PROFILE: THE VIRGINIA DEPARTMENT OF ALCOHOLIC BEVERAGE CONTROL

PHOTOS/JOHN TROHA/BLACKSTAR

The mission statement of the Virginia Department of Alcoholic Beverage Control (VABC) reads as follows:

“The mission of the Department of Alcoholic Beverage Control is to administer ABC laws with an emphasis on excellence in public service and a focus on public safety by ensuring a safe, orderly and regulated system for convenient distribution and responsible consumption of alcoholic beverages while generating a reasonable profit for the Commonwealth and its localities.”

In talking with board members and agency leaders, it’s clear that everyone involved is committed to the fundamental spirit and practical details of this statement, which is one of the reasons that Virginia’s control system is so well-regarded among the control state community.

As the chairman of the department, Clarence W. Roberts is responsible for overseeing all the workings of the agency, but he is quick to point out that the essential operation of the department is a total “team effort.”

“There are no individual decisions made within this agency,” Roberts stated. “Everything is voted on by all three board members, and it is all done in written formal votes that are recorded to avoid any possible misunderstandings.”

The other two members of the three-member board underlined the success of this decision-making policy. “Fortunately, the current board works very well as a team,” said Clater Mottinger, appointed to the board by Governor George Allen in 1996. “We all have equal powers and none of us can make unilateral decisions. We discuss things and come to consensus decisions. It is a successful, time-tested system.”

The board also involves representatives of employees for all the major decisions made by the board, Roberts said. “We bring the team together on main policy decisions. They [employees] have to implement it, so they should be part of the process.”

The theme of teamwork extends to the system’s suppliers, Roberts said. “We have an ‘Open Door’ policy, and want it to be known that there are no barriers between us and our suppliers, including brokers, distillers, company reps and anybody else involved. That’s very important to our agency.”

Roberts continued: “Basically, what I want to emphasize is we all work as a team: the board members, the very able management staff, and all employees.

“I see this as a service agency,” Roberts added. “I believe it’s important to provide the best service possible to our external customers, who are the people of Virginia, and also to our internal customers, who are our own employees. They are our most important resource.

“My job is to create an environment where every employee can have a sense of accomplishment. We want to provide an atmosphere of training so they can meet, and then exceed, their own expectations. We want our employees to go home happy at the end of the day satisfied by the day’s work they put in.

“If we can build that atmosphere, the service we provide to our external customers will be second to none.”

“We all play an equal part,” emphasized Sandy Canada, the most recently appointed board member, named by Governor Jim Gilmore in June 1998. “We’re very excited at the ABC. Sales are up and we’re moving forward aggressively. We hope the trend continues.”

Indeed, the VABC has a lot to be excited about.

It has developed a comprehensive program to upgrade and relocate specific state stores as well as add new stores to the system.
It continues to implement a state-of-the-art product distribution system (PDS), which began operating in 1998. The PDS is a highly automated on-line, real-time system designed to manage and account for ABC inventory, from all 249 retail stores to the huge, 7-acre state warehouse complex in Richmond.
It continues to recognize the importance of its public safety and control function, and has forged a dynamic link between its enforcement and educational arms, while formulating new programs (as well as maintaining existing ones).
It has increased dollar volume and profits to the state.

Roberts noted that dollar volume increased almost 6% in Fiscal 1999, while actual case sales of distilled spirits showed a much smaller percentage increase. He also noted the profits distributed to the state increased by almost 20% in Fiscal 1999. One-third of those profits are distributed to the state’s general fund, while two-thirds go to localities.

According to Ron Layne, chief financial officer, “the agency is doing very well so far [through December 1, 1999] in Fiscal 2000, which began July 1, 1999. Our profits are ahead of projections, but we’ll have to wait until the end of the third quarter of the current fiscal year to determine if profits will exceed projections for the year ending on June 30, 2000.”

Layne, who was hired in September 1999, noted that he sees a continuation of streamlining operations and integrating systems for the handling of products. “I think over the next two to three years there will be an ongoing effort to enhance customer service and increase profitability in a variety of ways.” He explained that, “it will probably take at least a full year on the job for me to see all the cycles to make more definitive statements.”

THE WORKINGS OF THE AGENCY

The VABC operates 249 state stores that sell primarily distilled spirits (also vermouth, Virginia farm wines and mixers), which in Fiscal 1999 grossed more than $324 million, with the agency’s profits contribution to the state eclipsing $38 million. Total revenue and other receipts including license and permit fees, penalties, federal grants and contracts and, various taxes were $412,506,733 for Fiscal 1999. This was the first year Agency revenue and receipts exceeded $400 million. State ABC stores currently carry almost 2,000 items on their price list, with an additional 300 items available through special ordering. There are approximately 1,700 persons employed by the VABC, with the majority working at various functions in the wholesale/retail operation, including purchasing, warehousing, transporting and selling of products.

Private retail licensees sell other beverage alcohol products, including wine, beer and mixed beverages. The department runs the large warehouse, located in Richmond, as a bailment operation (suppliers/vendors own the product until it is shipped to the stores).

As is true in other control states, and consistent with its state-mandated mission, the VABC must implement an effective control function, monitoring the distribution of beverage alcohol throughout the state, while at the same time operating as a retailer of distilled spirits. And it must simultaneously focus on providing effective public safety as well as serving the public.

For Commissioner Roberts, there is no contradiction in reconciling these two commitments. “First and foremost, we must recognize that the ABC answers to the Secretary of Public Safety, and we can never forget public safety issues. And if we sell beverage alcohol within the guidelines and laws, then it’s not an issue. It only becomes an issue when someone violates the law.”

“We make products available for the citizens of Virginia. We want to provide service to those who want the service.”

Clarence Roberts was first appointed a commissioner in 1994 by then-Governor George Allen, and he was appointed chairman by Governor James Gilmore in 1998. However, Roberts was not new to the VABC. He had worked for the agency for 26 years in law enforcement as a field special agent for the Department’s Bureau of Law Enforcement. Today, he is also on the NABCA Board of Directors, the chairman of the NABCA Regulatory Committee and on the Education Committee.

Besides overseeing agency activities, Roberts chairs all of the appeals brought by licensees who have been disciplined by the hearings division. These include anything that might be constituted as criminal conduct that takes place at a licensed location, such as sales to minors, sales to intoxicated persons, tax issues, etc. “There were 1,142 hearings conducted in fiscal 1999,” Roberts said,” and the decisions of several hundred of those were appealed.” In all, the board assessed $946,929 in penalties as a result of disciplinary proceedings.

Clater Mottinger spent 18 years working in sales and marketing positions for various beverage alcohol companies throughout the country, and an additional six years consulting for the beverage alcohol industry before he was asked to serve as a commissioner. “I have a real good understanding of the wholesale and retail operations throughout the industry,” he said, “and I think that had something to do with Governor Allen approaching me in 1996.” Most recently, Mottinger’s attention has been focused on the complex issues and initiatives surrounding information technologies throughout the agency. In fact, he is on the executive committee of the ABI Electronic Commerce Committee, a national organization that is trying to develop electronic standards to facilitate operations among all segments of the beverage alcohol industry.

Sandy Canada’s background is as a professional fund-raiser and finance director for political candidates, which she has been doing successfully for more than 20 years. Now, as the newest member of the board, she focuses on the wholesale/retail operations and real estate. “I visited 60 stores this past year,” she said. “It’s a great way to keep in touch with state store employees. Often, you can get the best suggestions for operational improvements when you have the opportunity to speak with someone face to face.”

She works closely with Virginia Adams, director of the agency’s wholesale/retail operations, and as such is intimately involved in the planning for store operations. This includes a specific business plan for each of the 249 state stores, based upon demographics, location and sales history; the improvement and upgrading of older stores as the budget permits; the relocation of some stores as a way of bringing better service to underserved communities; and the implementation of the New Store Business Plan.

NEW STORE PLANS

One of the major decisions recently taken by the board is the New Store Business Plan, a well-researched study that concludes that Virginia’s citizens would benefit from the opening of additional stores throughout the state. For now, the Plan is targeting the opening of several new stores per year through 2002. In addition, the agency would also remodel and relocate older stores, based upon the same rigorous analysis that has gone into the entire business plan.

“We’re very proud of our new store business plan,” Roberts said. “It’s a great document that provides full justification for placement of stores. It provides complete accountability, based on demographic studies and financial analysis. It was also important to determine areas of the state that are underserved and to make sure we locate stores in those areas to better serve the public. For example, every time a store is up for lease renewal, a complete financial and demographic analysis of that store is performed to see whether it needs to relocate or be modernized.”

The fact is, Roberts explained, that the population of Virginia has increased approximately 10% over the past decade, and is increasing at an average of 70,000 people per year. Meanwhile, the Virginia Alcoholic Beverage Control Board has added only a handful of stores in the past two decades (there were 240 state stores in 1990 and there are 249 today).

The result of these two facts is that the VABC has moved prudently, yet ambitiously, to meet the growing needs of its citizens by recommending the opening of more strategically placed state stores as well as participate in a timely modernization program.

Craig Vanderland, Management Services and Public Affairs director, described the New Store Business Plan. “Our Research and Planning (R&P) staff created a sophisticated methodology of geographic and demographic analysis to evaluate potential sites to see which is best,” he said. “It provides a sense of structure to the decision making process, which is intended to give the public increased service and convenience and increase the profit potential for the state. We’re very proud of the R & P staff for helping to bring order to such an important, complex process.”

The quantitative research and findings in the Plan can be briefly summarized as follows. First, the impact of new store placement was deemed to be positive, based upon studies of the collective market performance of four new stores opened during fiscal years 1997 and 1998. After being opened for at least 12 months, each of these stores showed enhanced profit and sales performance, after adjustments for statewide trends. And it is anticipated that additional new store placements will result in similarly favorable activity.

Another important element of the plan, called Market Location Strategy (MLS), develops County Market Areas in the state and ranks these 105 geographic areas on the basis of their new store potential. Again, these rankings are determined through a quantitative, objective analysis of several variables, 13 in all, that encompass demographic data (such as household income, population) and sales and market factors that also include the existing store system (such as retail draw, net profits), as well as beverage alcohol usage. The final ranking is then enhanced by an on-site analysis, examining local markets and real estate availability.

The results, according to the agency’s executive summary, is that there is “a substantive need for additional ABC stores in strategically placed locations.” And various analyses show that sales and profits for new stores would be favorable and not cannibalize existing ABC stores.