2014 NABCA Industry Steering Committee Roundtable

Throughout the year, the National Alcohol Beverage Control Association (NABCA) Board of Directors meets with the Industry Steering Committee, a group of industry leaders from distilled spirits companies, to address new and ongoing issues facing the beverage alcohol industry and the control states. [The committee is being renamed the Industry Advisory Committee when it reconvenes following the annual NABCA Conference in May.] StateWays once again asked these committee members to participate in a virtual roundtable where they were invited to discuss accomplishments of the past year and challenges facing their industry and the control states in the coming year.


The theme of the NABCA Chairmen this past year [both J. Neal Insley, of Virginia, followed by Jeffrey Anderson, of Idaho, the current NABCA Chairman] has been “Progressive Control,” and we suggested that Industry Steering Committee members participating could use that as a jumping off point for their comments. Naturally, we also suggested that they can address a variety of issues affecting the industry and the control states: for example, privatization, social responsibility, modernization, best practices, etc.


We thank those supplier representatives who took the time out of their busy schedules to respond. These include: John W Byrne, Director of Control States, Alliance & Public Affairs, Rémy Cointreau USA [and chairman of the Industry Steering Committee]; Marc Satterthwaite, Vice President, Director, Control States and Canada, Brown-Forman; Alison Potts, Vice President and Managing Director, Control States, Bacardi USA; John Trainer, General Manager, Control States, Pernod Ricard USA; Claudia Schubert, Incoming President, U.S. Control States & Canada, Diageo North America; Steve Feller, Vice President of North American Sales, Heaven Hill Distilleries, Inc.; Rachel Roberts, General Sales Manager, Control States, Beam Suntory; Ted Roman, Senior Vice President, Sales, William Grant & Sons; Scott Oppenheimer, Senior Vice President, Control States, Moet Hennessy USA; Rich Renkens, Vice President, General Manager, Control States, Constellation Brands; and Ronald Dodge, President, Hood River Distillers.


 


John W Byrne, Director of Control States, Rémy Cointreau USA, Inc.


Chairman, NABCA Industry Steering Committee


The Industry Steering Committee (ISC) serves the alcohol bev-erage industry as a forum for communication between control states and suppliers. Given the fiscal and political challenges each control state faces, it is even more important today that states and industry partner to effect positive change that will strengthen the control system. Since the last annual conference, the ISC has met twice with the NABCA Board of Directors and with state officials at the Administrators Conference. At the board meetings, the ISC had presentations from individual NABCA Directors and their staff concerning major operational changes taking place in their states. This was valuable interaction that underscored the modernization efforts taking place in control jurisdictions.


In addition, the ISC continued its program of meeting “one on one” with each control jurisdiction to discuss operational, technological and legislative challenges that both state and industry face together. The meetings offer a dialogue that assists states in identifying best practices as they continue to modernize their operations. Indeed there are many examples where modernization efforts have resulted in upgraded or new warehouse operations (e.g., IA, NH, NC and Montgomery County); modernized and/or expanded retail stores (e.g., AL, NH, ID, OR, VA, OH and VT); introduction of trade shows for licensees (e.g., AL, WV and MS), as well as continuing to implement efficient product selection and category management systems.


A paramount goal is to help control states bridge economic and political challenges at hand.  Indeed, while control states are modernizing their wholesale and retail systems and legislatures are focusing on efficiency and monetary return of their systems, partnership between control states and industry members is crucial to balance state and consumer needs with responsible behavior.


The Rémy Cointreau USA, Inc. portfolio of premium and superpremium brands offers a beneficial market opportunity focused on profit and prestige. Our flagship brand, Louis XIII de Rémy Martin, as well as our other premium brands are celebrated for their prestige amongst all luxury spirits. Equally noteworthy is the performance by new products, such as Remy V, Cointreau Noir and Mount Gay Black Barrel, which were launched recently, which appeal to younger and more upmarket consumers. Rémy Cointreau USA, Inc. specializes in the development of premium brands and is committed to introducing the highest quality products and service to control states.


Today’s challenging times call for greater coordination and cooperation between industry and control states to strengthen awareness, convenience and choice for the consumer, while ensuring responsible business practices. We at Rémy Cointreau USA, Inc. look forward to another year partnering with the NABCA and its Chairman Jeff Anderson as he leads the association to balance the challenge to “protect” and to “serve” citizens and consumers. Cooperation between industry and regulators is needed to provide revenue to the states while serving our consumers and enabling the growth for safe communities. We will work conscientiously with the NABCA and control states to serve consumers in a socially responsible way, for our mutual benefit.


 


Marc Satterthwaite, Vice President, Director, Control States and Canada, Brown-Forman


An interesting point about people is that likes and dislikes, over time, change.  And, often, it only makes sense when you can reflect on history versus trying to understand it within one point in time. For instance, many do not realize that in the U.S., our mothers and fathers drank far more coffee than we do – almost twice as much. How can that be when we have the proverbial Starbucks on every corner today? And, they drank it one way, as coffee, with some “personalization” through cream and/or sugar. Today, Starbuck’s will tell you that there are over 75,000 ways to “have your coffee” when you visit one of their stores. How can we be consuming less coffee now than before? Well, one reason is that we stopped drinking it with meals and switched to soft drinks. Coca-Cola tasted better with that blue plate special at the diner than a cup of piping hot coffee. And, soft drinks, initially, were positioned as healthier than coffee (don’t forget that cigarettes were also recommended by doctors back then also). This may explain our current societal problem with obesity and diabetes – but that is for another article…   


So, what is the cause of changes like this one – some of which we like and others we abhor?   You! That’s right, You – the almighty consumer! If we did not desire change, it could not happen, and we would still be drinking hot coffee with our hamburger at lunch. Despite the fact that we say we do not like all of these changes and additional choices, our wallets and pocketbooks reveal behavior that is quite the opposite. The You I am talking about is far larger than one person and includes your family, friends, neighbors and acquaintances who are all amalgamated into one big You. This collective You cannot be denied Lately, we have been witnessing that You no longer desire three-hundred vodka flavors and choices on the shelf and, instead, would like to see more bourbons and whiskeys. And You are making this clear through your purchases, as whiskey and bourbon sales reveal, and vodka begins to falter. Whether glacially slow – or viral and fast, we often tend not to “own” the change around us to the degree we should. It is as if we had no part in it, or were mere bystanders. Nothing can be sustained unless, You, the almighty consumer, want it and then buy it.


In the control states, and with respect to beverage alcohol, there is an implied responsibility by the state to protect You, the consumer, from it. These states made the decision to maintain involvement in overseeing beverage alcohol and the components that allow for it to move from producers to consumers. Where things get really complicated is just how each control state interprets this over time, and the manner in which it is accomplished. Ninety years ago, this was attempted by making it illegal and enforcing prohibition at the federal level. Fifty years ago, many of our control states had stores with limited hours, no signs, dark windows and zero retail product visibility. A customer was greeted by a clerk who would retrieve the bottle from a back room in a paper bag concealing the product entirely. All of this, under the flag of public health and safety, to protect You, the consumer. However, You, the constituent, decided over time that this is not the way beverage alcohol should be sold and changes were made. Whether this was accomplished by the ballot box or from new thinking from those you put in office, You, the constituent are also powerful. And there is no escaping your connection to the constituency.  Whether you agree with all of the other constituents or not, you are, undeniably, a member.


Today, You, the consumer, and You, the constituent, can see a wide variety of control models across the NABCA states, each with somewhat similar missions but reaching these goals differently in controlling beverage alcohol. No one expects the people in Maine to agree with the system in North Carolina, or Iowa to be the answer for Utah, but they all can unite under the flag of protecting and serving their citizenry as they define it within the realm of responsibility, health and social policies. Brown-Forman has a long history of conducting business successfully within all of the control states (This would be the appropriate place to insert a hearty “Thank You” to all!). They collectively represent roughly one-fourth of Brown-Forman’s U.S. business. As each tweaks, evolves, modernizes and improves, we remain fully committed to being partners with all of them. We, also, have had to change to meet consumers’ needs and expectations for our brands and share the same tenets regarding responsibility.


 


Alison Potts, Vice President and Managing Director, Control States, Bacardi USA Inc.


“Protect and Serve” is an interesting subject and one that sparks conversation in all states. Protecting citizens is an act of positive intent in any community. In the case of alcohol beverages, Bacardi U.S.A. Inc., which is a premium spirits importing and distribution company, wants our consumers to have the best experience they can, responsibly with our brands.


One of the ways in which we strive to protect the consumer is through education. We proactively teach consumers and provide useful ways to enjoy our products in a socially responsible way. We, at Bacardi, certainly take a strong stance on our responsibility messaging and the consumer education of our brands. With the long history of our company, celebrating 152 years in business, and the long history of control states, this has always been a common factor. To protect the consumer is to help educate the consumer on the choices they have when making their decisions on the consumption of our alcohol.


Bacardi also believes that we too must promote an efficient and modern business environment, one of which is seen in our many initiatives to protect the environment and continuously improve the way in which we serve our customers in a sustainable way.  We have current programs that reduce water and energy use. We have launched globally a major multi-year initiative called “Good Spirited: Building a Sustainable Future.” We have a vision that will make us the leader in sustainability in the spirits industry. Since the company began tracking its global impacts on the environment in 2006, Bacardi has reduced energy use by more than 25% and water use by 54%. Bacardi is committed to using eco-design to craft sustainability into its brand packaging and point-of-sale materials.


 Some of the examples of what we are doing include: We have recently transformed the historic Laverstoke Mill in England to a green-certified distillery for Bombay Sapphire gin, which will be partially powered using biomass and hydro-electrical energy sources. In Fiji, a source of high quality sugarcane molasses, Bacardi currently supports a model of sustainable sugarcane farms that take measures to protect the Islands’ Great Sea Reef. In Italy, the company switched from fossil fuel to hydro energy for Martini Vermouth and sparkling wine production. 


For Bacardi, sustainability is good business and an approach that dates back to the very beginning of the company. By raising the bar with responsible suppliers, streamlined packaging and more efficient operations, Bacardi strives to give consumers what they expect and deserve: sustainably good spirits. Building a sustainable future reinforces the company’s years of leadership in corporate social responsibility.


We see many states adopting various programs on how better to serve their communities– much broader than back-office operations, but a full view on how they service and serve customers in order to provide a better experience. At Bacardi, we work very closely with the commissioners and their staff to drive ideation that fuels growth of both of our businesses. Our efforts are always grounded in the goal of servicing the consumers with choice.


 


John Trainer, General Manager, Control States, Pernod Ricard USA


Consumers now have the ability to create cocktails using only ingredients found in their own proverbial backyards. This trend started out in the beer sector (think Micro Breweries) and has now leapt across categories into the distilled spirits arena in the form of locally produced, sometimes even organic, craft spirits.


As this trend continues to build, bigger companies are looking into ways to grow in this area, but how can you appeal to the emotional needs of the same consumers using much larger, often globally recognized brands? Do you discount the notion that the craft trend is real or attempt to challenge the perceived benefits of small batch, locally produced spirits? Or, do you take a closer look into what aspects of “craft” are most compelling and amplify those attributes of your brand? No matter how you shake things up, it all comes back to education.


Larger companies actually are very well positioned to respond to consumers’ interest in craft spirits. That’s because many of the global premium brands owned by the big players have heritage and quality that most craft brands aspire to have. Plus, they have the powerful distribution channels which are so important to bring these products to many more consumers.


At Pernod Ricard USA, many of the brands in our leading portfolio – including many unique extensions of established brands – are craft products, in that they’re steeped in authenticity and focused craftsmanship.


So rather than viewing consumers’ increasing interest in craft as a threat, we should embrace the opportunity to get the word out that quality global brands all started out as craft, and the great ones have stayed true to their roots.


For example, did you know that Absolut only sources wheat from specifically contracted farmers in the Skåne region of Southern Sweden, and has complete control of the entire distillation process from seed to bottle? Or that the people who make Aberlour Single Malt Scotch Whisky today are the same ones that made the whisky 18 years ago, and thus have seen that whisky from creation to maturation? There are very few small, craft brands that can even claim that!


Or, perhaps we should include provenance as a more integral part of our message, exemplifying the history and heritage of our brands.


These days, people are becoming more and more fastidious when it comes to what they will consume. They want to have a relationship with a product that goes far beyond a simple marketing campaign and makes them feel unique. But “crafted” and “small batch” don’t always guarantee quality. Some newer entries are well done; some others will improve their craft with time. What is clear is that know-how and years of expertise in distilling usually do yield quality, which again plays well to the authentic global brands with heritage, even if they are high-volume brands marketed by global companies.


The bottom line: Making quality distilled spirits is indeed a craft. Education on quality and heritage is crucial. And if done correctly, we are confident that premium brands with global reach and hundreds of years of heritage will shine alongside the newer “small batch” brands, and the trade and consumers will make the right choices.


 


Claudia Schubert, Incoming President, U.S. Control States & Canada, Diageo North America


As an industry leader in responsible drinking,


Diageo applauds the control states for delivering meaningful and effective social responsibility programs to keep alcohol out of the hands of anyone under 21. Diageo is aligned closely with that cause and has successfully partnered with the individual control states on a variety of responsible drinking initiatives. Diageo would also like to partner more closely with the control states for commercial purposes.


Our industry has become more complex and more dynamic – a reflection of the consumer base itself. Today’s LDA consumer continues to change dramatically as the 21+ U.S. population becomes increasingly millennial and multicultural. The transformation is manifesting itself in consumers’ tastes, interest in new products, as well as in the ways that consumers seek information about, and interact with, products. All industry stakeholders – suppliers, control states, retailers and on-premise licensees – need to adapt to this new reality by becoming more nimble and by realizing that historic practices may not always be the best path forward.


Diageo believes that we all need to place the consumer at the core of how we operate. A consumer-driven approach allows the control states to maximize revenue while remaining ever-mindful of their social responsibility mission. Simply put, a consumer-first approach enables the control states to fulfill their dual mandate of access and control. 


Many ways exist to drive a consumer-centric customer agenda across the control ctates, including a continued focus on the in-store experience, more efficient warehousing solutions and enhanced ways to provide consumers with product information and education about responsible consumption. While all of these areas are important to pursue, limited resources and scarce capital can pose a challenge to this agenda. However, we believe there are other, less costly ways to progress the consumer-first approach by implementing new practices that make all of us – suppliers and control states – more nimble and quicker to respond to consumers’ fast-changing desires. In fact, many states have made significant progress in this area and we believe the improvements proposed below will benefit all states and are realistically achievable in the short term.


Establish Formalized and Fact-Based Listing and Delisting Processes that Allow Control States to Take Advantage of New Product Opportunities and to Maximize State Revenue.  Trends indicate that consumers want more variety, value and convenience, and that innovation continues to be a driving force in the beverage alcohol industry. New items (in market less than one year), including Captain Morgan White, Johnnie Walker Platinum Label, Ciroc Amaretto and Baileys Vanilla-Cinnamon, make up approximately 1% of industry value, but contribute 20% of the growth. And items in market less than two years, such as Crown Royal Maple Finished and the Smirnoff Sorbet Light line, make up approximately 2% of industry value, but contribute one-third of the growth. On the other hand, while consumers are looking for new choices, they continue to remain true to trusted brands as an important part of their beverage repertoire. Fact-based procedures (including, for example, consumer understanding, opportunity size, past performance and marketing plans) for deciding which products get listed and enabling quicker decision-making should be adopted in each control market. Similar guidelines should be established for the delisting of products.


Reduce the Lead Time for Price Filing and Innovation Listing to Enable Suppliers to Respond More Quickly to Consumer Trends and Competitive Activity.  Price submissions in some control states have extraordinarily long lead times, requiring suppliers to lock in pricing as much as nine months in advance. Similarly, some states list new products only twice a year or, equally challenging, wait to list a new product until after the item has proven successful in another market. Both of these delays limit suppliers’ ability to quickly react to emerging consumer trends and, at the same time, prevent control states from taking full advantage of new advertising and promotion opportunities. We encourage NABCA to work closely with the control states to eliminate obstacles to reducing the price filing and innovation listing lead times among its members. Innovation is one of the primary reasons the industry is doing so well, so let’s partner together to support this trend. 


Provide More Timely and Detailed Data Reporting to Enable Better Decision-Making and Support by Suppliers for Control State Customers.  In a fast-paced industry and consumer environment, timely access to detailed sales data is a key enabler for better decision-making. Recently, North Carolina began sharing sales data on a weekly basis rather than, as in the past, three-weeks after the close of the prior month, enabling the industry to better utilize promotional spends. Access to on-premise data also helps suppliers to better forecast demand, understand consumer needs and provide enhanced customer service to on-premise licensees. Several states already make on-premise data available and we strongly encourage NABCA to work closely with all states to provide this information. A third set of important data pertains to warehouse and retail inventory levels. Access to this information would enable suppliers to better forecast required state inventories to minimize overstocks and avoid out-of-stocks. 


Diageo appreciates the progress that many states have made in recent years to implement process improvements and we believe there are a lot of best practices that could be shared among the control states. Diageo encourages NABCA to facilitate sharing of best practices, to develop guidelines in these important areas of operation and to work with the Industry Advisory Committee toward that common goal. This agenda will enable all of us to more effectively serve this emerging consumer.


Thank you and I look forward to working together in support of the control state markets.


 


Steve Feller, Vice President, North American Sales, Heaven Hill Distilleries, Inc.


We are pleased once again to provide Heaven Hill Distilleries’ perspective on issues facing the beverage alcohol industry in general, and the control states in particular. As a company that was founded immediately after Prohibition, and as the fourth largest supplier to the control states – in addition to being the largest remaining independent family owned and operated supplier – Heaven Hill offers a relevant macro perspective on industry trends and changes. And without doubt there have been many such changes, as continuing consolidation among all three tiers alters the playing field, and as social media and evolving consumer buying habits change the very nature of customer interactions.


For the upcoming 77th Annual Conference, NABCA has adopted the theme, “Protect and Serve.” Like the LAPD, who have used this very same motto since the 1950’s, our industry must strike a balance between protecting our communities and customers from harm and illegality, while providing the high level of service that is expected of us and all consumer goods providers today. 


Given new distribution channels and the rapid advances in information technology, it is more important than ever to maintain best practices in corporate responsibility and sustainability, two critical and highly visible manifestations of the “protect” mandate. It is a natural extension of the idea of “progressive control,” which of course was the theme of last year’s NABCA conference. As a supplier, we have never seen a time when our social and environmental policies are either more important, or by necessity, more transparent, than today. But for contemporary consumers, and indeed for many forward thinking retailers and on-premise operators, this is a new part of the “service” paradigm – there, of course, must be good products, good pricing and good communications, but there must also be an innate sense of corporate stewardship and citizenship.  With so much information out there, and so many resources to access this information, your corporate soul is bared every day, so to speak, so you must always be serving what the public perceives as their best interests, or you will get called out for it, often virally.


The need to protect has never been more challenging, and the need to serve has never been more expected or assumed. Consumers today want to know more than just what a product is; they want to know how and where it is made, what it is made of, and be assured that it was made (and is being marketed and sold) in an appropriate and responsible manner. Information technology makes this possible, but of course companies must ultimately walk the walk and not just talk the talk.


So, when guests come to our Evan Williams Bourbon Experience visitor’s center in Louisville, they will be served information, lore and entertainment (and two half-ounce pours of good Bourbon!), but they also want to see that that service comes in a credible, responsible and accountable way. And control states understand that is what consumers want and what suppliers must deliver – protection and service. Just like the LAPD. 


 


Rachel Robert, General Sales Manager, Control States, Beam Suntory


Greetings Valued Partners!


It’s been just seven months since I became General Sales Manager of our control states business at Beam – and what an exciting time it’s been. As I write this, we are on the verge of becoming Beam Suntory, the #3 premium spirits company in the world … a whiskey powerhouse led by bourbon and strengthened by the addition of Suntory’s Japanese whiskies … and a leader in every major spirits category. 


Amidst this exciting evolution at Beam, our commitment to growing the spirits business in a responsible way in the control states will not change – in fact, it grows stronger! I’ve witnessed first-hand the shared success that is made possible by our spirited partnership, and we will continue to drive this market-leading outperformance by focusing on three key areas: 


Getting closer to customers: We’ve made a conscientious choice to get closer to all of you. Establishing a dedicated team to the control states was an important first step. From sales to finance to field marketing team members, we’ve had this dedicated team in place longer than any other major supplier. And we’re committed to understanding what you need and then delivering it … always working in a collaborative fashion.


This includes Beam Suntory’s investment in a dedicated Category Management Team for the control states who are focused on determining the best shelf sets, efficient assortment, and other business drivers across key markets in the control states region.


Getting closer to customers: Beam Suntory has also invested in resources to better unders

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