meet consumer demands. An individual State Liquor Board’s listing and delisting policy is critical to getting the right product mix. In recent years, many of the Control States have moved toward greater flexibility in their listing policies. This has benefited liquor boards, industry and, most importantly, the consumers of each state by improving the flow of new products to the market. As budgets tighten, the challenge is to maintain the flow of new products demanded by consumers, without dramatically increasing total listings. At the same time, a too rigid delisting policy, in an effort to control the number of items available, can severely limit access to brands the general public and on-premise accounts want and need.
New Hampshire is a good example of a State Liquor Control Board working in partnership with industry and brokers. New Hampshire devised and executed a plan to clean out the “deadwood” from some spirits categories and simultaneously relaxed restrictions on the introduction of new products to give them every opportunity to stand on their own merit. Products are now given a full six months to meet the listing criteria, instead of the 13 weeks allowed under the old system. In addition, unlike the old policy, new products can be supported and promoted while in test market status. As a result, while the listing criteria remains strict, the increased flexibility of the listing policy gives new products a fair amount of time and ample opportunity for promotion. Some new products will make the grade and some won’t. The key benefit to all in meeting this challenge is that the consumers of New Hampshire, and only consumers of New Hampshire, judge the merits of new products at the cash register.
It will take the numerous talents from all members of industry and individual Control States, working together through the NABCA, to find solutions to the many challenges ahead. As a result of the many talented people involved at all levels of our industry working together, meeting the challenges of today will produce more opportunities for tomorrow.
VICE PRESIDENT, SALES,
FUTURE BRANDS LLC
One of the issues we face is the challenge of maintaining pricing consistency between the open and the control states.
With pricing being a foremost component of the marketing mix – sometimes the most important depending on the brand – we pay close attention to how our products are priced on a local level. Many factors are considered when price (and discount) formulations are derived.
We look at prices on our brands and our competition in:
* the market in question
* surrounding open states
* all control states
Based on the information gathered and analyzed, we then formulate what we feel is a fair and equitable price which will move our and the control states business forward without creating internal regional price rivalry.
Another issue that we must deal with are promotional restrictions in the control states. We feel very comfortable working within the legal framework of each control state for both on- and off-premise promotions. Our field managers are very well versed in the legalities of their state(s). In addition, we have a seasoned regional marketing staff whose sole responsibility is to design promotions that fit within the legal guidelines of each state. Whenever possible we create state/region specific promotions which help us “bond” with the consumer on a more personal local level.
Like other suppliers, Future Brands LLC (Jim Beam Brands Co. and The Absolut Spirits Company, Incorporated) faces the ongoing challenge of listing and successfully introducing new products in the control states. We feel we have a great track record of successful new product introductions in the control states. Over the last decade we have virtually created three new categories. The DeKuyper Pucker line of Sweet and Sour Schnapps, the Ultra Premium Collection of Small Batch Bourbons (Booker’s and Knob Creek among them), and the ABSOLUT flavors attest to our success. Product innovation, market timing and filling product/market voids make the listing and introduction process work in our favor.
Another challenge as it relates to our industry is the growth of electronic commerce, and how it can be utilized within the beverage alcohol industry. This would include creating standards within the industry by our members, as well as the various state agencies. It is important that we utilize this technology so that procedures such as brand and price filings, bailment inventories, and depletion reporting are timelier and more efficient. Groups such as ABI-EC have been working with suppliers and state and federal agencies toward establishing such guidelines.
In conclusion, Future Brands LLC, like Jim Beam Brands Co. and The Absolut Spirits Company, Incorporated before it, has always believed in a control state specific sales region. This has enabled us to meet the constant challenges we face by focusing on issues and opportunities specific to that environment.