As one of the smallest control states, one might assume that Vermont must be focused on agency expansion and maximizing revenues. While profits are on a constant upswing, the Vermont Department of Liquor Control (VDLC) isn’t interested in making its agency bigger-just better.
The VDLC, headquartered in Montpelier, VT, is unique in several respects. Unlike most control states, the position of Commissioner is not a political appointee. Instead, the state’s Governor appoints individuals to serve on the Liquor Control Board of Commission, and the board then oversees the Commissioner, who in this case is Michael Hogan. After beginning his tenure with the department as an accountant in 1986, Hogan held several other positions within the organization, including Director of Operations. He was appointed to the role of Commissioner in 1998, and has served in that capacity ever since. Hogan is a member of the Governor’s Extended Cabinet and advises various committees in the Vermont Legislature on alcohol beverage law.
“The department is operated like a business,” explains Stephanie O’Brien, Commission Chairperson. “It’s a real luxury to have Michael basically acting as a CEO of this for-profit organization. We’re very proud of this continuity in leadership within the department.”
The Commissioner role isn’t the only distinctive aspect of the VDLC’s leadership setup. The board itself is noteworthy due to its relatively small size, having expanded from a three-member group to five members in 2012. The group regularly convenes on a monthly basis, unless an emergency situation warrants additional meetings. A citizen board, the group is volunteer-based and is currently comprised of three males and two females. (O’Brien, who has a background in real estate development, was appointed as the board’s first female member back in 2007. She then became the first female Chairperson in 2011.) In addition to a gender balance, the board members represent a diverse age range as well as various areas of the state.
Melissa Mazza, who was appointed to the board in June 2012, says the experience has been invaluable and inspiring for her thus far. “It has been my honor and pleasure to serve on a board in a department filled with dedicated and compassionate people, moving in a forward manner for the betterment of our beautiful state,” she says.
Ultimately, the distinctive characteristics of the VDLC’s leadership team is well-appreciated by both sides.
“The board lets me run the business, but at the same time I know who I am accountable to,” Hogan explains. “I’m fortunate to be able to work with the board in this kind of capacity.”
O’Brien agrees. “There’s a real strategic vision for the future,” she says. “The board is able to have that vision and Michael is then able to implement. We work together toward the same goals.”
Many of those shared goals involve managing the continuous growth of the department itself. When Hogan initially took the reigns as Commissioner, the VDLC’s annual revenue was approximately $30 million. Fifteen years later, that amount has more than doubled: in the 2012 fiscal year, sales reached $65,428,514, a 6.41% increase from the previous year. Projected figures for 2013 predict another record-breaking year as well.
While these figures doesn’t hoist Vermont to the level of the highest-grossing control states, the VDLC’s vision has always been more focused on quality than quantity. With 78 agency stores currently operational, there are no immediate plans for expansion. However, the agency is constantly re-evaluating its processes and policies in order to consistently maintain and improve operations, and to better serve the Vermont community. With its large tourist population and northern Quebec border, the VDLC must also take into account that a large percentage of its customers fall outside the demographic of Vermont’s 626,000 residents. Additionally, the insurgence of new craft breweries, distilleries, and wineries in the state over the past several years has also resulted in more educated consumers who are interested in a wider selection of products. The nationwide flavored spirit trend is also something that shows no sign of slowing down, and has even become more popular in non-vodka segments, including whiskeys and bourbons. This results in a very diverse customer base with an interest in the wide variety of product offerings currently available in the marketplace.
“We work very hard to understand who our customer is, and we realize that they may not always be seeking the typical product,” O’Brien acknowledges.
In addition to catering to such a diverse consumer base, there are several key issues that the agency is working to address this year. A top one is a concern about over-service, and how it is affecting the citizens of the state. According to Hogan, the large majority of Vermont licensees are completely compliant. Unfortunately, a small percentage of licensees tend to have repeat offenses, and some of them ultimately lose their licenses as a result. This is a primary illustration of how the department’s enforcement officers working directly with licensees is a partnership in which both sides benefit.
The VLDC requires all licensees to complete an education program every two years: if they fail to comply, their license won’t be renewed. In 2012, the department began offering online state certification programs as an alternative to attending in-person seminars. The online option gives people the flexibility of avoiding travel and the ability to complete the training program wherever they are at a time that is convenient to them.
Education goes hand in hand with enforcement, and a continued focus on compliance has always been a priority for the VLDC. Additional resources have been given to the department’s enforcement officers in an effort to allow them to focus more closely on unannounced inspections and undercover operations. One program in particular, an operation managed collectively with several Federal agencies that is known as “Operation Fed Up,” has received a great deal of acclaim for effectively targeting illegal drug activity on licensed premises in the southern portion of the state. “We’ve streamlined many of the investigators’ administrative duties so they can focus more on the enforcement role,” says Bill Goggins, Director of Education, Licensing, and Enforcement with the VLDC. “It’s really freed them up and allowed them to work on other important things, with a focus on public safety.”
According to Hogan, the overall response to the department’s efforts in these areas has been positive. “This work is critical in keeping our roads safe from individuals who make bad decisions,” he says. “Our licensees know that we are trying to help them and educate them about this process. We’re not just trying to catch them doing something wrong. The goal is to address any confusion that exists and make sure that any existing problems don’t repeat themselves.”
Along with the issue of over-service, another area of concern for the VDLC revolves around deregulation issues, which the department believes often results in unintended consequences. Recent examples include proposed legislative initiatives seeking the approval to serve alcohol in nontraditional venues.
“We recently had one proposal requesting to be able to serve alcohol in a jewelry store,” Hogan recalls. That’s one establishment that we didn’t think was appropriate, and fortunately the legislature agreed.”
Hogan notes that much of the VDLC’s hesitation over these types of licensure requests has to do with a lack of management resources within the department. The approval of more nontraditional serving licenses would put additional pressure on the department’s enforcement unit, which is already overextended.
Confusion in the marketplace is another issue facing the VDLC today, specifically as it relates to new products and overall product packaging. With the large number of new products constantly being introduced to the market, coupled with manufacturers regularly opting for more innovative packaging designs, retailers and licensees are sometimes left without all of the information necessary to form a comprehensive understanding about their products. At the same time, consumers aren’t always sure about what a product actually is and what that product contains.
“So much of the new product packaging is going away from the more traditional spirit bottles and gravitating into new areas, like pouches, boxes, and bags,” O’Brien says. “The board has become increasingly concerned about how alcoholic beverages are packaged, and who these untraditionally packaged products are really being marketed to.”
In addition to concerns over whether certain products cause confusion among consumers or may be targeting underage drinkers, issues surrounding overall package composition can pose a different set of problems. Certain packaging, such as the pouches used for many pre-mixed cocktails, are composed of non-recyclable materials. Vermont is a state that has spearheaded many recycling and sustainability initiatives, and thus the VLDC must take the environmental impact of product selection into consideration as well.
New Product Options
Despite the challenges that new products can cause in the marketplace, the VLDC is committed to constantly exploring new product options and delivering an attractive beverage selection to consumers. The goal is to choose quality products that the consumers want, which do not interfere with overall enforcement issues. However, with new products comes the need for additional storage space.
“We review and consider new products at least every other month, and are struggling to find room in the liquor warehouse and agency stores to accommodate the deluge of innovative products being introduced into the marketplace,” Hogan explains.
As the VDLC struggles with listing and delisting issues, the agency has come up with several processes to help determine the merits of listing individual products. The Listing Committee itself has expanded, adding a resort industry licensee and a high-end on-premise licensee to the team to provide additional insights and input. Tastings have also been added to the listing review process in order to better evaluate potential new products. Gross profit thresholds are currently being evaluated for de-listings, and a new streamlined mark-up system has been implemented to make the process more seamless.
A long-term solution to the listing problem will involve moving the VLDC’s warehouse operations to a new larger facility. Currently the agency utilizes a single 33,000 square foot warehouse located in Montpelier, which Tonia Pryce, the department’s Liquor Purchasing Coordinator, describes as “busting at the seams.” To alleviate the need for more space, Warehouse Manager Barry Richardson and his staff recently reset the warehouse for better utilization of shipping, receiving, and picking by removing an old conveyor system that had been in place since the 1970s and had long outlived its usefulness. Hogan notes that he hopes a new warehouse location will be identified within the next five years, although those discussions are still in the infancy stages.
Planning for the Future
The VLDC has undergone comprehensive strategic planning in order to address the pressing concerns of the state of Vermont, as well as to continue improving its own internal operations.
One of the main focus areas of this effort has been an overhaul of the department’s marketing efforts. A new integrated branding campaign, 802 Spirits, launched in its initial stages earlier this year. Key aspects of the redesigned campaign include a new Web site, in-store promotional materials, a hotline number, a Twitter account, and a revamped price guide magazine. All aspects of the new materials are branded under the 802 Spirits tag line, which is a reference to the 802 area code-the only area code in all of Vermont.
“People have really responded to this campaign because it reflects the community we have here in the state of Vermont,” explains Marcia Gardner, Director of Sales and Marketing with the VDLC. “The 802 Spirits campaign has also helped us revitalize our image and stay current. It’s integrated across all channels, and we’ve added some new things like creating a social media presence. It’s important to stay fresh.”
The development of the 802 Spirits campaign was spread over much of Fall and Winter 2012. In addition to the marketing team, staff members from across the department were asked to give input on the new brand, as were store owners and members of the board. Once the final phases of the campaign roll out early this summer, the department plans to conduct consumer focus groups in an effort to retool the campaign as necessary and brainstorm ideas of how to continue to develop the brand over time.
The VLDC has continued investing in additional marketing opportunities outside of its own branding materials. Vermont Life Magazine and the Vermont Vacation Guide are two publications the agency advertises in to provide accurate and responsible information to consumers. These advertisements focus on product specifications, store locations, and licensee information.
In addition to a comprehensive new marketing strategy, the VDLC is also in the process of overhauling all of its information technology (IT) systems. The two-year project, known as the Enterprise Resource Planning/Point of Sale project, is anticipated to begin this summer. It will initially focus on the implementation of new systems for the central office staff before eventually moving on to the state’s agency stores. Frank Perricone, IT Systems Manager with the VDLC, says that new Windows-based platform will replace the department’s current operating systems, which are outdated dial-up platforms that are unreliable and inefficient. The new systems will speed up many operational functions, such as credit card processing in stores, and will give the VDLC the opportunity to create other innovative technology tools, such as a mobile inventory application with up-to-the-minute sales information, which is something that is impossible to do with the software that is currently in place.
“This is a chance for us to completely reinvent our whole business, not just update a bunch of computers,” Perricone says. “And it won’t just benefit the people who work here. Agencies will have an easier time doing their jobs. Customers will receive better service as a result. Everyone across the state who is involved in the liquor business in any way will be positively affected by this.”
Implementing the new systems will require extensive new training for everyone involved, from VLDC administrators to agency employees. An additional challenge is that the new system will be rolled out to stores gradually, meaning that both the existing system and the new system will run simultaneously for some time.
“It will require some detailed advanced planning on our part, so that everyone is clear about which system all the information is located in, ” says Jan Ciemiecki, Director of Retail Operations. “But the end result, being timely and faster, will increase the ease of processing and accuracy overall.”
With so many projects currently underway, it’s notable that the overall mood of the VDLC and its people isn’t one of stress or anxiety, but rather excitement and enthusiasm.
“We have an economic climate that is improving, modernization efforts moving forward, and an expanded Liquor Board that is forward-thinking and ready to tackle all the important issues that present themselves as part of a growing industry,” Hogan attests. “This is an exciting time for the department and for the state of Vermont.”
Meet the Vermont Liquor Control Board Members
One of the most unique aspects of the Vermont Department of Liquor Control (VLDC) is the diverse group of citizens that make up the members of the Liquor Control Board of Commission. According to Michael Hogan, Commissioner of the VLDC, the fact that the board members come from many different professional backgrounds, represent a wide variety of ages, and hail from different areas of the state all contribute to a well-rounded board which accurately represents the people of Vermont.
Here’s a breakdown of the current board members and a bit about each of them:
Stephanie M. O’Brien
Member since September 2007. Chairperson since February 2011. From South Burlington, O’Brien has a background in real estate. Her father was Chairman of the Vermont Liquor Control Board of Commission for 25 years.
John P. Cassarino
Member since February 2007. The former Mayor of Rutland, Cassarino is currently an alderman in the same town. He founded a soup kitchen in his community back in 1965, where he occasionally still serves as cook.
Melissa D. Mazza
Member since June 2012. A resident of Essex Junction, Mazza is a bookkeeper who grew up in her father’s retail beverage business. Her father, State Senator Richard Mazza, is a longtime liquor agent from Colchester.
Member since July 2012. President and CEO of the Peoples Trust Company, a Vermont community bank, Gallagher lives in St. Albans. He comes from a family of dairy farmers and has served on various community and banking industry boards.
Member since July 2012. Sbardella recently retired from Southern Wine and Spirits of New England. A Fair Haven resident, he spent many years working in the spirits industry, including a stint as a licensee in the state of New York.