FACING THE MILLENNIUM

Generalizing about the control states is like trying to capture a sunbeam: you can see it and feel it, but when you reach for it, it’s no longer there.


While the control states have much in common, they are still 19 different jurisdictions operating within 19 distinct systems, and the particulars of any overriding theme can vary tremendously from state to state.


“How will the control state system be different in the 21st century? And what are some of the issues that will most affect the control states in the coming years?” We asked these and several other questions of all the control states commissions, and received a wide range of responses.


Still, when we examine what the control states might look like in the near and long term, we can make several assumptions and address several issues that may ultimately affect the functioning of each state’s control system.


For example, Commissioner Walter Keck, of the Michigan Liquor Control Commission, noted that “there will always be the control argument of whether or not the state should be in the liquor merchandising business. And, there will always be the revenue issue; in other words, state governments will continue to look at whether they have to be involved in an economic enterprise and whether it has to be carried out by state employees. Ultimately, though, there will always be the drive to do things better and more efficiently.”


Oregon Liquor Control Commission Chairman Philip D. Lang, feels that, “In general, we expect that control states will increasingly embrace standard business practices, becoming more and more alike as they adopt common technology, modernize, and relinquish state-idiosyncratic policies and practices. As society relies more and more on computer technology for information exchange, artificial state barriers become more difficult to maintain, and a global, more informed society emerges. A closer partnership with other control states, through the national organization NABCA, will provide the vehicle to move forward with the benefits of shared knowledge.”


Michael J. Hogan, interim commissioner, Vermont Department of Liquor Control, said, “As we begin the new year of 1999 and head towards the millennium, I would say that most if not all the control states face similar problems in the areas of underage drinking, direct shipment via the internet, effects of vendor acquisitions, and the role they play, if any, in tobacco enforcement. The issues that will continue to be in the forefront for Vermont, along with those mentioned above, will be alcohol education to schools and universities, underage drinking and tobacco sales to minors.”


John Byrne, New Hampshire Liquor Control Commission chairman and NABCA president-elect, predicted that “the three-tier system will come under heavy scrutiny in the next millennium. Changes will be driven by consolidations in the manufacturer and wholesaler tier, but more importantly by consumers wanting access to a greater variety of products. Control states with retail operations will need to continue to modernize to compete in this environment.”


Jack Nystrom, administrator of Iowa’s Division of Alcoholic Beverages, agreed. “As we all know, the wine and spirits industry, as well as other industries in the U.S., is undergoing vast changes due to the many consolidations in the industry.”


Still, with so many issues to be addressed, virtually every control state official has acknowledged and analyzed the tremendous influence that advancing information technologies will have throughout the control states on the turn of the century.


 

Technology-Driven Changes

“Information technology is changing the face of the control state system,” said Hogan of Vermont. “I think the control states are in the forefront when it comes to Y2K readiness with Vermont nearly complete in its preparation. Many of the states have converted over to new systems that will give them a platform for interactive web site usage, EDI and licensing. Vermont is not ready to do licensing through their web site yet, but in the near future renewals and other applications might be accomplished. EDI will change the way we do business and hopefully give us faster turnarounds in product delivery and payment to our vendors.”


Ken Wynn, NABCA president and director of Utah’s Division of Beverage Alcohol Control, added, “There are major concerns, both in industry and the control states, about Y2K. At a recent NABCA Board of Directors meeting, there was discussion about affidavits from both sides attesting to being Y2K ready, and if not, the contingency plans for backup. There is no question that electronic commerce is here, will get better and is the future. I see more web site activity coming from both sides. Presently, I think most control states have web sites, and I expect more and more information to be added to those sites. In Utah, I would hope to add price lists, monthly specials, new products and new wine vintages. We have also discussed putting our licensing renewals on our web site.”


John Byrne, of New Hampshire, also sees the internet and evolving information technology having a wide-ranging influence on the control states. In New Hampshire, specifically, he pointed to several examples that have, or will, expand capabilities in enforcement, licensing, taxation and marketing.


In North Carolina, Michael Herring, administrator of the North Carolina Alcoholic Beverage Control Commission, also explained that future business will often be conducted electronically. “This is particularly true for us regarding the filing of price quotes from spirits companies. We are just starting a program that allows these companies to file either through our web site — which has just been built — or electronically through the NABCA. As far as I know, we will be the first control state to accept price quotes from spirits suppliers electronically.”


For North Carolina, this will be a huge advance, basically because these price quotes on 1,500 spirits products are now manually delivered quarterly to the 155 separate local ABCs throughout the state. This will change dramatically. “We will run parallel systems — both electronic and manual — for the first two quarters, but then we plan to switch entirely to electronic price quotes,” Herring said.


“I believe that technology will by far be the issue to have the most impact both near term and far term in Ohio and the other control jurisdictions,” agreed William Vasil, superintendent of Ohio’s Division of Liquor Control.


“I expect the accelerated growth in electronic commerce capabilities will greatly affect the direction and timing of changes in the relationships between control states and suppliers. At issue will be the capital investment and operating decisions by both parties to ensure that expenditures made based on current and foreseeable technology will earn a reasonable return on investment before being rendered obsolete by the next generation of technology.


“Since the Ohio Division of Liquor Control first introduced its web site on the internet in September 1997, numerous offerings have been added including the forms necessary for processing new and transfer permit applications. The division is currently researching the possibility of liquor permit renewal via the internet. I believe this is only the beginning in the licensing and other division activities that will be accomplished via the internet in the future.”


In Mississippi, Ed Buelow, Jr., chairman and commissioner of Revenue, stated, “We recently commenced a computer modernization project for our Alcoholic Beverage Control Office. We are working with DynCorp Management Resources, Inc., to implement a new software system developed by JBA International, which will run on a new hardware platform. This is a robust system which will carry our agency many years into the future.


“Our new system will position us to take advantage of new technologies previously not available to us. The software includes order entry, sales purchasing, warehousing, distribution and financial, and will allow us flexibility in the way we do our daily tasks. We plan to utilize electronic media more, and we are currently discussing interfaces with NABCA, our suppliers, and even our customers.”


Oregon’s Lang pointed out that, “We are trying to become more efficient as a smart business, control costs through technology, and be more responsive to customers. Internally, we can anticipate more efficient communication with our field staff through our wide-area computer network and video conferences. We anticipate employing more efficient business practices by implementing state-of-the art computer systems. This includes a new merchandising business systems, using EDI for electronic transaction, developing a new regulatory business systems so that our field staff have access to central data bases through laptop computers, and modernizing liquor stores.


Clarence Roberts, chairman of the Virginia Alcoholic Beverage Control Board, reiterated these feelings: “The use of the internet and web offers control states new territory for improved public service. The use of web pages to provide increased information to the public concerning store locations, prices, product information and educational materials knows no boundaries. In the long term, the move toward a paperless society will continue as states explore on-line licensing applications and electronic commerce.”

Education and Prevention

Alabama Alcoholic Beverage Control Board administrator Randall Smith identified “alcohol education and the prevention of underage consumption,” as one of the most important issues facing the control states in the coming years. “We plan to expand training and education programs to achieve even greater server and consumer awareness statewide,” he said.


Again, virtually every control state is committed to expanding alcohol education programs as well as increasing efforts to reduce underage consumption.


In New Hampshire, John Byrne explained that “while control states are in the business of marketing alcoholic beverages, there remains the duty to provide training to seller, servers and the public to ensure alcohol beverages are sold and consumed responsibly. Over the past 10 years many control states have established or expanded their training programs designed to guide attendees in the responsibilities associated with checking identification, civil liability, DUI laws and alcohol pharmacology.


“The NHSLC’s Bureau of Enforcement operates separate training programs for on-premise licensees and Bureau officers often instruct other police officers at the New Hampshire Police Academy.


“The NHSLC also enthusiastically joins forces to encourage and promote responsible sales and consumption. The following are some of these partnerships:

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Cops in Shops — Century Council
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NH Attorney General’s Underage Drinking Task Force
NH Governor’s State Incentive Grant Program on Youth-Oriented Substance Abuse
Mother’s Against Drunk Driving
Governor’s Highway Safety Committee.”

In Iowa, real progress has been made recently, according to administrator Jack Nystrom: “Approximately two years ago we contracted with a media firm to produce a series of videos designed basically to provide information relating to our new and much tougher legislative changes. We worked closely with law enforcement officials (sheriffs), chiefs of police and the Department of Public Safety (state troopers). We held a series of seminars in all 99 counties of the state. The results were very rewarding — we had approximately 5,000 people throughout the state who attended, and we have seen during the past few months fewer citations on sales to minors than previously. All in all, we considered it a major move for our organization. In fact, we did not limit the seminars to licensees, but also included the law enforcement officials, teaching them to do proper bar checks and encouraging them to keep in contact with bar owners and liquor retailers throughout the state of Iowa.


“We made this video available to all the control states, and it has been received positively. In the near future, we intend to expand these efforts to high schools in conjunction with the state troopers. Our mission is not to talk about the sins of alcohol, but to inform students about the legal consequences to themselves and to their families.”


According to Pennsylvania’s Chairman Jones, “The Pennsylvania Liquor Control Board has been actively engaged in educating the public on the potential consequence of misuse and abuse of alcohol in the forms of drunk driving, underage drinking, binge drinking and drinking during pregnancy. We recognize that this education is important but is not enough to make positive change in Pennsylvania communities. As a result, the PLCB has actively engaged other state agencies and many local communities to take a more comprehensive and broader view of what must be done to reduce the above problems associated with alcohol. The following illustrates how the PLCB has reached out to other organizations and brought many together:

providing funding with the purpose of bringing colleges and communities together to work on the issues of irresponsible alcohol use of college students;
acting as the lead agency and pursing funding for the Pennsylvanians Against Underage Drinking, a statewide coalition of 70 organizations and individuals with a regional structure dedicated to reducing underage drinking by changing the environment;
providing assistance to communities who wish to establish coalitions;
leading the effort in Pennsylvania to create responsible hospitality panels which work closely with local liquor licenses and their surrounding community;
forging public/private partnerships, such as the one which helped develop technology to read the magnetic strip on drivers’ licensees, providing licensees with the prevention tools needed to prevent underage sales.

Vermont, too, continues to be committed to several programs. Interim Chairman Hogan noted, “Vermont continues state-wide licensee alcohol beverage compliance checks on a continuing basis, in an attempt to reduce the rate of sales to minors. These checks have been very successful and will continue with funding through various types of grants.” Vermont has also been successful with a range of other programs.


In Virginia, Chairman Roberts explained, “Virginia has always had a strong presence in the education arena. Strong partnerships with prevention groups and industry are necessary if such topics as underage drinking are going to be effectively addressed.


“The control state is in a unique position to facilitate issues between the prevention community and beverage alcohol retailers. I expect that more and more states will move into the education arena as government administrators realize their unique positions. In the long run, more states will probably move toward responsible hospitality panels and other cooperative arrangements. The NABCA has been very supportive of educational efforts, and I would expect more opportunities for collaborative relationships between states.”


Several other control state officials emphasized that it will take an ongoing collaboration among state and local organizations, both government and community-based, to effect continuing improvement. Indeed, Eben Marsh, director of the Maine Liquor & Lottery Commission, foresees a change in public perception. In the future, he said, “the public will have a low tolerance for alcohol-related abuse. This will drive industry self-policing, and a resulting accountability upon both the states and the industry will drive each to a closer constituent relationship.” Eventually, Marsh said, he believes, “there will be more demands made upon state legislatures to ‘release’ a greater share of its profits to provide direct support for alcohol awareness and social problems.”


Finally, the control states’ mission moving into the new millennium was perhaps best summed up by Pennsylvania Liquor Control Board Chairman John E. Jones III: “Absolute responsiveness to consumers while balancing public safety issues, significant attention to controlling costs, a business-like approach to day-to-day decisions, and a devotion to alcohol education issues including partnering with industry and private groups, will ensure the success of control state agencies.”



Millennium, Part II, Next Issue


StateWays is grateful to the control state officials who participated in this story, though space did not permit us to cover the full range of their responses. Because of the time and thoughtfulness spent in preparing their observations on important issues facing the control states, we will publish a Millennium, Part II in the next issue of StateWays. This will include sections on sales trends in the control states, merchandising and marketing, and the privatization issue, among other topics.



The Direct Shipment Controversy

Clarence Roberts, chairman of the Virginia Alcohol Control Board, articulated the questions surrounding the direct shipment of beverage alcohol products:


“The issue of direct shipment of alcoholic beverages is one that has been fiercely debated among the various segments of the industry and regulatory authorities for the past several years. Despite this attention, the discussion has not resulted in any consensus as to an acceptable approach. The Virginia Alcoholic Beverage Control Board has been participating at the national level in the Joint Committee of the States, an organization representing the alcoholic beverage control agencies to all the states. One of that organization’s subcommittees met on several occasions to discuss the direct shipment issue. Representatives of producers and distributors have participated in these discussions.


“While the various segments of the alcohol industry have different perspectives on whether or how direct shipment should be allowed, there are significant governmental interests impacted by the concept. Taxes and the prevention of sale to minors are two of these, and there are others. A few states have recently passed statutes authorizing direct shipment, but the effectiveness of these remains to be seen. Virginia’s governor is dedicated to government policies that encourage trade and are beneficial to consumers. However, alcoholic beverages are a unique type of product, and the rules that might apply to mail-order or internet sales of clothing or sporting goods do not readily translate to their distribution. Virginia’s Alcoholic Beverage Control Board will continue to participate in the continuing national discussion of this important issue. Perhaps a reasonable solution may someday be found.”


In Iowa, Administrator Jack Nystrom explained that “the direct shipment controversy has been looming the past few years and more recently on the internet. The problems would be to circumvent the tax on various products and making sales to minors. There are several states, Iowa included, that are currently attempting to legislate a sensible and effective method of regulating direct shipment.”


Oregon’s Liquor Control Commission Chairman Philip D. Lang, noted that, “As the public becomes more accustomed to ordering merchandise from their homes, they will have greater expectations for direct shipment. The market will exert strong pressure for us to allow shipment of alcohol to customers. We need to find a way to accommodate the changing marketplace expectations while protecting the public safety.”


William L. Vasil, superintendent of the Ohio Division of Liquor Control, added, “Internet direct shipment sales capability is a fact of life that will only continue to grow. I believe the major issues will be focused on how to make it perform to the control states’ sales requirements and advantages, as opposed to how to prohibit its use.”


And Ed Buelow, Jr., from Mississippi, stated, “We are tracking the successes of other states using direct shipment of spirits, and are not closing the door on this method of distribution for the future. We want customers to be able to purchase desired products, but must be sure our system works properly with respect to the collection of taxes due the state.”


Said Michael J. Hogan, Interim Commissioner, Vermont Department of Liquor Control, “Direct shipment of alcohol is said to be already a billion dollar a year business. That is pretty incredible when the internet is still a baby. The states are losing valuable revenue in taxes, and the consequences of that alcohol sold to minors is staggering. The internet has created a 24-hour open bar for anyone, of any age. Vermont with its current political makeup would never allow direct shipment of alcohol.”


Utah’s Ken Wynn, NABCA president, pointed out that “the issue of direct shipping is still in court in Utah. We are confident we will prevail on this case and will then look toward legislation to control direct shipping. I know other states have allowed direct shipping and seem to be pleased with the results. If it works for them, great. It will not work in Utah.”


Pennsylvania Chairman Jones explained that “there is currently no legislation before the General Assembly of the Commonwealth that would alter our current laws, which make the direct shipping and importation of beer, wine and spirits by consumers per se illegal. However, the PLCB has been involved in exploratory efforts that will take advantage of internet technology , and hopefully guide consumers to a better understanding of the enormous number of product codes which we now offer in our system. We believe it is incumbent upon us not to ignore emerging technologies, and remain open to reasonable approaches which will not only provide an additional measure of convenience for adult purchasers of beverage alcohol, but also serve to protect our youth.”


NABCA president-elect John Byrne, chairman of the New Hampshire Liquor Control Commission, foresees internet commerce as a driving force behind direct shipment sales. “The internet and the evolving information technology industry will affect the alcohol beverage industry in the next millennium. The debate on direct shipping is just a precursor to the many changes that will occur on how consumers decide in purchasing alcohol beverages.


“Internet shopping will become the norm. Direct shipping will continue to grow but retail stores will be better able to serve internet sales. Large regional wholesalers will service retail systems from internet sales and promotion. Direct shipping will continue to be controversial until a uniform code of business practices are established for local tax collection and distribution issues. Consolidation of the wholesale tier will help develop these business practices.”

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