It’s fascinating to leaf through the earliest issues of StateWays, and not just for the often humorous glimpses at the fashions and hairstyles of the early ’70s. During its first full year of publication in 1973, StateWays waded into a control state market in a period of flux; control agencies had long since abandoned their “vague feeling[s] of disapproval over the new legality of liquor sale,” and were embracing the notion of “greatly expanded service to the consumer.” Administrators spoke of upgrading state-run stores (which in those days meant a conversion to “self-service”) and discussed ways to build revenues without losing sight of the control mandate.
Sounds a lot like the dialog today, doesn’t it?
Well, actually, not always. Consider the following excerpts from two early issues of StateWays. They clearly bring to mind a well-worn expression: The more things change, the more they stay the same.
“Today’s woman is the wine and liquor shopper, along with her husband,” we proclaimed, on Page 1, in September of ’73. “She requires the same comfort, convenience and pleasant surroundings in liquor stores that she is accustomed to in her other types of shopping.” Such a statement would invite derisive chuckles (maybe even letters of protest) today. Yet, in another Page 1 editorial in January/February ’74, we made a declaration that still rings true in the ’90s: “There has been an increasing tendency among all the states to give more recognition to the business aspects of the systems, devoting more attention to revenue and to customer service.”
In our 25 years of publishing StateWays, the language has changed — it’s no longer “liquor,” of course, but “beverage alcohol” sold in control state stores — but the over-arching themes are largely the same. The challenge for control systems is to find a way to profit from the sale of beverage alcohol while also regulating public access to it. During the course of 25 years, StateWays has tracked the many operational and legislative tactics control agencies have employed in achieving this tricky — but important — goal.
Prohibitionist to Progressive
By the time StateWays was created, the control states and their national association, NABCA, were well-established. In April of 1973 we covered our first NABCA Annual Conference (the association’s 36th), held at the St. Francis Hotel in San Francisco. Without question, the issue of the day was “The Modern State Store,” a topic to which StateWays devoted an entire edition later in the year.
Control agencies had begun thinking of themselves as marketers, not just regulators, and this was reflective of the times — in general, attitudes toward beverage alcohol were shifting from strictly prohibitionist to increasingly progressive. A nationwide movement to lower the legal drinking age to 18 swept through state legislatures in 1973 (Ohio and Iowa were among the many states debating such legislation that year), while at the same time the Distilled Spirits Council of the United States (DISCUS) was formed, consolidating Licensed Beverage Industries (LBI), the Distilled Spirits Institute (DSI) and the Bourbon Institute (BI) into one national voice of the industry.
On the sales side, beverage alcohol was surging: Distilled spirits sales increased nationwide, and especially in the control states, where total consumption shot up 4.1%. According to StateWays and NABCA data, the control states accounted for 25.7% of total distilled spirits sales in the U.S. in 1972, on consumption of 37,424,296 mixed cases. (That figure has declined about 18% since then: In 1997, control state distilled spirits consumption was 30,416,493 mixed cases and accounted for 24.9% of the U.S. total).
Much of StateWays‘ energy in the early days was spent reporting on the dramatic changes occurring at the retail tier. Though the first wave of “self-service” retail stores came along in the late 1950s and early 1960s, control states across the country were in the midst of ambitious store remodeling and relocation efforts. In the aforementioned “Modern State Store” issue, published in September 1973, we chronicled “how far the states [had] progressed in state store layout and design.” The Washington Liquor Control Board, for example, “began its store modernization program with the opening of its first self-service store in 1961.” At the time of our report in ’73, “all but 10 of the old ‘counter’ stores had been phased out.”
The changes underway in Washington and elsewhere — Iowa, for example, increased its number of “self-service” stores from 18 to 42 between 1972 and 1973 — included the relocation of state stores to more strategic areas (i.e. shopping centers), the creation of more off-street parking, the use of new lighting and shelving systems and, most notably, the use of floor displays and other merchandising materials. In New Hampshire, for example, a new “wine room” concept debuted in state stores, one that is still featured today.
Indeed, the more things change, the more they stay the same: In 1974, StateWays profiled the New Hampshire State Liquor Commission, dubbing it “one of the most, if not the most, progressive control states.” From its sparkling state stores, which brimmed with spirits and wines, to its state-of-the-art data processing system, which allowed the commission to track brand-by-brand sales activity, the NHLC illustrated how a more market-driven approach was taking root in the control states. Twenty-four years later, in this year’s January/February issue, we again visited New Hampshire, noting how the state “has evolved into one of the most aggressive marketers and merchandisers of beverage alcohol products in the country.” Store design improvements and increasingly sophisticated marketing and merchandising efforts continue to set new standards.
Focus on Operational Efficiency
Somewhat ironically, the store modernization efforts of the ’70s would eventually give way to the store elimination efforts of the 1980s and early ’90s. By 1980, distilled spirits were no longer on a growth track, and control agencies across the country began to encounter difficulties operating retail stores efficiently. “I think the biggest trend of the past 25 years is the control states getting out of the retail business,” said Jim Sgueo, the NABCA’s executive director. “Those that have stayed in the retail business have continued to be more consumer-driven, with credit card sales and the like, but for the most part the movement has been toward some form of privatization.”
Today, only 10 of 19 control areas operate state-run stores (compared to 17 in the mid ’70s), and most of those have whittled their store operations to a bare minimum, relying on agency stores in all but the most highly trafficked areas. Idaho and Montgomery County have experimented, with mixed results, with privately run “contract” stores, and on the whole the norm has been to either “privatize” outright (that word, of course, has different meanings in different states) or significantly increase the use of agencies.
Vermont’s conversion of state-run stores to agencies began in 1978, Oregon followed them in the early 1980s, and by 1986 the Iowa Liquor Control Board had converted its state stores to privately-run operations, while also contracting with a private company to handle warehousing and distribution — its workforce shrunk in the late 1980s from roughly 1,400 full- and part-time employees to less than 30. In subsequent years, Montana and West Virginia would also extricate themselves from the retail segment of the business.
“Lean and mean” became the mantra of most control systems as the 1980s progressed, and most states focused not just on the retail tier but on their warehouse operations, making the move to “bailment” as a means of reducing inventory costs. The notion of supplier-owned inventory wasn’t greeted with great fanfare by beverage alcohol marketers, but it was the kind of tough medicine the industry as a whole had to swallow as beverage alcohol sales continued to decline and state agencies struggled to maintain profitability. (Today, 15 of 19 control agencies operate bailment systems.)
Public Advocacy Takes Center Stage
The operational streamlining continued, of course, into the 1990s, as control systems found themselves under ever-increasing financial pressures: The 8% Federal Excise Tax on distilled spirits squeezed a still-declining industry even further, and as the “Republican Revolution” of 1994 swept through Congress, legislators began swinging their budget axes at state beauracracies. And control systems felt the pressure.
Perhaps the most dramatic example of streamlining came in Ohio, as we reported in our January/February 1994 issue. From 1991 to 1996, the state’s Liquor Control Board reduced its overall employment by more than 60% (1,700 employees in 1991 compared to 664 at the beginning of ’96). The bulk of these reductions came at the retail tier, thanks to an ambitious conversion of state-run stores to agencies, but it also included the conversion of state-run warehouses to bailment operations.
Of course, this was indicative of what Sgueo termed the “privatization fever” of the early 1990s, a time when many states faced legislation challenging the legitimacy of their control systems. For example, in 1994 a court ruling in Alabama declared state-run stores unconstitutional (this was later overturned). In addition, there were the continued efforts by Pennsylvania and Maine legislators to remove those states from the beverage alcohol business, and, of course, the Michigan situation. When, in February of 1996, the Michigan legislature ratified a plan to remove the MLCC from the direct operation of the wholesale and distribution network for distilled spirits, it was a watershed for the control states. “I would note, however, that Michigan is still a control state,” said Sgueo. “They’re just not a warehouser and distributor anymore.”
Without question, the control states have been fixated on operational efficiency — the NABCA’s leadership in the development of EDI technology is but one example — but for the most part the 19 control agencies are, at this point, as “lean and mean” as they can be. As Sgueo explained, control agencies are now focused on more intangible, nuanced goals, such as the refinement of their regulatory/enforcement functions and the development of sophisticated alcohol educational programs.
“What I’m really proud of is that the control states have taken on a leadership role in alcohol education,” Sgueo said. “Look at Pennsylvania: They started up a little education initiative six years ago, now they have a full-time staff. It’s a role most control states have tried to emulate.”
One example is the recently established NABCA grant program, through which state ABC boards will pass along some $50,000 in grants to colleges and universities for the development of substance abuse programs. Another is the NABCA’s partnership with the National Highway Traffic Safety Administration, which focused on the most effective retail-oriented prevention strategies and culminated in the production of the “Best Practices” handbook.
“I think control states have taken on the role of public advocate, of community partner,” Sgueo continued. “They’re ideally positioned to enter that arena and provide support to communities.”
Not too long ago, the job of a control administration was to restrict access to the product, to be the gatekeeper. These days, control states are propagating an enlightened view of responsible beverage alcohol consumption — far from Prohibitionist, it is a view that adults can and should be able to enjoy alcohol beverages, provided they do so responsibly. The seeds of this new attitude were being planted 25 years ago, and as we approach the millennium, it has reached full bloom.