Profile: The Alabama Alcoholic Beverage Control Board

The Alabama Alcoholic Beverage Control Board (ABC) has plenty to celebrate.By September of 2012, according to the latest figures, its total sales, both retail and wholesale, were projected to be over $378 million for the year, an increase, in dollar sales, of almost 5%. (Case sales were up 2.3%.) And its contributions to the state budget are on track to reach almost $210 million, an increase of 6.7%.The 912 employees of the Alabama ABC continuously look for ways to innovate: cutting business expenses, running their wholesale and retail operations more efficiently, working on their service to and relationships with customers, licensees and suppliers, and honing their enforcement and education efforts.


Wholesaling & Retailing


The Alabama ABC controls all the wholesaling and most of the retailing of distilled spirits in the state. Its two warehouses at its headquarters in Montgomery generally contain about 250,000 cases of distilled spirits (300,000 at peak times like the holiday and football seasons) and ships those cases out, at the rate of 10 trailerloads, or about 45,000 cases, per week, to the state stores. Those 172 stores, in turn, sell to consumers and also to licensees, including the state’s approximately 535 licensed package stores.


 


Allowed to open by a court ruling in the early ’80s, these licensed package stores can sell distilled spirits, as well as other products, such as beer, snacks and ice. (The state stores sell only spirits.) These package stores fill a niche in the market, explained Randall Smith, who, as the ABC’s product general manager, is in charge of the state stores. “We are the supermarket and they are the 7/11,” he said. The package stores can be open longer hours, but their prices for distilled spirits are generally higher than those in the state stores. (Package-store licensees buy their distilled spirits from the state at a 10% discount on consumer prices and without sales tax.) During a recent television interview, on a local PBS news show called “Capitol Journal,” H. Mac Gipson, the ABC’s administrator, pointed out that in the town of Athens, AL, a package store is located directly next door to a state store. “And it works well,” he said.


Licensing & Enforcement


In addition to its wholesaling and retailing operations, the Alabama ABC is also charged with licensing and enforcement. The 127 sworn police officers in the enforcement division of the ABC also license and regulate the wholesalers and retailers of beer, wine and liquor and handle the enforcement required by tobacco laws. The ABC enforcement division is also charged with monitoring the sale of ephedrine products, such as cold medications sold by drug stores, which are an ingredient necessary to produce methamphetamine. Finally, the ABC enforcement division is the main agency in the state responsible for undercover drug investigations. When it comes to alcohol, said Jeff Rogers, chief of enforcement, “Everyone who sells alcohol in the state of Alabama deals with us [the ABC]. We sell it and we control or regulate it.”As a direct result of this system, “we are a high-tax, low-consumption state,” said Gipson, which was exactly the intention of legislators 75 years ago when they crafted the Alabama Alcoholic Beverage Control Act, at the end of Prohibition. The Product Management Division is the business side of the ABC. It is in charge of pricing and purchasing distilled spirit products, running the warehouse and distribution operations, and selling, wholesale to licensees and retail to customers, distilled spirits throughout the state, through the operation of its 172 state stores. This division employs 59 people in the central office and warehouse and 615 people in the stores.


The Distillers League


When Administrator Gipson and William Thigpen, assistant administrator, arrived at their posts 23 months ago, one of the first things Gipson did was revive an organization called the Distillers League, which had been disbanded. This is a group of brokers and supplier representatives. “To me, it seemed like a good idea to allow the League to reorganize,” said Gipson. “It helps us to have a good relationship with suppliers and it serves as an advisory organization.” The League meets once a quarter with the ABC. “We talk to them about our listing process, delisting process, store displays, codes and laws, pricing, even military sales,” said Nick Ketter, product director. “Of course, the ABC has the final say over everything, but they are a very vital resource.”


And it’s with the Distillers League that the Alabama ABC has begun running two trade shows per year, for licensees. Suppliers are allowed to bring in products, for licensees to see and to taste, and to offer discounted pricing on select items. (Spirit tastings are not allowed in state stores.) “It’s great for us,” said Randall Smith. “We, in product management, do not get a lot of contact with licensees otherwise. It builds good will.


“One problem area the ABC has been able to address through the trade shows is gift sets, the value-added packaging – for example, a set of glasses packaged with a bottle of product – that suppliers produce for the holiday season. In the past, the state of Alabama did not get enough of these gift sets to meet demand and the ones it did get were all sold in the state stores. “The ABC didn’t sell any to the [package-store] licensees, which became a very, very touchy situation,” explained Emmit Hardie, assistant product-management director. When Gipson arrived at the ABC, he resolved to fix the problem. More gift sets were obtained for the following year and made available to the licensees, through the trade shows. “That was a hook, a way to kick off our trade shows: that the gift sets were going to be available for the first time in many years,” said Hardie.



Popularity of Trade Shows


And the trade shows are proving to be popular. There have been three so far, with 209 licensees placing orders at the last one, 44% of those on-premise and 56% off-premise, in reaching $1.3 million in sales. Supplier participation has grown as well, from 23 at the first trade show, to 42 at the third. The next show will be held in March.Because brands are on display – and available for order – at the trade shows, more product has to make its way through the ABC’s warehouse operation. Because of that, and the need to carry more specialty and seasonal items of interest to licensees, especially chain restaurants, the Alabama ABC recently added 40,000 square feet to its warehouse space, in the form of a leased building near its main warehouse and headquarters in Montgomery.Before, because of restrictions on its warehouse space, the ABC found itself, in turn, placing restrictions on what suppliers brought into the state even though the Alabama ABC, like many control agencies, runs a bailment operation. The result? “A national chain would have menus printed that had a brand listed – and we didn’t have it,” said Gipson.


Smith explained, “For national accounts, like chain restaurants, we wouldn’t special-order a product until the licensee placed an order, and then it might be six weeks before it came in.” How to handle the deluge of new products in the distilled-spirit market is a problem for all control states, said Smith. “We all do a good job with high-volume products, like Jack Daniels or Crown Royal, but not such a good job with specialty products,” he explained. Currently, with the new warehouse space just coming online, the Alabama ABC has, in addition to 1,368 regularly listed items, a little over 2,500 products available for whole-case orders.While the extra warehouse space eases the pressure when it comes to licensee orders, the Alabama ABC continues to look for ways to make the shelf space in its state stores as optimized as possible. Not only are there a lot more products but the ABC has reduced the amount of display space in its stores, by lowering the shelving, from four shelves to three, to give the stores a more open and modern feel. That makes every facing count even more than before.”And the categories have changed a lot,” said Ketter. “Almost 40% of our sales are vodka.”


Smith added, “Twenty years ago, most of our sales were in brown goods and gin.”Currently, Ketter reported that the state is seeing bourbon, rum, tequila and Irish whiskey growing. Smith said, “In the last few years, there has been a resurgence in higher end products.” While bourbon is growing in the state, Smith reported that brandy and cognac is slipping, particularly at the lower end.The Alabama ABC has just finished resetting the shelves at every one of its 172 stores. “Every category was looked at, in each individual store,” explained Ketter. Each category and brand was assigned shelf space based on its sales, some products were trimmed, others added. “Not only has the dollar ring increased in the stores, but the aesthetics of the stores are better,” reported Ketter.


The ABC has already heard positive reactions from customers.One part of its analysis of its stores is a continuous evaluation, as leases come up for renewal, on their locations. “About 25 percent of our stores change location when their leases expire,” reported Smith.Debra Larison, the ABC’s store director, said that for the last four years or so, the ABC has been able to get its stores into higher-end locations because of economic conditions. “Until the big downturn in 2008, there was no way we could have afforded some of these prime locations,” she said, “but since the downturn, we’ve been able to get better deals, in price.”


The ABC is also in the process of revamping its store-displays process. “Every month suppliers submit [display] proposals and we ship out the product to the stores to build 25 to 35 displays,” said Ketter. “Our store managers do a good job of rotating the positions, so that suppliers take turns at the most beneficial spots. But there are so many items, we can’t accommodate them all and our stores can be incredibly regionally specific when it comes to the popularity of categories.”One plan is to “take store managers off the hot seat” with supplier reps and brokers, Smith said, and make more of the decisions at the central office.



Listing and Delisting Products


Likewise, the ABC is revamping its policies on listing and delisting products. The ABC’s listing committee, headed by Smith, meets every spring and fall, for four days of presentations by brokers and supplier reps. One recent improvement to this procedure is to have suppliers submit a one-page summary of each new product in advance, with information on the rationale behind the product, such as why it’s a good addition to its category, how it’s been selling in other markets, and its pricing information. The committee accepts roughly 100 new products every time it meets.


And twice a year, it delists about 80 to 90 products. “You’ve got to have delisting if you’re going to have listing,” said Smith. The ABC has just made adjustments to its criteria for delisting, which it will use for the first time during the next delisting session. “There will be a multi-tier drop-down list of criteria,” explained Ketter. “The product needs to hit certain thresholds to remain. There are four ways – its market share, time on the shelf (If it’s new, we allow it time to grow), trending analysis, such as how it’s performing relative to its category, and its dollar ring.” Giving points for a product’s dollar ring allows the ABC to retain higher-end products that are actually profitable but are slower sellers.



Training for Responsible Selling


While the ABC provides store employees with comprehensive training on responsible selling through its own program, Store Employee Liquor Liability (SELL), Smith wants to add more product-knowledge training as well. “We were prohibited for years from making recommendations, from having any involvement with the customer, really,” said Smith. “When I was a young man, as a customer, you couldn’t call the product you were purchasing by its brand name. You had to look up the code number in the store and give that to the clerk.” Smith would like to see store employees more able to help customers with their product questions and plans afoot for more employee education.


The 2010 election ended 136 years of Democratic control of the state legislature in Alabama. The Republicans now hold a super-majority. “And most Republicans believe in less government,” Gipson noted. But while there may be more interest in privatization than usual, “no one’s come up with a plan to replace that $200 million’s worth of funding the ABC generates for the state,” he said.Gipson and Thigpen, both former legislators themselves, realize the importance of educating legislators about the ABC. “We are virtually unknown. From a legislator’s perspective, money flows from its spending authority. Legislators don’t really see what the board does and where the money comes from,” said Gipson. “Some may be conceptually against control, but the devil’s in the details.” Under Gipson and Thigpen, the ABC has been distributing monthly reports about its financials to state legislators and inviting them to tour the ABC’s facilities. “A lot of the ‘zings’ we hear from legislators are basically from ignorance,” said Gipson. David Latham, the ABC’s director of information technology (IT), who has been with the agency since 2005, agreed. “There’s so much misinformation out there. The public doesn’t know what we do. We are more than liquor sellers,” he said.



Enforcement


The law enforcement division of the ABC is in the happy position of being a highly desirable place to work. Though the state government is currently under a hiring freeze, when ABC Law Enforcement does list openings, it can receive hundreds of applications. And though there are requirements to “get in the door,” such as having at least two years’ of law enforcement experience elsewhere, in reality, the ABC receives applications from officers with far more experience than that. “People want this job,” said Jeff Rogers, chief of ABC law enforcement. “It’s investigation-based, not call-based. You are not sitting in a patrol car, waiting for a call. It’s a fun job. You get to do everything. Today, you might meet with business people but, at the same time, you are still in law enforcement.


“The tasks of the officers of the ABC range from doing licensee inspections and speaking at schools to doing undercover drug investigations and busting meth labs (for which they have to wear hazmat suits).Eighteen of the 127 sworn police officers at the ABC are undercover officers. One even went undercover at a high school. “A principal had called, telling us that his school was overrun with drugs and alcohol,” said Rogers. “We have an officer who, though he’s in his late 20s, actually looks 16. He had a whole cover story, for when the kids asked: that he went to a military school, to explain his short hair, that he lived now with his grandfather because his momma couldn’t handle him, and he physically attended school and went to parties.”ABC enforcement officers also run Facebook pages, where they pose as teens. When it comes to teen parties, “kids will tell on themselves,” said Rogers. “They can be the dumbest things you’ve ever seen. They will post pictures and brag on Facebook.”


The 18 regular undercover officers, many of whom “have long hair and earrings and beards,” said Rogers, do virtually all the undercover drug investigations in the state of Alabama. Why the ABC officers? “Because with drug deals, there’s generally alcohol involved in there somehow,” said Rogers. “The majority of drug deals originate in licensed establishments; someone says, ‘Meet me at the club.'” The ABC officers also conduct compliance checks, using under-age volunteers. “These are kids who hear about us through word-of-mouth or whom our officers meet when they speak at high schools,” said Rogers. “They are all volunteers and are well under the legal age of 21.” The boys do not wear facial hair. The kids will present only their true IDs if asked. They wear small covert cameras and carry marked money. “We focus on people who will sell to a true kid,” said Rogers. “We are not trying to trick or confuse a clerk. We don’t have to: there are enough people who don’t care, who will sell to a kid – and they are dealt with severely.” The clerk in such a case is arrested on a criminal charge, which will, if they are found guilty, result in a fine, and the licensee will be issued an administrative ABC ticket. The fine for a first offense is $750. The ABC officers do the same kind of compliance check, using volunteers who are 14 or 15, for tobacco sales.When it comes to working with licensees, the law enforcement division has a civilian staff of eight at the ABC headquarters in Montgomery who handle the paperwork. Over the last several years, the division has switched from paper-based files to electronic ones. “Before, the paper files were a nightmare, just so slow and painful,” said Rogers. “Now, the electronic files are very helpful to a field agent. They can access everything on their laptop or smart phone. They can see all the pictures of every location of a chain. Or if a chain’s location sells to a minor in Birmingham, the officer in Mobile will know it.”



Still Cutting Costs


The state of Alabama, like many, is looking for ways to cut expenditures, such as with its hiring freeze, which has been in place for about three years. “So, there’s been no hiring but meanwhile crime goes up,” said Rogers. “Crime’s like a virus. The minute you back off, it can run out from under you.”One of the cost-cutting proposals currently being studied by a government task force is to consolidate law enforcement in the state into one agency. Although there’s not yet a specific proposal to study, Rogers said such a streamlining might not be a bad idea, since it would involve cross-training officers. As it is now, each law-enforcement agency has a specialty, such as fish & game or the highway patrol.”The trend now, in every state, is to do more with less,” he explained. “If we don’t have enough officers, but everyone is cross-trained, we can be more efficient. If a state fire marshall stops to fill up his car, why can’t he do a tobacco inspection of the store?” Likewise, on a holiday weekend, police officers of all types might work traffic.As the chief of a law enforcement agency, Rogers is on a committee, of “subject-matter experts,” along with the chiefs of all the other law enforcement agencies, to come up with ways this might work. “The last thing we want is for special interest groups or academics to tell us how it’s going to be,” he said. “As subject-matter experts, we deal with the real world.


“No matter how law enforcement organizes itself, Rogers said he knows one thing for certain. “Alcohol enforcement is not going to go away. My letterhead may change, but even if alcohol sales are privatized, there’s still going to be a need, if not more of a need, to enforce these laws.”William Thigpen, assistant administrator, summed up the Alabama ABC. “There are a lot of different control state models,” he said. “I think ours is the best, most efficient one. And the ABC is in good shape. The attitude is, we’re operating a business, we have a modern warehouse and our employees really know their stuff. We couldn’t be more pleased.”



Still, There Are Stills


Illegal stills in the woods: they seem like the stuff of movies and television shows (such as the reality TV show, “Moonshiners,” on the Discovery Channel).


But they do still exist. In Alabama, ABC law enforcement busts 10 to 15 stills a year, reported H. Mac Gipson, ABC administrator. “We don’t have legal craft distillers in the state of Alabama, but we do have a few illegal ones,” he joked.


The making of moonshine, or illegal spirits, in the United States in general dates back to the Whisky Rebellion in 1794. In Alabama, often, “generations of a family have made moonshine,” said Jeff Rogers, chief of the law enforcement division of the Alabama ABC. “Their grandpappy made it and they make it. Since we have to catch them actually running the still, they are very difficult to catch.”


In one instance, when Rogers went by daylight to a still in the woods that had been discovered from the air, he saw that the people running it had very carefully laid twigs all across the trail leading to it. “If those twigs had been broken, and they would have known that we had approached it, they would have known to stay away,” explained Rogers. “It’s a real game of cat and mouse.”



Getting Through To Kids


“We talk wherever we’re invited,” said Jeff Rogers, chief of the Alabama ABC’s law enforcement division. “I’ve talked to MADD and to SADD, to high schools and to colleges. I’ve talked to seven people and to 700 people. At a junior high, it might be about the evils of cigarettes and at a college, binge drinking.”


And the ABC has one agent, Lieutenant Mike Reese, whose sole job is to speak to teens about the dangers of underage drinking and illegal drugs. Reese, a police supervisor who retired from the ABC, was rehired to continue to bring his program, called “Save Teens,” to schools and other groups throughout the state.


As an officer, Reese has met many families whose children have died as a result of substance abuse. With the help of these families, he created his presentation, which lasts about an hour and a half.


Audience members end up crying. “I’ve only seen it twice, and I don’t like to see it,” said Rogers. “It’s graphic because kids need to see to really identify.”  Audiences see things, such as video, taken with someone’s smart phone, of a teen passed out at a party, watch the other kids laugh at him, step over him, even draw on his face – and then hear that the boy died.


“Mike knew a lot of these kids; he knows a lot of these parents. He’s very passionate and has reached tens of thousands of kids,” said Rogers. “We’re very proud of him.”



The Big Picture


Originally, the Alabama ABC was going to replace the point-of-sale system it uses in its 172 state stores. “As time went on, and more and more came to light, we saw that we should do the back-office system as well,” said David Latham, director of information technology (IT).


But then the ABC realized that, to really do the job right, its entire retail operation should be looked at, with an eye toward efficiency. So, last month, the decision was made to put out a request for proposal (RFP), looking for a consulting company that would do an analysis of the ABC’s entire retail operation. Latham pointed out that other control states, including Vermont and Pennsylvania, have done the same thing, to great effect. He estimated that the entire process, from now till the implementation of the new systems and procedures, would take about two years.


“We want to modernize all facets of our operation,” said Latham. “We want to do things, not because that’s the way we’ve always done them, but because that’s the best way to do them.”

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