NABCA

The NABCA Industry Steering Committee is comprised of industry leaders from several distilled spirits companies who meet during the year with the NABCA Board of Directors to examine various issues and take action, where appropriate, to help facilitate business throughout the control states. As we have for a number of years, StateWays asked these Committee members to participate in a “virtual” forum centered on the theme of the NABCA’s 71st Annual Conference, “Community and Customer Service.” They could also address any other issues that they felt were relevant to the industry and the control states. This year, Industry Steering Committee members providing comments included Pete Carr, President, Control States, Diageo North America; Tim Condron, Vice President, Sales, Control States, Future Brands LLC; Steve Feller, Director, North American Sales, Heaven Hill Distilleries; Charles Smith, Senior Vice President, Trade Relations, Pernod Ricard USA; Matt Davenport, Vice President, Sales, Skyy Spirits, LLC; Julious Grant, Senior Vice President, National Sales Director, Bacardi U.S.A.; Rick Przebieda, Sales Manager, Control States and Canada, LUXCO; Rick Renkins, Executive Vice President, Sales, Constellation Spirits Inc.; and Scott Oppenheimer, Senior Vice President, Control States, Moet Hennessy USA.


 


Most of us in the beverage alcohol industry now know that “innovation” is one of our industry’s greatest growth drivers. Usually when we talk about innovation we mean new products. But innovative relationships are just as important to our industry’s success. They can help us deliver better service to customers and consumers, and they are the catalyst behind community service and responsibility initiatives that make a difference.


Our innovative relationships with distributors and brokers are a case in point. Early on as Diageo began to grow and acquire more brands we realized there were complex inefficiencies that prevented effective customer service in the three tiers. The system then in the spirits and wine world did not permit much focus on a particular set of brands because distributors and brokers carried many lines, representing dozens of suppliers.  


The solution was to work with our brokers and distributors to create a single-minded focus for growing our shared business through sales forces concentrated solely on our brands and brand-building programs. This innovative relationship allowed distributors and brokers to create highly effective sales forces whose goals were to establish strong working relationships with retailers and control states in order to create the best possible customer and consumer service in the industry. It was a novel solution. And it is working. 


Another place innovation is making a real difference is in our relationships with stakeholders, especially those in the Control States, who are focused on responsibility. Over the past quarter-century we have all seen real progress on drunk driving and underage drinking-both are down by more than a third since 1982.  Progress in these areas owes a great deal to our industry’s innovative approaches and innovative relationships.


For instance, nearly all of us worked together earlier this year with the Federal Trade Commission in an unprecedented partnership to deliver one, clear – and powerful – message:  We Don’t Serve Teens. And through our groundbreaking relationship with NASCAR, Diageo has reached more than 75 million adult fans with our responsible drinking messages and “safe ride home” program.  


Early this summer, Diageo will expand its breadth of community service by launching a groundbreaking website called DRINKiQ that will help assist people to make informed and responsible choices about drinking or not drinking. Using interactive tools and user-generated content, this website will offer resources at the national and state levels, aimed at parents, educators, retailers, regulators, law enforcement and other stakeholders. Importantly, state officials and others can showcase best practices from their states, by uploading video content, PSAs, and other tools that help people make responsible decisions about alcohol.


Together, all of us – control state officials, suppliers and brokers – are creating one of the great customer and community serving businesses in this country and relationships are its lifeblood. Our industry will continue to be a service leader if we are as innovative at sustaining those relationships and promoting responsibility as we are in bringing new products to market.  


Future Brands LLC is excited to participate in the 71st annual NABCA Conference in Marco Island, FL. We are pleased that as an industry we are taking this opportunity to focus on our commitment to “Community and Customer Service.”


While some may think of these terms as mutually exclusive, we at Future Brands believe we cannot serve our customers without serving the communities where they live and work. We cannot understand our customers’ needs if we are not active members of their communities. As leaders in the beverage alcohol industry we have the responsibility to work with our customers to proactively engage in our local communities to prevent alcohol abuse.


That is why Future Brands LLC continues to be a proud supporter of The Century Council. The Council is based on the premise that grassroots education and action are the most effective tools in reducing alcohol misuse. Through The Century Council the spirits industry has become the undisputed leader in education.


At Future Brands LLC, our social responsibility platform is based on our ability to make a difference in local communities, to understand local challenges and provide support in addressing those challenges head on.


Through one of our parent companies, Beam Global, we provide corporate matching contributions for employees that wish to invest in charities in their local communities. We have supported the “drink smart” program, which is distributed in communities providing consumers with information to help them make responsible choices when it comes to alcohol. We also support DWI Courts across the nation and the judges, prosecutors and treatment professionals in local communities who are on the front lines in preventing hardcore drunk driving. Additionally, we are working with college campuses across this nation to address underage drinking and binge drinking through a collective community approach.


We believe this concerted effort to work with others in the community will allow us to further understand our customers’ concerns. This approach should also demonstrate to our customers and the community where they live and work that we can have a powerful impact in promoting responsibility. 


If we continue to ask our Commission partners and our legislators to help us in modernizing the marketplace and provide us with the tools we need to better serve our customers, then we, as a supplier, will continue to demonstrate our commitment to embrace our communities. 


Future Brands LLC remains committed to working with NABCA, DISCUS and others to modernize the marketplace and serve our customers to grow our business together. But we also realize that we cannot truly serve our customers if we are not serving our communities as well.   


Social drinking has been part of the American fabric since our early colonies were formed. Taverns were often built next to courthouses, and settling a matter “out of court” meant that everyone sashayed next door “to talk it over.” Later, even as Carry Nation raised havoc by chopping her way through the Midwest establishments, social drinking remained tightly woven with our desire to mingle. Carry died in an institution of a so-called “nervous condition” before the 1919 passing of the Volstead Act. While the Act specified certain terms of Prohibition, it did not specifically prohibit the purchase or use of intoxicating liquors, resulting in a hundred illegal Speakeasies in New York City alone. During this period Martinis came into their own simply known as “the drink” and eventually Prohibition became affectionately known as a “thirteen-year misadventure in legislating abstinence from alcohol,” leading to a rise in illegal distribution of all sorts of alcohol products. Among the foregoing, other problems were created including a loss of federal tax revenues that led to the eventual repeal of Prohibition in 1933. 


Americans tend to socialize and alcohol may be part of the celebration of our humanity. With that, responsible alcohol consumption is an obligation that all must recognize. Today, as our political pendulum regularly swings right or left based on control of the House and Senate, alcohol consumption has the same vibrato in political debate as it did in the1920’s. Now, as concerns grow over our financial crises and their possible escalation, many debate if the post-election pendulum will swing to new, more onerous mandates. For example: ingredient labeling and unprecedented local, state, or federal tax increases on alcohol.


 The financial community has already advised of a likely federal income tax hike in 2009. Some groups who favor alcohol tax increases as a method to fill government coffers mistakenly believe higher taxes will assist in keeping drunk drivers off the roads and protect our underage children by hiking prices. Since 1920, after all the Prohibition tactics, we are still faced with alcohol abuse by only a select few habitual individuals and revenue shortages. Levying taxes and raising prices for revenue while attempting to cut legal consumption seems to be inconsistent with basic economics.


This love-hate relationship with alcohol is sprouting a new “Carry Nation effect” in the form of interlock ignitions, and if MADD and others have their way, interlocks would eventually be mandated on all new automobiles. Interlocks have their place in American judicial deployment for the habitual, repeat convicted drunk driver as a life saving measure, but not for the everyday driver trying to commute home or driving to the local supermarket. Pernod Ricard USA’s social responsibility mandate believes drunk drivers should not be behind the wheel of an automobile and our underage children should be protected from illegal consumption – (visit www.acceptresponsibility.org). However, how wide will the interlock pendulum swing?


Being social, we like to visit a restaurant and may have a drink while eating. Driving home could become more than problematic for drivers and restaurants alike with mandatory or “first time offender” interlocks on automobiles. We urge states to cautiously look at how they achieve needed responsibility objectives without debilitating a source of needed revenues and crippling a growing, respected industry. Last year, Arizona passed an interlock, “first time offender” law. According to a leading industry group, “restaurants in that state are seeing their sales plummet because customers are afraid to have even one drink . . .” Washington passed a similar “first time offender” law on March 7. Maine, Virginia, and Michigan have more realistic “repeat offender” laws working their way through state legislatures.


Since repeal, Control State Liquor Boards have cautiously modernized and established a model that continues to thrive and serve their consumers while maintaining transparency to the supply chain as well as advocating social responsibility in retailing and licensing. With the help of NABCA, Control States Boards are working closer with the industry on best practices to solve mutual issues in re-supply and delivery that benefit state governments and consumer protection. It is difficult to establish social responsibility and control of alcohol in the marketplace while juggling the need for more revenue in state budgets. Therefore, mingling modernization with moderation is not an easy mandate – as we discovered in 1933. 


I suppose there are days, as quoted from Mark Twain by Barbra Holland in The Joy Of Drinking, “. . . sometimes too much drink is barley enough.”


Today, there is more value than ever to be created in our business as consumers continue to trade up and consumption trends toward premium brands persist.


At Bacardi U.S.A., we believe there is an opportunity within the industry for all three tiers to align themselves with the companies and brands that truly and demonstrably deliver growth in revenue (value) contribution on a “per unit” basis.  Based on our long association of working alongside our Control State Administrator partners, we are confident that this approach allows for an optimal mix of operational efficiency, customer service, consumption moderation and revenue generation.


As our President and Chief Executive Officer, John Esposito, said in a recent wine and spirits industry gathering earlier this spring, “As you look at activity-based costing for all you do… how will you deal with brands/portfolios that do not deliver margins that cover real costs?  We believe that our industry must move from a volume mentality where a case is a case to a value creation mentality where value is created for all three tiers. At the end of the day volume, without real value will destroy your business.”


We, at Bacardi U.S.A, value the fact that one out of four bottles of distilled spirits brands sold in the United States are purchased in Control jurisdictions. And in the past few years, it is also a generally well known fact that spirits sales in Control States continue to outpace overall national sales trends.


But what may be less appreciated in both open and Control State markets is that the premiumization trend that the entire beverage alcohol industry has profited from in open markets is also gaining momentum, and in some Control State markets, even outpacing national trends.


From Washington to Virginia, Montana to Mississippi, Control State Administrators and their agencies have invested in and upgraded new inventory and sales tracking technologies, increased the number of retail stores, distribution outlets and warehouses, and have tested and implemented cutting-edge marketing and merchandising programs and have expanded shelf sets and created more and more POS material than ever before, much of it targeted to established, premium distilled spirits brands.


So as customers in each of your respective markets upgrade to more premium brands, Bacardi U.S.A’s portfolio is ideally suited to capitalize on this value trend. Indeed, according to data sourced from NABCA, and our internal sales statistic, I am proud to report, in terms of total shelf dollars sales over the past 12 months ending in January 2008, Bacardi’s U.S. Control State sales gained a collective 7.7%, outdistancing in percentage terms all but one key Control State supplier.


The familiar “drinking less, but drinking better” trend is clearly a winning proposition for Control State agencies charged with ensuring public safety first and delivering revenue generation to follow.


So, we believe there is a significant opportunity within the Control State markets to align your activities and policies to fully embrace value creation. We also pledge, here at Bacardi U.S.A., to help support all of you in these efforts, from brand specific marketing messages delivered at the local level to helping, where legal, in staff training and education.


In conclusion, we also wish to emphasize our willingness to sit down and discuss with you ways our company may assist both industry efforts undertaken by the Century Council and Discus, as well as our own initiatives, in contributing to your state policy maker’s efforts to target parents of mid-school and high school students in order to reduce underage consumption as well as in other public/private partnerships to combat alcohol misuse and abuse.


NABCA Chairman Ed Schmidt has selected “Community and Customer Service” as the theme for this year’s annual NABCA Conference. For us at LUXCO, this is a very appropriate theme, as service to the community and to our customers are two of the key principles that first guided the David Sherman Corporation, and today LUXCO, since it was founded in 1958. In fact, customer service, service to the community and integrity are key elements in our company’s mission statement.


Being a comparatively small company, we are able to react swiftly to the changing needs or requests of our customers. Far too often in today’s business environment, companies will sacrifice service and quality in the name of efficiency and profit. Our employees are all well versed on how customer service can and does differentiate LUXCO from our competition. Whenever one of our customers comes in contact with someone from LUXCO, they can expect to be treated with honesty, integrity and with the knowledge that their issue will be handled with the greatest degree of importance. Our customers’ needs motivate every strategy we develop, every person we hire and every decision we make. This approach has led to many rich and lasting relationships with our customers and continues to thrive today.


Another guiding principle at LUXCO is the belief that every organization needs to operate in a socially responsible manner. It is important that companies demonstrate the same commitment to serving the community at large as they do servicing their customers. Over the years, LUXCO has demonstrated its commitment to serving the community in many ways, including strictly adhering to a voluntary code of conduct in the placement and content of all of our brand communications. Through our very active participation on the Industry Steering Committee, we have supported and continue to support numerous service related Best Practice initiatives, like the Regulatory and Education Best Practices presentations started under former Chairman Phil Lang.


We hope to continue our involvement on the ISC, to be able to work closely with the Board of Directors and NABCA to encourage a balance between the need for state agencies to increase revenues and community service, through the socially responsible consumption of beverage alcohol. This is especially important when it comes to keeping our products out of the hands of underage consumers and educating parents on the important role they play in reducing incidents of underage consumption. As our President and CEO Donn Lux wrote last year for this same roundtable, “Going forward, both as parents and industry executives, we must continue to carry the torch of social responsibility to our peers, customers and families.”


“Community and Customer Service” does not end with the close of this year’s conference. Working through the NABCA, Control States jurisdictions have always done an excellent job of balancing the responsibility role with the need to increase revenues. We strongly believe that if we work together, we can insure the safe and responsible sale and consumption of our products. We all must continue to work together with NABCA Chairman Ed Schmidt, NABCA Chairman-Elect Doug Fox, the NABCA Board of Directors and the entire NABCA organization to carry on, refine and improve upon our ability to balance serving the needs of our customers while simultaneously insuring that our actions, and not just our words, are serving the greater good for all of the communities in which we do business.


Doom and gloom. It is a staple of American popular media.  You can’t turn on the television or open a newspaper today without being bombarded with grim tales, surrounding the U.S. economy – the sub-prime lending crisis, the skyrocketing cost of gasoline, the falling dollar against foreign currencies, the collapse of stalwart Wall Street institutions. Every day, we are pelted with news items about the failure of our economy and the impending recession. These are headlines that sell newspapers, but are they reason for panic in our own industry? Or, is someone crying wolf too loudly without looking for the opportunities that could still exist to grow brands, maintain market share and deliver healthy returns?


Conventional wisdom would lead you to believe that in a down economy, the entire market is down, no matter what the sector. What is that old saying we hear so often: with the tide…?  There is no doubt that the spirits industry will be affected by the turn in the economy. However, I think we can all agree that we will be less affected than, say, the housing industry or the automobile industry.  In fact, history does show our business to be rather resilient when it comes to greater economic woes in the U.S.


Yet, with all the headlines concerning the economic downturn we are all taking a very close look at our businesses in an effort to shore up any exposed weaknesses. My estimation, and those of analysts, is the hardest hit of sectors in the spirits industry during an economic downturn will be the value segment.  Surprising to many is the category least likely to be affected – the premium and super-premium segment.


Why is that? Well, we have only ourselves to thank: those manufacturers, distributors and Control States that have done an exceptional job over the past 10 or so years building brands and promoting spirits not as commodities, but as luxury goods, in the same class as Nike, Mercedes or Sony. It’s these efforts that will prove our own golden parachute as other industries struggle over the next few years.


What these brand-building efforts have led to is a visible shift in consumer buying patterns. Consumers may indeed be buying and drinking less, but they are buying and drinking better. They are trading up to the premium and super-premium segment to get a little taste of luxury everyday. Analysts at UBS support this theory.  In a recent report, co-authored by IRI, UBS stated, “We believe premiumization and pricing should offset volume weakness and thus we do not see earnings risk in our covered spirits companies due to the U.S. volume slowdown at this time.” Clearly, our friends at UBS didn’t get that doom and gloom memo.


So, as an industry, what should be our approach during this period? At Skyy Spirits, we are focused on maintaining brand equity and price. It is all too tempting to start discounting and turning efforts towards volume, when, in fact, we should be doing the opposite. While a knee-jerk rush to just move cases will add a quick hit to your bottom line, it could also easily lead to brand equity erosion. That erosion will hit brands exponentially harder when the economy recovers. In this economic storm, couponing and discounting isn’t your umbrella, it’s your house of cards.


Building value should be the goal. So should working with the Control State boards to better promote and position your brands. Protect your equity at all costs, even when nay-sayers might urge otherwise. If we keep our eye on this ideal, we will weather these turbulent economic times.


The consumption of beverage alcohol products has played an accepted and important role in the cultural, religious and social traditions of both ancient and modern society. Constellation Spirits Inc., a division of Constellation Brands, Inc., encourages responsible decision making regarding drinking, or choosing not to drink, by adults and discourages abusive consumption of our products.  Constellation Spirits urges adults who choose to drink to do so responsibly. Nevertheless, it is the obligation of each consumer who chooses to drink to enjoy beverage alcohol products in a responsible manner.


Constellation Brands has developed a “global code of responsible practices for beverage alcohol advertising and marketing” to provide guidance to its affiliated companies involved in the promotion of their respective brands, wherever those brands are sold. This code is meant to provide the primary framework for the brand promotion including marketing and advertising as well as to ensure compliance with the country’s laws and customs. Compliance with this code is mandated for all CBI companies.


A few examples of the tenets of the code are:


• Beverage alcohol advertising and marketing materials are intended for adults of legal purchase age who choose to drink.


• Beverage alcohol advertising and marketing should be placed in  broadcast, cable, radio, and print communications only where at least 70% of the audience is reasonably expected to be above the legal purchase age.


• Appropriate measures and best efforts should be taken so that beverage alcohol advertising and marketing does not appear at events, unless at least 70% of the audience is reasonably expected to be above the legal purchase age.


• Beverage alcohol products should not be advertised or marketed in college or university newspapers, or on college and university campuses except inside licensed retail establishments located on such campuses.


• Beverage alcohol advertising and marketing materials should not contain any curative or therapeutic claims except as permitted by law.


• On-premise promotions sponsored by CBI companies should encourage responsible consumption by those adults who choose to drink and discourage activities that reward excessive/abusive consumption.


• Responsible drinking statements should be included in beverage alcohol advertising, marketing materials, and on websites and at promotional events where practicable.


Constellation Brands is a member of The Century Council and supports and works actively with that organization to fight underage drinking and drunk driving. Constellation Spirits and Constellation Brands are truly committed to encouraging the responsible consumption of our products. 


One of the key issues facing our industry is that of socially responsible drinking. As members of DISCUS, we at Moet Hennessy USA are committed to driving home this message in all of our advertising and working as closely as possible with The Century Council and supporting their mission. Social responsibility has always been of utmost importance at MHUSA and will continue to be part of our platform.


As the fourth oldest continuously operating company in the United States, we at Moet Hennessy USA are proud of our long-standing relationship and work with the African-American and Hispanic communities. Our company was in the forefront of the Civil Rights movement when, in 1909, Moet Hennessy supported the creation of the NAACP and began fundraising in earnest on its behalf. Today, the NAACP is the oldest and largest Civil Rights organization in America. In keeping with this tradition, MHUSA was one of the first corporate supporters of the Thurgood Marshall College Fund Dinner in 1992 and have been faithful supporters every year since. In keeping with this tradition, we have been consistent and strong supporters of The National Urban League.


The Hispanic Federation, covering Pennsylvania and the northeast, provides support to over 90 health and social services  agencies to promote the social, political, and economic well-being of the Latino community. Moet Hennessy USA has been a supporter of the annual Hispanic Federation Gala for the past 15 years. In addition, we are avid supporters of, and recruit within, the National Society of Hispanic MBA’s.


The Hennessy Privilege Awar

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