A ROUNDTABLE DISCUSSION

StateWays presents
an important question-and-answer session with members of the NABCA Industry Steering Committee.

The NABCA’s 61st Annual Conference is themed, “Building a Better Partnership.” This is especially apt when considering the NABCA Industry Steering Committee, which meets semiannually with the NABCA Board of Directors to address issues of mutual interest between suppliers and the control states. Several concerns have been successfully dealt with in these meetings, and what has emerged is the understanding that real solutions to problems can be reached when approached in a spirit of cooperation. For this year’s roundtable discussion, members of the Steering Committee, chaired by Stephen A. Bellini of Seagram Americas, addressed issues concerning privatization, new product placement and the streamlining of various wholesale practices in the control states.


For the roundtable, Robert W. Biles, of Brown-Forman Beverages Worldwide, kindly fielded the questions for his company, while committee members John Lundstrum, of Jim Beam Brands, and Gary Shaw, of M.S. Walker, were unable to participate. Committee members David G. Stringfellow, of International Distillers & Vintners, North America, and George Trilikis, of United Distillers USA, felt it would be more useful to refrain from comment at this time. Because their companies will soon be officially combined into United Distillers & Vintners on July 1, 1998, any strategic positions the new company might take will not be known until then.


 


NABCA INDUSTRY STEERING COMMITTEE

STEPHEN A. BELLINI
Senior Vice President/General Manager, Atlantic/Pacific Region, Seagram Americas

PAUL E. BEGGAN
Vice President, Sales, Bacardi-Martini USA


EDWARD L. GOLDEN
President, Barton Brands, Ltd.


MICHAEL V. CHEEK
President, North American Group,
Brown-Forman Beverages Worldwide


JOHN LUNDSTRUM
Vice President, Control States,
Jim Beam Brands Co.


JEFFREY S. HOMEL
President, Sales, Heaven Hill Distilleries


DONN S. LUX
President, David Sherman Corp.

ROBERT L. SHEA
Interim President,
Hiram Walker


DAVID G. STRINGFELLOW
Vice President, Control States,
International Distillers & Vintners,
North America


GEORGE TRILIKIS
Vice President,
Control States Region,
United Distillers USA


GARY SHAW
Vice President,
Director of Control States,
M.S. Walker, Inc.


NEW PRODUCTS

StateWays: New products are considered a lifeline in today’s distilled spirits market. From your perspective, how do control states function as markets for new product introductions? How might listing practices be improved to maximize new product potential?


Shea: New products are truly the industry’s future, and it is important that well-supported new brands be given realistic opportunities to succeed and be made available to the consumer in control states. Probably the only improvement we’d suggest in terms of listing practices would be to shorten the time frame involved in listing and introducing a new product.


Biles: Control states may be the best arena for testing new product introductions at the off-premise retail level. With a new “listing” in a control state, you get immediate distribution, immediate shelf positioning and uniform pricing. All of these variables are controlled, which make the environment a terrific laboratory to test new product concepts.


You could, for example, try one price positioning in Pennsylvania and another in Ohio; place a brand in the Main Stream Bourbon Category in North Carolina and in the Small Batch Bourbon section in Vermont. The possibilities are endless and very fertile.


The only downside is on-premise placements in the control state environment. Due to limited broker and supplier manpower in all the control states, access to on-premise is limited. In an open state it may take a month to achieve 50% distribution in targeted on-premise accounts, where in a control state operation, it may take six months to a year or longer to achieve that penetration. Maybe a better method of communicating new products to the control states’ licensees would speed up this process and, in turn, become a revenue enhancer to the system.


It’s a tough job deciding on which products to list, but I believe most of the responsibility lies with suppliers; we should do our homework and be prepared to support our new product introductions to the fullest.


 


Bellini: An important element is that control states do not influence purchase decisions once listings are approved. In the open state environment, there are several factors that influence the success of new products, including key distributors or retailers that can affect the price, positioning and availability of new products. Product introductions in control states give us the ability to examine consumer preference without these activities.


As for listing practices, many control states have liberalized their policies providing greater ease in the listing of new products. Considering the importance of new products, this practice benefits both the state and the distiller.


 


Beggan: Control states are a “clean” read of sales volume and consumer reaction without the traditional “noise” that can be generated in open states. There are, however, several mechanisms that must be available to suppliers to measure how dynamic and effective a given product is within a specific market.


There must be an effective direct sales force to sell and merchandise in that market or, at a minimum, a broker system that provides adequate market penetration both on- and off-premise.


There should be the availability of on- and off-premise sales data, preferably by account, to measure market penetration and gauge repeat business.


And there should be a marketing team within the control state that shares your vision, your passion and your desire to learn from a new product.


Of course, prior to a control state being selected for any new product, it must have a demographic profile appropriate to the proposed new product. Additionally, the state must be in the on- and off-premise merchandising business. The goal of any new product is to build consumer awareness, which can only happen at point-of-purchase, e.g., off-premise by way of shelf positioning, shelf talkers and display merchandising and on-premise by backbar merchandising, developing support among bar and restaurant owners and waitstaff, and, ultimately, consumer sampling.



Lux: The control states have become more flexible on listing practices and special order practices to enable us to try new products in the market. Many times, however, it is difficult because we might only be allowed one facing in each store and further, not have the flexibility to do such great sampling techniques as tastings and party nights and so on. Still, some of the states offer a more “level playing field” than most of the open states, and this helps in getting and obtaining a true picture of a brand’s potential.


 


Golden: In light of the amount of support that most suppliers put behind the introduction of a new product, consideration needs to be given to more liberal listing policies. The listing of a single size for a new product may not give the label the exposure it needs to catch the consumer’s attention. When available, serious consideration needs to be given to the listing of multiple sizes. This is particularly true of small sizes, which still remain the trial size for most consumers. Attempting to convince the consumer to try a new product with only the 750 ml size listed is extremely difficult. Limited facings and general higher prices on the 750 ml size do not encourage trial of a new product. The listing of multiple sizes will also generate more excitement about the new product introduction by creating a greater billboard effect and brand awareness.


 


Homel: Most of the control states are very helpful in giving listings to viable new products, and we encourage them to continue to keep and open mind and allow new products an opportunity to be successful in their states. It is also important that they allow suppliers ample time to market a product in each state to determine whether or not it will be successful. Many brands take several years to develop and some products can end up being de-listed even though they are showing steady growth but do not quite make the minimum standards necessary to maintain a listing.


 


PRIVATIZATION
 

SW: One of the buzzwords in the control states today is “privatization,” and it can take on many meanings. What are the suppliers’ main concerns when a privatization plan surfaces?


 


Shea: We feel it is important for a state that is considering any form of privatization to have an open dialogue with its industry partners, perhaps even a panel discussion. If there are positive gains to be had from privatization, then we are as interested as the state to pursue those benefits.


Lux: Our main concern, when dealing with privatization, is how the procedure will be instituted and how our products will be affected at the shelf. Specifically, will we begin losing facings to the likes of potato chips and salsa? Most control state environments protect the distilled spirits industry from a merchandising standpoint, and we want to be assured that it will continue.


 


Homel: The suppliers on the Industry Steering Committee are neither for or against privatization. However, it is vitally important that any privatization plan protects the number of brands currently being sold in the market and allows the consumer a broad selection of products in all price ranges in retail outlets. In a privatization plan, if distilled spirits are going to be sold in outlets that can sell non-alcoholic products, our concern is that the retail store may have a greater incentive to sell non-alcoholic products and, as a result, will carry a smaller selection of distilled spirit items. We on the Industry Steering Committee have expressed these concerns to the entire NABCA Board, and they have been very cooperative and seem very willing to let industry be involved in any privatization plans that may come up in the future.


 


Bellini: Our biggest concern is that privatization plans are advancing without the benefit of industry input. A shortsighted plan can have serious consequences for state revenue as well as supplier financials. On the other hand, a well-conceived plan can translate to increased state and supplier revenues in the long-term. Suppliers are keenly aware of the pressure states face in order to evolve their business as we have met with similar challenges. State officials should take advantage of the supplier learning as well as our desire to cooperate to develop mutually beneficial plans.


Biles: The main concern with suppliers is not “privatization,” but access to the process. All any supplier wants is the ability to share insights, expertise, fears and opportunities with our control state partners. After all, this is our only business, and we feel we know it pretty well. It is not government’s only business, but it may be the state’s only profit generating tool where a sale to a consumer needs to take place before revenue is generated.


 


Beggan: In the past, we have always aligned ourselves with DISCUS on the issue of privatization, and neither DISCUS nor we take a position as to whether or not a state should privatize. In our mind, the key issue is “can the state generate more revenue from a privatized system versus this current monopoly system?” All of the research we have seen on the subject and its impact on liquor sales has been inconclusive.


DISCUS has been very successful in the development of points and issues to consider during a privatization debate. We believe these points to be critical to the logical framing of the privatization argument, which leads to healthy discussion of the issues involved. This is a “win-win” for suppliers, control state officials and consumers.


 


STEAMLINING OPERATIONS
 

SW: How are suppliers and control states progressing in their efforts to streamline product labeling, case coding and other wholesale practices? What issues still need to be addressed?


 


Lux: Technology plays the most important role from a case coding and distribution standpoint. Product labeling for us has really become a desktop publishing feature as we can change and produce labels on screen as opposed to going through the previous systems of mechanical drawings and separations and so on. Case coding and bar coding of case labels is standard now and in all likelihood will become standard for most distributors throughout the U.S.


The main issues that need to be addressed are what are the “real” costs of a full conversion to an EDI type system and are all wholesalers and/or suppliers capable of executing it? If everyone is not committed to doing it together, then it seems to us that you have added costs to the system rather than taking costs out.



Golden: Significant progress has been made in recent years in regard to case code labeling. A multi-state code label has been approved by all of the control states, which allows suppliers to maintain fewer types of inventory for the same product. Hopefully in the future, the same cooperation that brought the multi-state label about can be used toward a common code system. This will streamline the process even further.


 


Homel: Both industry and the control states have worked together to streamline case coding and other wholesale practices. The issue that everyone needs to keep in mind is that many suppliers have a large number of different products, so what may seem like an easy solution for some suppliers with a small portfolio of brands is not a good solution for other suppliers with large portfolios. It is extremely costly for suppliers to have to maintain separate inventories for individual states due to different case coding practices. Both suppliers and the control states have worked extremely well together over the past several years and have eliminated the need for separate inventories for most states. We hope that everyone will keep this issue in mind when more streamlining is planned.


 


Biles: We at Brown-Forman, along with other Industry Steering Committee Members, have been cooperating fully with NABCA on moving all of us to the adaptation of EDI. The SCC project in Vermont and a subsequent approval by the NABCA Board of Directors to move to SCC codes by July 1, 1998, will help us all become better partners, make better and faster decisions, improve communications and reduce costs. The next step is to eliminate individual state case codes, and with the evolution of SCC coding that idea should become a reality by the end of this century, if not before.



Bellini: Realizing the need for more efficient and profitable ways to do business, control state markets and suppliers are now meeting more than ever to discuss common issues that confront them. Working together during the past year, the control states and suppliers were able to agree on a common case code label to represent the various state proprietary code requirements. This is significant because it reduces the number of SKUs a supplier has to inventory and virtually eliminates the problem of miscoded cases arriving at control state warehouses.


Additionally, the control states and suppliers recently issued a joint letter agreeing to pursue the common use of the SCC code, encouraging all parties to adopt this practice. This was felt to be a necessary step in the efficient implementation of EDI between trading partners.


There will always be opportunities to improve our respective business practices, and I think we now have the atmosphere and forums to discuss and resolve the issues that arise.

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