STATEWAYS FISCAL YEAR 1998 IN REVIEW

While some might say the 1998 fiscal year results are already history, these latest reports from the control states indicate the direction in which the control states as a whole are moving. And, generally speaking, the statistics seem to be pointing in the right direction.

Once again, control state agencies have graciously provided a wealth of information to StateWays, regarding factors such as gross sales, revenue contribution, distilled spirits and wine sales volume, operating expenses and the numbers and types of outlets and employees in the system. Where possible, the states have also included projected gross sales and projected revenue contributions for fiscal year 1999. We have also included state rankings based on total sales. All the states responded to our survey, though in some cases 1998 fiscal year information was not yet available (i.e., North Carolina). The tabulated results are shown in a chart comparing fiscal year 1997 with fiscal year 1998 on the facing page.

In fact, when comparing the overall control state system figures from the past two fiscal years, the trends all remained positive, though the results were not as dramatic in FY ’98 as in FY ’97. The most significant development is that the two major indicators of control state revenue continued to show improvement. First, aggregate gross dollar sales grew by 3.1% in FY ’98, to more than $4.13 billion, from an adjusted total of just over $4 billion in FY ’97 (though the increase in FY ’97 over FY ’96 was 4.0%). Still, this year, all 18 of the jurisdictions that responded with 1998 fiscal year information reported increased sales, and some of the increases were truly astounding. For example, top-ranked Pennsylvania went from $917.7 million in sales in fiscal year 1997 to a whopping $971.8 in fiscal 1998, a $54 million increase. Second-ranked Michigan added almost $27 million from FY ’97, for a FY ’98 total of $590 million. Third-ranked Washington actually added more than $27 million to its FY ’98 sales, for a total of $425.5 million. And Ohio saw its sales jump by about $16 million to almost $408 million in FY ’98. And so on down the line, where several states had notable sales increases.

Second, combined revenue contributions to the states gained 2.8%, to almost $1.34 billion in FY ’98 (by comparison, overall revenue contributions gained 5.5% in FY ’97, and 1.6% in FY ’96). Again, most of the states showed an increase in revenues they were able to turn over to the state coffers, though four states showed slight decreases.

More than 1.1 million additional cases (mixed) of distilled spirits were sold throughout the control states in fiscal year 1998 than in the previous year. The total of nearly 27.5 million cases represented hefty 4.1% volume increase over FY ’97 (slightly below the 5.5% increase in FY ’97 over FY ’96). While sales activity in the control states generally reflect overall national trends, this spirits volume gain was, percentage-wise, significantly better than national statistics, which showed spirits sales volume relatively flat last year. As with the rest of the nation, we can surmise, both from hard statistics and anecdotal evidence, that consumers are spending more money on premium and superpremium spirits now. And if the economy maintains its health, it’s likely that this trend will continue, especially for the coming “millennium” year ahead.

While it’s sometimes hard to pinpoint the reasons for the above sales and volume increases, the strategies of control state agencies have clearly played a major part in the continuing gains. For instance, several control states have been expanding their merchandising efforts, which are making a real difference at the store level. And a number of states are spurring consumer interest in their products through a variety of good, solid business techniques — upgrading customer service, accenting employee training programs, contemporizing store design and management systems, highlighting product information and customer education, and focusing on up-to-date equipment (especially electronic) to improve efficiencies.

But you can’t upgrade your business without spending money, and that is obviously what is going on in several control states. While overall operating costs remained essentially flat throughout the system — compared with a 5.6% systemwide decrease in expenses in FY ’97 — half of the states increased their operating expenses in FY ’98, while only four managed to lower costs. But that decrease was, once again, dominated by both Michigan and Ohio, which together spent $21 million less between them in FY ’98. [In the case of Ohio, it is the result of the state’s first full year following the conversion to all private, contract liquor agency outlets; for Michigan, it represents the ongoing savings from the distribution system that had been privatized in 1997, with brokers acting as Authorized Distributor Agents, responsible for the delivery of products to the state’s almost 4,000 off-premise licensees.] Indeed, several states upped their operating costs significantly, just about offsetting the systemwide cost decreases — among them were Pennsylvania, which increased costs by almost $8 million in FY ’98; Virginia, which went up by $7 million; and Utah which spent about $4.8 million more than in FY ’97.

The following, then, represents the individual statistics for each of the control states responding to our 1998 Fiscal Year in Review.