Changing of the Guard

Two years ago, two veterans of the Idaho State Liquor Division (ISLD) retired.  James “Dyke” Nally ended a respected 15-year tenure as the director of the division (or, as it had been called until three years ago, the Idaho State Liquor Dispensary). A few months later, Bill Applegate retired after 35 years as the ISLD’s deputy director in charge of procurement & distribution.


Jeff Anderson, the ISLD’s current director, stepped into the void. Anderson, who is also the director of the Idaho Lottery, was appointed to the ISLD on April 30, 2010, the day Nally retired. “Dyke had left a very strong foundation,” said Anderson, but 2010 was also right in the teeth of the economic downturn. “The time that the Governor appointed Jeff coincided, unfortunately, with an across-the-board, mandated 5% personnel reduction in the state,” said Tony Faraca, Anderson’s chief deputy director, who is also in charge of the division’s finance and human resources departments. One of the first things Anderson had to do, a mere three weeks after starting as the ISLD’s new director, was to oversee the second wave of that workforce reduction.


At the same time, Anderson strove to continue the modernization efforts begun under Nally. In the 2000’s, Nally began a three-year, $7.5 million renovation of the ISLD’s warehouse in Boise. By the time Nally retired, a 17,000 square-foot, 55-foot tall expansion of the warehouse had been completed, the warehouse staff had switched from handheld scanners to pick-to-voice technology (both completed by 2007), a mezzanine area for “repacking,” the assembly of mixed-case orders, had been built (completed 2008) and a warehouse management system (WMS) had been implemented. The tall addition on the warehouse and the WMS were meant to pave the way for the implementation of an automated storage and retrieval system (AS/RS) for the warehouse’s bulk storage.


Anderson continued with the implementation of the AS/RS, which was completed 18 months ago. Three robotic cranes now work in the bulk-storage area of the warehouse, automatically replenishing the stocks in the picking area.


Modernizing State Stores


At the same time, Anderson began the next phase of modernizing the ISLD’s operations. This project, currently the main initiative at the division, focuses on modernizing the ISLD’s 66 state stores.


Simultaneously, the ISLD must contend not only with the ever-changing landscape of running a retail business – such as the continued explosion of new liquor products on the market –  but must also gear up to deal with the fallout from the deregulation of its neighbor state, Washington. “Once [Initiative]1183 goes into full effect,” said Anderson, “all the intelligence we have tells us that [liquor] prices in Washington, already some of the highest in the nation, are going to go up – and people shop with their feet.” The ISLD is taking steps to make sure that its border stores, particularly its highest volume state store in Post Falls, are stocked and staffed to handle increases in business. Even before the Washington privatization, the Post Falls store had more than $6 million in sales annually, largely because it was on the border between the two states. “When Washington deregulates, things are going to change in some significant way, but we don’t know exactly how,” said chief deputy Faraca. “We’re just getting as ready as we can. Then, we will analyze the new situation for a couple of months, to see what we should do.”


The Idaho State Liquor Division, which has no board or commissioners, reports directly to the Governor and has always been run as a “quasi-business,” explained Anderson. The ISLD handles the distribution and retailing of distilled spirits in the state. Licensing of on-premise locations and beer and wine retailers as well as enforcement are handled by the Alcohol Beverage Control (ABC) division of the Idaho State Police.


The Idaho State Liquor Division has its headquarters and its warehouse in Boise.  It employs roughly 350 full-time, part-time and temporary or seasonal employees, most of these in the state stores. The ISLD operates 66 such stores that are leased from local landlords, located throughout the state, and oversees 97 private-sector contract operators, retailers who also handle distilled spirit sales for the ISLD, usually located in smaller communities where a state store isn’t feasible. 


Setting Records 


Fiscal Year 2011 set several records for the ISLD. Its sales revenues were up almost 5% over the previous year, its case shipments up 3% and its profits were up over 8%. It sent distributions to Idaho cities, counties and the state’s general fund totaling over $50 million, a record. In addition, when Anderson and his chief financial officer Faraca determined that the ISLD was holding more cash on hand than it needed, they sent an extra one-time transfer of $8 million to the state that year as well.


When Anderson arrived in 2010, he made some changes in how the ISLD is structured. Now, three deputy directors – Faraca, in charge of finance and human resources, Keven Lowe, in charge of information technology (IT) and security, and Howard Wasserstein, in charge of procurement, distribution and retail – report to him.


One of the first things Anderson handled as the new director was completing the mandated 5% reduction in the division’s workforce that almost every state agency in Idaho had to undergo. The reduction had begun in 2009. “We had to figure out how to do this while doing the least violence to the enterprise,” said Anderson. The first wave, in 2009, consisted of a 3%, or $300,000, permanent reduction in staff from the stores. The second wave, in 2010, consisted of a reduction of 2%, or $200,000, in staff at the central office and was completed by that July.


At the same time, the ISLD didn’t want to be subject to any more reductions, because, explained Faraca, “After that, we were pretty much cut to the bone. The only way we could reduce our staff more would be to reduce the stores’ hours of operation. Basically, we’d be saving a dollar in staffing costs by losing two dollars in sales. We felt strongly that it would cost us rather than save us to cut further.”


Faraca accompanied Anderson and former director Nally as they set out to educate state legislators on the situation at the ISLD. Their efforts apparently had an impact. Though there was a second round of workforce reductions in other agencies in the state, the ISLD was spared.


And, in fact, last July, Anderson asked the state government for an increase of $500,000 in spending authority in order to increase the stores’ hours of operations. “We had a very specific plan,” said Faraca. “We went store-by-store and showed how increasing certain stores’ hours on Friday and Saturday evenings and opening some of them (in counties where Sunday sales are allowed) on Sunday would result in increased incremental hourly sales.” Said Anderson, “We took away $300,000 from store staffing but then added $450,000 back.”


Previous Warehouse Expansion and Modernization


The first steps toward modernizing the ISLD as a whole were taken, under the directorship of Dyke Nally, with the modernization of the warehouse. “When the division moved its headquarters to a new location in the late ’90s, it quickly became apparent that the new warehouse was not big enough, primarily because of new product innovations [in distilled spirits,]” explained Anderson. “Dyke expanded the warehouse up instead of out, in a very elegant and efficient move, to allow for an AS/RS system.”


The warehouse, which generally contains about 180,000 cases or nearly $10 million dollars worth, of product at any one time, now uses cutting-edge automation to be as efficient as possible. The warehouse’s WMS directs its AS/RS system, those three automated cranes, to keep the picking area of the warehouse stocked with all the products needed for orders. The warehouse staff of 18 uses voice-to-pick technology, where they hear what products need to be gathered rather than having to consult a wireless device, to put together orders of the 2,500 SKUs the division stocks. Approximately 650 of those SKUs are available for orders of less than a case to the stores. More than 930,000 cases, including those mixed-case orders, are distributed to the state’s stores and contract operators every year.


Now that the warehouse piece of the operation is fully updated, Anderson has turned his attention to modernizing the stores. This initiative, called iMOD for “Idaho Modernization,” is now the main focus of the division’s modernization efforts and encompasses every element of store operations, from the look, size and location of the stores themselves to digital communication with customers, via the internet and also in-store kiosks, to staff training and SKU optimization.


While the 66 state stores in Idaho average about 3,000 square feet in size currently, “we are finding that the ideal size for our stores is actually around 3,600 to 4,500 square feet,” said Anderson, “so as leases come due, we are looking at larger locations where appropriate. We need to increase our lobby size [the shopping area of the store] to accommodate all the new products.” The ISLD is also using a more data-driven approach to making decisions about store locations, using data on “rooftops,” the number of houses, and therefore people, in a one-mile, three-mile and five-mile radius of the location, as well as demographic and cultural information. “And there’s still the subjective information, such as we like to have our stores near grocery stores,” said Anderson. “And we look at parking and traffic patterns. We want to be on the going-home side of the street. Since our stores don’t open till 11 am, most people stop to shop after work, on their way home.”


Remodeling the Stores 


Howard Wasserstein, the deputy director for procurement, distribution and retail, has been hard at work on the look of the stores. After testing the new look in two stores, the ISLD is in the process of rolling out the new look in an additional 14. The whole idea behind the new look is to provide a good shopping experience for customers, particularly women, who, the ISLD’s data shows, spend more money than men when they shop at the state stores. “Most obviously, we’ve worked on our merchandising, cleaning up and maximizing our space,” said Wasserstein. “The stores are a lot more organized and easier to shop. We’re also trying for a more upscale look, like the cosmetic section in a department store.”


But the changes to the state stores are more than cosmetic.  For example, the ISLD is in the midst of upgrading the security systems in the state stores, with 21 of the 66 stores currently outfitted with new cameras and digital recorders. This upgrade will cost a total of $700,000.


And the stores have already undergone major upgrades to their point-of-sale (POS) system. The process began in February and was completed by May.


POS System Upgrade


The IT division of the ISLD developed the stores’ POS systems originally. “We have some pretty genius programmers,” said Keven Lowe, the deputy director in charge of IT. The most recent improvements to the system include the use of 22-inch touch screens. The ability of the stores and headquarters to communicate sales information has also been improved. “We know exactly what is where, when,” said Lowe. Because the programming and installation was handled in-house, the cost of upgrading the POS system for all 66 stores was $244,000, basically just the cost of the new hardware.


The biggest benefit of the POS upgrade will be another increase in the data the ISLD can use to make business decisions, such as determining inventory levels. “We have great information,” said Wasserstein. “I wasn’t expecting such amazing information.” In addition, the new systems allow for more comprehensive efforts at preventing underage purchases.


Wasserstein has been using that information to lower the amount of inventory held in the stores. This allows the stores to expand their sales floors and reduce their storage space. It also enables them to have the products customers want, when they want them, without having product sit on store shelves for months. “If we know a product only sells a bottle two or three times a year, we might keep those two or three bottles in the back,” explained Wasserstein. “Our stores still carry 1,200 products, but there’ll be 950 on the shelves and 250 in the back. It makes for more shoppable shelves.”


The more precise information has allowed the store managers to feel more confident. “Before, stores were hoarding product because managers were afraid they’d run out,” said Wasserstein, “but if you’re confident that you know how much you need, you’ll be OK with having only three bottles.” And it has reduced the ISLD need to transfer product between stores to meet customer demand, a costly and inefficient practice.


The ISLD has also begun working with a supplier, Diageo, working as its consultant about the shelf sets in its stores. “Shortly after I got here, we asked all the suppliers for [category-management] plans for our stores,” said Anderson. “We were looking for processes that lead to data-driven decisions. Diageo had a comprehensive plan.” In the summer of 2011, the ISLD “let Diageo run with their plan” for merchandising the stores. Diageo recommended different plans for different “clusters” of stores, stores that shared the same demographics. “The stores now fit their communities better,” explained Wasserstein.


Added Anderson, “We now own the plan and all the decisions are ours. And we have plenty of validation from the other supplier reps about what we are doing.”


All the new data provided by ISLD’s technology “has really made a difference in how we purchase,” said Kay Bennett, manager of education, procurement & distribution. “The suppliers have information to make decisions.” (The ISLD uses a bailment system.)


Anderson also changed the way ISLD lists products. “About a month after I arrived, I experienced my first listing meeting,” said Anderson, “and it was painful.” At the time, the ISLD had one formal listing meeting a year. It lasted for three days and each supplier, some of whom had flown in from across the country, had 15 minutes to present their new products. “And they knew, going in, that we were only going to take a dozen out of the hundreds presented,” said Anderson.


He and his staff came up with an alternative, called QuikList. Every month for nine months of the year, suppliers can introduce the ISLD to new products. [The ISLD suspends QuikList during the busy holiday season, though it has an additional, more formal listing meeting in October, for upcoming seasonal products.]


“If they submit a new product by the 1st of the month, we decide by the 15th and it can be in the stores the month after that,” said Anderson. “We want to know information: how the product is doing on-premise, what kinds of marketing is being done nationally, how it’s doing in current markets, what its competitors are, what its complements are. A smaller group makes the decisions, with the director having the final say.” The QuikList meetings are individual, private meetings that suppliers can have their in-state broker and reps handle.


The ISLD continues to modernize, particularly to gather and use information more efficiently using technology. Last year, it set up a system for licensees to order online. Suppliers can also log in, online, to access information about their products and how they are selling in Idaho. And the ISLD is working on a new consumer website for its stores, to be called mixblendenjoy.com. Customers will be able to access it from their homes and also from touchscreen kiosks in the stores.


“We have a director and deputy directors with a lot of years in the private sector, bringing a fresh perspective, along with people with a lot of experience at the division,” said Faraca. “We all work well together, managing the division like a 21st century retail business.”


Customer Service is Paramount


The new look for the state stores in Idaho include upscale touches like tile floors, instead of carpet, specially built “pods” to hold product displays instead of cut-open cases and cardboard displays, cherrywood shelving and track lighting that spotlights products, like what might be seen in a jewelry store.


“The stores are a lot prettier,” said Howard Wasserstein, deputy director of procurement, distribution & retail. More importantly, he said, they are also easier to shop.


“We’re trying to connect more with the shopper,” he said. “The average shopping experience might be someone comes in to buy a bottle of vodka. It could be nothing special. But we want that customer to be greeted, talked to. Not only do we want them to come back, we want them to tell friends. And we want to trade people up, to have them try new and different things.”


When the ISLD began to track the gender of its customers – by entering a “1” if the customer was a man and a “3” if a woman at the point-of-sale – it discovered something surprising: 70% of its shoppers were men and only 30% were women. “And that is unacceptable,” said Anderson, especially since further analysis of the ISLD’s POS information showed that its female shoppers shopped longer, bought more products and spent more money. “Women purchased an average of 1.84 bottles per transaction and spent an average of $23.79,” said Anderson, “while men purchased an average of 1.67 bottles per transaction and spent an average of $22.63.”


The ISLD hired a training specialist two months ago, whose first order of business is to work with store employees. Wasserstein has made a point to hold district meetings, with all the store managers in a district in attendance, twice a year and puts out a special newsletter for store employees, which provides information about the new products the ISLD has just listed.


“If you go into a Walgreen’s and ask where the Band-Aids are, the clerk will point,” said Wasserstein. “We’re trying to get away from the pointing. It can be a cultural shift.”


Who’s Who at the Idaho State Liquor Division


Jeff Anderson, Director. Anderson is both the Director of the Idaho Lottery, a position he’s held since 2007, and the Director of the Idaho State Liquor Division, the position to which he was appointed by Governor C.L. “Butch” Otter in 2010. Before his state positions, he worked for 26 years in broadcasting, serving as Vice President and General Manager of two CBS television affiliates, KBOI in Boise and KIDK in Idaho Falls.


Tony Faraca, Chief Deputy Director, Deputy Director of Finance & Human Resources and Chief Financial Officer. Faraca has been with the Idaho State Liquor Division for four years. Before coming to work for the state, he gained experience in accounting and finance working for three companies: Chevron, Clorox and Albertson’s, the supermarket chain.


Howard Wasserstein, Deputy Director for Procurement, Distribution & Retail. When Wasserstein applied for his position at the Idaho State Liquor Division, his was one of 200 applications. “And I said to my wife, ‘Who could have more experience for this position than me?'” he remembers. He worked for Seagram Wine & Spirits for over 20 years, decided to move to Idaho from New York, because he had always enjoyed the state when travelling there for business, and once he arrived, opened a Melting Pot Restaurant and worked as a consultant for a beer and wine distributor. He started at the Division in May of 2011.


Keven Lowe, Deputy Director of Information Technology & Security. Lowe has been with the Idaho State Liquor Division for five years. He spent eight years in the U.S. Army, doing missile repair, “basically, industrial robotics,” he says, before returning home to start an internet service provider company, which he ran for 12 years. For a time, he owned a Meineke car-repair franchise and then took a temporary position as a network analyst at the Division. “I liked the position, they liked me, three months later, I was the IT manager,” he says.


Kay Bennett, Manager, Education, Procurement & Distribution. Bennett has been with the Idaho State Liquor Division for 23 years, having started as a receptionist. “I’ve worked in every department except IT,” says Bennett, who has a background in retail and education.


 


Working Together on Education


“We take our dual mandate seriously,” said Jeff Anderson, director of the Idaho State Liquor Division (ISLD). The Idaho State constitution not only charges the ISLD with the responsibility to make distilled spirits available to temperate consumers of legal drinking age, but it also charges the division with the task of curtailing intemperate use.


To do that, the ISLD reaches out to other entities, from other state agencies, to distilled spirits suppliers, to national groups, such as the Century Council and the National Alcohol Beverage Control Association (NABCA) and fellow control states. This July, the ISLD sponsored the fifth Northwest Alcohol Conference in Boise, inviting law enforcement personnel and also young people to attend. The ISLD used grants to pay for the students’ airfares and hotels. “Our goal is to communicate that it’s not cool to drink when you’re 17,” said Anderson. “To do that, we have to discover what resonates with young people. It’s not a guy like me, in a tie, getting up to speak.”


The ISLD was also instrumental in creating a website, www.betheparent.org, modeled after one created by its fellow control state, Utah, using funds from NABCA.


And last year, in conjunction with supplier Pernod Ricard, the ISLD ran a series of television commercials that were public service announcements about social responsibility and underage drinking across the state, tying them in with posters on display in the state stores.

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