A close look at an important segment of the alcohol industry

The National Alcohol Beverage Control Association (NABCA) is the national association representing the Control State Systems – those jurisdictions that directly control the distribution and sale of beverage alcohol within their borders. There are 17 member jurisdictions, 16 states and Montgomery Co, Maryland and they control 24% of US spirits volume.

Additionally, there are municipalities in Minnesota and South Dakota that act as retailers and there are three other smaller

The control state jurisdictions (in blue).

counties in Maryland that are also considered control jurisdictions.

Last week NABCA held it’s 78^th annual conference.

In some states, liquor stores are state-run and basically in the retail business (e.g., Alabama, Mississippi, Pennsylvania, Utah, New Hampshire). In many, the states are the “wholesaler” and appoint agents (private businesses) to run the retail business (e.g., Maine, Ohio, Vermont). There are a number of other variations but the common denominator is that the state government in these jurisdictions is in the alcohol business.

Until a few years ago there were 18, then the State of Washington voted to privatize and that’s where our story begins.

What has been the result in Washington?

I recently spoke to a friend in Seattle and asked him what changes have resulted from privatizing the liquor business. My friend’s politics are such that I wasn’t surprised by his response that “government doesn’t belong in private enterprise.” I next asked him what happened to the prices of spirits in his state. He said he wasn’t sure and thought they went up. Then revealed that he buys his liquor in Oregon (a Control State) because it’s much cheaper.

In fact, according to an article in The Seattle Times last June:

Many saw privatization as a win for business, government and the public… The state would get more revenue from newly imposed fees. And consumers would get cheaper, more widely available booze.

Well, most of that happened: A nearly $1 billion business is in private hands, the state has enjoyed a short-term revenue windfall, and liquor is ubiquitous. But on average it’s not cheaper, and certainly not perceived as such.

KREM TV in a story earlier this year reported that the state now has the highest prices in the country.

In Washington, a gallon of alcohol costs about $35. Compare that to two years ago when it cost $27 before it was privatized. Washington’s liquor prices are currently the highest in the country and cost $25 more than what it would cost just a few miles away in Idaho.

The winner in Washington is Costco, not the consumer. Unless of course, you want to buy one of their limited selection brands in gigundous sizes.

Control State confusion

Over the years, I’ve always felt that misconceptions abounded when it came to attitudes toward the control states. So I check with two former Seagram colleagues about the system. One was Steve Bellini, EVP Business Intelligence/Trade Development at Sidney Frank Import Co. and my former (and last) boss at Seagram. The other was Gregg Mineo, a Seagram and Absolut alumni and currently Director, Maine Bureau of Alcohol Beverages and Lottery Operations.

Both confirmed my view of the past. Once upon a time, the control states were run by political appointees whose knowledge of business in general and the spirits industry in particular was minimal. Gregg and Steve agree that the situation has appreciably changed. If it was ever true in the first place.

Further, suppliers (other than Seagram I might add) did not understand the control state structure and how to operate in that world. Everyone knew how to go to a distributor and beat him over the head but presenting to a control state board was uncharted waters for most.

Besides – and here comes my jaded perspective – when you need to make a “number” you can poke your finger in a wholesaler’s chest but can’t do that with a commissioner or director. You can load a wholesaler with merchandise if you have the clout; you can’t do that with a control state.

By the way, I just read this in Wine and Spirits Daily…

Control States represent 45% of Diageo’s group earnings before interest, tax (EBIT), per Morgan Stanley.

Why I love control states

When I ran market research, I always felt that the data provided by NABCA was the most accurate snapshot of consumer behavior or ‘takeaway.’ DISCUS numbers were important but dealt with sales to wholesalers. Nielsen data is consumer driven but is limited to 10% of the market and extrapolated for a holistic view.

As a result, when I ran new products, I always wanted a control state market as part of my test markets because I felt that the feedback would be more indicative of the product’s potential. Further, I was able to more easily determine the impact of programming and strategy with the information I received.

Today, I’m happy about the control states system because they provide easier entry points for smaller brands (think craft and other startups) and these brands are likely to be given a fair chance to get off the ground if there’s a reasonable amount of support by the supplier. Not to mention giving consumers a wide range of choices.

So, there are many reasons to be a fan of the control state system.

Meet Jim Sgueo

Mr. Sgueo is the President and CEO of NABCA and has been with the association for over 40 years and served in various capacities including, Systems Analyst, Director of Statistical Operations and Deputy Director. When you ask Steve Bellini about him, be prepared for a long, glowing series of comments such as “He is one of the industry’s unsung heroes… Humble but extremely knowledgeable and a real driver behind moving the control states forward.”

Gregg Mineo is no less effusive. He cites example after example of how, under Jim’s leadership, the association has become more sophisticated and more effective in providing information and education to its members.

I spoke to Jim and was not surprised to learn that he has indeed been at the forefront of change. He points out that in the distant past, state commissioners might have been political appointees without strong business skills. Since the 1980s, Governors have appointed directors and commissioners with general and alcohol business experience. Many of these directors have transformed their agencies and implemented 21^st century business practices. This is the new generation of control state leadership that NABCA is geared to.

Here’s the part I like the most…

Those data resources I mentioned? The proceeds of the sale of that information go back to its membership in the form of education grants, research, the conference and other activities.

I don’t know about you, but I don’t know many associations that use the proceeds from selling information to fund activities.

Despite his many years at NABCA, Jim Sgueo strikes me as a man that doesn’t rest on his laurels and is open to change and adaptation.

I know many business executives that could use those attributes. So the next time you hear discussion about privatizing a control state because government ‘intervention’ in the market is wrong, just tell them to look at Washington. And, to realize that control states are moving more and more to balancing commercial interests with their regulatory role.

Are we overly sensitive or is A-B InBev thoughtless?

Last week Bud Light shot itself in the foot (or was it the can?) with it’s “Up for Whatever” campaign. The campaign involves

slogans on the packaging including this one: “The perfect beer for removing ‘no’ from your vocabulary for the night.” This message is one of 140 different slogans that appear on the package.

If the intent of the overall campaign is to create a dialogue with consumers on social media, then be careful of what you wish for. This slogan drew a firestorm of criticism due to its insensitivity on the subject of “no means no” and date rape.

In a wide range of news outlets (from Ad Age to USA Today) the company was taken to task for this … this what? Insensitivity. Stupidity. You name it.

The primary mission of alcohol marketing and communications is responsibility in messaging. I can’t tell you how many times I’ve heard or used this adage: The appearance of impropriety is as bad as the impropriety itself. This slogan goes way beyond that.

Who is to blame?

According to the Wall Street Journal, there were five layers of approvals given to the slogan. But, that didn’t stop the company from blaming the ad agency. Sorry folks, the blame ends with the marketing department at A-B InBev. If you’re in the alcohol business you need to be cautious with what you say and how you say it.

Someone at the company thought the ‘cuteness’ of the slogan made it compelling and no one had the sense to think about the depth of meaning. Don’t these marketing geniuses know what’s going on in the world?

It seems to me that in their zeal to appear hip and clever, they’ve lost sight of the business they are in. Or, they don’t have the appropriate safeguards in place.

The best comment on this fiasco I’ve read comes from Harry Schumacher at Beer Business Daily:

I can see that A-B was talking about “No” meaning not saying no to new experiences, not in a sexual context. But the issue of date rape is front and center right now, and it’s completely inconceivable to me that nobody in the vast organization of A-B, including their ad agencies, didn’t see that this message could be misconstrued in a sexual context and give it the nix. Are they not reading anything in the popular press? It’s a very sensitive subject and it suggests that at the very least A-B’s ad agency who produced this message has a tin ear.

So the answer to my question is that it has nothing to do with the public being overly sensitive. It’s about Bud Light being out of touch at best, or just plain irresponsible, at worst.

(For an interesting look at this subject, check out John Oliver’s take from HBO’s Last Week Tonight with John Oliver here.)