77th Annual NABCA Conference Roundup

The National Alcohol Beverage Control Association used the forum of its 77th National Conference, held at the Marriott Marco Island Resort, in Marco Island, FL, to emphasize the importance of both protecting and serving the communities within their control jurisdictions. In his “Letter from the Chairman,” NABCA Chairman of the Board Jeff Anderson, noted that “control systems are charged with multiple and diverse tasks. They must protect their citizens from the harmful and illegal use of beverage alcohol and they must serve their customers in an efficient and modern business environment. We submit these tasks are not contradictory, but in fact are complementary.” He noted that the NABCA Conference would be addressing both of these concerns.

  He pointed out that “the pressure to modernize is felt by every organization, be they governmental or private. Our job is to remember our dual mission…and to modernize not just one area of responsibility, but both. We hope that our business partners will also partner with us in our social responsibility and regulatory efforts as we believe the abuse of alcohol is our collective problem. The reduction of harmful and abusive use of alcohol is beneficial to us all.”

This year, the conference kicked off in the evening with an open-air dinner and the opening of supplier lanais, giving attendees ample opportunity to begin networking with colleagues and business partners. The next morning, NABCA Chairman Anderson began the conference by noting that businesses and governments are constantly adapting to new technologies that have disrupted older technologies. In the same way, he said, control states have been adapting to evolving circumstances, particularly in their dual responsibilities of “protecting and serving.” In that light, he introduced the General Session I keynote speaker, Robert Mueller, who led the FBI for 12 years until he stepped down in 2013. His job, Anderson said, was also to “protect and serve,” though in a different context, and his years there reflected a transformation to “an intelligence-driven organization.”

 In his presentation, titled, “National Security and Counter Terrorism,” Mueller noted that he’d been appointed the week before September 11, 2001, which obviously changed everything. “The FBI had always been in the business of investigating after an incident had occurred; now it was put in the business of anticipating and preventing terrorist attacks. Previously, it had been a reactive organization; now it had to be a proactive, anticipatory organization.”

He instituted several basic, substantial changes: first, the need to really prioritize the organization’s functions. In that regard, he moved 2,000 agents over to covering terrorism from investigating normal criminal activity, making sure that everyone became digitally proficient. Second, it became important to build a intelligence capacity capable of collating together all pieces of information in order to get a clear picture of what’s going on.

“We now have 3,000 analysts,” Mueller said. And although he would not be specific, he said that their efforts have “stopped a number of plots, but obviously, not all of them (ie, The Boston Marathon bombing).”

He added that “cyber terrorism remains a significant threat,” and that both presidents Bush and Obama approached combating terrorism with similar seriousness.

Mueller pointed out that in his years running the FBI he learned several important keys to running an organization.

“At first, I micromanaged, but I learned to delegate. Delegation is important in running a large organization.

“I also learned patience. At first, I was impatient to get new technology up and working, But I learned that upgrading technology is a complex task.”

Mueller also said that it’s also important to have people around you “who can put things in perspective.”

Finally, he said that it is important “to retain your values but adapt to changing threats, which leads to the balancing of national security concerns and civil liberties.”

Business Session I followed Mueller’s presentation, titled “Serving Today’s Consumer,” which was a discussion of today’s changing consumer landscape from three perspectives. First, Bryan Fry, president and ceo of Pernod Ricard USA, described how mobile phones have dramatically changed how consumers interact with the marketplace. As such, “he said, “We are seeing a shift from traditional media to social digital media. These days, consumers care and react to what their friends say (or post) on social media more than what companies say about their products.”

Because of this, companies [and their products] must position themselves online to be “the thing that consumers share with friends online rather than just being seen,” Fry said. “Advocacy is driven when the information comes from a friend rather than from the company, because friends are already pre-qualified.”

Fry emphasized that you get more value for your marketing dollars if you can utilize consumers as your marketers by getting attached to their social networks. “It’s faster, cheaper and more agile.”

Following Fry, Gerry Ruvo, chairman of Campari USA, discussed the evolution of flavors in the spirits industry. He noted that “flavors are not going away, but they are evolving.” Indeed, the role of flavors is “a major point of entry in the spirits industry,” he said, producing significant volume and dollar growth. Still changes are occurring: for example, Ruvo noted that sales of “vodka flavors are slowing, while flavored whisky products are exploding.”

But overall, he explained that flavors across all segments remain an important dynamic that retailers continue to adapt to. The future of flavors, he said, would be about natural ingredients. But companies “need to be smart about flavor innovation.”

The third perspective was delivered by Tony Foglio, chairman of Anchor Brewers and Distillers, who focused on “the explosion of craft distillers in our industry.” He noted that a craft spirit can be defined though its “production, how and where it’s made.” And that results in a compelling story, he said. “The consumer perception is that a craft spirit is small, independent, authentic, handcrafted and has an interesting heritage.” Foglio pointed out that “Every brand lives with its own truth, be it real or perceived,” and the perception of craft spirits plays into the idea of innovation and takes advantage of cultural changes.

Foglio added that craft beers now account for 14.3% of the overall dollar value of the beer business in the U.S., while it comprises 7.4% of the overall volume. At the same, he said that the nascent craft distiller movement accounted for about $700 million in sales in 2013, a very modest amount given the overall spirits market, but a trend that is obviously growing strongly.

The NABCA Trade Show floor then opened, as attendees combined lunch with perusing the many products on display. Seminar I followed, titled, “Warehouse Technology Today,” moderated by Joseph Mollica, chairman of the New Hampshire State Liquor Commission, who kicked off the seminar by explaining that New Hampshire recently conducted “a warehouse overhaul, which resulted in many benefits” for the state’s operations. He then introduced Bob Peter, president and ceo, the Liquor Control Board of Ontario (LBO), who noted that the LBO has recently taken advantage of new technologies to create warehouse efficiencies. This is important, he said, for an organization that ships 92 million cases a year, with $5 billion in sales.

With the new sophisticated optimization tools in place, he said, the lanes are now five times faster. The results also include reduced labor costs, improved safety, maximizing efficiencies, reduced breakage, improved service, and enhanced product traceability.

Peter presented a look at the future (which is coming soon, he said) with automatic guided vehicles (or robots) doing the picking and sorting, and a fully automatic pallet stretch wrapping machine.

Greg Foreman, vice president, Operations, Exel Logistics, then addressed the assembled attendees. As a supply chain company, Exel’s aim, he said, is to help determine the appropriate level of technology for a given operation. “Technology can mean process improvements, not just mechanization,” he pointed out. “There is variability and risk in deciding on the level of automation you want to implement,” he said, noting that several factors include real estate costs, labor costs, volume, and the cost of capital. Still, he noted that he’d recently helped create a new 240,000 square-foot warehouse in Bow, NH, which handles 13,000 SKUs, and can ship up to 5.5 million cases. “The warehouse was ideal for voice-pick technology,” he said.

Finally, Chet Willey, president, Chet Willey Associates, described what he sees as the future of warehouse technology. “There will be more automation, which will be more productiove; fewer employees; and more SKUs.” Today’s trends, he said, include “just-in-time replenishment, back stock elimination, and more bottle picking and less case picking.” Still, he said that one must calculate the ROI to see if – and what level of – automation is justified. The issues to consider include the fact that sometimes equipment manufacturers overestimate savings and equipment reliability; and to take into account maintenance, which is critical.

“Evaluate automation vs. non-automation alternatives to ensure your decision is cost-effective,” he stated. “Also, look outside your industry for automation ideas, and use independent consultants. Finally, require a detailed evaluation to highlight the cost justification.”

Seminar II, titled, “The Tree-Tier System: Who’s in Charge?” examined the workings and benefits of the three-tier system and how it will survive the new reality of ultra-large retailers wielding huge influence in the marketplace, and a variety of other issues, such as incursions against various control state models. Steve Larson, administrator of the Iowa Alcoholic Beverages Division, moderated the panel that included John Bodnovich, executive director, American Beverage Licensees (ABL); Craig Purser, president and ceo of the National Beer Wholesalers Association (NBWA); and Victoria McDowell, president and ceo of the Presidents’ Forum of the Distilled Spirits Industry.

Bodnovich explained that the ABL has on- and off-premise members from 30 states, who are independent businesspeople often active in their local communities. The focus of the organization, he said, is legislative, regulatory and legal, as well as to help the various members network with one another. Obviously, three-tier system issues often come up, and Bodnovich noted, “There are threats and challenges to the three-tier system, but let’s look at all the great things the system provides.”

Indeed, Purser underlined that sentiment, offering that the NBWA’s position is to “protect, preserve and grow a system that works so well for so many. The system works well for consumers – by providing an incredible selection of products – as well as for the three tiers of the industry (suppliers, wholesalers, retailers).”

McDowell added that the benefits of the system include “an orderly and safe marketplace and reliable tax collection,” as well as carrying out regulatory and responsibility functions.

Still, each panelist offered that the system could, in fact, evolve to make it even better. For example, all three noted that sometimes the lines between the tiers become blurred, with various exemptions increasing and pressures being put on suppliers by very large retailers. Bodnovich voiced concern that “our licensees play by the rules, and work with wholesalers…we don’t want them to be taken advantage of.” McDowell stated that states should “revise laws and regulations that are obviously outdated.”

Purser explained that it is important for the control states to tell the story of how their control state works. Celebrate their successes. Show how their model brings regulatory value and economic value to the state.”

McDowell added, “Collectively, there’s a great story to be told, in a way that consumers and legislators understand.”

The second full day of the Conference began with NABCA Chairman Anderson describing his theme for the next year: “Caring for the Customer.” He’d like to “transfer enthusiasm for what we do and why we do it” to the customers. In this case, he said, customers include “internal customers” (associates who may be working for stagmant wages; third party partners, such as trucking companies; and public policy advocates, who may, in fact, be adversaries. And customers also include “external customers,” such as on- and off-premise operators; suppliers and brokers; citizens; and non-conumers of beverage alcohol, who are also, in a sense, customers.

“We should provide all of them with the facts and benefits of what we do and why we do it,” Anderson said. “For the upcoming year, we should all be committed to improving relationships with our customers.”

Anderson also introduced Steve Larsen, administrator of the Iowa Alcoholic Beverages Division, as the NABCA Chairman-Elect.

General Session II followed, with artist and motivational speaker Erik Wahl presenting, “The Art of Vision.”

Wahl’s message is that there is creativity and innovation living within all of us. “How do we retain the childlike ability to continue creativity,” he asked, “in order to break through preconceived notions?”

“I want you to be able to harness your natural creativity to tap into a wealth of new ideas to improve business as usual.”

Wahl then showed how taking risks can pay off and how fear can cripple one’s performance. He quickly painted a picture that began as an abstract, but quickly took on the outlines of Lebron James. He then played a game with the audience, along the lines of Fear Factor, and offered one audience member the choice to come up to the stage and do whatever it said in a sealed envelope, or, he could designate somebody else in the audience to go up to the stage. The audience member chose not to go up, but the woman he designated did. She took the risk, and when Wahl opened the envelope, she found out that she would be going home with the portrait of Lebron James [Since Wahl became well-known, his paintings fetch in the area of $10,000 each.]

“Sometimes it pays to take a risk,” Wahl laughed, adding that in business it often pays to create “disruptive” strategies.

“From childhood on, we’re taught to be risk-averse,” Wahl said. “Thinking logically is still necessary, but it is not completely sufficient.”

“As Einstein said, ‘Imagination is more important than knowledge.”

Business Session II, titled, “A Global Perspective,” tackled several issues that affect the beverage alcohol industry throughout the world.

Moderator Jeff Anderson, NABCA Chairman, began by stating that “Regulation is global. Every country and every state has its own set of regulations, and we understand the complexity that suppliers face.” Still, he emphasized that the NABCA supports the right of each jurisdiction to set its own alcohol policies. “There are no cure-alls,” he said. “No silver bullets.” Then, he introduced the panelists, which included Mark Brown, president and ceo of Sazerac; Jan Westcott, president of the Association of Canadian Distillers: Marcus Grant, president/ceo of International Center for Alcohol Policy; and Ivar Arndal, president of the State Alcohol & Tobacco Company of Iceland.

The panelists briefly discussed several differing systems throughout the world, from heavily controlled to fairly unregulated. The panelists agreed that controls swing back and forth, like a pendulum, from more regulation to less and back again. The key is to balance reasonable regulation with the consumer’s freedom to purchase products. Still, it is important, they agreed, to have an interest in “making sure our products are used responsibly.”

Brown stated, “It is abundantly clear that beverage alcohol use has to be managed by society in an appropriate way, to maximize its benefits and minimize its negative consequences (ie, drunk driving).”

The panelists all also agreed that the NABCA can play an expanded role internationally. Westcott said, “The NABCA brings credibility to the discussion.” And Grant added, “It is well positioned to take on a critical role, with its understanding of public health goals as well as commercial goals.”

Seminar III followed lunch and the trade show, and covered “The Craft Craze,” discussing the business environment surrounding the many new “craft” producers throughout the country (and the control states). How far should regulators go in providing special exemptions to these craft producers? And should local regulators help these small producers overcome the many hurdles facing them in the marketplace? The panelists tackled these and other questions. The moderator was Ronald Moats, commissioner of the West Virginia Alcoholic Beverage Control Commission, and the panel was comprised of Patrick hand, owner, Discount Drinks, Etc.; Brian Pizzuti, vice president of Sales, National Wine and spirits of Michigan; and Chip Tate, president and head distiller, Balcones Distilling.

The final seminar was titled, “The Front Lines of Alcohol Control,” moderated by H. Mac Gipson, administrator of the Alabama Alcoholic Beverage Control Board. The discussion involved the various levels of enforcement brought to bear on trying to control the abuse and illegal use of beverage alcohol products. Is there legislation that can better help law enforcement do their jobs? And can society benefit from using more of the expertise provided by these officials? Panelists included Thomas King, Chief of Police, State College Police Department; J. Thomas Manger, Chief of Police, Montgomery County, Montgomery County Police Department; and Justin Nordhorn, Chief, Washington State Liquor Control Board.

As usual, the Conference was wrapped up in the evening, with the Annual Banquet. Next year’s 78th Annual NABCA Conference will take place May 18-21, 2015, in Phoenix, AZ.


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