Control States Executive Forum

This is the fourteenth consecutive year that StateWays has approached leading officials among the control states and asked them to address the key issues and developments that have affected their operations over the past year. Their commentaries continue to reflect the undeniable fact that the control states are being run as modern-day businesses on a variety of fronts. Privatization continues to be a talking point among some state executives and representatives, and some control agencies may ultimately be affected; however, no realistic privatization efforts appear to be serious threats to control systems at this writing. Based on these reports, sales revenues among the control states have one again almost universally increased, and a wide range of responsibility initiatives continue to progress. At the same time, the control states are using best business practices to create more time- and money-saving efficiencies across all elements of their businesses, from back-office to warehouses to retail outlets. The officials also touch on a variety of modernization initiatives, including the upgrading of POS and security systems, redesigning and enhancing retail merchandising programs, updating online ordering systems for licensees and developing new technologies for increasing compliance with agency regulations. We also learn about the latest legislative changes that several control state agencies have had to put into action, as well as a wide range of ongoing enforcement efforts and newer legal initiatives. These state snapshots also note important personnel changes within the agencies, as well as provide outlines of the overall environment, accomplishments and challenges in these separate control jurisdictions. We’d like to once again thank the control state commissioners, chairpersons, administrators and other officials who took time out from their busy schedules to provide this information for us…and you.


ALABAMA


H. Mac Gipson


Administrator


Alabama Alcoholic Beverage Control Board


There is a steady pace to Alabama- a slow but vibrant pulse that is spreading southern hospitality throughout the Alabama ABC Stores. The state store employees have been receiving training in the art of using customer service to make people comfortable and to make their shopping experiences more enjoyable. This training has made a huge impact which is evidenced by the positive comment cards being received. The ABC Store Managers are also receiving product knowledge training provided, free of charge, by Gallo. Having a thorough understanding of the products on the shelves allows the sales associates to use different techniques and methods of presenting the product to customers. Knowledge is power and product knowledge can mean more sales and happier customers. The Alabama ABC Board has leased a warehouse annex just down the road from the main warehouse. With this additional warehouse space, holiday items, special orders and bulk items are more adequately stored and it has also opened up a lot of opportunities for product selection expansion. It is also beneficial in supplying national accounts. In order to fund the cost of the additional warehouse space and to maintain and add to the conveyor and IT system in the main warehouse, the Board approved the increase in bailment fees from 60 cents per case to 72 cents per case. The additional funds are also needed to upgrade the Point of Sale system and to modernize stores to include security monitors at cashier counters, innovation centers and end cap shelving. Alabama has not had a raise in bailment fees since 1995, when if first instituted a bailment fee. The Distiller’s League in Alabama is currently hosting its fourth trade show and they continue to get better and better with more licensees attending and reaping the benefits! Trade shows are one of the best ways to get in front of the customers and prospects launching and demonstrating new products and talk face-to-face with many potential customers in a relaxed, fun atmosphere. The last trade, which was held in Montgomery, generated over $940,000.00. The Alabama Legislature introduced and passed a bill which will consolidate and streamline law enforcement activities throughout the state. Lt. Scottie Chandler, ABC Enforcement Division, sits on the Integrated State Law Enforcement Task Force which has been charged with looking at ways to cut duplication in the state’s law enforcement agencies and to cut spending by 10 percent. The bill reorganizes Alabama’s many law enforcement programs into a Cabinet-level agency called the Alabama State Law Enforcement Agency. It will have two units. One unit, called the Department of Public Safety, will include major portions of the existing Department of Public Safety, the Marine Police, law enforcement units from the Public Service Commission and the Revenue Department. The other unit, called the State Bureau of Investigations, will include the Alabama Bureau of Investigation and law enforcement units from the ABC Board, the Forestry Commission and the Agriculture Department. This bill will go into effect January 2015.


IDAHO


Jeff Anderson


Director


Idaho State Liquor Division


Greetings from the Gem State!     The Idaho State Liquor Division delivered another record performance in FY2013. Overall, sales increased 7.1% and income from operations rose 8% on a 9-liter case volume advance of 4.8%. Retail sales increased 8.8%. On-premise licensee sales gained only 0.3%, although the final fiscal quarter showed signs of on-premise recovery. Distributions totaled $60,000,000 for the benefit our stakeholders – the cities, counties, general fund, and substance abuse and treatment programs in Idaho – and allowed us to continue to remain engaged with the communities we serve in efforts to promote responsible service and consumption as well as to prevent underage and binge drinking. Washington State dismantled their model of spirits distribution in June 2012, leading to increased consumer demand for spirits in Idaho stores. The most profound impact was adjacent to the Spokane Valley in Post Falls, Idaho. We opened a new store in State Line, Idaho, to provide better customer service to Idahoans (as well as Washington residents) in the area. The combined stores finished the year up over 60% in sales due to higher taxes and fees in Washington, a more favorable price-mix, and our lower, uniform, state-wide pricing. Adjusted per capita consumption for Idahoans remained under both the USA and control state levels. Proponents of deregulation attempted to replicate the Washington experience in Idaho during the 2013 legislative session but failed to gain traction. We anticipate they will return in 2014 or 2015. We have made improvements in our stores with focused associate training in responsible service; consistency in associate customer service and appearance; consumer-friendly lighting and environments; shelf optimization efforts; controlled merchandising policies (iMOD, the Idaho Modernization Project); new branding; and for our agent stores, weekly banking sweeps.  At press time, we’ve begun a process to add biometric scanners for associates logging into POS systems, a broker/supplier online inventory control portal, and (finally) a new consumer-centric website.    In an effort to grow our ability to improve career paths for associates while adding to our effectiveness at retail, the ISLD reduced our service districts from four to three.  Three District Managers will now be assisted by Territory Specialists (store managers accepting added responsibility for other state stores) and Contract Specialists (select associates accepting added responsibility for managing private-sector agent stores) to ensure compliance with implementing strategies where the rubber meets the road with consumers. Going forward, we remain focused on responsible sales and service, continuing our modernization improvements (iMOD), working with NABCA in enhancing our efforts with community groups and vendors in the area of social responsibility, and vigilance in communicating our control state value proposition to our citizens, stakeholders, and policy makers.  Cheers!


IOWA


Stephen E. Larson


Administrator


Iowa Alcoholic Beverages Division


In fiscal year 2013, the Iowa Alcoholic Beverages Division (IABD) had a record-breaking year in sales and funds generated for the State. IABD focused on evaluating the existing and potential alternative delivery processes, facility infrastructures and technologies to find efficiencies and prepare for growth. Many resulting recommendations are being implemented to create an efficient, sustainable model for the next decade. For the third year in a row, the administration put great emphasis on education and outreach for licensees, partners, stakeholders and citizens.


Revenue


While the IABD spent the year focused on long term planning and infrastructure improvements, it also had a record-breaking fiscal year. Over $255 million from the wholesale of spirits broke last year’s record by $13.5 million, representing a 5.6 percent increase in sales. 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 $115 million. The majority of this money will be used as general funding to be appropriated by the legislature for a variety of state programs. A portion of the funds is earmarked for substance abuse and local programs. The remaining funds will be used for Iowa native wine and beer promotion.


Master Plan Implementation


Since a legislative change two years ago removed spirits sales restrictions on gas stations, the Division has experienced rapid and significant growth both in sales and delivery points. The majority of this growth has been with non-traditional licensees such as convenience stores, discount stores and pharmacies, adding spirits to their existing infrastructure as a customer convenience. Typically non-traditional stores maintain a much smaller inventory in a significantly smaller facility. As a result, the distribution network for IABD had to evolve. These necessary changes also presented an opportunity to better meet the demand for a dynamic product base due to the changing demographics of the market. In order to position the agency for growth and inventory diversity, it was essential for IABD to evaluate the existing distribution facility in terms of building architecture, capacity utilization and site plan. A master plan was completed as part of a multi-disciplinary team of consultants in early fiscal year 13. An independent assessment was done to provide a barometer for the current operation and to provide a comprehensive recommendation and deployment plan for the future state of the network. The independent consultant evaluated IABD’s technology, facility and delivery process. Through data analysis of inventory movement and building capacity, site observations and industry experience, the conclusion was that the master plan provides a valid blueprint for moving forward into the next 3-5 years. Also contributing to the need to evolve is an explosion of growth and innovation in the flavored spirits categories. The current product offering is approximately 1,500 items. Consumers expect variety and IABD’s customers are responding to that demand. Based on independent evaluation of the current product offering and the need to add an additional several hundred SKUs, the master plan recommendations are sufficient to position IABD for future product expansion and productivity enhancement. Numerous projects are being executed to increase space utilization and pick productivity including racking in the warehouse, changing the direction of the flow of picking and prioritizing pick slots by volume. New technology will provide increased visibility and accuracy in inventory management, warehouse productivity improvement and efficiency in order entry through web based customer portals. IABD has invested significant time and resources into identifying, evaluating, selecting and implementing systems to drive operational improvement, provide real-time visibility and establish controls for cost containment. Collectively, these systems in tandem with ongoing commitment from the IABD team will provide a solid foundation for continued measurable success.


Increase compliance and regulatory clarity


As part of the strategic plan, IABD has been developing technology and educational programs that will result in increased compliance with the regulations that are the framework for the agency’s mission and the sale of alcohol to consumers. In accordance with that goal, IABD has made a commitment to hold town hall style meetings in all of Iowa’s 99 counties. The educational forums bring together on- and off-premises licensees, local authorities and law enforcement to cover Iowa laws and have an open discussion. Licensees are notified that countywide compliance checks will follow the meetings. The educational efforts have received overwhelming positive responses. In conjunction with the meetings, IABD published a quick reference guide for law enforcement and local authorities titled “Enforcing Iowa’s Alcoholic Beverage Laws.” This manual is a companion to the previously published “Iowa’s Alcohol Laws and You,” which is aimed at licensees. Both publications are available to download for free at IowaABD.com and were paid for through an educational grant from the National Alcoholic Beverages Control Association.


Symposium 21


Also in FY13, IABD hosted its first alcohol policy conference, Symposium 21: From Production to Consumption, which brought together policy makers, industry professionals, licensees, local authorities and prevention experts for a discussion about the relevance of the three-tier system in the alcohol marketplace. Based on the inaugural event’s success, IABD is planning another symposium in Des Moines, Iowa, for FY14. Visit Symposium21.com for more information.


MICHIGAN


Andrew J. Deloney


Chairman


Michigan Liquor Control Commission


The Michigan Liquor Control Commission (MLCC) is reinventing itself into a high performance agency excelling in faster, fairer, and higher quality service, ensuring that the products that customers want are available, generating critical revenues for the state, and working diligently around the clock to ensure public safety. With new commissioners taking office in July of 2011, the MLCC continues to be focused on a top priority goal: reinventing the licensing process so that it is faster, fairer, and more certain for applicants so they can get considered for licenses and permits quickly. Ensuring this type of process will help them get into business, or expand their businesses, and have success here in Michigan. While there remains much to do, much has already been accomplished in two years.  Upon encountering a huge amount of backlogged files when taking the reins at the MLCC in July 2011, the MLCC quickly achieved a 92% reduction in the backlog, and got them completed.  It examined the number of forms and mailings it produced and reduced both, saving nearly $8,000 annually in printing costs and eliminating several dozens of forms. License applications were processed 63% faster than they were prior to July of 2011, reducing the average amount of time it took an applicant to get approved for a license by 150 days. These improvements impacted more than 3,400 business customers last year alone. In the fall of 2011, the MLCC implemented a brand new process of considering several types of requests for licenses, permits, and permissions, called the “consent agenda.” This process allows applicants for those types of requests to get approval in a day or two, as opposed to the several months it used to take.  And the process was so smooth and successful; it has been expanded several times to include more things that could receive next-day consideration. Now, applicants for requests such as salesperson licenses, Sunday morning sales permits, temporary outdoor service areas, additional bars, and dozens more types of requests get next-day consideration, as opposed to waiting a month or two, or even longer, to get approved. Working with the agency’s licensing and enforcement staff, the MLCC implemented new procedures to simplify and shorten the licensing process for applicants and owners of multiple licenses. The new procedures were developed to provide a more efficient and streamlined process for those current and proposed businesses that will be licensed at two or more establishments throughout the state, eliminating duplication of processing, thus allowing for quicker turnaround time. The process of investigation has been modified so that site inspections are completed after a Commission decision on the licensing request has been rendered. The applicants become aware of a Commission decision almost immediately. The future holds great promise for increased efficiencies and customer service here in Michigan.  Internet users can go online and get updates on a license application status, spirit product availability, sales totals, and online ordering.  Here too, in the area of technology, major changes will be in the works. In the areas of public safety and awareness of alcohol abuse, the MLCC continues to work with licensees, law enforcement agencies, public health, and awareness groups to educate them on the requirements of the law, how to ensure compliance, and working to raise awareness of the significant dangers associated with the abuse of alcoholic beverages.  While the manufacture, delivery, retail, and service of these beverages are a significant economic development tool, the MLCC works daily to remind licensees and the general public of the consequences of violating the law, and how the illegal use and abuse of these products can impact personal and public health and safety.


MISSISSIPPI


Ed Morgan


Commissioner of Revenue


Mississippi Department of Revenue


Sales at the Mississippi ABC continue to grow. Our customers are maintaining their interest in premium and super premiums brands demonstrated by sales dollars increasing at a higher rate than case sales. Total sales for FYE 6/30/2013 were $282,183,226, an increase of 7.2% over last year’s sales of $263,321,482. Contributions to the State General Fund were $99,945,150, up from $95,362,438 which is a 4.8% increase over FY 2012. Total case sales were 2,888,914, a 1.5% increase. All wines and distilled spirits sold in Mississippi go through the ABC.  40% of our total case sales are wine and 60% are spirits.  Spirits bring in almost 75% of dollar volume and wine only 25%. We sold 8,820 different SKUs last year, with about 4,600 SKUs stocked in the bailment warehouse at any time. Because the stores in Mississippi are privately owned, the topic of privatization does not come up often. We have a low mark-up of 27.5% and excise tax rates of $2.50/gallon on spirits, $1.00/gallon on sparkling wines and champagne, and $.35 /gallon on other wines. If a permittee orders by 11:00 AM they will receive their order the next day. A minimum of (5) cases is required, but the permittee can order every day if he chooses to with next day delivery guaranteed. Almost 90% of our orders are made on-line with the customer’s bank account being drafted the day the order is delivered. Mississippi has 861 on-premise accounts and 611 package stores which are serviced by ABC. Shipping is privately contracted, and those costs are about $13,000,000 each year. Legislation passed in the 2013 Regular Session includes: 1) Ignition interlock devices will be required after DUI’s; 2) Distillers are allowed to have tastings on the premises of the distillery; and 3) Homemade beer may be brewed for personal consumption in areas that are designated wet. The DOR requested legislation for tastings in package stores but was not successful in that endeavor.  Enforcement finished FY 2013 at full strength after hiring 5 new enforcement agents. During the prior year, enforcement personnel arrested 18 persons for moonshine related offenses and 17 for controlled substance violations. 594 underage persons were cited for possession of alcohol, and 190 were additionally cited for possession of fake identification. The Bureau focused its educational efforts on a campaign to get the word out on the new “Social Host” law. NABCA Educational Awards Program funding was used to develop and print posters and brochures for parents and law enforcement officials. Law enforcement officers around the state were also provided an investigative checklist to better handle and safely disperse underage drinking parties. These materials will compliment the law enforcement “Social Host” training DVD that will be available in late 2013. 4 adults were cited in FY ’13 for allowing underage persons to consume alcohol on their property. The Permit Branch of ABC Enforcement approved 171 new permits and we anticipate more new permits in 2013 with the passage of a new law that allows certain municipalities located in dry counties to vote wet. Before then, referendums have been county-wide.


MONTANA


Shauna Helfert


Administrator


Liquor Control Division


Montana Department of Revenue


June 30 marked the end of a very successful fiscal year at the Montana Department of Revenue’s Liquor Control Division. We experienced significant growth over the year and helped enact many new legislative changes. As in year’s past, dollar sales and the number of cases shipped from the state liquor warehouse to agency liquor stores surpassed sales and shipments from the previous fiscal year. In fiscal year 2013, we shipped a total of 732,224 cases of distilled spirits and fortified wines. This is up 3.06%, or 21,749 cases, from fiscal year 2012. Sales exceeded $119 million and increased 4.97% compared to fiscal year 2012. We’ve begun implementing five bills passed in the 2013 Legislative Session that affect the alcoholic beverage industry in Montana. Below are brief summaries of those bills. As the Department of Revenue begins administering this new legislation, we will propose new administrative rules and inform the public and the alcoholic beverage industry of these statute changes. The first bill increases, from one to three, the number of all-beverage licenses in which an individual may possess an ownership interest. In addition, the bill prevents an individual from having an interest in more than half the total number of allowable all-beverage licenses in any quota area. If, for example, the quota area allows for five all-beverage licenses, an individual is limited to two of those licenses. The bill also prevents two or more individuals who have a business or family relationship and share in the profits or liabilities of all-beverage licenses from holding half the total number of allowable all-beverage licenses in the quota area. The second bill revises the requirements an establishment must meet to qualify for a retail license to sell beer, table wine or both for off-premises consumption. Currently, to qualify for an off-premises beer and/or table wine license, an establishment has to operate as a bona fide grocery store or as a pharmacy-licensed drugstore.  Establishments can now sell beer and/or table wine for off-premises consumption without operating as a bona fide grocery store or as pharmacy-licensed drugstore.  However, if the establishment operates in conjunction with another business, that business must be a grocery store or drugstore licensed as a pharmacy. The third bill creates a direct shipment endorsement for wineries licensed or registered in Montana effective October 1, 2013.  This endorsement applies to both in-state and out-of-state wineries and allows them to sell up to 18 nine-liter cases of table wine annually to individuals over the age of 21 for personal use. The endorsement costs a winery $50 a year. Wineries that hold a direct shipment endorsement will be required to report and pay tax monthly on table wine directly shipped to consumers.   This bill eliminates the wine connoisseur’s license and the combined beer and wine connoisseur’s license. The beer connoisseur’s license will remain in statute. The fourth bill authorizes the department to adjust penalties related to violations by a licensed brewer, winery, wholesaler, or retailer based on mitigating and aggravating circumstances. Examples of mitigating circumstances include: there have been no violations by the licensee within the past 3 years; there have been good faith efforts by the licensee to prevent a violation; written policies exist that govern the conduct of the licensee’s employees; there has been cooperation in the investigation of the violation that shows the licensee, employee, or agent accepts responsibility; the investigation was not based on complaints received or on observed misconduct, but was based solely on the investigating authority creating the opportunity for a violation; or the licensee has provided responsible alcohol server training to all of their employees. Examples of aggravating circumstances include: prior warnings about compliance problems; prior violations within the past 3 years; lack of written policies governing employee conduct; multiple violations during the course of the investigation; efforts to conceal a violation; the intentional nature of the violation; or involvement of more than one patron or employee in a violation. The last bill allows the department to issue a sacramental wine license to an establishment located in or outside of Montana that sells church supplies, including sacramental wine, at retail to priests, pastors or other church officials for religious purposes. The bill prohibits the sacramental wine licensee from selling sacramental wine to the public. The bill allows a sacramental wine licensee to deliver the sacramental wine to a religious organization using the licensee’s own employees and equipment or by contracting with a licensed table wine distributor or common carrier.  Sacramental wine shipped by a common carrier must be properly marked with the following statement: “Wine Shipment from Sacramental Wine Licensee for Religious Purposes Only. Contains Alcohol: Signature of Person 21 Years of Age or Older Required for Delivery.” An out-of-state sacramental wine licensee is responsible for reporting and paying the tax on any shipments of sacramental wine made to religious organizations. A foreign winery that ships sacramental wine to in-state sacramental wine licensees is responsible for reporting and paying the tax on any shipment of sacramental wine.


 


MONTGOMERY COUNTY, MARYLAND


George F. Griffin


Director


Montgomery County Department of Liquor Control


I am pleased to report the Montgomery County Department of Liquor Control had another strong year on a number of fronts. We experienced modest sales growth; accomplished our long-term goal of relocating to a new warehouse and headquarters facility; and continued to improve our operations and community outreach efforts without increasing our workforce.


Sales


For the fiscal year ending June 30, 2013, DLC saw a 2.42% increase in total sales over the previous year. Our network of County-owned and operated retail stores reported sales of $122,158,306. This represents a 2.54% increase over FY12. Our wholesale operations had sales of $134,537,542 – which was a 2.32% increase over the previous year. Our gross sales revenue was $256,695,848.  DLC controls the distribution of all beverage alcohol in Montgomery County: beer, wine and liquor. Among these segments of the drinks industry, distilled spirits was the category that easily set the pace for increasing sales and revenues. The number of actual distilled spirits cases sold throughout our system this year jumped by nearly 4% (3.97%) over FY12.


New Warehouse Facility


We are also achieved a long-anticipated strategic improvement in our operations by relocating to a new facility. Our new 210,000 sq. ft. warehouse is a tremendous improvement – for both our employees and our inventory – compared to our old facility, where we operated for nearly 40 years. Our new larger warehouse and offices are completely climate-controlled, allowing for proper storage conditions for all types of products, including fine wines. We relocated our entire inventory, as well as all our warehouse and office staff, to the new property during June and July. DLC personnel planned and performed the entire relocation in-house using our own DLC crews and staff for all aspects of the move. Of course, this major undertaking was accomplished while we simultaneously continued our normal demanding day-to-day operations. I am very proud of the way our dedicated employees were able to perform well above and beyond their normal duties and accomplish this “once in a career” project in such an efficient manner. (Our new address: Montgomery County Department of Liquor Control, 201 Edison Park Drive, Gaithersburg, MD 20878)   


DLC Revenue Bonds


I am also proud to report that we recently issued another $47 Million in “Montgomery County Liquor Control Revenue Bonds” through the national financial markets. This latest issuance brings the total amount of DLC bonds issued to $129 Million. It is very gratifying to have our history of strong performance and sound management and financial practices validated by expert third party analysts. The S&P published summary stated: “Standard & Poor’s Rating Services raised its underlying rating on Montgomery County, MD’s Department of Liquor Control (DLC) revenue bonds one notch to ‘AA’ from ‘AA-‘, based on the county’s history of maintaining very strong debt service coverage from pledged revenue, and strong s

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