Growing & Changing

To say that Utah’s liquor laws have changed is an understatement,” said Dennis Kellen, executive director of the Utah Department of Alcoholic Beverage Control (DABC). “It’s been monumental.”


Over the summer, several new laws went into effect in the state. The one with perhaps the biggest impact did away with Utah’s unique system of private clubs. Before, bars and nightclubs were not technically public places. A customer had to join as a member to go in. The fees were small ($12 for a year-long membership) and even lower-priced temporary memberships for tourists and other visitors were available, but potential patrons had to fill out a membership form to go into a bar, and when faced with that request, many tourists, puzzled, chose to leave instead. Now, bars in the state of Utah are no longer private clubs, although they are required to use ID-checking technology and keep the information gleaned from customers’ IDs for seven days.


Another change in the law is less visible to the public but has a surprisingly large impact on the state’s bottom line. The department is no longer required to put a special stamp, actually a sticker, on every bottle of liquor, wine and heavy beer that enters the state. The original thinking behind the stamps was that they would help catch illegal imports of alcohol into the state, but it was found that “only three cases [of illegal importation] were adjudicated in the last 18 years,” said John Freeman, deputy director of operations, “and if the issue of the stickers was ever pushed in court, it would never hold up. All an attorney would have to ask is, ‘Does a sticker ever fall off?'”


But, by doing away with the huge task of applying a sticker to every bottle, the DABC saves the state a million dollars per year.


Growing in Popularity


The state of Utah is experiencing a great deal of growth, in population, in its $7 billion a year tourism industry and in its sales of alcoholic beverages. The DABC’s “retail sales are up about 5.0%,” reported Leonard Langford, the DABC’s deputy director of finance. Last year, the DABC had sales of approximately $267 million.


“In the 35 years I’ve been at the department, it’s continued to progress: in its selection, in its dollar sales, in the size of its stores and in the size of its warehouse,” said Kellen. “I wish we could take the credit, but the climate of Utah is changing. People are finding it a very desirable place to live and visit. The state is growing.”


The Utah DABC is overseen by a five-member commission, currently headed by Chairperson Sam Granato. Dennis Kellen is the department’s executive director and oversees its day-to-day operations. The department, with approximately 600 full- and part-time employees, runs the state’s liquor and wine warehouse, located, along with the department’s headquarters, in Salt Lake City, and also 41 state stores, with seven stores currently under construction. In addition, 119 package agencies serve mostly small communities and resorts. State stores and package agencies are the only stores in the state that sell liquor, wine and heavy beer for off-premise consumption. [3/2 beer, which contains no more than 3.2% alcohol, by weight, is sold in grocery and convenience stores.] The department is also in charge of issuing and administering liquor licenses to on-premise establishments. These licensed establishments, in turn, buy their alcohol from state stores, two of which are dedicated to licensee sales. The DABC is not charged with liquor law enforcement; that is handled by the Utah Department of Public Safety’s Liquor Enforcement Division as well as by local law enforcement.


The recent legislative changes were the brainchild of many. The ABC Commission was in favor of them, as was Governor Jon Huntsman, Jr. (now the US ambassador to China). Why make the changes? “The commission certainly heard complaints, from citizens, from the tourism industry, from the chambers of commerce,” said DABC executive director Kellen. “Utah’s laws confused people. After the laws changed, the Visitors & Convention Bureau was able to take a whole section out of its PowerPoint presentation. It doesn’t have to explain Utah’s laws anymore; they’re no longer an issue.”


Back in March, the Republican governor told The New York Times, “One of our economic pillars is travel and tourism … And if that’s going to be hampered by these jaded and old-fashioned views, then that’s going to impact the cash register and therefore our ability to fund the things that most citizens care deeply about, like our schools.” In Fiscal Year 2009 (which ended on June 30th), the DABC turned approximately $100 million over to the state: more than $59 million in profits from liquor sales went to the state’s general fund and the DABC collected almost $41 million in taxes, of which nearly $14 million was used to subsidize the state’s school-lunch program, according to the Salt Lake Tribune.


The state also made changes to its so-called “Zion Curtain” laws, though the effort to make these less quirky was less successful. Originally, bars within restaurants were required to have what residents began to refer to as a “Zion curtain,” a barrier, which was often glass, separating the bar area from the seating area. Bartenders and servers couldn’t pass drinks over the bar; they had to walk around.


The new laws now allow existing restaurants to remove their Zion curtains. However, children are no longer allowed into the bar area of these restaurants. And while new restaurants can have a counter in their bar area, it won’t function as a bar. The laws now require new restaurants to prepare their drinks out of the sight of their customers, either in a separate room, such as the kitchen, or behind a wall (which cannot be see-through).


For the DABC, all these legal changes have had the biggest effect on its Licensing & Compliance Division. However, when it comes to that division’s workload, the changes seem to cancel each other out. While on the one hand, compliance officers no longer have to check that bars are keeping proper records of their members, on the other hand “we are spending quite a bit of time looking at these [restaurant] partitions, which we didn’t before,” said Earl Dorius, the deputy director in charge of Licensing & Compliance.


Potentially, other legal changes may be in the cards for Utah, particularly in the area of licensing. The number of licenses available, for both clubs and restaurants, are based on a statewide quota system. According to the San Francisco Chronicle, Utah currently can have only 361 bars and only 546 restaurants that serve beer, wine and liquor in the state. At one point, in late August, the ABC Commission had only one liquor license for new restaurants available, while 80 restaurants are expected to apply for such a license this year.


Commission Chairperson Sam Granato would like to see that quota system changed. “If someone’s lifelong dream is to open a restaurant and they’ve got the funding and they’re moving forward and they qualify for a license, it would be nice for them to know they didn’t have that barrier,” said Granato, who is currently running for the U.S. Senate.


Bigger and Better


The Utah DABC’s retail operation has had to expand in order to handle its increased sales.


And sales are not the only thing to have increased for the DABC. The number of products, or SKUs, it stocks in its state stores have also increased dramatically. “Some of our stores are doubling the number of SKUs they carry,” said Tom Zdunich, deputy director of purchasing.


Of the seven stores currently under construction, three of them replace existing stores — and are more than double the size. “Our new stores are at least 12,000 square feet in size and will hold a minimum of 4,000 SKUs,” said deputy director of operations Freeman. In contrast, the DABC’s old stores average 4,000 to 6,000 square feet in size.


“We are in a very aggressive growth pattern right now,” Freeman continued. “We are playing catch-up with the number of stores; for quite a while, we hadn’t opened any. And the state has grown and its demographics have changed considerably.”


Once these four new stores open, bringing the total of state stores to 45, “there are plans to build more, though we don’t have the funding and have not presented it to the Legislature yet,” said Freeman. “We expect to ask for five more in the next two years.”


The new stores “are not shoeboxes,” said Freeman. They are designed to fit in with their surroundings and have architectural details inside, such as high ceilings and even stained-glass windows. And the plan is to equip all of them with touch-screen information kiosks which customers can use to look up product information, including where the product is located in that store.


“John is making the stores fun places to go,” said executive director Kellen. “People now spend a half hour, 45 minutes, an hour shopping in our stores. That’s never happened before.”


Expanding the Warehouse


Ever-increasing sales, more stores and more products mean that the DABC’s warehouse needs to be expanded – again. The Utah DABC first expanded its warehouse in 2003, by building a 10-story addition, serviced by five automated cranes, for bulk storage. “At the time, we crunched numbers and said we’re probably going to have to expand again in 2010,” said Kellen. “Well, it’s 2010 and we’re expanding.”


The next phase will expand the 10-story addition, to hold 4,000 additional pallet positions for a total of 10,000 positions, and will redesign the layout of the original, older warehouse to which it is attached.


A bottleneck will be eased in the new design. Currently, the automated cranes deliver pallets of product to three induction or replenishment stations. The products on the pallets are currently picked up by employee-driven forklifts. The problem is: the cranes can deliver far faster than employees can unload.


In the new plan, the cranes will put pallets directly onto “specialized transport vehicles” (STVs), little automated train cars that will bring the product to 24 different zones. In these zones, employees will ride wire-guided forklifts to assemble orders. Forklifts that automatically go where they are supposed to are “much safer,” said Freeman. “The operators can concentrate on picking because they are not driving.”


The DABC is also upgrading from using scanners to pick orders to using “voice to pick” technology. With “voice to pick,” employees wear headsets and microphones. Everything is done by voice. An automated voice tells the employee what product needs to be picked next and the employee confirms by speaking when that item has been picked. Also, with the new design, product orders will be loaded directly onto the semis, rather than being staged first on the loading dock.


Another effect of having a larger number of SKUs is fitting them all into the stores in the most effective arrangements. In the past, individual store managers were responsible for ordering and for arranging their shelf sets. “We found a complete cross-section of how the stores were merchandising and also in the number of products they carried,” reported deputy director of purchasing Zdunich. Zdunich’s division has since added two merchandising specialists, bringing the number of purchasing staff to seven. The new merchandising people, working out of headquarters, are now responsible for maintaining inventory levels and with designing the shelf schematics for each store. “We need to squeeze in as many products as possible,” said Zdunich. “And we want to make sure we are giving newly listed products the opportunity to do well in all the stores.”


Special Orders


Zdunich and his team also reworked the special-order process. Customers who would like to buy a product not currently listed in the state of Utah can special-order it – online. The process “is designed to encourage them to buy the full case,” said Zdunich. The product is shipped to the store nearest the customer for pick-up. “We tell them to allow four to eight weeks,” said Zdunich, “but, often, it arrives within a couple of weeks.” The DABC’s special-order business is growing. “We probably special-order 100 to 150 items a week,” he said. And the DABC watches what items are being special-ordered. “If it is being ordered a lot, we will automatically list it,” Zdunich said. “Product categories shift all the time.”


The DABC is a dynamic organization that continues to grow and change to meet its challenges. “It is the best-run department in state government,” declared Commission Chairperson Granato. “I’m a foodservice distributor myself. I know how to get things done – and I learn a lot from the department.”


Four Days A Week


In August 2008, Utah became the first state to implement a four-day workweek for its employees. Most state employees began working four 10-hour days (Monday through Thursday) rather than five 8-hour ones.


The idea was to save money – and it did, almost $5 million in the first year.


But those savings did not come in the form expected. Originally, it was thought that the big


savings would come from saving energy by closing state buildings one day a week. However, because energy costs plummeted when they were forecast to rise and because not all of the state buildings could be completely closed down, those savings were not nearly high as predicted. The state did reduce its energy use, by 10%, but it saved only about $500,000 in energy costs.


The big savings were in employee hours. Utah state employees worked far fewer overtime hours. They also did not take as many vacation and sick days.


As for the DABC, its offices are on the four-day schedule, with office hours from 7 am to 6 pm Monday through Thursday. The change did not affect the DABC’s stores or its warehouse operation. The stores remain open six days a week and the warehouse five.


A survey of all state employees showed that 85% liked the new schedule better than the old.


Another survey will study the effect of a four-day week on Utah citizens.


Who’s Who at the Utah DABC


Sam Granato, Chairman of the Utah Alcoholic Beverage Control Commission


When he’s not acting as the commission’s chairperson, which is a part-time position, Granato runs his family’s 60-year-old business, Frank Granato Importing Company. The company supplies restaurants and clubs with 4,500 different food-service items. It also runs its own bakery and a chain of three delis, called Granato’s. Granato was a liquor representative for 20 years and is currently running, as a Democrat, for the U.S. Senate. “Life is certainly not dull,” he said.


Dennis Kellen, Executive Director of the Utah Department of Alcoholic Beverage Control


Dennis Kellen has been with the DABC for 35 years. Kellen owned a restaurant with some partners in Ogden, UT, when a position at the DABC opened. “One of my partners said, ‘Instead of griping about the liquor laws, why don’t you go do something about them?'” laughed Kellen.  Kellen has served in several positions in the DABC and has been the executive director for the last two years.


John Freeman, Deputy Director of Operations of the Utah DABC


John Freeman has been with the DABC for six years. Before that, he was a vice president in charge of operations for a large retail operation and also the chairman and president of the board for a federal credit union. Freeman, who always wanted to be a police officer, applied to become one with the Salt Lake City Police Department, “with a friend, almost on a whim” several years ago. He was hired, trained, certified and remains a sworn police officer.


Earl Dorius, Deputy Director of Licensing & Compliance of the Utah DABC


Earl Dorius became the DABC’s first in-house attorney in 1989, although he had represented the DABC in legal matters as far back as 1981, as an assistant attorney general. “I’ve been here almost as long as Dennis Kellen,” he joked. He was the head of the criminal division at the Attorney General’s office for about 17 years, handling many of the state’s most infamous criminal cases, including those of Ted Bundy and Gary Gilmore.


Leonard Langford, Deputy Director of Finance of the Utah DABC


Leonard Langford has been a certified public accountant (CPA) for 25 years, six of those with the Utah DABC. Before that, he worked for 19 years at the Utah State Auditors Office.


Tom Zdunich, Jr., Deputy Director of Purchasing of the Utah DABC


Tom Zdunich, Jr. had over 25 years of retail experience, including owning his own grocery stores and working for large supermarket chains, before coming to the Utah DABC 13 years ago.


Feel the Power


The Utah DABC is the lead agency in an educational program, aimed at parents, about underage drinking, called ParentsEmpowered.org.


“Kids listen to their parents the most on issues,” said Dennis Kellen, DABC executive director. Studies and surveys bear him out. According to research done by the U.S. Department of Health and Human Services, parental disapproval is the number-one reason young people choose not to drink. “Kids are 50% less likely to drink if they’ve had a substantive conversation with their parents but often, parents don’t have the tools or the words to bring up that conversation,” said Mike Milne, deputy director of the Utah Council for Crime Prevention.


ParentsEmpowered.org is a website, but it also encompasses award-winning television ads. Its aim is to inform and encourage parents to talk with their children about alcohol.

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