Lawmakers on the Alcoholic Beverage Control (ABC) Study Committee will submit their report on the future of alcohol distribution in November with what changes need to be made.
The only agreement is that the status quo, upended by a massive uptick in demand brought on by the COVID-19 pandemic, is no longer workable.
Mississippi is one of 17 states nationwide that are known as control states, which means government has a monopoly on wholesale distribution of at least one of the three categories of alcoholic beverages (beer, wine and spirits) and even retail, like Alabama.
The state owns a 211,000 square foot warehouse built in 1983 in Gluckstadt with a shipping capacity of 19,000 cases.
The options for changing ABC are numerous. State trade organizations for restaurants and package stores want improvements to the ordering system, shipping and warehouse, but want the state to maintain management of the warehouse.
Steven O’Neil, owner of the Manship and Aplos restaurants, would like to see the ABC split out from the Mississippi Department of Revenue (DOR) into its own agency.
“I have a great relationship with the ABC and I think they do an amazing job with the resources they have at hand,” O’Neill told the committee. “I’d love to see an ABC budget in proportionate to the amount of revenue they bring into DOR.”
For the fiscal year that ended June 30, the DOR transferred $88.62 million in ABC collections to the general fund. That represents an increase of 9 percent compared with fiscal 2019, when $81.3 million was transferred to the general fund.
For the upcoming fiscal year (2022), the DOR is requesting $535,000 to fund operations at the warehouse.
The Legislature voted to spend $4 million in 2019 in warehouse improvements, but the bonds were never authorized. In 2013 and 2014, $1 million was appropriated for repairs and renovation at the warehouse. The last expansion was 2003, when a climate-controlled wine room was added.
Money to overhaul the warehouse could come from bond money, or as state Sen. Kevin Blackwell, R-Southaven, suggested, maybe even come from the federal CARES Act funds provided to the state for COVID-19 relief.
According to the DOR’s fiscal 2021 budget request, the agency plans to spend $650,000 to purchase additional warehouse equipment, including two stockpicker forklifts.
Operating the warehouse could be shifted to a private vendor, much as in New Hampshire or Ohio. The New Hampshire Liquor Commission transferred $162 million to state coffers.
The contract for the warehouse vendor in New Hampshire has 99 percent targets for several areas, including goods available and loaded for shipment on time and inventory and order accuracy. The vendor can be assessed penalties for not meeting the targets.
The vendor, Excel, receives a management payment that can be increased when actual costs are less than budgeted costs. The contract was awarded in 2013. Ohio-based Excel is a subsidiary of German logistics giant DHL and provides distribution services to DuPont, Bristol-Myers Squibb, Proctor and Gamble and 7-Eleven.
New Hampshire ABC warehouse employees work five days per week, two eight hour shifts per day. Mississippi ABC warehouse employees work four days per week, two 10-hour shifts per day with an extra day being added recently.
ABC has increased salaries for warehouse workers and has executed an emergency staffing contract with a temp agency as it tries to keep up with demand.
Gerard Gibert is the former CEO of Venture Technologies and a member of the Mississippi Lottery Corporation’s governing board. He said transitioning the ABC warehouse into a similar type of legislatively-chartered corporation or outsourcing its management to an outside vendor would bring advantages, such as efficiencies realized through artificial intelligence and robotics at the warehouse.
One example of the legislatively-chartered entity model is Virginia.
Virginia, which is building a new ABC warehouse and headquarters, transitioned its ABC from an agency to an authority in 2018 to allow it to operate more efficiently like a business outside of state procurement and employment laws. It also has a chief executive officer who serves at the pleasure of a five-person board that acts similarly to a private sector board of directors.
As compared to the other control states, Mississippi is one of six that act as the sole wholesaler of wine. The Magnolia State is also one of seven control states that ship to private retailers rather than owning a chain of stores.
Divesting the state’s monopoly on wine would free up space at the warehouse for spirits.
Opponents of privatization point to Washington as a reason for keeping the state’s monopoly on distribution and say that prices for consumers would increase from ending the state’s monopoly on distribution.
Tasho Katsaboulas, owner Kats Wine and Spirits, spoke before the committee for the Mississippi Independent Package Store Association, said previous unsuccessful bills that would’ve privatized alcohol distribution would’ve preserved the state’s 27.5 percent wholesale markup on liquor and wine and allowed wholesalers to add their own on top of that. He said this would add up to a 35 percent price increase for Mississippi consumers.
He also said the state’s fine wines market, which is the nation’s smallest, benefits from the ABC monopoly. He said larger retailers would benefit from privatization, flooding the market with cheap wines at the expense of smaller retailers who specialize in higher-end fare.
“This is why ABC’s even pricing is crucial for retailers, wineries and distilleries,” Katsaboulas said. “ABC, by honoring fair play and providing even pricing to small and large entities alike, provides a healthy mix of big box competition and thoughtfully stocked specialty stores.”
Package store owners defeated a bill this session that would’ve allowed wine to be sold in grocery stores. They also defeated a bill that would allow permit holders to have more than one retailer permit.
“Multiple permits for wine and grocery or privatization those things unseat even pricing and anything that unseats even pricing in a state like Mississippi, if you understand how frail our fine wines market is, will limit consumer choice and drive down selection,” Katsaboulas said.
Washington was the last state to transition from a control state to an open state after voters passed a referendum in 2011. The state has the nation’s highest excise taxes on spirits.
Dawson Hobbs of the Wine and Spirits Wholesalers of America, a trade organization, said that Washington’s experience was more a function of the change coming via ballot initiative since Washington state law dictates that they must be revenue neutral.
“The biggest issue with Washington was that was a privatization measure that was done by a ballot initiative and not through a thoughtful legislative action,” Hobbs said. “As a result, the ballot initiative was written and supported frankly by one group of retailers that wanted the privatization process to benefit them. It had some elements that I think were very harmful.”
One of those harmful components was the requirement that alcohol retailers have at least 10,000 square feet of retail space, which closed the marketplace to all but the largest retailers.
A 2019 study by the free-market Washington Policy Center showed that privatization resulted in reduced costs for government and small price increases ($1.50) per bottle. Tax increases that coincided with privatization have increased revenue for state and local governments.