PROFILE: WASHINGTON STATE LIQUOR CONTROL BOARD

Their faces are relatively new, but their experiences are wide. Washington State Liquor Control Board (WSLCB) Chairman Eugene Prince was appointed exactly two years ago; Board Member Vera Ing is there just over a year; and Board Member Katherine Kreiter has been there a few months shy of a year. In addition, a new position of Administrative Director was created to handle the nuts-and-bolts organizational details of running the agency. That position was filled this past March by Bonnie Boyle. There has also been a fairly large turnover in personnel through retirement, so that the end result is a group of new people with fresh ideas and a focused outlook on the direction of the WSLCB.


The Washington State Liquor Control Board includes, from left, Chairman Eugene Prince, and Board Members Katherine Kreiter and Vera Ing.


By all accounts, this is a positive development. “One of the biggest things we’ve done is to put an administrator in charge of the operation,” said Board Chairman Prince. “She reports directly to the board and six of the seven divisions report directly to her. For years they had been talking about creating an administrative director, but for a variety of reasons it was never done.”


The LCB is completely responsible for the operation of the agency, its welfare and the morale of the operation, Prince said. The three members have equal say and equal power, and they try to meet at least twice each week: Tuesdays, when the board meets with agency directors and discusses the issues before them; and Wednesdays, when the board conducts its formal meetings in which it takes action.


“Basically, the board sets the policies to be followed and provides a direction for the agency,” Prince said, adding that the board’s main function is to serve the public by preventing the misuse of alcohol and tobacco through education, enforcement and controlled distribution. “We’re trying to make people more comfortable with us by providing a sense of consistency, and by really reaching out to people and working with them, from licensees to community organizations, essentially everyone we deal with.”


Community Outreach

Board member Vera Ing agreed with this notion pointing out that “a major priority is outreach to communities around the state. And having Bonnie, the new administrator, frees us up for more constituent action,” Ing said. For example, Ing participates in the southeast Seattle community crime prevention meetings.


“The board is all in agreement that we should be very proactive in being accessible, from store staff, to vendors, to licensees to the community. We are trying to build partnerships and relationships with all these groups,” Ing said. “For example, I received an invitation today from one of the store managers to come and work in the store for two hours. I think that’s a great opportunity. I also want to visit the stores with our local enforcement. It’s important to recognize the important work that they do and for us to get a feel of how the field staff operates.”


Ing particularly wants to help new licensees. She has been active in the Korean American Grocery Association (KAGRO), whose members represent a full 15% of licensees in the state. “We want to work with KAGRO; in fact, we’ve recently hired three bi-lingual Korean-American staff.” Naturally, though, her concern embraces all groups. “We are opening up much more to the public and holding more public hearings of contested license applications.”


‘Alcohol Impact Areas’

Washington has established “alcohol impact areas,” which are essentially neighborhoods that have had problems related to establishments that sell beverage alcohol, be it rowdy behavior, excessive noise, public drunkenness, even crime. And community action organizations have challenged the LCB to revoke the licenses of some establishments or not renew or provide licenses to others.


“The board is open to holding hearings about the concerns of the community and certain licensees,” Ing said, “but we have to hear both sides of the issue before making a decision. “We’re in the process of rule-making to further our ability to be responsive to community groups.”


This is one of this Board’s initiatives, added Board Member Katherine Kreiter. “We’ve opened up the process on licensing issues,” she said. “Before, if a new license or a renewal was contested, the Board would sit and listen to the argument from the local government (city, county, etc.) organization without hearing from the prospective licensee. If they lost, they could appeal to an administrative law judge, but for many licensees that could be cost-prohibitive. So, we’ve inserted a stage where if the license is contested, the licensee can argue his or her case in front of the Board. In that way, we get to hear both sides before making a determination. The basic point is to get the parties to talk to each other and try to arrive at an understanding.”


A recent example of cooperation among all the parties is a “good neighbor agreement” that was recently passed, where all retailers in alcohol impact areas have agreed not to sell certain fortified products.


Who’s Who At The Board

The Washington State Liquor Control Board is a three-member, full-time board appointed to six-year terms by the Governor. Its primary responsibility is to oversee the sale and distribution of beverage alcohol, through licensing, controlled distribution and merchandising systems, education and enforcement.


Board Chairman
EUGENE V. PRINCE
,
appointed January 1999


After graduating college, Eugene Prince served as a Goodwill Ambassador (pre-dating but analogous to the Peace Corps) to Turkey. When he returned Stateside, he lectured around the country on Turkey’s culture and customs. Then he joined the Air Force and was stationed at a military research base in New Mexico. In Washington, he was the head administrator for the State House of Representatives throughout the 1960s. Following that tenure, he served a total of 18 years in the Washington State legislature, 12 years in the House and eight years in the Senate. As chairman of the WSLCB, he is part of the Governor’s cabinet and attends all cabinet meetings.


Board Member
VERA ING
,
appointed December 1999


A Seattle native, Vera Ing has a degree in urban planning. She ran a very successful architectural firm well-known in restaurant design (before it was purchased by a large architectural firm five years ago) as well as owning a restaurant herself. She is a visible volunteer community activist, and has been particularly active in the Asian-American community in Seattle, especially with the Korean American Grocery Association (KAGRO). Her priority is to provide outreach to communities all across the state.


Board Member
KATHERINE KREITER
,
appointed March 2000


Kathy Kreiter features 17 years of experience working in the state government, developing public policy in a number of areas as well as management at several levels. Most recently, she was Deputy Director of the Department of Community Trade and Economic Development. She is well-versed in the ins-and-outs of state government, and is using that experience to help manage the WSLCB. In addition, she is focusing on e-commerce issues.



“On the Board, we pool our expertise,” added Ing. “Gene has four decades of legislative history; Kathy has worked a long time in state government and understands how to get things done; and I have a lot of contacts in the community.”


Indeed, according to Katherine Kreiter, “everyone on the Board seems to agree that we should approach our responsibilities in this way: “Let’s do what’s right, not what’s been done in the past.'”


Kreiter noted that this is the first Board that has had two females on it, which tends to “bring a different perspective”; overall she feels that “the realm of issues we deal with on the Liquor Control Board is amazingly diverse.”


The E-Commerce Dilemma

One of the issues she is focused on deals with e-commerce. “We have formed a task force to examine all aspects of direct shipments and alcohol advertising on the internet.” A difficult question surrounding this issue of advertising, Kreiter said, is what should be interpreted as actual information versus what should be interpreted as advertising. [Advertising beverage alcohol is not allowed, so for example, could internet links on a tourism site to Washington State wineries be banned if they are interpreted as advertising wine?]


In addition, Washington is a reciprocal state, which allows shipments in from out-of-state wineries and allows its wineries to ship out-of-state. “E-commerce over the internet is the reality of what’s happening,” Kreiter said, “and we have to come up with a policy to deal with it.”


Fiscal 2000 Statistics

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(Fiscal year end: 6/30/00)

FY ’99
FY ’00

Gross Sales
(Spirits, wine)
$446.9 m
$479.7 m

Revenue Contribution
$190.0 m
$198.3 m

Distilled Spirits
(Mixed cases)
2.9 m
3.02 m

Wine
(Mixed cases)
592,734
589,683

Operating Expenses
$63.6 m
$66.4 m

Retail Outlets
157 state stores
159 agencies
157 state stores
158 agencies

Employees
621 (Full-Time)
521 (Part-Time)
607 (Full-time)
512 (Part-time)

Projected gross sales for FY 2001: $493.8 m
Projected revenue contribution for FY 2001: $204.8 m


The three criteria that must be met, she pointed out, is that “first, we must protect state revenues, that is, have a mechanism for collecting the taxes due to us; second, we must ensure the protection of minors so they do not have illegal access to beverage alcohol products; and third, we must protect the three-tier system.”


The existing laws must be examined and several questions must be asked and answered, Kreiter noted. For example, “Do we want to give out internet licenses to sell wine and beer (not spirits)? And what level of activity would be acceptable for the state?”


The task force — comprised of beer and wine distributors, representatives of the state’s trucking association, representatives from the Washington restaurant association, the Washington Wine Commission and a representative of the state’s Wine Institute, plus several WSLCB staff members — is dealing with these and many other questions. It just convened this past October and is trying to build a set of regulations within six months.


Bonnie Boyle, the agency’s administrative director, handles the day-to-day organization of the entire system.


Washington State operates 157 state stores that sell primarily distilled spirits as well as a selection of wines that accounts for about 8% of total wine dollar volume in the state. The LCB also acts as the sole spirits wholesaler for all agencies and licensees in the state. All spirits products are dispensed from one central warehouse, using the bailment system of warehousing, though the state does not charge suppliers a fee for holding their products. All liquor prices are set by the agency and are consistent throughout the state. These spirits prices are some of the highest in the nation, according to Gary Thompson, deputy director of purchasing services, the result of a high tax structure. For example, the excise tax is $2.44 per liter in Washington state (by comparison, it is $1.50 per liter in Florida), which totals $9.24 a gallon ($6.50 in Florida). However, in Washington you have to add on another 20 1/2% for sales tax on spirits.


Sales Are Rising

Still, sales are rising. In Fiscal Year 2000, sales of distilled spirits were just over 3 million cases, an increase of more than 3% from the previous year. Meanwhile, gross sales in the state rose to almost $480 million, up from just under $447 million the year before.


Virtually every executive interviewed agreed that the increase in sales volume and the impressive jump in dollars generated by the system can be traced to 1) the growth of the state’s population, and 2) an increase in the dollars per sale as a result of consumers choosing to purchase more expensive brands.


Leading Brands of Distilled Spirits in Washington

 (Mixed Cases)

  BRANDS
  SUPPLIER
  TYPE
 1999(*)
 2000(*)
  % CHANGE

Monarch Vodka
Monarch Imports
Vodka
163,862
166,903
1.9%

Black Velvet
Barton Brands
Canadian
121,576
119,964
-1.3%

MacNaughton
Barton Brands
Canadian
83,595
93,195
11.5%

Potter’s Vodka
Frank-Lin Distillers
Vodka
74,405
79,461
6.8%

Three Star
Old Monastery
Vodka
73,593
75,369
2.4%

Cuervo Especial
UDV North America
Tequila
77,186
72,905
-5.5%

Canadian Rich & Rare
UDV North America
Canadian
70,683
72,222
2.2%

Smirnoff
UDV North America
Vodka
66,385
64,497
-2.8%

Monarch White
Monarch Imports
Rum
54,855
54,674
-0.3%

Jack Daniel’s Black
Brown-Forman Beverages
Tenn. Whiskey
50,877
54,347
6.8%

Top Ten Brands
837,017
853,537
2.0%

Other
2,043,820
2,147,853
5.1%

Total Spirits
2,880,837
3,001,390
4.2%

 (*)12 months data ending 10/31/00.
Source: Adams Business Research Database from NABCA data.


“I guess our sales trends reflect what is happening in the rest of the country,” said Gary Thompson. “The economy is strong and customers are trading up to higher-end products. Over the last four years, our dollar growth averages out to about 6% for each year, while our sales volume growth averages out to a little over 3% per year. So, those higher-end sales are reflected in these figures.”


Thompson pointed to categories such as boutique bourbons and high-end imported vodkas, especially flavored vodkas (up 43%), as showing healthy sales growth. Other premium products categories that showed the largest growth in the state (based on 12 months from October 1999 through September 2000 compared to the same 12 months a year earlier) include cognac (+ 22%) and single malt Scotch (+ 21%). Products categories such as flavored rum (+26%), liqueurs & schnapps (+12%) and tequila (+11%) also demonstrated impressive sales increases.


Administrative director Boyle and Gary Thompson, deputy director of purchasing services, in Olympia’s Plum Street Liquor Store.


Thompson’s department tracks all sales trends throughout the state store system. Sales of products are reviewed each week, and attention is paid to inventory levels as well as the forecasting re-order system. “For domestic products, we usually re-order every four to five weeks; for imports, we order every 12 to 16 weeks,” Thompson said. In addition, the gross dollar contribution of a particular product within its spirit type is periodically reviewed to make sure sales are meeting specific levels of gross profit. When it falls below a certain level, the product can be de-listed. De-listings occur in May. The Board reviews the recommendations and makes the final decision.


Thompson’s listing committee meets nine to ten times a year to decide what products to recommend to the Board for listing. “We look at the need within a particular category,” Thompson said, “and whether it is a growing or declining category. We also look at similar items and at the price range, as well as sales of the product in other control states, And then we look at the advertising and marketing support for backing the brand.”


Though state stores sell only about $36 million in wine a year, Thompson sees sales of domestic reds growing rapidly, “especially 750 ml bottles as opposed to 3 and 4 liter jugs and larger box sizes.”


Once a year, in September, state stores highlight Washington State wines (“Washington State Wine Month”), result of a vibrant statewide wine industry. “In 1981 there were 19 wineries in Washington,” Thompson noted. “Today, there are 145.”


Other than the state stores, Washington has 158 agencies that mostly sell liquor in more remote areas. These are almost exclusively Mom ‘n’ Pop shops that often supplement their main business — from gift shops to barber shops — by also selling distilled spirits. These agencies are paid by commission scaled to sales, with larger agencies receiving between 5% and 6% and smaller volume outlets receiving commissions about twice that percentage. The agencies do not actually pay for the product until it is sold, then they send the money and receipts to the LCB and receive back their commission check. The commission structure is currently under review, though the LCB would like to increase the percentages paid to the agencies.


And in order to better communicate with these agencies, the board has also recently established a “vendor advisory” committee that is meant to interact and improve business ties with them, to try to give them better access to the agency’s resources.


Organizing The Operation

Bonnie Boyle was hired this past March into the newly formed position of Administrative Director for the WSLCB. “I was hired to be a professional manager,” she said. “The position is designed to provide leadership on operational matters, to bring continuity and consistency to the organization.” Boyle’s extensive experience in the private sector — most recently being the ceo of a credit union in the state of Washington — gives her a good idea of what can be accomplished at the WSLCB, given the sometimes restrictive parameters of working for a state agency.


One of the goals is to make improvements in the retail delivery system, Boyle said. Under the current system, for example, state stores sell spirits and a small selection of wines to consumers. Many of them also supply spirits to the more than 5,000 on-premise establishments licensed in the state. Sometimes, Boyle said, stores do not have sufficient staff to efficiently deal with retail customers and wholesale customers at the same time. A solution, Boyle pointed out, might be to expand one of Seattle’s retail stores solely into a wholesale delivery point.


The most important development during her brief tenure — and that of the Board — has definitely been the creation of an extensive Strategic Plan, drawn up by the LCB at the Governor’s urging. “This has been a giant leap forward organizationally,” said Boyle. “We are now trying to base all our decisions on the Strategic Plan.” (See sidebar)


A Form Of Control

The state store system remains the best form of beverage alcohol control, Boyle asserted. “The main mission of the WSLCB is to control the abuse and misuse of beverage alcohol,” Boyle said, “and the stores are proactive in accomplishing that mission. They are not sales-driven; the staff are trained to very carefully check consumers IDs; and the stores are prohibited from promoting the use of beverage alcohol through advertising or signs outside of the store.”


Board member Kreiter noted that “the store system is a form of self-regulating control. We control the number of outlets and the hours they can be open” (which are normally 10 a.m. to 7 p.m., Monday through Saturday; closed on Sunday). “If not for control, prices would not be the same throughout the state because of the cost of delivery to rural areas.


Boyle pointed out that the state stores maintain a uniformity and cleanliness throughout the system to try to make it an attractive and easy shopping experience for consumers. For example, wine sections are always located on the right when you enter the store and spirits products are arranged in the same order in all state stores. The staff is trained to warmly greet customers as they walk through the door. “Our employees do a wonderful job of providing the best customer service they can,” Boyle said. “Most employees do a good job of letting customers know that they can request any product they want.” State stores feature a special ordering function, whereby they will make every effort to get whatever product customers request that is not in the store.


Still, Boyle said, there is still room for more training. “We can provide more pro-active assistance to customers as well as providing more product education to them.”


Though they can’t literally “promote” the sale of beverage alcohol products, store managers are encouraged to decorate their stores to make them more attractive, Boyle said. “They also have the latitude to stock their store’s shelves with the products that move the best there.” In addition, shelf-talkers and case cards explaining a product’s attributes can be used and suppliers can erect in-store displays as long as they are tastefully done. Still, “we are very careful about letting people promote their products in stores,” chairman Prince said. “For example, we recently turned down a group that wanted to put a TV up in a store to promote their product.”

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