PROFILE: NABCA PRESIDENT-ELECT JOHN W. BYRNE

When he takes over the reins of the NABCA this month (on May 19, the final day of the 62nd Annual NABCA Conference), John Byrne would like to continue and expand upon the activities of his predecessors. He first joined the NABCA Board of Directors approximately three-and-a-half years ago, and he has observed the able leadership of the last three NABCA presidents: Gene Hallman, Ed Buelow, Jr., and Ken Wynn.

“As I think back over the past three-and-a-half years,” Byrne said, “I believe that the three previous NABCA presidents have all followed different aspects of the theme of ‘Partnership.’

“Gene Hallman began by building an alliance with the open states through the NABCA’s Joint Committee of States. This has helped us develop very strong ties and relationships with organizations and members of licensed states, which is very important.

“Gene was followed by Ed Buelow, who did a wonderful job in establishing the NABCA as a clearinghouse for information. He also created a tremendously positive working relationship between the NABCA Board of Directors and the Industry Steering Committee.” Byrne noted that this has become an increasingly useful forum for representatives of spirits companies and control states to address concerns of mutual interest, where real solutions to problems can — and have — been worked out.

“Finally, during the past year, Ken Wynn has used his vast experience to emphasize the importance of the NABCA as an organization. He visited every one of the 19 jurisdictions and, along with Jim Sgueo [executive director of the NABCA], helped to underline the need to strengthen the partnerships among all the members of the NABCA itself.”

Byrne’s immediate goal, he said, is to continue to build on these partnerships that his predecessors did so much to establish and maintain. He would like to especially broaden the partnership with the industry. “We already have a strong link with members of the spirits industry, with the NABCA Industry Steering Committee,” he said. “But, you know, the beverage alcohol industry consists of three segments. And I would like to try to extend our partnerships to the other segments of the industry. For example, I think we should start to create partnerships with the wine industry. Though only seven or eight control states are in the retail wine business, a majority are in the wine wholesale business, so I think this is appropriate. I also think that beer should be a part of the dialog, too.”

Indeed, Byrne’s track record in New Hampshire shows that his ideas have proven to be effective on several different levels. “Our essential philosophy has been to maximize revenues to the state while, at the same time, we ensure proper controls,” Byrne said. “This means that we are committed to excellent merchandising and efficient operations in order to maximize profits. And, we are also committed to a strict policy of enforcement and education in the state, especially when it comes to combating underage drinking and over-service.”

The New Hampshire Liquor Commission’s 1998 Fiscal Year results (ending June 30, 1998) point to a strong performance. Total revenues equaled $255.5 million, an increase of more than $14 million from the previous fiscal year. Of that total, sales of distilled spirits accounted for approximately $148 million and wine sales accounted for about $107 million.

Indeed, the wine revenues represent a significant number, Byrne explained. “In three years, we went from $65 million in wine sales to $107 million. That is extraordinary growth and is directly attributable to our efforts on getting more wine products into the market, pricing them in an attractive manner and presenting them to consumers in effective ways.

“In addition, the spirits business obviously continues to be a strong foundation for us: we had a 3 1/2% increase in spirits revenues in fiscal ’98.”

Gross profits for fiscal 1998 were $71 million ($75.4 million when including additional revenues such as licensing fees), Byrne said. And the cost of operations was $18.4 million. This represents a very impressive 7.2% ratio of expenses to sales. “Control states typically run an efficient organization. However, our expenses as a percentage of sales are very low and have continued to decline over the past three years. That has helped us deliver increased profits to the state.”

This has been a result, Byrne noted, of the progressive marketing and merchandising mix espoused by the commission, and of offering more product choice to consumers in an upgraded store environment. The state’s marketing philosophy allows vendors/brokers to build in-store displays and use their point-of-sale materials to enhance the displays. Co-packs, rebates, consumer sweepstakes and other promotional programs are also allowed. And the NHLC itself creates a wide range of promotional shelf talkers, signs and fliers to help merchandise the stores.

Wine and spirits retail outlets in New Hampshire consist of 73 state stores, 2 agencies and approximately 1,300 off-premise licensees (which sell only wine). Nine state “superstores” — the most recent one launched in 1997 — are the flagships of the state system and represent about 37% of the NHLC’s business. The stores are large, feature an extensive range of products and boast a consumer-friendly atmosphere with wide aisles, shopping carts, large attractive displays, plenty of product information and, almost always, extremely competitive prices driven by an ongoing program of price discounts.

Byrne emphasized that there remains a commitment to upgrade all the stores in the system. Individual stores continue to be refurbished in a variety of ways to enhance the look and product presentation, such as with quality wood shelving for the wine sections. And over the past 18 months, the state has opened three new stores to service communities in the western and central part of the state. “The three stores together have already added $3.75 million in sales,” Byrne said.

Using Category Management

The NHLC has also initiated an ambitious category management program in both wine and distilled spirits, partnering with various suppliers to establish these programs. Since the beginning of 1998, Brown-Forman Beverages Worldwide has been working in cooperation with the NHLC on extensive shelf and floor management programs. The shelf management program has been completed with the reevaluation and resetting of the spirits departments in all the state stores. The resets were based on constantly updated sales performance information for a particular product at a particular location. The gross profit generated by a product and the ROI (return on investment) are now key components of shelf sets, with the number of turns of a particular product also playing an important role.

Brown-Forman is also helping the NHLC in instituting a distilled spirits floor management program, which is currently in the process of being completed throughout all the state stores. Again, this program analyzes the sales, turns and gross profits generated by a particular product when displayed on the floor in a particular location, and should assist store managers in creating the most advantageous floor sets.

The NHLC is also pursuing a third strategy of spirits category management — category profit management — which it has recently begun in partnership with United Distillers & Vintners and Brown-Forman. This program picks a particular category — such as vodka — and analyzes that category’s sales for a year to determine if there are too many SKUs in that category, the category’s gross profit requirements, etc. The system helps identify products that are not increasing profit, volume or choice within that category, as well as those products that are successfully performing these functions.

“The preliminary analysis for the vodka category shows that very few products will be in jeopardy,” said Byrne. “But this program has caused us to take a new look at our test market and annual gross profit requirement systems. For example, we used to allow new products a 13-week test market without any merchandising or price promotional activity during that test. But we’ve now determined that 13 weeks is not enough time, so we’ve changed it to a six-month test market. And we now allow vendors to promote the products during the test period. Higher-priced items, especially, need time to build a market.”

In addition, Byrne noted that the NHLC has taken another look at the annual gross profit requirement for each vodka SKU. “It used to be $12,500 annual gross profit requirement for each SKU to remain in the system,” he said. “Now we have changed it based on size: $40,000 for 1.75 liter bottles, and $20,000 and less for 750 ml bottles and other sizes.”

By the end of this year, Byrne hopes to have redefined test market parameters for all new products coming into New Hampshire. In addition, he hopes to have each spirits category and their annual gross profit requirements redefined.

“We hope to reset our stores based on these analyses by January 2000,” Byrne stated.

Evolving Approach To Wine

The NABCA “can potentially evolve into being a national spokesgroup addressing a wide range of beverage alcohol issues,” said John W. Byrne, NABCA President-Elect.

The NHLC has had continuing success with its specialty wine program, which had been expanding through the 1990s to include more than 20 specialty wine stores in the state system. The beauty of the specialty wine program was that it allowed the NHLC the flexibility to tailor a particular wine inventory to a particular store, allowing for a wider choice of premium wines at more locations throughout the state.

Now, there are no more specialty wine stores, basically because the characteristics of the specialty wine program have been expanded to include all the state’s retail stores under a new wine category management program. The wine shelf management system — called SPECTRA — began testing in late 1997 and is just about complete now, with the ongoing collaboration of E&J Gallo’s state broker (Commonwealth).

“The program is based on a wealth of demographic information,” Byrne said. “The system tracks the selling patterns of a store, the store’s location and the purchasing habits of the consumers in that area. We have divided our stores into six clusters based upon the analyses, with each cluster being defined by its mix of sales information and its own particular personality. This allows us to personalize the wine inventory in stores in a region, and to better manage our inventory and product turns. Every SKU is judged quarterly by its turns, so that we are constantly updating our information.”

Byrne also noted a new wine allocation system for on-premise licensees in the state. “It’s working well and benefiting our consumers. It’s basically organized to make sure that our restaurants are able to get a share of the fine wines coming into New Hampshire, and that the allocated wines are distributed and available throughout the year and not dumped all at once.” Again, Byrne pointed out, this system has served to improve relationships between the NHLC and vintners and suppliers.

And that theme of “building relationships” seems to be at the heart of Byrne’s leadership role.

“One of the most positive things about the NABCA is the opportunity we get to network with our peers in other states. It becomes a tremendous learning experience for all of us. Not only do we develop personal relationships among ourselves, but also with members of the industry.”

Byrne noted that he has been particularly impressed by the NABCA’s Industry Relations Committee, with which he is heavily involved. “It has been very successful in helping to build a consensus on a variety of topics in concert with the Industry Steering Committee. The meetings are attended by everybody, and we deal with a range of specific issues, like advertising, labeling and moderation and consumption issues, to name a few.”

Although he is not as actively involved with the NABCA’s Education Committee, Byrne pointed to it as a key player in NABCA efforts. “John Jones (Pennsylvania) and Danny O’Brien (Vermont) have done a great job in broadening the committee’s role and in providing a wealth of information to all of us. From server training and alcohol abuse issues to communicating what types of grants and programs are available to the states, the Education Committee has been tremendously helpful.”

But beyond the good works of individual committees, Byrne views the NABCA as an organization that serves as a conduit for all the issues that affect the beverage alcohol community. “It is a place where we can build a consensus among the control states and industry on these issues,” he said.

“I’m a facilitator,” Byrne added. “I see that as my primary role as president of the NABCA, to bring people together and start a conversation, and then help build a consensus on an issue. We meet as a group and decide as a group, but we all — each jurisdiction — have individual ways of doing things. Most importantly, we need to respect everyone else’s perspective.”

And how does Byrne envision the NABCA in the future? “Ultimately, I think there is a place for the NABCA to take a leadership role at the national level. It can potentially evolve into being a national spokesgroup addressing a wide range of beverage alcohol issues.” An ambitious goal, but a challenge that John W. Byrne is no doubt up to.

New Hampshire Direct

New Hampshire is one of the states that has dived right into the direct shipment controversy by passing legislation allowing for direct shipment of beverage alcohol products into the state, within strict guidelines and regulations. The law took effect July 1, 1998 and allows New Hampshire residents to have a maximum of 60 bottles of wine or spirits and up to 27 gallons of beer per year shipped to them from an out-of-state licensee. Before they can conduct any business, however, out-of-state licensees must obtain a permit (costing $228) from the state of New Hampshire and assume responsibility for the payment of 8% tax on all products shipped into the state.

The law includes specific packaging and shipping restrictions designed to prevent illegal delivery of any products to minors. The law also spells out specified levels of direct shipments into the state by a supplier, so that when that level is reached, the supplier/shipper must make available to the New Hampshire Liquor Commission a like amount of product at wholesale before being able to ship more to consumers.

Though there is not much direct shipment activity into the state right now, Byrne expects it to increase as internet activity increases. “We are making a concerted effort to make all direct shippers into New Hampshire aware of our rules and regulations. We try to be proactive with these companies, so they are aware of their responsibilities. And we are diligent concerning enforcement issues, especially with delivery companies such as Federal Express and UPS. We explain to them how to correctly deliver the product, so that our state laws are adhered to.”

Byrne emphasized that “we are active in enforcing proper collection of taxes and keeping access to beverage alcohol away from underage individuals.” But, he added, “it is very important for us to get federal legislation to allow individual states to go into court to enforce their state laws on companies doing business outside of their state.”

Indeed, the NABCA is currently supporting legislation recently filed by Utah Senator Orrin Hatch that does just that.

“The commerce is there and taking place,” Byrne said. “We need to protect our markets and the revenue coming into our state.”

Byrne continued: “This is still a young law. We’re still of the opinion that it will work. Give it time. And if it ends up not working, we’ll say so, and do something else.”

Current List of Registered Direct Shippers Into New Hampshire

Education & Enforcement

Protecting the public safety continues to be a top priority for Chairman Byrne and the New Hampshire Liquor Commission. “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,” said Byrne. “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 and off-premise licensees and Bureau officers often instruct other police officers at the New Hampshire Police Academy.”

The educational programs include GETS (Grocer Education Training Seminars) and TEAM (Total Education and Alcohol Management).

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

Cops in Shops — Century Council
Ready or Not — Century Council
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

“The NHSLC is committed to nurturing and expanding our relationship with other commissions, committees and communities who join in the extremely important work associated with keeping our children and our highways safe.”

A New P-O-S System

The New Hampshire Liquor Commission has awarded ACR Systems a $2 million contract to replace the entire state store p-o-s system with state-of-the-art equipment. Another half million dollars was awarded to Compaq Network Service to put a new networking system in place that will connect all the stores with the main office in Concord, NH.

The process of replacing nine-year-old equipment has been underway for some time, directed by Howard Roundy, director of information technology. Obviously, a tremendous amount of planning took place, followed by proposals to the state legislature, and then the allocating of the funds by the legislature to the NHLC. The search for the right vendor took until the middle of last year, but now everything is in place to move forward rapidly.

“It has taken some time,” Byrne explained, “but the system is being launched. We already have four stores up and running with the new system and hope to have the entire system on line by August of this year.”

Each state store will have the capability of being in immediate, direct contact with the main office. At the store level, managers will have the latest inventory and sales information at their fingertips. When a bottle passes through the p-o-s system, it immediately registers with the back office processor, which updates the data and downloads it to Concord headquarters for maintaining a perpetual updated inventory throughout the entire system.

The new system is Y2K compliant and will immediately represent a significant reduction in maintenance fees.

A Thumbnail Bio

John W. Byrne was appointed chairman of the New Hampshire State Liquor Commission (NHLC) in July 1995. He is currently president-elect of the National Alcohol Beverage Control Association.

Prior to joining the NHLC, Byrne served as director of administration for The Henley Group, Inc., and was responsible for administration and government affairs. He previously served as director of support services for Allied-Signal, Inc., at its Morristown, NJ headquarters, and as manager of public affairs for the Signal Engineered Products Group of The Signal Companies, Inc., both Henley predecessors. He joined Wheelabrator-Frye, Inc., of Hampton, NH, in 1978. Wheelabrator-Frye merged with The Signal Companies in 1983.

Byrne has been active with various business and charitable organizations, as well as being appointed to several state commissions. He formerly served as a member of the board of directors of New Hampshire’s Business & Industry Association, as vice chairman of the Pease Development Authority and as director of the New Hampshire Housing Finance Authority, among others. He currently serves as a trustee of the New Hampshire Charitable Fund and is vice chairman of the board of directors of Crotched Mountain Rehabilitation Center.

The New Hampshire Liquor Commission At A Glance

Key Personnel

John W. Byrne, Chairman; Anthony C. Maiola, Commissioner; Miriam F. Luce, Commissioner; Aidan J. Moore, Chief of the Bureau of Enforcement and Licensing; James M. Gustave, Administrator of Marketing and Sales; Craig W. Bulkley, Administrator of Administrative Services; John D. Bunnell, Director of Store Management; John Larochelle, Assistant Director of Store Management; James N. Beck, Wine Marketing Specialist; Gregg A. Leng, Marketing Information Representative; Scott Atherton, Director of Financial Management; Brenda Vittner, Chief Accountant; George Liouzis, Human Resources Coordinator; Kathleen B. Hass, Director of Purchasing; David Harrison, Warehouse Manager; Howard Roundy, Director of Information Technology.

Fiscal Year 1998

Total Sales: $255.5 million (distilled spirits, about $148 million; wine, about $107 million)

Gross Profit: $71 million ($75.4 million including additional revenues such as licensing fees)

Cost of Operations: $18.4 million

Control State Ranking: 7 (out of 19)