2011 Control States Executive Forum

The thirteenth edition of StateWays’ Control States Executive Forum is anything but unlucky. Following two years of downsizing, uncertainty and challenging economies, the jurisdictions that make up the control states are more optimistic in 2011. Many have turned the corner and are experiencing record growth after years of slowing sales.


Despite reduced budgets and threats of privatization across the country, the agencies continue to fulfill their missions. State officials continue to promote responsibility, embrace technology, expand their departments’ role in education and compliance, and publicize new initiatives.


Thank you again to the control state commissioners, chairpersons, administrators, and other officials who provided an update on their jurisdiction’s progress. These comments provide colleagues and industry watchers invaluable information about the health of the industry, and a roadmap for moving forward together.


 


Idaho


Jeff Anderson


Director, Idaho State Liquor Division


Greetings from the Gem State!


The Idaho State Liquor Division (ISLD) saw the retirement of Deputy Director for Procurement and Distribution, Bill Applegate, in May 2011 after 35 years of service to the people of Idaho.  We were fortunate to find a terrific replacement in Howard Wasserstein.  Howard comes to us with experience in the spirits business, having spent more than two decades with Seagram Wine & Spirits, as well as holding an on-premise liquor license in Idaho for his Melting Pot restaurant.


The ISLD ended FY2011 with record sales and distributions to our good causes.  Sales were up over 5 percent, case shipments were up 3 percent, and profits were up over 8 percent.  We’ve turned the corner with consumers beginning to trade up to popular and premium brands.  The ISLD was able to return a record $50.1 million in distributions in addition to a one-time $8 million transfer to the people of Idaho.


The Office of Performance Evaluations (OPE) completed a comprehensive report on our operations that identified a number of recommendations for division improvement, all of which had been unearthed in our in-house strategic planning.  Privatization was analyzed in detail, the legislature determined the ISLD was well-managed as a control state enterprise, and the issue was dismissed (for the time being).  


During the 2011 legislative session we requested and received approval for additional spending authority to enhance hours of operation in our state stores.  In a nod to better customer service, many stores will be open later on selected days and Sunday hours have been augmented or new service added as a new sales day in many counties where Sunday sales are permitted.


New initiatives have been implemented or are ready to be deployed:


Idaho’s listing process has been streamlined with the addition of a monthly Quick List process that allows us to be nimble in meeting the market with new product innovation.


Transactions are now being tracked by gender and basket size for every store down to the time of day and day of week.


A new supplier representative portion of our website has been launched allowing reps to monitor progress of new listing sales of new brands.


A new online bar ordering process is being developed to improve service to our licensee customers.


The ISLD is currently testing a merchandising experiment at one of our stores in cooperation with Diageo.  New concepts center on innovation and cocktail pods, a gifting section, power brands, and in-store signage in an effort to make our stores more shopper friendly.


New POS and security systems are being deployed in all state stores this fiscal year.  The effort will free up equipment for us to offer in-store kiosks with new product information, drink recipes, and social responsibility messages.


The ISLD partnered with Pernod Ricard on a statewide television campaign promoting social responsibility and the prevention of underage drinking.  Thanks to David Jackson at PR!


The ISLD continues to refine our focus on responsibly delivering the highest level of customer service to the people of Idaho.


 


Iowa


Stephen Larson


Administrator, Iowa Alcoholic Beverages Division


Spring may be the season of change and new birth, but at the Iowa Alcoholic Beverages Division the entire year has been filled with changes and new things. New customers, laws, technologies and records have been keeping the IABD staff very busy.


New Customers


During the 2011 session of the Iowa General Assembly, the legislature, authorized the issuance of class “E” liquor licenses to businesses where gasoline is sold. A class “E” license allows commercial establishments to sell spirits for off-premises consumption in original, unopened containers. Prior to this legislation, gas stations were required to have a separate, enclosed room with its own cash register in order to obtain a license to sell spirits. An independent and higher fee schedule was established as well. Over 100 convenience stores and gas stations have already been licensed and the IABD expects a total of 200 new licensees within the first year.


New Records


The IABD closed out Fiscal Year 2011 by setting two new major records. The agency sold over $220 million in spirits, breaking the previous year’s record by over $10 million. In addition to revenue from spirits profits, funds generated by excise taxes on wine and beer, license fees and civil penalties translated into a general fund transfer of over $106 million for the first time in a single fiscal year. The majority of this money will be used as general funding to be appropriated by the legislature for a variety of state programs. Additional funds are earmarked for substance abuse, city and county programs. The remaining funds will be used for Iowa native wine and beer promotion.


New Laws


The 2011 Iowa legislative session made many changes that impact the IABD and liquor licensees. A new law clearly defines how and when a licensed retailer can deliver alcoholic beverages to customers. Unopened containers of alcohol for personal use may be delivered seven days a week, until 10:00 PM. Both the individual making the delivery and the person receiving the product must be at least 21 years old. Proof of the recipient’s identity and age, as well as their signature, are a condition of delivery.


The IABD has been mandated to implement a statewide alcohol compliance employee training program. The online training will inform participants about state and federal laws regarding the sale of alcoholic beverages. Participants must pass a final test to receive a certificate of completion. To encourage retailers to require their employees to enroll in the training, lawmakers included an affirmative defense incentive, which may be used once in a four-year period to avoid civil prosecution if a sale-to-minor violation occurs in their establishment.


The legislature modified the definition of high alcohol content beer to prohibit the addition of caffeine and other stimulants, effectively banning high-proof alcoholic energy drinks in Iowa. Wine manufacturers may now enter into alternating proprietorship arrangements, subject to federal approval and the provisions of Iowa law. Additionally, lawmakers removed the exception to open records laws from IABD’s sales data.


As I mentioned above, the legislature also removed some restrictions from convenience stores selling spirits and set a fee structure for these licensees. Additional legislation made the code easier to understand by removing obsolete provisions and consolidating definitions into one section.


New Technology


The IABD is developing mobile tags to direct users to supplemental and related content on IowaABD.com. Tags are scanned by smart phone users to access mobile content. These will be used as a quick way to access essential information like pricing and delivery schedules when customers are on the go.


Also new this summer is Robocom, a warehouse management system. In the very near future, we will have full implementation of the system and licensees will begin to see the benefits. The system will enable customers to place regular and special orders through a web-based store, create order templates and view monthly specials, which will allow businesses greater control in inventory, customer choice and savings.


Conclusion


This past year has brought many changes to the Iowa Alcoholic Beverages Division and the alcohol industry in the state. The staff has been very busy with new customers, new laws, new technology and setting new records. We are looking forward to many more new things to come in 2012.


 


Maine


Tim Poulin


Acting Director, Maine Bureau of Alcoholic Beverages and Lottery Operations


The Maine Bureau of Alcoholic Beverages works in cooperation with its wholesale liquor distributor and more than 400 privately owned agency liquor stores across the state. The Bureau works daily with the Department of Public Safety on issues of enforcement and advertising. We also collaborate with the Maine Attorney General’s Office to evaluate our distilled spirits listing process, initiate programs to further educate the public on the issues of furnishing alcohol to minors and more generally, the challenges of illegal consumption on college campuses.


YTD case sales in Maine are up 3.6 percent while total sales are up 4.5 percent.  The top 20 products currently account for 20 percent of overall sales (down from 27 percent last year). Allens Coffee Brandy continues to be our number one selling product, and represents 10 percent of overall sales (down from 13 percent).  Canadian whiskeys and spiced rums continue to be highly popular in the Maine market.


The Bureau was successful in negotiating with the Department of Public Safety to establish a six month pilot program to allow for distilled spirits to be marketed anywhere beer and wine are marketed as long as a local store manager approves the location. This is a departure from the current restriction that distilled spirits must be placed in a predetermined and confined area while beer and wine can be marketed almost anywhere in an agency store. This change supports evidenced based research that suggests that alcohol is alcohol and polices that treat beer, wine and distilled spirits the same when it comes to tastings, sampling and product placement on the floor allow for greater consistency for consumers, ease of administration for regulators and enhanced marketing and predictability for industry. The pilot, which began in July, runs till January 15, 2012. The pilot will then be evaluated and hopefully installed as a permanent change in how the state chooses to market its alcohol beverage products.


Another goal for the legislative session was to give the Bureau the authority to collect on-premise purchasing data.  Previously, on-premise licensees were required to report liquor purchases to the Department of Public Safety; however, a process for this data collection had not been put into place due to limited administrative resources in that department.  This has been an area where Maine’s data has not been available to industry for analysis or planning. With this change, the Bureau will now be working toward a process that will make that data available in the very near future.


We are very pleased to announce that our Online Seller Server Training will be launching this September.  Legislation now allows the Department of Public Safety to consider seller/server training as a condition of licensure, and the need for a more accessible training options are in high demand from business owners across our state.  It is our collective goal to ensure all sellers/servers have the training they need to reduce the irresponsible sale or use of alcohol beverages.  An online, readily accessible and user friendly resource will tremendously help obtain that goal.


Maine continues its mission to effectively regulate the beverage alcohol industry, ensure responsible business practices and create a favorable economic climate while prohibiting sales to minors.


 


Michigan


Andrew Deloney


Chairperson, Michigan Liquor Control Commission


The Michigan Liquor Control Commission (MLCC) prides itself on being a high performance agency excelling in economic development, revenue generation and public safety. Holding a license to sell alcoholic beverages can be considered an important component of being competitive and profitable within the hospitality industry.


The biggest development for the MLCC this past year has been the newest appointments to the Commission. Nida Samona and Patrick Gagliardi’s terms ended in June 2011. New Chairman Andrew J. Deloney and Commissioner Teri L. Quimby joined Commissioner Donald Weatherspoon as Administrative Commissioners for the MLCC. Deloney comes to the MLCC from the Michigan Restaurant Association and knows first-hand what it is like to work with the MLCC on a daily basis. Chairman Deloney has set a goal of reducing complexity by simplifying and streamlining the licensing process.


Other developments this past year include the passage of P.A. 213 of 2010, which allows the sale of alcoholic beverages on Sunday mornings. The new act moves up the legal hours of sale of beer, wine and spirits, unless prohibited by local government, from 12 noon to 7 a.m. The MLCC Licensing Division worked hard at pushing out over 5,600 Sunday morning permits since going into effect December 2010.


Also passing through the legislature, was P.A. 20 of 2011 which created a new catering permit.  This permit may be issued by the MLCC to both on and off premise licensees and allows the sale and delivery of beer, wine and spirits in the original sealed containers for off premise consumption at private events.  The law also requires the permit holder to serve the alcoholic beverages at the event and successfully complete the MLCC approved service training program.


Another big virtual step for the MLCC is that as of July 1, 2011 all retail licensees must order their distilled spirits through the State of Michigan’s online ordering system. Although, in the beginning there was push back from licensees, the online system proves to be working effectively. 


The future holds great promise for increased efficiencies and customer service here in Michigan.  The amount of information available on our website has grown in depth and range in the areas of license and permits status check, product availability, sales totals and online ordering. We are excited to begin new programs like alcohol education, underage prevention, and communication efforts giving our agency a “business minded, customer driven” feeling.


 


Mississippi


J. Ed Morgan


Commissioner of Revenue


The economy has begun to turn around in Mississippi, although tenuously. Back-to-back disasters—-the oil spill on the Gulf Coast last summer and the flooding from the Mississippi River this spring—-have delayed the recovery process.  The reduction in tourism on the coast and the closings of many casinos on the river reduced beverage alcohol revenue.    Even so, total sales grew by $6 million to $263 million and total cases sold increased by 2.6 percent or 72,375 cases.   Over $92 million was contributed to the General Fund.   Even though the sales trend toward value brands continues, the premium and ultra premium products are making a comeback. 


The Department of Revenue, of which the Mississippi ABC is a part, reported revenue collections to be higher than expected to close the 2011 fiscal year with $62 million in the bank.  The state collected 2.2 percent more revenue than the previous year resulting in collections exceeding the estimate.  Mississippi economists predict continued growth as we recover from the recession and other disruptions.


Mail-outs and paper documents continue to be reduced as we are getting accustomed to doing more with less.  Requisitions for special orders and bailment invoices are sent electronically.   Customers see their daily orders on line, and internet usage for ordering has increased to about 85 percent.  All pricing information is on line as well.  New scanners were acquired for the conveyor system as well as software upgrades thanks to bond funding approved by the legislature.  We were also able to replace some aging equipment in the warehouse. 


The Bureau of Enforcement ended FY2011 with 21 sworn personnel, down from its normal staffing of 26. Three new Enforcement Agents were recently hired.  Despite manpower shortages, enforcement personnel had a busy year.  Five-hundred citations were issued to minors in possession of alcohol with 90 of those getting a “bonus” citation for use of fraudulent identification.  Forty-five adults were charged with furnishing alcohol to minors.  Twenty-five persons were arrested for selling or “bootlegging” alcohol without a license.  With almost half of Mississippi’s counties still “dry” for alcohol, enforcement personnel made 95 arrests for possession and transportation in these areas. While moonshine whiskey production numbers have declined, personnel seized and destroyed 4 illicit distilleries and 950 gallons of mash.


The Permit Department reported ending FY2011 with 1,885 active permits. 320 permits were issued to new businesses, and 274 were not renewed.  A total of 414 temporary permits were issued in conjunction with transfers of ownership or temporary events for businesses and non-profit organizations.  Thirty-eight businesses faced administrative sanctions ranging from fines, suspensions, and in severe cases, revocation.


On a positive note, the Governor signed House Bill 504 into effect on July 1, 2011. This “Social Host” Law makes it unlawful for adults to knowingly allow minors to possess and consume alcoholic beverages at private residences or events. Violation of this statute carries a $1000 fine or 90 days imprisonment.


 


Montana


Shauna Helfert


Administrator, Liquor Control Division, Montana Department of Revenue


February 2011 marked the end to a long and extensive renovation project at the Montana liquor warehouse.  The department initiated this project with three outcomes in mind:  we wanted to improve energy conservation, we wanted to streamline work flow and utilize space more efficiently through a better layout, and we wanted to accommodate future growth in liquor sales.


In order to bolster energy conservation, the department implemented several measures.  Our greatest improvement is the redesign of our warehouse shipping and receiving area. Prior to the project, large receiving doors were opened to allow freight trailers to enter and exit the facility.  Montana often has bitter cold temperatures during the winter, and maintaining a consistently comfortable temperature inside the facility was impossible. The department redesigned this area and moved the shipping and receiving functions to the outer parameters of the building, much like a modern day facility.  Our new design also features a new staging area where we house an automated shrink-wrap machine; this is located where the freight trailers had previously parked inside the facility. 


Some of the other conservation measures the department implemented included replacing unit heaters throughout the warehouse and upgrading the facility’s HVAC system with higher efficiency modules. 


The department focused on reducing the pick path and time required to search for product in order to streamline work flow.  Aisles have been rearranged within the facility to keep product located as close to the outbound staging area as possible.  Product has been relocated based on performance while at the same time keeping similar sized boxes near each other for better pallet building.  All product picking is now done from the ground level.  The department also established a new bottle pick area that is more ergonomically designed.  These subtle changes have increased warehouse safety and have contributed to an uptake in productivity.


Prior to the project, the department was aware that workspace would soon become constricted.  The facility, which is just under 100,000 square feet, was virtually being used to capacity.  In order to avoid crowding, the department installed several new rows of racking to maximize cubic space.  This allowed product to be positioned in a more uniform manner and help streamline the work flow. Most importantly, it freed up several square feet within the facility to allow for growth in the future.


The Montana liquor warehouse was built in the late 1970s and has had no major improvements until this renovation project.  This fact and the Governor’s initiative to reduce energy consumption in state government were the primary catalysts for conducting the work.


The warehouse ships product to 97 agency liquor stores throughout the state.  The department’s fiscal year ended on June 30, with case sales exceeding 680,000.  This represents a 3.42 percent increase from the previous fiscal year.


 


Montgomery County, MD


George Griffin


Director, Department of Liquor Control


The year that ended on June 30, 2011, was a relatively successful one for the Montgomery County Department of Liquor Control: in fact, more successful than we had any reasonable expectations of achieving. The 2011 Fiscal Year (July 1, 2010 through June 30, 2011) was a year of “adapting to the new reality.” That new reality is the long-term, systemic reorganization of government operations and expenditures — that is playing out in various degrees across the United States – in response to fundamental changes in the public revenue stream. In Montgomery County, this new reality has most directly impacted us in the areas of employment and wage & benefit conditions.


Although DLC is not tax-supported and operates as an “enterprise fund,” we still had to deal with the realities of hiring freezes and service cuts. This year marked the third consecutive year of no salary or wage increases. FY11 also brought us mandatory employee furloughs for the first time. Our current fiscal year is bringing permanent structural reductions to employee benefits in the areas of retirement and health insurance coverage. In this environment we have had to plan for closing lower-performing retail stores, deferring the opening of new retail stores, and maintaining service to a growing customer base with a shrinking workforce. It has not been easy.


In spite of these challenges, we had a productive year on a number of fronts. Our year-end financials revealed that our total gross sales grew by a robust 5.63 percent over FY10 as we had $240,200,184 in sales. This resulted from an increase in wholesale sales to licensees of 4.47 percent for a total of $126,567,568. Our retail stores continued to exhibit strong growth with an annual increase of 6.95 percent for a total of $113,632,616 in total cash register retail sales to the public. This robust revenue growth was matched with outstanding targeted management of inventory and operational expense levels. DLC was able to end the year with a gross profit margin of 28.30 percent (our goal is 28 percent). These surprisingly strong figures in a weak economy were not merely gratifying – they allowed us to make our targeted revenue transfers to the Montgomery County General Fund. DLC transferred a total of $26,208,170 in net profit to the General Fund.


In addition, we paid $4,583,250 in debt service from our net profits for the Montgomery County Department of Liquor Control Revenue Bonds. These bonds were issued by Montgomery County over the last two years to benefit specific County-wide capital projects, and are unrelated to the County’s own General Obligation and Capital Improvement Project bonds. These bonds (approximately $80 Million have been sold) are a new revenue source for the County and are backed exclusively by the operations of DLC. The result is that between unrestricted General Fund transfers and bond debt service payments, DLC contributed over $30 Million to Montgomery County this past year.


While adjusting to the “new reality” and increasing our contributions to the County General Fund, we were also able to achieve a few notable operational accomplishments during the course of the year. We successfully procured and deployed a new Pont-of-Sale system for our DLC retail stores. The new POS system includes hardware and software, and the process involved a number of initiatives to integrate technology across our Department, improve efficiency in stores and create a more satisfying shopping experience for our customers. The success of this POS system installation was covered in the July/August edition of StateWays.


This past year also saw the introduction of Sunday sales in DLC retail stores. Beginning in November 2010 (in time to capture the holiday shopping rush) we opened our retail store from Noon to 6:00 PM on Sundays.


 


North Carolina


Jon Williams


Chairman, North Carolina Alcoholic Beverage Control Commission


This year marks my second anniversary as chairman of the North Carolina ABC Commission, having been appointed to the position by Gov. Bev Perdue in October 2009.


In North Carolina, the question of privatization occupied policymakers during much of the last fiscal year. The Governor directed the ABC Commission to implement a third-party study in the fall of 2010, and in January 2011 she determined not to move forward with the idea of selling the state’s retail liquor sales system. The outside financial analysis forecast that a large, one-time cash infusion would require a proliferation of retail outlets; under scenarios with more limited retail liquor outlets, the financial benefit to the state also would be limited, the financial analysis found. As Gov. Perdue said in making her announcement not to pursue privatization, “the juice is not worth the squeeze.”


In addition to overseeing the privatization research, during the last year the NC ABC Commission directed and implemented the legislative reform enacted and signed into law in the summer of 2010.


Reform


The new law focuses on increasing the authority of the state ABC Commission and of the municipalities and counties that appoint the members of the state’s nearly 170 local ABC boards. The boards’ more than 400 retail stores are the only places that liquor is sold in North Carolina.


Board Training


As a part of the reform legislation since January, the Commission has presented 22 classes attended by more than 800 ABC board members, general managers and finance officers. Topics covered included ethics and uniform budgeting and financial controls.


Regulation and Revenue


Public health, public safety and commercial regulation make up the three areas of focus for the Commission.


During the fiscal year, the Commission issued ten summary suspensions of permits held by clubs whose locations were the sites of fatalities or severe injuries due to violence at the sites.


In the fall, the Commission worked with distillers to remove

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