Despite being the final state in U.S. history to approve the sale of alcohol within its borders, Mississippi has picked up the pace quite a bit since then. Headquartered in Madison, MS, the state’s Alcoholic Beverage Control (ABC) Division has experienced steady growth for years and is ready to expand its operations even more. While its productivity and overall profit margins are impressive, the ABC hopes to keep improving, and the department is looking forward to the state legislature approving additional funds in order to continue upgrading its operations.
Several interesting facts about the ABC: the division is housed within the Mississippi Department of Revenue, and has been set up that way since 1966 (the year prohibition in Mississippi was finally lifted). Of Mississippi’s 82 counties, nearly half of them are dry. Additionally, certain counties include split judicial districts, resulting in some wet cities in otherwise dry counties. Another distinguishing characteristic of Mississippi’s setup is that, unlike several control states, Mississippi does not operate any retail stores: they are all privately owned.
Compared to other states, the nature of what we do isn’t nearly as complex,” states Ed Morgan, who is currently serving a six-year term as the Commissioner of Revenue. “Our primary focus areas are on warehouse distribution, efficiency and support. We don’t have hundreds of retail employees and we don’t get involved with product marketing.”
Speedy Distribution Process
Also unique to Mississippi is the extremely efficient and speedy distribution process guaranteed to ABC permittees. If ABC customers place an order by 11 a.m., the requested product is delivered the very next day, across all areas of the state. Mississippi currently has approximately 1,400 permittees, 550 of which are retail stores and 850 are on-premise service providers. Of all product orders, 90% of them are placed online. Deliveries are offered four days per week, with a five-case minimum requirement. Participating partners are enrolled in a draft payment system, and the ABC withdraws payment from the business’s account on the day of delivery. The end result is that customers don’t have to worry much about inventory management, as restocking can generally happen overnight. This is an arrangement that is extremely beneficial to permittees, although it does pose some challenges to the ABC itself.
We deliver to every remote corner of the state,” explains Patsy Holeman, director of the ABC. “Our warehouse works two 10-hour shifts, four days each week, to keep up.”
Mississippi offers uniform product pricing to all retailers, regardless of an establishment’s size, making it extremely attractive to small businesses. The ABC contracts with private shipping companies, which handle all the deliveries. The cost of shipping is rolled into the cost of each case at an additional charge of $5 apiece. Special orders are shipped immediately upon receipt. Holeman reports that the ABC receives and ships an average of 60,000 cases per week.
Holeman reports that Mississippi’s 27.5% product mark-up is much lower than many other states, making it difficult to accurately compare any two states’ overall revenues side by side. The excise tax is $2.50 per gallon on spirits, $1 per gallon of sparkling wine, and $.35 per gallon of regular wine.
Building relationships with key stakeholders
The ABC is focused on building and maintaining relationships with its private sector customers, stores and restaurants. Morgan views those relationships as partnerships within the industry.
We don’t directly compete. We’re regulatory. And we’re all in this together,” he states. “Generally, what’s good for us is also good for them.”
A primary focus area of Morgan’s is to maintain open communications with those private sector business partners. The ABC encourages an open line of communication with its customers and welcomes any constructive criticism or recommendations for improvement. Additionally, quarterly meetings are held with retailers and brokers to discuss current issues, and various associations are structured across the state to encourage individual involvement at different levels within the industry. However, Morgan stresses that those open lines of communication are always in check, and that the ABC is constantly sharing thoughts and ideas with its partners on a daily basis.
The same is true on the enforcement side of the spectrum. In addition to communicating responsible consumption messages to the citizens of Mississippi, the ABC makes it a priority to connect with law enforcement officials across the state in an effort to share information and work together toward the common goal of providing safety to the general public. The ABC conducted 932 total investigations during the 2013 fiscal year. Among those, a whopping 591 citations (nearly two-thirds of the annual total) revolved around possession of alcohol by a minor.
Mark Hicks, director of the ABC’s Bureau of Enforcement, credits public safety groups such as Mothers Against Drunk Driving (MADD) and Students Against Destructive Decisions (SADD) with bringing underage alcohol consumption to the forefront of discussion in the state over the past several years. The ABC has also been able to devote additional resources to this issue due to fewer incidents of illicit distillery seizures and moonshine trafficking, which have drastically decreased in frequency. (Last year, there were only reported 20 cases of those types of incidents combined.)
Another contributing factor to the state’s focus on underage alcohol abuse was the death of a campus police officer at the University of Mississippi in Oxford back in 2006. The officer was conducting a traffic stop when the underaged and intoxicated driver of the vehicle allegedly pulled away, dragging the officer for several hundred yards and causing him severe injuries, which he later died from. This case received prominent media attention throughout the state, increasing attention on the dangers of underage drinking.
The National Alcohol Beverage Control Association (NABCA) has provided the ABC with funds to assist with distributing educational materials to law enforcement officials, permittees, and the general public. Numerous printed materials such as pamphlets and posters focusing on topics like prom night safety, underage alcohol consumption, fake IDs, and alcohol poisoning are widely distributed among schools and parent groups. In addition, the ABC has focused on creating three comprehensive DVDs focusing on education and training. The first video, “Responsible Server Training for License Holders,” gives an overview of state laws and regulations, offering a solid introduction to training. Many of Mississippi’s larger permittees (such as casinos, which employ hundreds of people) were given copies of the DVD so it could be integrated into the organization’s official training programs. Enforcement officers regularly travel throughout the state and show the video to other permittee groups as well. This is an important initiative because the state of Mississippi currently has no required responsible server training for permittees.
There are general requirements for servers, such as the age of waiters is a minimum of 18 and the age of bartenders is a minimum of 21,” Hicks states. “We tried to pass a responsible serving program in the legislature several years back, but it failed to go through.” Along with the training DVD aimed at permittees, two other videos have been developed exclusively to aid in the training of law enforcement officials. “Detection of Fraudulent Driver’s Licenses and Identification Cards for Law Enforcement Officers” explores the serious problem of fake IDs, which have been widely available to underage people across the state for many years. Hicks explains that there are multiple types of fake IDs law enforcement officials need to be familiar with and to be able to recognize: imposters (a real ID being used by someone other than the person it was issued to); fakes (an ID that has been illegally produced); and altereds (licenses or other IDs that were legally issued but have since been illegally modified). The third DVD produced by the ABC is titled “Social Host Investigations and Controlled Party Dispersal for Law Enforcement Officials.” This video was made to support a relatively new initiative in the state which also zeroes in on the underage drinking phenomenon, targeting those people who act as enablers. On July 1, 2011, Mississippi passed a new Social Host Law. While it’s always been illegal for an adult to provide alcohol to a minor, this new policy takes things a step further.
With the Social Host Law, you can’t even knowingly let a minor drink alcohol on your property,” Hicks explains. “It doesn’t matter if you provide the alcohol or not.” During the last fiscal year, the ABC made four social host-related arrest during its investigations.
Along with the two training DVDs, the ABC also provides Mississippi law enforcement officials with laminated ticket book checklists to act as quick reference guides that will assist in the enforcement of these laws.
Hicks says that the overall activities of the ABC’s enforcement division illustrate the fact that the agency’s goal is to be a well-rounded operation. However, he acknowledges that curbing underage drinking is definitely a top priority.
For us, it’s really not just about writing tickets,” he states. “It’s all about protecting our kids. They are our state’s most important resources.”
Planning for the Future
Resources in general are always an issue for the ABC. At the end of the fiscal year closing in June 2013, the ABC reported $282 million in sales, an increase of 4% over the year before. After subtracting all operating expenses, the division contributed a total of $99 million in profits to the Department of Revenue’s general fund, which was also a 4% increase from 2012. The ABC distributes both wine and spirits, with spirits accounting for 60% of the division’s total sales last year compared to 40% from wine. However, 75% of the ABC’s net profits are attributed to spirits.
Last year’s growth rate has been consistent with years past, and Holeman is confident that the ABC’s continued growth could increase substantially if the division is provided with the funding necessary to complete essential upgrades and enhancements. The ABC is currently undergoing a three-year replacement plan, upgrading its existing conveyer and computer software systems. The updates are scheduled to be completed in three phases, the first of which is currently underway: the replacement of a 1.5 mile stretch of the warehouse’s 10-year old conveyor belt system. A total of $1 million was designated by the state legislature to cover the cost of the initial phase of the upgrade, and an annual $1-$2 million in funding is anticipated to support this project over the next several years. However, Holeman points out that the expected funding is not guaranteed.
They gave us $1 million this year, but we have no way of knowing for sure if they’ll give us that amount next year,” Holeman explains. “That uncertainty makes it difficult to accurately project and plan for upcoming enhancements to our operations.”
In addition to the planned conveyor and system upgrades, the ABC’s long-term planning calls for an expansion of its warehouse facilities in the next five years to keep up with the division’s expected 3%-4% annual growth, in addition to increased product demand. Currently, the ABC is located on a 21-acre property which houses administrative offices and its sole 211,000-square-foot warehouse. The warehouse features a 35,000-square-foot climate controlled area for storing the most expensive wines. Ideally, the ABC’s location would allow for an additional expansion of the warehouse on the existing property, giving the agency more room to stock higher quantities of products, and also to stock different types of products. Permittees are constantly requesting new product offerings in order to meet the demands of their customers, yet the ABC is forced to delist thousands of SKUs per year due to inventory limitations.
Funding for a warehouse expansion is also up in the air. Holeman says that the ABC has been trying to convince the state legislature to approve a 25-cents-per-case bailment fee. Funds obtained via the tax would be set aside to help finance the agency’s much-needed upgrades and expansions. To date, however, the agency’s attempt to generate support for that fee has been unsuccessful. It’s unfortunate, because if we get that, I think the growth rate will be much more consistent,” she says. The future of the ABC’s growth and success will partly depend on whether it receives these budget dollars from the legislature. Until then, the agency will continue utilizing its best practices to serve the people of Mississippi.