“Responsible Control” Theme for NABCA at Marco Island

It was an issue-dominated four-plus days of speeches and seminars as the National Alcohol Beverage Control Association (NABCA) worked through the agenda of its 73rd Annual Conference at the Marco Island (FL) Marriott, May 15-19. Attendees left primed to defend their control state operations in discussions with legislatures and governors back home as well as with the Congress of the United States.

At the same time, reflecting a perceived need shared by many speakers to seek mutual accommodation to solve broader political challenges than just those of the control states, Dan Gwadosky, director of Maine’s State Liquor & Lottery Commission, took the reins as NABCA chairman, declaring the theme of his tenure “Collaboration Through Communication.” “Changes that will add greater value are sometimes right in front of us,” he said. As an example of industry collaboration he pointed to this summer’s changes in Maine’s display rules which formerly had segregated spirits displays from those of wine and beer. Still, he stressed, maintaining the role of U.S. control systems should be a paramount public interest.

During the Conference, the Association’s Board of Directors had adopted a resolution stating that “based on a multitude of published peer-reviewed scientific studies … there is irrefutable proof that alcohol control systems have a positive public health and safety impact on their communities.”

Gwadosky and the board’s message is not startling, nor is it a new one for NABCA, although new evidence was cited as backup. Nonetheless, the timing couldn’t have been more strategically calculated to marshal defenses for the control systems. From Virginia to Washington, cash-starved state governments are without doubt taking a look to see if there is more revenue to be squeezed from the control systems that operate in their states.

Throughout the conference there was a continual rumbling of public and private discussion about Virginia Governor Robert F. McDonnell’s plan to sell off that state’s liquor stores. The governor has stated that the sale would net $500 million, although critics counter that there’s no evidence to back up the dollar figure he has touted.

Because plans like McDonnell’s mean that the states that take such actions would lose the annual profits their stores or other operations generate – in Virginia’s case $100 million – wary legislatures are often considered unlikely to act.

But concern among those at the conference was nonetheless evident. Joseph E. Wall of the North Carolina Association of ABC Boards commented during a workshop on “Control State Challenges” that the situation in his state had the “potential for a perfect storm.” Wall noted that some of the state ABCs’ highly publicized problems, including questions about a board member being entertained by a supplier as well as a newspaper series about compensation levels at local boards, had drawn attention from the governor, who had run on a platform of budget reform. Wall said the governor had asked an out-of-state company to look at the value of the system.

Apparently the publicity generated in North Carolina also affected the Marco Island conference itself and caused the association to ask suppliers to tone down – in terms of lights, signage, etc. – evening “Trade Center” activities, where commissioners can visit marketers’ suites to see packaging and sample products.

Perhaps the moments that best characterized the undercurrents roiling this year’s conference came during that same workshop on “Control State Challenges.”  One reason the workshop was scheduled was to create an opportunity to air industry reaction to the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act of 2010 (H.R. 5034), which is currently before the U.S. Congress.  Its supporters say the act is designed to support state based alcohol regulation as established by the Twenty-first Amendment – essentially by specifying a very high level of  evidence before a challenge to a state law can be upheld. Comments by by Craig Wolfe, president of the Wine & Spirits Wholesalers of America (in favor) and Steve Gross, director of state relations for the Wine Institute (opposed), set the stage for Nida Samona. Simona is chair of the Michigan Liquor Control Commission.

“The sky is not falling,” Samona commented in response to Gross. “This is about state rights and my rights as a regulator to enforce state law. “Samona noted that beverage alcohol is the only product that has its own Constitutional amendment specifying how it will be regulated. “There’s a reason for it,” she said. “It’s to let states regulate what is best for them.”

She characterized the U.S. Supreme Court’s 2005 Granholm decision as  “a 5-4 decision that said that wine could be shipped from anywhere in the world to Michigan.” She noted the plethora of new lawsuits that had been joined since Granholm.  “Shouldn’t they have to prove what is wrong with Michigan law?” she said. “That’s what [the CARE Act] does for me as a state,” she said. “That’s what it does for you as a regulator.”

Outside the Marriott, metaphorically a least, the Gulf of Mexico shimmered and the miles of sandy beaches glittered, providing an ironic background for the concerns being voiced inside.  (Actually, there were a few cloudy days outside, too.)

“Dangerous Times, Dangerous World”

Discussion of pressing issues seemed the order of the day, beginning with the first general session and an address by news analyst Ted Koppel, who from 1980 to 2005 was anchor and managing editor of ABC News Nightline. At Nightline Koppel became the nation’s longest running daily news anchor.

Koppel discussed the challenges facing the U.S. today in terms that tied his own journalistic career with what he called a new phenomenon, our “Age of Entitlement.” His first example was that we unthinkingly mortgage our collective future to conduct national policy. “The Chinese, Japanese, and Persian Gulf nations all hold over a trillion dollars in Treasury notes,” he said. “That’s how we funded wars in Afganistan and Iraq.”

In his own career, he noted that when he went to Vietnam as a correspondent in 1966, ABC News had 30 foreign correspondents. “ABC today has five foreign correspondents to cover the world,” he said. “The same thing has happened to the CIA,” he said. “All information comes from drones.”

As informed information gathering falls prey to more powerful economic imperatives, our picture of the world fades out of focus and becomes arbitrary and self-indulgent, he noted. While Americans tremble at the idea of a “terrorist attack,” a bigger danger, rationally, is the 60-100 nuclear weapons that Pakistan has.

Looking at domestic problems, our lack of information has led us to “The news that we choose … not the news that we need.” He pointed to the extreme viewpoints represented on news talk shows. We have a sense of entitlement about picking our truths that we have to shed, he noted. Likewise, he indicated, with entitlements granted by the political system with the cost glossed over.

“We have to be prepared to look at the world as it is,” he concluded. A common commitment is necessary. “If we try to do this as two nations moving in separate directions we will go the way of Greece, Spain, Ireland – Europe; what is happening to them is happening to us.”

Surviving Current Economic Woes

Appropriately, the first business session was a panel, entitled “Who Survives This Economy.” Moderator was economist Geoff Colvin, Fortune senior editor-at-large and former co-host of Wall Street Week. Joining him were Matt Shattock, president and ceo of Beam Global Spirits & Wine and Paul Varga, chairman and ceo of Brown-Forman. Colvin warned against generalizing about consumer behavior but urged the executives to reset priorities to meet today’s new conditions. He pointed out that the U.S. economy is less consumer centric than it used to be and said that consumer spending, which has fallen dramatically as a percentage of GDP, will not be the engine to drive recovery. New solutions will be necessary, he said. Matt Shattuck, while urging states and marketers to work together and seek a balance between responsibility and sustainable marketing, said Beam saw a new consumer with a new set of expectations. He said he saw hope in a “return to the value equation” in terms of brands. But “the front end of a recovery is the best time to invest.” He said his company was introducing products, investing in its brands, and with different brands in different markets. Varga said managers had to look at current conditions with a sense of urgency while providing their organizations with simple answers and a clear focus on priorities. He said he felt Brown-Forman had weathered the downturn very well. A key reason he said was that because the company has few large, national brands, it received a clear early warning when sales of Jack Daniels softened. Its reaction, a focus on creative merchandising of its trademarked brands, has produced results.

Picking Products to Put On Shelves

The first Sunday seminar, called “Shelftalk,” was moderated by Walter Freed, chairman of the Vermont Department of Liquor Control. First speaker was James H. Short, Jr., Director of Marketing for the Pennsylvania Liquor Control Board. Short reported that Pennsylvania is “re-braining and renovating stores, scaling back [in some] the large amount of luxury bins.” At the same time, in others, they are adding premium spirits, concurrent with the growth in craft cocktails. The overall idea is to “group like stores together and practice category management.” Specific actions to be taken in each store are related to categorizing each store in one of five clusters, ranging from metro-suburban to inner city. Spirits shelving is getting a revamp in each cluster, while maintaining core items each store must carry. Listing and de-listings have been cut from seven a year to just two, which “allows for increased focus.” Store resets, which had been done statewide, are now being done by individual reset teams. A focus on adjacencies comes next. Maintaining shelf integrity is a must because of the number of products on the shelves. “Control states need more choice than open state stores,” he said.

David Jabour, president of Twin Liquors in Austin, TX, agreed that “category management is absolutely fundamental.” Twin Liquors also uses a cluster strategic with each store footprint determined by neighborhood demographics. At the top are two 15,000 square foot stores with 2,500 spirits SKUs, selling for an average $38 a bottle and 4,000 wines at $36.  Down the ladder, through Platinum and Gold, are 24 2,500 square foot Silver Stores. They carry 1,600 spirits SKUs. Bottle average is $24. Nine hundred seventy-five wines average $14. 

Pat McLauglin, director of business enterprise for the Washington State Liquor Control Board, noted that the state managed product to return $332 million annually “to the state and local communities” by focusing on balancing product selection “so as not to cross from convenience to confusion.” A strong focus is put on distribution: automation, lean supply, synchronization without limiting the retail strategy, which focuses on product availability: convenient locations, product choice, and aggressive management of out-of-stocks.

Campus Drinking

The next seminar, “Alcohol on Campus: A Dangerous Mix,” was moderated by Dan Gwadosky, director of the Maine State Liquor & Lottery Commission, and new NABCA chairman. He was joined by Ralph Blackman, president and ceo of The Century Council, and William DeJong, professor at the Boston University School of Public Health. DeJong reported on a literature review that he had done to find what did work to combat this vexing problem that seems to get little attention from the colleges themselves. “Most strategies don’t work,” he said. “Evidence [from older studies] had shown that education doesn’t work. So, what does?” As it turned out, the answer was online programs, relatively recent in their development, administered outside the classroom. For his part, Blackman commented that just saying “no” didn’t work. The attitude of young adults is that “We expect freedom, we want it, and we’re going to take it.” There is not a specific and only solution to this problem, Blackman said, although “parents play the largest role in their teens decisions to drink or not to drink.” The Century Council, he said, had enjoyed significant success by backing student-generated campaigns and encourages students “to get involved in solutions.” “Involving students in the solution is important.”

Dee Dee Dishes

Sunday afternoon’s general session was kicked off by former White House Press Secretary during the first Clinton Administration, Dee Dee Myers. After leaving the White House, Myers was an original consultant to the NBC series The West Wing and more recently is the author of a book, Why Women Should Rule the World. Myers began by speaking about the thesis put forward in the title of her book. Women should rule the world, she said, because “the evidence is overwhelming that women would make the world a better place – fairer, freer, more peaceful.” In her address, she backed her claims, in part, on the success that high level women business executives have had as well as the success of companies employing large numbers of women. Partly in response to audience questions, she also passed on numerous anecdotes from her White House year.

Should Spirits Be Treated Differently?

Public policy in this country – especially with regard to taxation – has always treated spirits differently than wine or beer.  Results have been uneven, consequences often unforeseen and unintended. The business session panel “Spirits in the Control States” was charged with discussing this topic rationally, focusing on the key question, ‘Do higher proof products require a higher level of scrutiny?’ Marketers Mark Brown, president and ceo of Sazerac, and Paul Duffy, chairman and ceo of Pernod Ricard USA, asked the audience to keep in mind the increasing blurring of lines where proof is concerned. Duffy mentioned the new practice of ingesting vodka through the eye and Brown remarked that distorted tax policies create distorted market conditions. Former regulator Lynn Walding, who was administrator of Iowa Alcoholic Beverages Division and is now with Diageo, countered with the observation that “Policy affects behavior. Regulators have to be aware [of that].” George Griffin,  director of Montgomery County, Maryland, Department of Liquor Control, suggested that if states favored price increases as a regulatory tool, rather than asking for margin increases, both equity and responsibility might be served. Epidemiologist Alexander Waganaar appeared to agree to a point, “Minimum prices could have substantial benefits if we could figure out how to do it.” But Waganaar insisted that “The fear among public health experts is that if the move to reduce discrepencies [in the treatment of spirits] involves deregulation, we know we will increase injuries.”

Allied Associations Speak Out

With widespread calls for increased regulation colliding with the economic downturn, difficult times have become more difficult for many industry players. To speak out on the challenges and their group’s priorities in meeting them was the challenge given to the panelists who participated in Monday’s opening seminar “An Allied Alcohol Beverage Industry.”  The Panel was moderated by Patrick J. Stapleton III, chairman of the Pennsylvania Liquor Control Board. Panelist David Jabour, who in addition to his role as a prominent Texas retailer, is president of the American Beverage Licensees, asked “How can we create a stable business platform?” His answer, “Education, responsibility, strengthen good laws and communicate openly using information and technology.” Peter Cressy, president and ceo of the Distilled Spirits Council of the United States (DISCUS), saw the challenge as one of “achieving modernization.” While stressing that social responsibility is essential to every stakeholder, Cressy pointed to new and recent Sunday sales laws (19) in control as well as license states, successful efforts to block new alcohol taxes (which he called “hospitality taxes”), and growing awareness of the potential health benefits for many of moderate beverage alcohol consumption. Craig Purser, president and ceo of the National Beer Wholesalers Association, said his group has articulated a course of “advocacy and responsibility,” lobbying against excise taxes, duplicative regulation, and self-distribution.

New Price Quotation Reporting System

For many, NABCA is known for its extensive data and the sophisticated systems used to organize and report it. The purpose of this effort is to provide members with opportunities to increase efficiency of operation. A key current effort is called the “Price Quotation Reporting System.” One of the conference’s last seminars “Putting Technology to Work” dealt with the status of this effort, which is just going into trial status. Leading the discussion were Mark Hubler, president, control states and national accounts, Diageo, and Jerry Janicki, NABCA’s senior vice president of operations and coo.


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