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April 9, 2002
Alcoholic Beverages Division - Board Room
Ankeny, Iowa
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| Members Present in the Board Room: |
Bob Cramer
Shirley Daggett
Daryl Henze
Gayle Collins |
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| Members Absent: |
Dick Stoffer |
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| Guests Present: |
Mary Hunter, Hy-Vee
Doni DeNucci, Iowa Hospitality Association
Jerry Fleagle, Iowa Grocers Association
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| Staff Present: |
Lynn Walding
Jim Kuhlman
Judy Seib
Karen Freund |
Linda Cox
Nicole Watson
Phil Wedgwood
Marty Deaton |
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| Legal Counsel Present: |
John Lundquist, Assistant Attorney General
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Call to Order
Chairperson Bob Cramer called the meeting to order at 1:40 PM with a quorum present.
Minutes of Previous Meeting (Available upon request)
Chairperson Cramer asked for discussion of the November 14, 2001 Minutes. There was no discussion.
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Motion: |
Commissioner Daryl Henze moved the Minutes of November 14, 2001 stand approved as submitted. Commissioner Gayle Collins seconded the motion, and it passed by unanimous vote. |
Donation of Cellular Phones
The division recently purchased new cellular phones when the current
cellular phone plan was upgraded to a national plan requiring tri-mode
phones. Consequently, the division had six phones in good working
condition that could be used for emergency 911 calls at no charge
to the user. Penny Rosenthal accepted three phones on behalf of the
Sloss Women’s Center and Kathy Gibbs accepted three phones on
behalf of Assault Care Center Extending Shelter and Support (ACCESS).
New Commission Member
Mr. Walding announced that Governor Vilsack has appointed Mary Hunter of Urbandale to the Alcoholic Beverages Commission. Ms. Hunter received Senate confirmation and begins her duties as Commissioner on May 1st. She is employed by Hy-Vee Corporate Offices in their Real Estate Department in the acquisition of pharmacies for Hy-Vee stores.
Sales Report
March sales were down approximately $300,000 according to Jim Kuhlman. Year-to-date sales are 3% ahead of last year. Total sales last year were $112 million with sales for this year projected at $115 million.
Product Buyout Information
Jim Kuhlman explained the Buy-Out Program. The general rate of return has been 8 - 9% on an annual basis. The dollar profit this year is slightly behind last year due to better supplier inventory management.
Financial Report
An additional $1 million dollars has been transferred to the General Fund compared to last year. There was discussion about collection of state tax on liquor, wine and beer purchased on-line. Currently, consumers do not pay tax on any product purchased on-line. Mr. Walding relayed that Wyoming recently passed legislation requiring product to be shipped into the Wyoming liquor warehouse and distributed through state liquor stores. The problem, according to Mr. Walding, is that Wyoming has not raised much money.
Commissioners requested financial graphs that are more easily readable. Marty Deaton will change the financial highlights, liquor sales and tax collections charts.
Contract Savings
Due to a series of acquisitions, ADT Security Company recently became the division’s security service. A new contract was negotiated with ADT resulting in an annual savings of $2500 for the division.
EFT Transfers for Class “E” Licensees
Approximately 65% of the division’s customers currently pay via electronic funds transfer (EFT). Customers who do not have the requisite $5,000 bond or have issued the division bad checks are required to pay by certified check; all others pay by check. A system was recently developed to scan unsalable and returned merchandise and enter the information into the computer resulting in a net cash flow for customers who use EFT. A much lengthier process is required to do the necessary paperwork to issue a check to customers who do not use EFT. A letter mailed recently to Class E’s encouraging them to use EFT resulted in only one business converting to EFT.
Commissioner Cramer recommended the division mandate the use of EFT. According to Mr. Kuhlman, the division tried to get legislation passed mandating the use of EFT in 1988 to no avail. Commissioner Henze suggested imposing a negative incentive such as a surcharge for not using EFT. Commissioner Cramer proposed giving the Class E licensees 90 days to sign up for EFT, after which time a surcharge would be imposed on those not using EFT. Mr. Walding will consult the Department of Management for advice.
Defective Bottle Return Rate
In conjunction with the new warehouse contract effective July 1st, Jones drivers have been picking up defective merchandise from licensees as they make deliveries. Returned product is scanned by a team of ABD and Jones personnel and uploaded into the system. A check or EFT credit is given to the licensee and the defective merchandise gets charged back to the suppliers. Jim Kuhlman reported that the return rate is .05%. The industry standard is between .5% and 1%.
Legislative Report
Jim Kuhlman reported SF 2144 reducing the BAC to .08 has passed the Senate. If the federal government approves the proposed 3-tier penalty, the bill will probably pass the House. If the bill passes, the division will get information to the public on BAC consumption levels. Commissioner Cramer cautioned against issuing specific guidelines because of the variance in the amount different individuals could consume. Ms. DeNucci stated the Iowa Hospitality Association would assist the Iowa Alcoholic Beverages Division in educating the public.
Revised Licensing Applications
Karen Freund, lead worker in Licensing, advised that all applications approved by local authorities have been revised. Examples of some changes include:
- New applications were reduced from 14 pages to 4 pages.
- The instruction sheet went from 12 pages to 3.
- Renewal applications are preprinted so an applicant has only to update information and sign it.
The division is currently working on reducing the information required on all state approved license applications. Mr. Walding complimented Ms. Freund on her work in revising the applications.
Commissioner Cramer suggested one renewal application for corporations with multiple licenses. Mr. Walding wants to work toward one license for beer, wine and liquor rather than three different licenses; however, consolidation of licenses could affect the price associated with the software maintenance contract.
Tobacco Report
Nicole Watson reported the compliance rate has gone from 82% to 87% in the past six months. Second round checks should result in the noncompliant rate dipping into single digits this year. The goal is 100% compliance.
Jerry Fleagle, Iowa Grocers Association, expressed his belief that noncompliance rates will continue to go down. He attributes the decrease to the new driver’s license, electronic age verification (EAV) devices and employee awareness.
Mr. Walding is concerned about funding for the program. The Senate has proposed a decrease in the overall tobacco enforcement program from $9.3 million to $5 million.
Tobacco Survey
The purpose of the tobacco survey was two-fold: 1) to see how the law enforcement partners were using the monies they received from compliance checks, and 2) to gauge the performance in training. There was a 75% response rate with 155 surveys returned according to Phil Wedgwood. More than 50% of the responding departments indicated they have received direct monetary benefit from the compliance check money and 39% reported that the money went to the city or county general fund. Roughly one-third of those responding indicated the money received improved their operations. Training was rated as “useful to very useful” to 94% of the respondents.
EAV Device Study
Dr. Brad Krevor of Brandeis University has completed a study conducted in Iowa City and a location in Florida to determine what effect EAV devices have on retail compliance. Dr. Krevor’s study found that while employees use the devices, the device does not help the employee refrain from making a sale to an underage person. A copy of the nationally recognized study was distributed to Commissioners.
Commissioner Cramer stated he believes the move for a national drivers license will help alleviate some of the problems clerks encounter with drivers licenses.
Center for Responsible Retailers
Nicole Watson reported the Iowa Alcoholic Beverages Division has contracted with Dr. Krevor to do a model program for responsible retailing. The model will show how to institutionalize training, how to create incentives for the retail community to voluntarily participate in training and possibly will create a separate penalty tier for those who have taken the responsible retailer program. The pilot program will be launched in Polk County with plans to expand statewide by 2004.
In addition, the division is trying to develop a Forum for Responsible Retailing to bring together health officials and representatives from the tobacco industry. As states get money appropriated from their tobacco settlement funds to do vigorous tobacco enforcement, Dr. Krevor will look at the effects the tobacco enforcement efforts have on alcohol compliance. Mr. Walding said the division funded seed money of $10,000 in hopes of leading to a Robert Woods Johnson Grant.
Web Page Update
The division has contracted with Red Five Interactive to create the division’s web page. Nicole Watson gave a demonstration of the developing web page.
Dram Shop Regulatory Analysis
The Administrative Rules Review Committee requested a Regulatory Analysis of the rule to determine how the rule would impact licensees. Approximately 4700 licensees would be affected by the rule according to Judy Seib. Fifty licensees were contacted and asked to participate in the survey. Only 20 of the 50 licensees who agreed to participate in the survey returned the survey. The Administrative Rules Review Committee was advised of the following: 1) the survey responses were inadequate to reach a conclusion and 2) the insurance industry hasn’t been able to establish rates for the new rule. In response to direction from the Administrative Rules Review Committee, the division is drafting a letter to mail to all licensees explaining the proposed rule. Rates will go up; however, the public will get considerably more coverage. Ms. Seib anticipates it will be another six months before the rule goes into effect. Mr. Walding stated that the rule would take effect for all licensees at the same time. He commended Ms. Seib on her efforts with regard to the analysis.
In response to a question by Commissioner Cramer, Ms. Seib stated she had talked with the Insurance Division regarding the computation of insurance rates based on volume poured and was told that how insurance companies set their rates could not be regulated. In her research, Ms. Seib discovered that alcohol and food sales are considered in determining the rate.
Counsel’s Report
John Lundquist reported that approximately 100 cases have been resolved since last December. Currently there are three active licensing or disciplinary cases. According to Mr. Lundquist the main reason for the reduction in cases is that the field investigators are not out in the field. He anticipates the Department of Public Safety will make a big push in the near future. Public Safety has received grant money and nine full-time officers have been assigned to do alcohol enforcement the next three months.
Mr. Lundquist reported that two bars have been upset with decisions issued and are seeking judicial review; the Iowa Wholesale Beer Distributors Association is still pursuing their claim against the tied house rule; and a hearing complaint has been brought against the Belle of Sioux City for serving an intoxicated person. Last year the division collected $114,000 in fines and penalties.
Commissioner Cramer asked about the disposition of the Hobbs case. Mr. Hobbs had previously called the Commissioners regarding his case. Mr. Lundquist advised that since commissioners have authority to promulgate policy and to review and revise administrative rules, he recommends that the commissioners not discuss pending cases with those involved. He does, however, believe people have the right to know why he takes a specific action or position on an issue.
Budget Update
Lynn Walding explained that with budget cuts and unfunded employee pay increases, the division has taken a 13.5% cut for FY 02. Administrative Services Division, provider of computer and accounting support for the Department of Commerce, is being decentralized. The Alcoholic Beverages Division needed an additional $545,000 appropriated to pay salary and support costs for the individuals needed to do accounting and computer functions for the division. The legislature appropriated only $300,000 for the services. The division will have to re-evaluate all core functions to see where further savings can be achieved.
The division has a $1.6 million tobacco budget. There could possibly be a 40% reduction in the tobacco budget for FY03. With adjustments to the program, the division might be able to operate on an $800,000 budget for one year. Compliance checks could be reduced to one check per year with more checks on problem retailers.
Bailment Fee Increase
The bailment fee increase was originally proposed to the Department of Management as an alternative to taking some of the budget cuts. Budget cuts were implemented and the division was directed to raise the bailment fee as a source of additional income. Beginning May 1st, the bailment case fee will be increased from 55¢ to 70¢ per case. The division expects the increase to provide an additional $232,000 in revenue over the course of a year.
Industry Meeting Report
The following topics were discussed at the industry meeting held earlier in the day.
Inventory Management
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Inventory will be reduced from a 13-week supply to a 10-week supply through management control of inventory. |
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Inventory levels must be at the 10-week rate by August 1st. |
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Exemptions may be given in some instances. |
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Listing procedure. |
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Listing form submitted. |
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Supplier gives presentation about how the product will be marketed, sales record in neighboring states, etc. |
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Tasting.
Commissioners requested e-mail notification of the tastings.
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Product sales will be reviewed semi-annually and annually.
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Warehouse Reconfiguration
Jim Kuhlman explained that the warehouse storage space would be reduced by approximately 30 – 40% to make room for another state agency.
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Gravity flow rack will be installed for a limited number of items. |
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Rack will have to be purchased. Mr. Walding has the authority to purchase equipment from the Liquor Trust Fund. |
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Split slot location will be used. Two products will occupy the space where one pallet of product was previously stored. |
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The top 100 items that result in approximately 70% of sales will have additional storage space in the back.
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The number of products carried will range from 1400 to 1800 items. |
Marketing of Alcohol
By Iowa law, the division can exceed the 50% markup as long as the rate of return does not exceed 50% on the average. Currently, the division applies an across-the-board 50% markup with a few exceptions where the markup was reduced. Mr. Walding commented the division makes more money on premium brand products even if the markup is less than 50%. He would like to explore ways to get consumers to “buy up” to premium brand products without losing revenue. To be effective, the state must gain more revenue; the industry has to make money; and the consumer has to have an advantage. The big issue is whether the Class E retailers will pass-through the reduced price to the consumer. Mr. Walding has met with Jay Wilson from Hy-Vee who represents 25% of the Class E’s and Mr. Wilson indicated Hy-Vee would pass the savings to the consumer. Mr. Walding anticipates that one or two items in a category will be selected for a six-month test, after which the fiscal impact will be analyzed. Mr. Walding visited with a distillery representative who may be interested in working with the division tracking profitability for the distiller and the division in a test market.
Delisting Procedure
Jodi Christensen explained the process used to determine which items would be targeted for delisting. Products that were below 2% of sales and revenue and big-ticket items were set aside. A report was then generated. Products that did not meet the criteria were marked in red for potential delisting. Suppliers were given a copy of the report indicating it was a three-month warning. On July 1st, items that remain in red will likely be delisted. Items that did not appear in red on this report could fall below the criteria between now and July 1st and possibly be delisted. New products are given one year to prove themselves before being delisted.
Commissioner Cramer asked if the volume was “license specific.” He commented that if one retailer sold the entire product, it was not necessarily a bad thing and the retailer should not be denied the opportunity to sell the product. Ms. Christensen responded she could track that; however, the product would be available to the retailer through special order.
Commissioner Cramer explained “cross docking” which he recommended. Cross dock is ordering product to arrive at the time the retailer needs it, receiving the product, unloading it and immediately putting it on a truck for delivery to the retailer. The product is never stocked in the warehouse. Mr. Walding said he would explore that option.
Commissioner Cramer admonished the division to drive hard for a higher individual bottle fee for the split case operation because it cost more to deliver an individual bottle.
Combined Vendor Stock Status
Jim Kuhlman reported that the National Alcohol Beverage Control Association (NABCA) has been working with industry and the states throughout the years to get everyone to an electronic format on supplier-state transactions. Some states have electronic price quotations that have been quite successful. Still being explored is web-based ordering; web-based transaction sets for shipping and order notices; and web-based payments and accounts receivable.
The division currently sends paper reports to the Iowa brokers with information on inventory quantities, withdrawals and unloadings. Jim Kuhlman is working to move the information to a web-based application that will help the brokers in their ordering process.
Holiday Show
Next year’s holiday show will be held at a new venue. The show will be held September 8 and 9, 2002 at the Marriott in West Des Moines.
Class “E” Road Show
“Coffee With the Administrator” tours are being planned in late May at six or seven locations throughout Iowa. Class E licensees will be invited to meet with the administrator and staff to discuss how Class “E” retailers can help the division be more efficient, and in turn, how the division can help them. Items for discussion will be:
- Change the current 24-hour turn around to 48 hours.
- Eliminate split case picking.
- Raise the fee if the division continues to offer split case.
- How many products the division should offer.
- Lower the mark-up on some items.
- Will the retailer pass the savings through to the consumer?
Commissioner Cramer stated that if the division charged a $1 split case fee, the retailer would decide immediately whether to buy a case or drop the product. Both parties would benefit because it would help determine the number of SKUs to stock in the warehouse and the retailers wouldn’t have their invested money in something that is not selling.
Flavored Malt Beverages
Flavored malt beverages are products such as Bacardi Silver and Sky Blue Vodka that look more like liquor than beer. The federal government recently ruled that the product label cannot make the claim that the product contains “spirits” in the formula due to the fact that the small amount of spirits added are classified as “flavoring.” The federal government also cited Smirnoff Ice as a product that would be allowable as long as it didn’t say vodka on the label. Some states are concerned that this opens the door for the industry to do advertising. It also deals with the issue of taxation. Other issues are youth access and mis-advertising. Some states are restricting what is on the label for flavored malt beverages. The industry has not been forthright in what the product is. Commissioner Cramer commented that youth are going to perceive the term “Smirnoff” to be vodka. John Lundquist stated that one of the concerns is that the product is inherently deceptive. Jim Kuhlman noted that Iowa sales of Smirnoff vodka have been running about 17% ahead since Smirnoff Ice was introduced. He believes there are two driving factors: 1) label recognition and 2) they can advertise on television since these products are classified as beer in most states. Lynn
Walding anticipates there will be a fusion between the malt beverage business and the liquor business.
Panel Presentation
Lynn Walding distributed a copy of his presentation “Ethical Dilemmas for Alcohol Regulators” which was presented in March at the NABCA Symposium on Alcoholic Beverage Law in Washington, D.C. Mr. Walding moderated the panel with John Lundquist serving as one of the panelists. The presentation was well received and Mr. Walding has been asked to do another presentation next year. Mr. Walding is also working on a panel presentation entitled “Regulating the Wretched Refuse: Immigration Patterns and Practices Affecting Alcohol Regulation” for the Annual Conference of the National Conference of State Liquor Administrators (NCSLA) in June. Mr. Walding will moderate the panel.
Beer Tax Collections
Jim Kuhlman, Lynn Walding and two of the field investigators are meeting with the beer wholesalers on April 10th to discuss tax collection from brewers rather than from wholesalers. Tax collection from brewers would occur when product is shipped to wholesalers, thereby making the money available to the state sooner. One disadvantage of collecting from brewers is allowing for breakage or exemptions.
Currently, the division gathers a great deal of information from the beer wholesalers that is not used or needed by the state; however the Iowa Wholesale Beer Distributors Association (IWBDA) uses that information to disseminate information to their wholesalers. Currently, the wholesalers report product by size on a 3 – 4 page form. The division will explore: 1) advantages and disadvantages to the division and the industry of collecting the tax from the brewers; and 2) if it is determined tax collection should remain at the wholesale level, devise a postcard size form for on-line entry. Currently, an individual from IWBDA copies all the reports once a month at a set price per page. Commissioner Cramer suggested the division could continue to collect the data and make it an income source. Mr. Walding said the question is whether the information becomes a public record.
White Paper
A draft copy of the white paper prepared by Judy Seib was distributed to the Commission members. Mr. Walding gave an overview of the contents.
Commissioner Collins objected to the definition of “binge drinking.” She suggested that the definition of binge drinking be eliminated from the paper and the problem be referred to as high risk drinking. Commissioner Collins suggested starting on page 2 where Ms. Seib refers to high risk drinking. Mr. Walding commented the Commission is talking about too much alcohol in too short a time and high levels of intoxication, not how many drinks are consumed in a sitting. He said the paper might footnote that binge drinking is a term used.
Mr. Walding asked for discussion of the recommendations. He would like, if possible, to arrive at recommendations that the Commission can agree on unanimously.
Recommendation 1
Mr. Walding would like recommendation 1 to say the division “…advocates adoption of a law in favor of prohibiting all you can drink promotions.” Since the study was undertaken, the Des Moines market has begun to promote all you can drink activities. The city of Clive has asked all suburban communities to join in a single ordinance that would apply to all the communities.
Commissioner Collins stated there is already a law that prohibits serving someone who is intoxicated. While Commissioner Collins concurs there is a problem, she questions the need to create a law when other laws are not being adhered to or enforced. She also views the law as regulating advertising. Mr. Walding stated the recommendation restricts the practice of drink promotions; it does not restrict advertising.
Commissioner Daggett referred to comments made by bar owners at the meetings held throughout the state. The bar owners said they would be happy to comply; however, if there were no law the problem would only shift to another location. Bar owners also commented that competition forced them to offer specials in order to stay in business.
Commissioner Henze supports the prohibition of liquor buffets, one price for all drinks, etc.; however, he does not support prohibiting restaurants or bars from having the traditional happy hours where they can give a glass of wine at a discounted price during certain hours.
Commissioner Cramer stated it is the Commission’s duty to make a strong recommendation and seek legislative support of a uniform law across the state.
Mr. Walding commented that he has heard from rural legislators urging caution on restrictions that keep minors off the licensed premises, especially in small towns where the bar is the only restaurant in town. Mr. Walding also stated there appears to be strong public support for restricting all you can drink specials.
Mr. Walding asked if the commissioners would support a law prohibiting all you can drink specials, and if there was dissent, how the recommendation could be rewritten to achieve assent. Commissioner Collins stated if the laws currently on the book were enforced, there would be no need for this law. Although she does not endorse this type of advertising, Commissioner Collins isn’t sure there should be a law regulating business advertising.
Recommendation 2
According to Judy Seib, approximately 65% of fees for liquor and all the beer fees are currently reverted to cities and counties. Recommendation 2 suggests, “designate a certain portion of the reversions, amount to be determined by the legislature, be dedicated to the enforcement of alcoholic beverage laws.” This would enable the division to resume enforcement activities, such as compliance checks and control buy operations, that were stopped when the education fund was taken away. Additionally, more on-site and web-site training in alcoholic beverages laws could be offered to law enforcement officers. Recommendation 2 also recommends going against the establishment where the alcohol was purchased in the case of a drunken driving accident. Also recommended are stiffer fines for minors and for individuals who purchase alcohol for youth.
According to Lynn Walding, it is questionable whether the legislators will support this recommendation due to budgetary issues. Currently, funding in this area is being decreased or eliminated, not increased.
The consensus was that all commissioners would support a recommendation for more funds for enforcement of existing laws.
Recommendation 3
There is a great deal of disparity in penalties imposed for minors as compared to penalties for licensees and for adults who provide alcohol to minors. This recommendation is to “equalize the penalties for the first sale to minors.” Many law enforcement personnel advocate driver’s license suspension for minors. Industry has complained for some time about the disparity in fines.
Ms. Seib commented she didn’t know how much support this recommendation would receive from the legislature. Historically, the Office of Juvenile Justice has sponsored legislation regarding alcohol and juveniles. Juvenile Justice receives money from the federal government for programs.
Commissioner Cramer said it is the Commission’s responsibility to pass the recommendation on and to show support for the Office of Juvenile Justice’s position.
Mr. Walding pointed the tobacco program has tried to make all three parties, the clerk, the retailer and the minor, responsible because they are all part of the solution. Two sessions ago there was language in the tobacco bill about revoking driver’s licenses. The legislation did not pass.
Commissioner Cramer commented this is a nation-wide problem and there is a lot of free press available on the subject now.
The Commissioners will support tougher penalties.
Recommendation 4
The final proposal is to recommend, “a legislative interim study committee be formed to study the issue. The Commission recommends the committee consult with all entities in the beverage alcohol industry including retailers, wholesalers, parents, prevention specialists, students and industry representatives.”
Commissioner Cramer commented this recommendation would open the door for local participants to discuss the merits of the case with their legislators.
Commissioner Collins stated she would support a recommendation to look at new laws; however, she was not sure she was willing to recommend enactment of a law to stop people from advertising all you can drink specials. Ms. Seib commented the recommendation is only to restrict a promotional practice; it is not intended to restrict advertising. If the practice is outlawed, the advertising will go away. Commissioner Collins questioned how a law could be enacted that controls activities that “advertise and promote underage drinking.” She commented she did not believe there is any advertising that promotes underage drinking. Ms. Seib will work on the language.
Mr. Walding stated the timing is right to release the white paper. He thinks there is local support, over-all public support and support from bar owners for the recommendations. In addition, local governments who are contemplating ordinances will find the white paper useful. Mr. Walding complimented Ms. Seib on the work she has done preparing the paper.
Other Business
Commissioner Cramer presented Commissioner Daryl Henze with a certificate recognizing his years of service on the Commission. Commissioner Henze was appointed in 1994 by Governor Branstad to fill an unexpired term. He was reappointed in 1997 and has served the Commission for 8 years. A reception honoring Commissioner Henze was held following the meeting.
Meetings
The next meeting will be held in the Iowa Alcoholic Beverages Division Board Room on April 30, 2002 at 10:00 AM.
Adjournment
The meeting adjourned at 4:35 PM.
GAYLE COLLINS, Secretary
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