TAKING THE LONG VIEW


Ken Wynn


UTAH’S KEN WYNN, SOON TO BE THE FIRST PERSON TO SERVE A SECOND TERM AS NABCA’S PRESIDENT, HAS A PERSPECTIVE BUILT FROM YEARS OF EXPERIENCE.

BY CHERYL URSIN


Utah has long been considered one of the most conservative states in the nation when it comes to the sale of beverage alcohol. Indeed, according to Ken Wynn, the president-elect of the National Alcohol Beverage Control Association (NABCA) and director of Utah’s Department of Alcoholic Beverage Control (DABC), many non-Utahans think that Utah is a dry state, where the sale of beverage alcohol is not allowed at all.


But Utah has become a more complex place over time. Though still conservative, the state has been experiencing robust economic growth, especially in its tourism industry. According to the 1998 Economic Report to the Governor from the Governor’s Office of Planning and Budget, tourism is already one of the largest and most important economic activities in the state, accounting for an estimated $4 billion in visitor spending in 1997, an increase of over 5% from the previous year.


 TIME WELL-SPENT


1973: Wynn began serving as director of Montana’s department of liquor control and on the NABCA board of directors.


1977: Wynn became director of Utah’s Department of Alcoholic Beverage Control and in the process, the first NABCA board member to have been a director in two different control states.


1980-81: Utah’s DABC started developing its premium wine program.


1981: The DABC devoted one of its stores, in Salt Lake City, to superpremium products, especially wines.


1985-86: Wynn served as NABCA president for the first time.


1990: The DABC instituted several changes to the regulations dealing with on-premise establishments, including expanding the hours restaurants can serve alcohol and eliminating mini-bottles in the state.


1996: State stores began accepting credit cards and personal checks.


1998-99: Wynn to serve a second term as NABCA president.


So, while the state, with its large Mormon population, still boasts the lowest per-capita consumption rate for alcohol in the country, it is also host to waves of tourists, many of them wealthy and with sophisticated tastes in beverage alcohol. According to Wynn, that tourism is part of the reason the DABC has been experiencing sales increases — of about 9% per year — for the last several years. For its 1997 fiscal year (ending June 30th), the DABC had gross sales of $113.5 million and made a revenue contribution to the state of almost $42 million.


Wynn, who has been the DABC’s director since 1977, has witnessed the growth and development of these changes in the state firsthand and has helped guide the DABC’s response to them. “We’ve made a lot of progress in the last 20 years,” he said.


At one time, for example, buying a cocktail in a Utah restaurant or bar could be a mystifying process for visitors. Bars were — and still are — private clubs, where customers have to be members, guests of a member or buy a visitor’s card in order to buy a drink. At one time, the drinks that they ordered would come to them in the form of a mini-bottle of the spirit served alongside the glass and mixer. In restaurants, customers who ordered cocktails would have to get up, go to a special area in the restaurant to pick up a mini-bottle of the spirit they wanted and mix the drink themselves. But at least they didn’t have to become a member of the restaurant.


Leading Brands of Distilled Spirits in UTAH

Advertisement

(Mixed Cases)

Brand
Category
Supplier
1996
1997
%Change
1997
Share of Total

Baron Rothschild
Vodka
Hood River Distillers
34,032
37,014
8.8%
6.5%

Canadian Host
Canadian
Barton Brands
31,293
31,667
1.2%
5.6%

Barton
Vodka
Barton Brands
25,030
25,297
1.1%
4.5%

Popov
Vodka
IDV North America
24,243
23,760
-2.0%
4.2%

Cuervo Especial
Tequila
IDV North America
17,963
19,657
9.4%
3.5%

Smirnoff
Vodka
IDV North America
17,512
18,988
8.4%
3.3%

Lord Calvert
Canadian
Jim Beam Brands
18,668
17,752
-4.9%
3.1%

Jim Beam
Straight
Jim Beam Brands
16,490
17,587
6.7%
3.1%

Bacardi Light
Rum
Bacardi-Martini USA
16,487
17,057
3.5%
3.0%

Canadian Mist
Canadian
Brown-Forman Beverages
12,997
13,686
5.3%
2.4%

Total Top Ten
214,715
222,465
3.6%
39.2%

Others
318,621
344,784
8.2%
60.8%

Total Distilled Spirits Utah
533,336
567,249
6.4%
100.0%

Source: Adams Business Media Research Database from NABCA data.


In 1990, the law was changed. Now, bartenders can mix drinks and mini-bottles, because they can be so easily concealed, are not allowed in the state at all. And although the 295 bars in Utah are still required to be licensed clubs and a customer a member, a guest of a member or a visitor to buy a drink, meeting those requirements is not onerous. Customers can become members of the clubs they visit frequently for annual fees ranging from $12, for a local bar, to $1,200 and up, for membership in an organization such as a country club. Visitors to the state and Utahans who don’t plan to visit a particular club frequently can buy a visitor’s card for the club, good for 14 days, for $5.


Meanwhile, the state’s 36 state stores and approximately 100 agencies began accepting credit cards and personal checks two years ago. “Our stores are very modern, light and clean and provide a comfortable shopping experience,” said Wynn, who described his department’s mission to be “making alcohol available to those who want to buy it without impacting those who don’t.”


 


Let the GAMES Begin

Utah is already gearing up to be the host of the Winter Olympics in 2002.


In and of itself, the two-week event is expected to bring in $109 million in visitor spending, according to the Governor’s Office of Planning and Budget. Meanwhile, hotel industry analysts predict that the state will see an acceleration in hotel construction as companies try to build their resorts in time for the games.


Most importantly, the 2002 Winter Olympics, with its two weeks of non-stop media coverage, is expected to contribute to Utah’s image as a tourist destination. According to the Office of Planning and Budget’s 1997 Economic Report to the Governor, “Utah’s tourism sector will be larger after 2002 because of the Olympics.”


At the state’s Department of Alcoholic Beverage Control, Ken Wynn expects that the Olympics, like the growth of tourism in the state in general, will continue to contribute to the department’s increasing sales. Indeed, Wynn believes that because the DABC’s sales have been rising for several years — they are up by 8% already for 1998 — the department’s retail operations will be well prepared to handle any extra sales resulting from the Olympics themselves.


But the coming Olympics have already caused one alcohol-related debate in the state. A group called the Utah Alcohol Policy Coalition did not want the Olympics to have an official beer. “But people have to remember, we are hosting the world; it’s the world’s Olympics, not the Utah Olympics,” said Wynn.


In early March, Budweiser signed an agreement with the U.S. Olympic Committee to be the official beer for both the 2002 and the 2004 Olympics.


Control Still Main Concern


The Utah DABC’s main concern remains control. “When Prohibition was repealed, what drove the formation [of the control states] was just that: control,” said Wynn. “But that has sort of shifted for many of the states, with revenue becoming increasingly important. In Utah, control is still our primary function.” Supplier advertising of spirits, wine and heavy beer (beer containing 3.2% alcohol or more) is not permitted in the state. State stores and agencies cannot use supplier point-of-sale materials, and they do not advertise. On-premise outlets can use supplier materials, such as table tents and neon signs, if these advertisements are not visible from the outside of the establishment.


Wynn, who served as president of the NABCA for the first time in 1985-86, has rich experience to share with the organization. And he has been sharing it for the last quarter of a century, having served on the NABCA’s board of directors since 1973. Indeed, Wynn, who was the director of Montana’s department of liquor control from 1973 until 1977, is the only member of NABCA’s board of directors who has been a director of the alcoholic beverage control department in two different states.


During the last 25 years, he has seen control states face many issues, both those which have not affected his state directly, such as privatization, and those that have, such as the increased consumer demand for high-end wines and spirits.


The Utah Department of Alcoholic Beverage Control is overseen by a board of five part-time commissioners, who are appointed by the governor to serve staggered four-year terms. Wynn, as the department’s full-time director, is hired by the commissioners. “I’m like the CEO, and they’re the board of directors,” explained Wynn, who is responsible for the day-to-day operations of the DABC and its stores. Meanwhile, the commissioners, who generally meet on a monthly basis, review all license applications, hear violations and set policy for the department.


The Utah DABC acts as a wholesaler and retailer of distilled spirits, wine and heavy beer (over 3.2% alcohol) in the state. It “administers the state’s liquor laws and regulates the sale, service, storage, manufacture, distribution and consumption of alcoholic beverages,” according to its 61st Annual Report. It does not, however, handle enforcement, which is the responsibility of the state’s department of public safety, a completely separate entity.


At the department’s headquarters in Salt Lake City, 15 people, including the five commissioners, make up the director’s office. Nine others are in administration and accounting, 14 in operations, 18 in warehouse and distribution and eight employees make up the compliance division, which, among other responsibilities, educates licensees about how to stay in compliance.


Approximately 250 to 300 full- and part-time employees work in the DABC’s state stores. Twenty-six additional store positions were added last July, in response to the stores’ increased sales. Each store is staffed with a manager, an assistant manager and clerks.


By one measure, Utah’s state store system may seem to have changed little over the decades. In Wynn’s 20 years at the department, only one new store opened. Yet, the 36 state stores themselves have changed. A number of them have moved, from locations which the state had leased or rented to locations that it owns. Size-wise, they vary widely, depending on the size of the communities they serve: several in small communities measure 3,000 square feet, while the largest state store, in Sandy City, takes up 12,000 square feet and serves that city and several surrounding towns. Most importantly, many offer a much-expanded inventory and have been thoroughly modernized.


And the updating of the DABC is forging ahead. Project 2000 is a perfect example. Like most organizations and businesses, the DABC had to decide on a course of action for dealing with the upcoming Year 2000 computer problem. Rather than adjust the old system, they chose to purchase an entirely new state-of-the-art system, including new software and hardware. “That’s the best way to get to the 21st century,” said Dennis Kellen, operations manager for the DABC. “We want to run more like a regular retail operation.” Overall, the project will add an additional $1.7 million to the DABC’s costs, but it’s an acceptable expenditure that’s necessary to streamline the operation.


Most of the approximately 100 package agencies in the state are in communities that are too small to support the operation of a state store. Some are part of another business, such as a grocery store or a drug store. Others are stand-alone operations, though these often sell a few non-alcohol products as well, such as ice, cigarettes and mixers. Some are located in the convenience stores run by resorts, while others are on military bases. Agents are not paid a direct commission, although the general amount of volume they handle determines what they are paid.



Dennis Kellen (left), operations manager for the Utah DABC, and Dallas Froisland (right), purchasing agent, meet frequently with Utah DABC director Ken Wynn.


Targeting The High End


The biggest change in the retail operations of the DABC, however, is the new approach it takes to premium wine and spirit products. “Wine has become much more popular,” reported Wynn. Indeed, the DABC sold more than 514,300 mixed cases of wine in 1997, up from approximately 462,000 cases in ’96. “In addition, there’s been a big shift into high-ticket items, in spirits, such as single malts and superpremium tequilas, and in wines.”


Dallas Froisland, the DABC’s purchasing agent, and Brett Clifford, its wine coordinator, have been adding upper-end products to the system’s listings for more than 15 years. Currently, for example, the DABC lists about 3,700 premium wines, some of them quite rare. Meanwhile, the department has been adding to its selection of high-end spirits, such as single malts, of which it currently carries about 20.


And the DABC has done more than just list additional high-end products. It has dedicated one of its stores, in downtown Salt Lake City, entirely to the premium market. “This is the one store in the state whose whole purpose is to offer premium, boutique wines from all over the world,” said operations manager Kellen. “Many are on allocation worldwide or are even impossible to buy.” The store also carries some of the most expensive spirits products available, including single malts in the $100 to $150 price range and Louis XIII cognac, priced at $1,400 per bottle.


 


 The Utah Department
of Alcoholic Beverage Control


Key Personnel
Ken Wynn, director; Dennis Kellen, operations manager; Richard Pearson, manager, administrative services; Dallas Froisland, purchasing agent; Brett Clifford, wine coordinator; Earl Dorius, compliance manager; Wayne Olson, warehouse manager; Bradley Brown, information technology manager.


Structure
The Governor appoints five commissioners to fixed, staggered terms of four years each; they are part-time positions (four of the commissioners work as attorneys, while the remaining one is a real estate broker). The commissioners set policy, administer violations and issue licenses. The director and operations manager oversee the day-to-day operations of all elements of store operations, purchasing, warehousing, etc.


Fiscal Year 1997
Gross Sales: $113.5 million
Revenue Contribution: $41.8 million
Sales Volume: distilled spirits, 547,000 mixed cases; wine, 514,300 mixed cases
Control State Ranking: 11 (out of 19)


Meanwhile, the rest of the stores in the system carry a wider inventory of high-end products. Indeed, the managers of each store determine what their stores should carry. Approximately 10 state stores — many located near tourist attractions, such as ski resorts — carry many, if not most, of the 3,700 premium wines the DABC lists. But if the wines are truly rare — if, for example, they are allocated worldwide by their wineries because there is such a limited supply — then these wines are carried only by the Salt Lake City store.


This attention to the upper-end and to wine in general has garnered the Utah DABC much attention. “I will tell you this,” said Wynn. “Utah has the best wine selection in the United States. It is number one.”


According to Kellen, even tourist skiers from California will stop at the Salt Lake City store to buy California wines they can no longer obtain in their home state. “We’re the best-kept secret in wine,” he said. “Because we invested in these wines earlier, we still have stock available.”


The approximately 5,300 products listed by the Utah DABC can be broken down into those 3,700 premium wines and about 1,600 general distribution products. Wynn described the listing process as fairly open. Suppliers must submit a request form and a product fact sheet. Many suppliers also send samples, which are judged by purchasing agent Froisland, who handles the spirits, the general wines and the beers. In the case of fine wines, wine coordinator Clifford makes the decisions. Clifford, who started as a clerk in one of the state stores, has been developing the DABC’s fine wine program since 1980.


Value is the most important consideration. “They’ll taste a wine and compare it with what is already available in the state,” said Wynn. “If it is good in quality but not a good value, they won’t take it.”


Wynn looks forward to continuing with the theme of unity which NABCA’s current president, Ed Buelow, chairman of the Mississippi State Tax Commission’s Alcoholic Beverage Control Division, started. “During my term, I will probably visit most of the control states, and I plan to spend time with the industry,” said Wynn.


As usual, members of the NABCA will share ideas. “We definitely are believers in not reinventing the wheel,” Wynn said.


And, as the members of the NABCA Board will tell you, the incoming president has a lot of experience — and ideas — to contribute.

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