September 20, 2012 |
Matthew Mann
An interesting series of articles recently ran in the online edition of the Oregonian newspaper, www.Oregonlive.com, discussing how the issue of privatization has caught life in Oregon after the recent transition to private sales of distilled spirits in Washington state.
Of particular interest to me are the reader comments that follow the articles, as they give more insight into the concerns, attitudes, and deeply held moral and economic philosophies of the general public driving the debate as the political battle moves forward. Despite the divergent motivations on which the parties’ positions hinge, in part arising from the historical context surrounding the regulation alcohol after Prohibition, I see some common ground in an area fraught with contention.
Historical Context
I’ll spare you the history lesson on the 21st Amendment. You already know that stuff. Suffice it to say, coming out of Prohibition and the real and imagined “evils” of drink that led to it, most states’ laws regulating alcohol were designed to place restraints, of varying restrictiveness, on the production, sale and distribution of the product. The manner and degree covered a broad range based on local customs, morals, political will, and as reaction to the public health impact alcohol had on local society while legal. The common thread, and the core of the 21st Amendment, was that the type of regulatory system chosen, whether control or licensed, should be decided at the state and local level based on the desired goals of the local populace.
Uniquely Oregon
Oregon is rightfully proud of its widely-recognized fine wine reputation and its increasingly successful craft brewery and distillery industries. When reading through the reader comments nearly all agree, either explicitly or implicitly, that how to deal with privatization requires is a distinctly Oregon solution. It is of little consequence that the privatized market of California to the south, and transition model of Washington to the north, offered distinctly different approaches to modifying the Oregon control system to bring it into the 21st century. This is a local issue requiring a local response and Oregonians are not interested in emulating the open California model or repeating the perceived mistakes made by Washington. The articles and comments make clear Oregonian’s view their system as distinguishable from their neighbors. Simply forcing either model onto the Oregon system will not properly address the unique needs of Oregon.
An example of the unique nature of the issue is the status of workers at state-controlled liquor stores. It was a primary concern in Washington but seems less so in Oregon due to a significant difference that could dramatically impact the ultimate resolution. Unlike Washington, Oregon retail liquor stores are privately owned by “state agents”, who operate within narrowly defined rules and purchase spirits directly from the state distribution system. While Oregon Liquor Control Commission (OLCC) employees are state workers, retail store employees are not, and are not represented by the public employees’ union or participate in the state pension system. In Washington, a large state employee constituency was highly impacted by the result of privatization and mobilized to fight it. In Oregon, privatization could potentially affect Oregon liquor store employees, but does not directly impact the state payroll and pension systems. The result is a diminished employee opposition to privatization in Oregon and the decision-making process will occur in an environment much different than Washington’s.
Archaic, but Effective?
There is also common ground in acknowledging the 80 year old laws governing alcohol are archaic. Even supporters of the status quo admit times have changed since the end of Prohibition. Both agree that it’s time to review and modernize the law.
Where the sides come apart is whether the laws are still effective, and the answer for each depends on what the laws are designed to address. Control supporters argue the laws have, and still do, effectively address issues of criminal infiltration, ameliorated or fraudulent product, public health and drunkenness, and taxation. Privatization advocates claim such issues, once of importance, are no longer a serious problem. They argue the laws are based on outdated moral codes, impinge on individual freedom and, particularly regarding taxation, could be better addressed by loosening the restrictions and creating market efficiencies. They seek broader and deeper reform, directed not just at the laws themselves, but the fundamental purpose and mission of the OLCC.
Control supporters aren’t looking for a full-scale reform of the system, preferring a measured review of each regulation and reforming those clearly out-of-date. Of note they point to a test program wherein select grocers currently selling only beer & wine could also sell distilled spirits in a segregated area of the store. Privatization advocates will likely argue the program doesn’t go far enough, as grocers are still required to purchase the spirits from the state-controlled distribution system.
Interesting Viewing
In a world of complex issues of great import, alcoholic beverage regulations are pretty inconsequential. Still, Oregon will be interesting to watch. Whether imbiber or teetotaler, access to and use of alcohol touches on personal social perspectives beyond the mere issues themselves. They are contentious because they reflect on deeply held views on moral, social and economic philosophy. As with all things, change is inevitable. That both sides recognize this basic truth is the primary common ground necessary for a resolution of the competing ideologies. Somewhere in between, they will likely find the answer that is the best fit for Oregon.
California has been the leader in crafting guidelines for the operation of marketplaces by unlicensed third party marketers, issuing an influential advisory in late 2011 that has served as the regulatory framework for the development of marketplace programs. The SLA’s ruling will surely join it to play an important role in how those regulations develop. The initial industry reaction to the ruling appears to be one of no small amount of alarm, and I have read comments suggesting such marketplaces will be shut down. I believe such comments are an over-reaction in light of the limited scope of what the SLA has done:
Apr 16, 2013 at 7:52 AM
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Many wineries might be surprised with the feasibility of taking the “anywhere, everywhere” approach to DTC. Rather than approaching the DTC strategic analysis from a “least to most” perspective, starting with a few states and selectively increasing them as demands from customers increase; instead take the opposite approach and start with all legal states and adjust down from there, if necessary.
Sight: Curb appeal is your guests’ first impression and sets anticipation and expectations for their visit to your winery. Intentionally drive by your entrance from both directions and take pictures for future reference. Is your entrance way inviting? Is the landscaping attractive and well kept or do you need new plantings or weeds removed? Are your signs or buildings in need of an upgrade, touch up or complete makeover? Walk your guest spaces with the staff, asking them to note anything that could be fixed, improved or changed to better enhance the appearance both inside and out. Don’t forget the bathrooms – they need ambiance as well. A daily and weekly checklist can be helpful to make sure any issues are addressed on a timely basis.
Taste: Does your tasting room staff ask guests what wines they like most before launching into a pre-set tasting sequence that starts with a dry white? That can be a turnoff for potential buyers who only like full-bodied red wines. Work with your team to develop questions and options for guests to assure they enjoy their tasting experience.
The underlying consideration for every unlicensed marketplace program is really quite simple: control. A license holder is the only party authorized to buy and sell wine to a consumer, so the licensed winery must control the offer and sale of the wine. The winery holds the controls, so long as they are willing to use them. Once this is understood, determining when an unlicensed marketing program strays into illegitimate territory becomes much easier. But what does control mean? Here are some guiding principles:
Over the past year, and particularly in the fourth quarter, quite a few new channels have become available to wineries, providing exposure and an opportunity to drive new customers back to your brand. This is a real positive for our industry. It’s the evidence we’ve been waiting for that people are finally becoming accustomed to shopping for wine online. Ecommerce is still a tiny piece of the total wine market (I’ve seen estimates ranging anywhere from 1% to 3.5%), but that will soon change. These new channels will help to increase DTC’s share of the pie.
How will you go about establishing a profitable presence in these new high growth marketing channels? You will need to organize your Direct-to-Consumer business in a way that ensures successful execution amid a rapidly changing landscape for wine online. Who will be responsible for management and how will feedback and insights be made available to the rest of your staff? To drive profitable growth of your DTC business, you’ll need to ensure a superior experience for your customers across the board.
An annual sales plan with clearly defined objectives – volume by wine type by channel mapped out with weekly, monthly and quarterly goals. Everyone in the company should be cognizant of the sales plan. Update the numbers in January once the OND results are in.
Update your winery story, give it a fresh voice. Make it a sincerely crafted, emotionally compelling and authentic story about your wine, the people and vineyards behind it, with some entertaining anecdotes about real enjoyment occasions. It should be scripted for winery staff and include soft-selling scenarios and tips to help staff gently and comfortably ask for the order. Engage your team to get real examples of successful sales pitches and anecdotes about how customers have enjoyed the wines. For example "Jill received her engagement ring in a glass of our Sauvignon Blanc."