The Roundtable Weighs In

What does the future hold for the control states and the spirits they sell? 
And what has transpired in the past year?

For insight into these questions, StateWays has once again turned to executives on either side of the state/company relationship.

Throughout the year, the National Alcohol Beverage Control Association (NABCA) Board of Directors meets with the Industry Advisory 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. StateWays asks these committee members to participate annually in a virtual roundtable, in which they are invited to discuss accomplishments of the past year, challenges facing their industry and the future for the control states.

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The theme of the annual NABCA conference in 2015 is “Caring for the Customer,” following last year’s “Progressive Control.” We suggested that Industry Advisory Committee members consider those NABCA themes as possible jumping off points for their comments. We also proposed that they could address any number of issues affecting the industry and the control states, including social media, social responsibility, modernization, best practices, etc.

 

Rick Przebieda, Executive Director-Control States, Luxco

Chairman Jeff Anderson has 
selected “Caring for the Customer” as the theme for this year’s annual NABCA Conference. For us at Luxco, it is a very appropriate theme, as our single most important principle is caring for our customers every day. Even as we grow and evolve, we stay true to our founding principle: people do business with people, not companies.

There are many facets to Caring for the Customer. Successful organizations serve the internal customers, their employees and their external customers: those paying at the register. Successful organizations serve their internal customers through better education and training, recognition of their contributions and the value they add to the team. In serving their external customers, organizations must remember that, when it comes to the service experience, perception is reality in the minds of every customer.

When it comes to customer service in today’s environment, there is no one-size-fits-all. The objective should be to tailor a level of service to each customer’s needs. It’s important to establish measurables to evaluate whether your levels of service are meeting the needs of your customers. Seek feedback from your customers by listening, even when they are telling you something you don’t want to hear. Today’s customer is more sophisticated and better informed than ever before. Most times, they know what they want and they will go to whatever lengths they need to get it. The days of “It’s simply not available here” don’t apply anymore. In other words, anything short of customer service turning into customer satisfaction leads to questioning whether an organization is still viable in today’s world.

At Luxco, we place a high value and importance on being able to react swiftly to the changing needs or requests of our customers. Far too often in today’s business environment, companies will sacrifice service and quality in the name of efficiency and profit. Our employees are all well versed on the important contribution customer service makes to the success or failure of the organization. Whenever one of our customers comes in contact with someone from Luxco, they can expect to be treated with honesty, integrity, respect and the commitment that their issue will be handled with the greatest degree of importance. Our customers’ needs motivate every strategy we develop, every person we hire and every decision we make. This approach has led to many rich and lasting relationships with our customers that continue to thrive today.

“Caring for the Customer” does not end with the close of this year’s conference. Working through the NABCA, Control States jurisdictions and industry, we have the opportunity to share best practices and how better to serve the ever-changing needs of all of our customers. We all must continue to work together with Chairman Jeff Anderson, Incoming Chairman Steve Larson, Chair-elect Stephanie O’Brien, the Board of Director’s and NABCA to carry on, refine and improve upon our ability to better adapt our levels of service to the ever-increasing needs of our customers. We all need to do this while insuring that our actions, and not just our words, are serving the greater good for all of the communities in which we do business.

 

Ted Roman, SVP, National Sales, William Grant & Sons

At William Grant & Sons, we pride ourselves on being first choice partners with our distributors, brokers, retailers and control states partners, and on working together to develop plans to bring our brands to life. We focus on education of categories and brands, and on delivering unique and inspired experiences. We pride ourselves on our approach for the long-term growth and sustainability of our brands. This goes back to William Grant himself, and is an ideal championed by the fifth generation of his family that continues to manage the business today.

We are able to develop unique opportunities to educate our trade partners and consumers and showcase our brands. Beyond the initial idea of a campaign or program, it is our collective ability to build upon that to continually innovate and evolve, or progress, programs that keeps our brands fresh in the hearts and minds of our audience.

We know the economy, while improving, continues to pose a challenge for our industry. But the good news is that on-premise channel performance is more stable with growth in 1) the whiskey category (including Single Malt Scotch, Irish Whiskey, and Bourbon) and 2) in the premium and super-premium sectors. Consumers continue to trade up, especially when they know there is an authentic story behind a brand; craft spirits in particular resonate with consumers.

For all of these reasons, our brands have been enjoying great success in control states, and across the board. The Balvenie, the most hand crafted single malt Scotch, is outpacing the category in the on- and off-premise. Hendrick’s Gin, made in preciously small batches, is leading its category with growth above 20 percent in the on-premise and 20 percent overall. Tullamore D.E.W. Irish Whiskey, for which we built a new distillery last year, is currently the number three Irish Whiskey in the control states and closing in quickly on the number two spot. Sailor Jerry Rum achieved growth in Control States, even as we executed our premium positioning strategy and the category as a whole declined.

One of our newest additions to the US portfolio, Flor de Caña Slow-Aged Estate-Grown Rum, is already enjoying double digit growth in control states. This is some of the best-quality, high-end rum in the world, with an impressive family of variants, and through our programming we are seizing the opportunity. And beginning last month, we have started re-energizing the Drambuie brand in the U.S. market.

Looking forward, control states present a great and exciting opportunity. With an ongoing commitment to responsibility in everything we do, we will continue to build our brands here by staying true to our approach, our partnerships and our brands. And by continuing to champion the need for progressive innovation, progressive evolution and progressive control.

 

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

Rémy Cointreau USA, Inc. is pleased to be selected once more as a member of the Industry Advisory Committee of the NABCA. We would like to thank Chairman Jeff Anderson, President Jim Sgueo and NABCA board members who visited the Rémy Cointreau USA offices this year. Our senior management and NABCA officials engaged in a productive and informative meeting. Rémy Cointreau USA will continue its strong partnership with control states with a commitment to balance state and consumer needs with responsible behavior.

Rémy Cointreau USA, Inc. is firmly committed to the working partnership it has developed with control states, led by creative marketing and sales programs which successfully engage consumers. Our results-proven brands such as Rémy Martin V.S.O.P, Mount Gay Black Barrel and the Botanist Gin include marketing strategies that utilize on-premise tasting and local advertising tactics to energize consumer awareness and lead to purchase. Our flagship brand, Louis XIII de Rémy Martin, is the celebrated cornerstone and reference of all luxury spirits. As a company that specializes in the development of premium brands, featuring an international portfolio of distinguished spirits, we are committed to introducing the highest quality products and service in control states. Our goal is to generate greater revenue through the sales and merchandising of super-premium and premium brands.

Control states have progressively managed to provide wholesale and retail systems that create consistent regulatory and monetary benefits to consumers and the state. The Rémy Cointreau USA portfolio of iconic heritage brands offers an advantageous market proposition focused on profit and prestige. The market for distinguished brands offering a fine quality/price ratio will always endure, as the marketplace has repeatedly proven, and it is in this lucrative segment that we will continue to target our marketing strategies.

We look forward to another year partnering with the NABCA and its Chairman Steve Larsen, as he leads the association with the goal of “Caring for the Customer” by continuing to support efforts that consistently show superior results for control states and their customers. As we look forward in 2015, Rémy Cointreau USA’s objective is to gain market share with both core and innovation brands, while maintaining our super-premium price positioning. As concerns innovation, we will be introducing a line of Bruichladdich Single Malt Scotch, continue the development of the Botanist Gin and Mount Gay rums. To achieve these goals we will continue to connect our consumers with the unique heritage, superior know-how and unparalleled product quality of our brands. Moreover, we will continue to creatively engage with our consumers and nourish their connections and demand for our brands.

 

Matt J Deegan, Vice President National Customers & Category Management, Beam Suntory

At Beam Suntory, we’re committed to keeping our finger on the pulse of the ever-changing spirits landscape in order to continue to meet and exceed consumer interests and demands. Below are a few key factors of particular interest and importance as we think about the exciting future of our business and industry.

Connecting to a Dynamic Consumer

We’re seeing that new legal drinking age Millennial consumers entering the beverage alcohol category are much more likely to consume spirits than their Gen X predecessors. The Millennial consumer likes to try new things and seek out new experiences, which gives us the perfect platform for smart, consumer-lead innovation at Beam Suntory. As the category lines between beer, wine and spirits continue to blur, the consumer occasion is up for grabs and Beam Suntory’s portfolio is poised to offer our partners all of the products that consumers are seeking. Consumers are choosing spirits over beer and wine, as indicated by the strong volume growth. And more importantly, spirits are commanding a higher price point and driving real dollar value for our retail partners, outpacing that of wine and beer*.

Mastering the ‘Craft’

While the definition of “craft” will continue to be shaped and redefined, the momentum behind products with authentic heritage, stories and quality is unquestioned! The foundations of the Bourbon and overall whiskey categories were built on a long history of craftsmanship in its truest sense. And with generations of authenticity and heritage as our guide, Beam Suntory is committed to bringing this craft to consumers through our whiskey brands for years to come. Beam Suntory has been the No. 1 supplier of Bourbon in the US for the past three years*, and with our powerhouse strength in this category, as well as Japanese, Irish, Scotch and Canadian, we are more strongly positioned than ever to connect our brands with consumers in this meaningful way. We’re proud that each of our brands embodies a true sense of craftsmanship in every bottle – and we are excited to share it!

Getting Closer to Our Customers

To ensure we can meet the demands of the evolving spirits landscape and meaningfully connect with our consumers, we rely on growing our partnership with you. At Beam Suntory, we’ve made a conscientious choice to get closer to customers by establishing a new BIG Customer Management group that consists of our Category Management, Control States and National Accounts teams. As the leader of this new business unit, I’m committed to ensuring that we leverage this dedicated resource to get closer to our customers, gain valuable insights from you, and together, find the right ways, right brands and right channels to grow our businesses.

Thank you for your continued support and partnership.

*Source: Euromonitor, Intl. Volume and Value 5-Year CAGR reported from 2008-’13.

**Source: Euromonitor, Intl. Company Share for Beam Inc. reported from 2011-’13.

 

Tony Clark, Sales Director of Control States, E&J Gallo Winery

I am proud to represent the E&J Gallo Winery on the NABCA Industry Advisory Committee as a new member. Our company is enthusiastic about our growing partnership with the control states and bringing our perspective to the issues facing your organization.

Established in 1933 in Modesto, California, by Ernest and Julio Gallo, E&J Gallo Winery has become the world’s largest winery and the foremost winery in the art of grape growing, winemaking, distribution and marketing of wines. We produce domestic wines in every category, to suit every taste, and we also import wine and spirits from nine different countries around the world. Our wine portfolio is vast and diverse, including such brands as: Gallo Family Vineyards, Barefoot Cellars, Apothic, and Louis M. Martini. We’ve recently expanded our portfolio of offerings with distilled spirits. Joining the E&J Brandy Family are the new additions of New Amsterdam Gin, New Amsterdam Vodka, Familia Camarena Tequila, Shellback Rum and Viniq Shimmery Liqueur.

We are now a top ten spirit supplier in the country. Much of our recent growth can be attributed to the success of New Amsterdam in the marketplace, which grew 45 percent in 2014. Our vodka flavors have been selected with the consumer in mind, as they can all be easily mixed with products that consumers have on hand at home: cola, soda water and juice. 2014 also saw the release of Viniq Shimmery Liqueur. This groundbreaking product generated more dollars than any other new spirit brand all year.

Our success is evident across all three tiers. Not only are we a world-class producer of wines and spirits, but we also have a fantastic network of distributors and brokers across the country. We work extremely close with our retailer partners as well, having Category Management relationships with over 90 percent of the leading grocery and drug retailers in the U.S. Without a doubt, consumer needs, wants and buying patterns are ever changing. The past 10 years has seen the blending of the three tiers, retailer consolidation and ever-changing social media influence. Ultimately, our success as a company can be attributed to the fact that we are committed to understanding the needs of the consumer and how they shop.

Therefore, “Caring for the Customer” is a very exciting theme to us for the 78th Annual Conference this year.

After the successful launch of many new spirit brands in different categories over the past eight years, we are constantly asked the question: What category will you enter next? The answer is straightforward. We are very careful and selective with new category entries. We wait until we have recognized a consumer need, and we introduce something only after we believe we have created a great solution to address it. We will only come to market with a refined product, in an attractive package, backed with a solid marketing campaign. Our year-after-year success can be attributed to our understanding of today’s consumer.

We at E&J Gallo are devoted to helping your state organizations care for your customers – and employees – as well. We have developed and invested in a comprehensive full-day spirits category training program. The program aims to provide attendees with the knowledge necessary to effectively educate consumers. Our customizable training agenda includes: distillation basics, maturation/aging, category tastings, a mixology exercise and a module on sales and customer service. We have conducted this program in a number of control states to date and are committed to bringing this program to others in the coming months.

As Sales Director of Control States, I look forward to working with you on the challenges that come ahead in an evolving marketplace. Thank you for your partnership.

 

Marc Satterthwaite, Vice President, Director Sales Operations, Brown-Forman

While as individuals we may not all be considered “progressive” by political standards as defined by cable news outlets, I do believe NABCA and their use of “Progressive Control” is a contemporary theme that both the industry and the states can continue to rally around.

We all know that each of the control states executes their version of “control” in a different manner. Metaphorically speaking, if each control model was represented as an ice cream flavor, NABCA would be a Baskin-Robbins store. (The visualization of Jim Sgueo in that uniform gives me reason for pause . . .) The business is around one thing, ice cream, but the flavors vary widely. The addition of the word “progressive” provides latitude for different control systems and welcomes change where constituents, legislators and regulators align. And before we start assigning flavors to control states, I want to go on record and unequivocally state that I like all flavors and have no favorites!

These have been challenging and tumultuous times for many in the NABCA world, but they have also been the catalyst for strengthening some of the control models through progressive alterations. These include, but are not limited to, an increase in states utilizing tradeshows to reach customers, the creation of symposiums that readily connect state legislators with regulators and the industry, revision of discounting rules where there is a business benefit, tasting law reforms, infrastructure improvements that spawn logistical efficiencies in reaching the customer, and, within state stores, reevaluating shelf and floor schematics to meet an ever-changing consumer and maximize revenues. To quote Frank Zappa, “Without deviation from the norm, progress is not possible.” Being progressive provides license for control-state leaders to think outside of the box and move beyond the norms in which we operate.

Business within the control states has never been a one-size-fits-all proposition, and this is well understood at Brown-Forman. We never want to be just another vendor and continually strive to be a partner. This means respecting the control model while providing candid feedback as necessary, maintaining transparency on issues and getting our products to your consumers on a timely basis. Strong people and strong brands!

It also helps to have history and location on our side – a corporate office based in Kentucky for 145 years and counting!

Speaking of history, I occasionally refer to an old, typewritten Brown-Forman marketing booklet that was printed in 1955, which I keep at my desk to remind me of what has changed – and what has not – over the past 60 years. On one of the hand-colored maps (remember: this was a long time ago), both Mississippi and Oklahoma are classified as dry states. That’s right; no one was selling spirits there. What we refer to as control states today were then called monopoly states, and information about them was issued quarterly in the Monopoly State Review. I like to think that our current language and use of the word “control” is far more progressive than the word “monopoly”!

But one of the most fascinating pages within the booklet has a pie chart detailing that control states represented 27.1 percent of the U.S. spirits business overall. Today, these same control states (less Washington, plus Mississippi) represent roughly 25 percent of our Brown-Forman business. That is eerily close! Even more amazing is that in 1955, we had one brand in the top 20, and that was Early Times. Jack Daniel’s had not been purchased yet. Old Forester was doing well, but was much smaller. We were also growing other brands that are no longer around, such as King Whiskey and Kentucky Dew. Despite all the changes in companies, brands, and consumers throughout six decades, the control states are just as important to us today as they were in 1955.

 

Scott Oppenheimer, Senior Vice President Control States and Duty Free, Moet Hennessy USA

“Caring for the Customer” is a very appropriate theme for industries trying to serve today’s consumer. The increasing importance and influence of Millennials are driving change in the marketing behavior of brands. In addition, retailers are innovating within their stores and online to attract this valuable customer. NABCA must also continue to evolve and innovate retail and distribution systems to accommodate the ever-changing needs of the consumer. This dynamic landscape offers a tremendous opportunity for our industry to grow, as there are more ways than ever to connect with and educate the consumers.

2014 was a good year for NABCA, as evidenced by the year-end numbers. Retail dollars grew by $405,000,000 and the average price per case grew $4.33. These impressive numbers were the result of NABCA implementing best practices and improving upon progress made in 2014, including:

  • 
 Increased speed of reporting via the preliminary monthly report, which allows suppliers to see depletion results ten days sooner or 50 percent faster which, in turn, facilitates faster decision making.
  • 
 Increased investment in warehousing technology, which allows suppliers to monitor bailment inventories daily, reducing out of stocks and supplier carrying costs.
  • 
 Increased importance and presence of green and environmentally sensitive initiatives, which are very important to today’s consumer.
  • 
 Expansion of Sunday sales, as today’s consumers are focused on convenience.
  • 
 Expanding tastings to educate and upsell consumers.
  • 
 Creating store clusters based on consumer demographics and customizing assortment by cluster.
  • 
 Creating new listing and delisting policies to increase speed to market and optimize SKU selection.
  • 
 Increased focus on product premiumization and consumer trade up through mandated merchandising programs.
  • 
 Increased desire to serve and educate the on-premise community through dedicated trade shows and improved product fulfillments.

The actions above have played a large role in allowing NABCA to grow its business in a responsible manner, while at the same time better serving the needs of today’s consumers. I hope all states will learn from and continue to build on these proven and successful best practices.

2015 should be another strong year across NABCA. We need not only to build on the momentum, but also continue to fulfill consumer needs. Digital and social media are not just buzzwords, but meaningful ways for consumer product companies and retailers to engage consumers. Globally and in the US, retailers are optimizing digital capabilities to connect with consumers and make line-commerce efficient and enjoyable. In the US, 196 Million consumers shop online, and 101 million do so via their mobile phone! Companies are doing a great job easing consumer’s fears about credit card fraud and implementing efficient delivery systems. This is a tremendous source of growth we need to develop. While it may be easier to market products outside of our industry over the Internet, we can certainly do a better job of online marketing than we are doing today. This is the next frontier that NABCA and the supplier community need to tackle to better serve our consumers. We are behind, but history has shown we can work together, adapt best practices, better serve our customers and grow our business in a responsible manner. MHUSA is committed to helping NABCA optimize its presence in this important space.

On behalf of the dedicated Control team at MHUSA, I would like to thank our partners at NABCA and our broker NASWB for another strong year across Control. MHUSA saw double-digit increases in depletions, but more importantly grew value at a faster rate than volume. We look forward to continued success with all of you in 2015.

 

Claudia Schubert, President, US Control States & Canada, Diageo North America

“Coming together is a beginning; keeping together is progress; working together is success.” — Henry Ford (American Industrialist 1863-1947)

At the conclusion of the 78th NABCA Annual Conference, Jeff Anderson will pass the reins as NABCA Chairman to Stephen Larson of Iowa. First, let me acknowledge and congratulate Jeff on an outstanding job leading the Association forward with his strong message of “Caring for the Customer.” And, second, I welcome Steve into the role and am enthusiastic about his theme for the coming year, “Collaboration Creates Opportunity.”

The “Collaboration” theme particularly resonates with me as I conclude my first year as Diageo’s President of the U.S. Control States and Canada. In fact, having seen the importance of working in coordination with, and in support of, the individual control states, I have set that same goal of collaboration for myself and my team. To help us achieve this goal, I’ve outlined below some thoughts about what makes for successful collaboration, what role NABCA plays and how the whole industry can work in unison to drive better service for our consumers.

The Art of Collaboration

Collaboration is comprised of three key elements: communication, cooperation and shared goals. All three components are critical to success for both control states and the industry.

Communication is important because it is through the interchange of thoughts, opinions and information that we can understand each other’s positions and identify our common interests. An open and honest dialogue is essential for control states and the industry to prosper, as is an acknowledgement and acceptance of natural business tensions.

Cooperation is equally important because little can be accomplished unless we are all willing to work together. Control states are not as effective as they can be without first securing industry’s support and, similarly, industry is unlikely to get very far without first obtaining the control states’ assistance. For the same reason, a divided industry is far less likely to gain the acceptance of the control states than a unified one. As such, it is in our collective interest to cooperate for mutual benefit.

Shared goals represent the low-hanging fruit for success. By focusing on areas of mutual interest, control states and the industry are most likely to effectively improve the environment in which they function. Enhanced social responsibility, improved sales reporting, increased operational inefficiencies, supply chain improvements and superior customer care are just a few areas where control states and the industry will find common ground.

NABCA’s Role in 
Enabling Collaboration

It is important to recognize the role that NABCA plays in providing a forum to bring the various parties together. The Annual Conference, the Administrators Conference, the Legal Symposium, regular Board Seetings and special task force committees are just a few examples of how NABCA hosts opportunities throughout the year for members to collaborate. These forums give the various stakeholders the opportunity to share their views, address problems and concerns and work towards common solutions. Diageo encourages all member companies to fully participate in these forums so that we can work together to improve the market for control state consumers.

Collaborating to Better 
Serve Consumers

Jeff and Steve have together articulated the true challenge facing control states and the industry: 
How can we collaborate to better serve consumers? The answer may best be found in initiatives currently underway, two of which I would like to highlight.

The first is a collaborative effort recently kicked off to develop an Electronic Digital Interchange (EDI) platform in control markets. Diageo is working with NABCA and Idaho, Vermont and New Hampshire on a fully-integrated digital system for information delivery, intended to replace paper systems for sales reporting, inventory management and product orders. The transition will mean significant cost savings and enhanced customer service, with the ultimate goal of becoming the model for expanded information sharing across the larger control and supplier community.

The second, social responsibility (SR) is a critical element of all control jurisdictions and is another example of how collaboration can create opportunity.

On an annual basis, NABCA provides funding for individual control states to develop their own SR initiatives. Separately, Diageo and other industry members have worked with several control states on a variety of meaningful programs over the past year. I urge all member companies to combine efforts so that we can make an even bigger impact in this critically important area. I would welcome an opportunity to work with all of you to identify ways 
to accomplish this goal in the coming year.

The improvements gained by these initiatives will enhance the consumer experience in the participating control states, and they are just a few examples of effective collaboration between industry and the control states. Other opportunities that will lead to a better consumer experience include listing/delisting procedures, category management, electronic commerce, sales reporting improvements, innovation and supply chain enhancements.

Diageo remains committed to working with NABCA, the control states and the industry to continue to build on the progress we’ve 
collectively made thus far. There is a lot more to do, but we’ve come a long way. However, our shared 
desire of working together, 
communicating better and collaborating more gives me great hope that we will be successful in achieving our shared goal of better serving our customers.

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

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