Control Model for Alcohol Distribution

Understand how Montgomery County and other jurisdictions function as control models for alcohol distribution. ABS Director Kathie Durbin and National Alcohol Beverage Control Association President/CEO Neal Insley join host Jocelyn Rawat to define the control model and its foundations of public health and safety, market fairness, and revenue that pours back into communities. Guests discuss how these systems inform the alcohol market with unbiased data, provide for equitable outlet density, and contribute to local economic development. Bonus in this episode: why supermarkets do not sell alcohol.

The transcript of this episode can be found here: https://www.buzzsprout.com/2345583/15585580-control-model-for-alcohol-distribution/transcript

Transcript

Announcer 0:00

Welcome to Spirited Discussions, a podcast by Alcohol Beverage Services, exploring alcohol products, trends, and policies in Montgomery County.

Jocelyn Rawat 0:12

Thanks for joining us. I'm your host, Jocelyn Rawat, and today we're going to examine the question: what is a control jurisdiction for alcohol distribution? For that, I'm joined by the director of ABS, Kathie Durbin. Kathie's been with ABS for more than 20 years, focused primarily on policy, regulation, and education, and she was named director in 2021. Hi, Kathie.

Kathie Durbin 0:34

Hi, thanks for having me.

Jocelyn Rawat 0:36

I'm also joined by Neal Insley, who's the president and CEO of the National Alcohol Beverage Control Association, and has more than 25 years working in the beverage alcohol industry. Neal has worked as a regulator, private practice attorney, administrative law judge, and business leader. So we're excited to tap into this expansive background for a unique perspective. Hi, Neal.

Neal Insley 0:56

Hi, Jocelyn. Thanks for having me. I'm excited to be here.

Jocelyn Rawat 0:59

Okay, I want to start with you because the term control jurisdiction isn't one that people are really tossing around the dinner table every day. So can we start with a definition what a control system is?

Neal Insley 1:10

Absolutely. Term control, it's a bit of a misnomer. And I run into this quite often. All states control alcohol through licensing regulation. So, you know, I think sometimes when people hear control system, it conjures up images that it's more restrictive or more, and that's not necessarily the case. Another uh interesting part about the definition uh that I'll get to is there's no actual legal definition of a control system. You won't find it in federal law anywhere, you won't find it, you'll find it mentioned some in case law. But what we define a control system as is a jurisdiction that at some point in the supply chain takes ownership of the product and sells that product either at wholesale and or retail. So uh we use the term control system, and it's kind of developed over many, many years uh uh post-prohibition. And it, you know, it's what defines the system, but it doesn't necessarily accurately define the system because uh as far as the licensing, the regulation, um it's uh all all states, all you know, uh jurisdictions control alcohol uh through their licensing regulation. But the actual definition of a control system is the jurisdiction takes ownership of that product at some point in the supply chain and sells it for uh the good of the citizens that they serve.

Jocelyn Rawat 2:42

Okay, that's very helpful. Um so you've talked about the jurisdictions that they serve, which leads me to believe that Montgomery County is not the only one functioning this way. Is that right?

Neal Insley 2:51

That is correct. There are 17 other control jurisdictions in the United States. Uh, and there are also actually uh control jurisdictions worldwide. Uh, your Nordic countries as well as your Canadian provinces are all controlled jurisdictions.

Jocelyn Rawat 3:07

Okay, and I think some of our neighbors are too. Um, perhaps in Pennsylvania and Virginia, right? Okay. Um, so Kathie, how does the control model work in Montgomery County?

Kathie Durbin 3:17

So at a high level, much like uh Neal explained, it's a um it operates through a government-run system. The Department of Alcohol Beverage Services oversees the regulation, distribution, and sale of alcohol beverages in our county. ABS also operates 27 retail stores that sell a wide range of products, including beer, wine, and liquor. The system ensures consistent revenues for public services. Profits are poured back into the community, funding essential services like public health programs and infrastructure. So it's very much like you described all over the world.

Jocelyn Rawat 3:56

So, Neal, what is the National Alcohol Beverage Control Association's role in all of this?

Neal Insley 4:02

Well, uh NABCA or NAPCA or the National Alcohol Beverage Control Association. Thank you. Now I don't have to keep saying, right? Okay. Uh everybody calls us NAPCA. We are the trade association for the control jurisdictions in the United States. Um, what we do, our mission is to help uh promote uh safe, responsible, and orderly markets in the sell and distribution of alcohol. We are a 501c6 uh nonprofit organization. We uh do make uh about 70% of our revenue is generated from the sale of data, sales data primarily from the control jurisdictions. Um we sell that to not only industry, um beverage alcohol industry folks, but also uh every major financial institution. Um, a lot of the uh various uh folks involved in finance purchase our data. Um, and it's very granular data and it's very valuable on the market because of the way we get it from the control systems, and then we do uh we do our secret sauce and our proprietary systems and and uh and cleansing the data and making it usable for our customers. It's also used uh and we enjoy our partnerships in uh public health and safety as far as looking at trends or alcohol trends or research projects and things like that. Um uh our main mission, of course, is uh the safe and orderly sell, as I said, of alcohol or distribution of alcohol. And that's really what we use those revenues for that are core to our mission in uh collaboration, discussing good alcohol policy. Uh, we are firm believers in the 21st Amendment that every jurisdiction has a right to decide how they want to do alcohol distribution uh within that jurisdiction. We just want to make sure that they're using the best uh information, policy data, research data to make those decisions and how they want to do that. And that it's not unduly influenced by certain uh stakeholder groups. We uh at NAFCA are uh non-advocacy, so we don't lobby. Um we uh I always tell my folks we're Joe Friday. We just present the facts and let people make good decisions uh on alcohol policy based on those facts.

Jocelyn Rawat 6:33

Okay, good decision making based on facts. I like that. Um so Montgomery County is an active member of NABCA and Kathie, you're the chair-elect to the board of directors. So how does uh Montgomery County benefit from its relationship with NAPCA?

Kathie Durbin 6:48

First of all, I'm chuckling a little because I know who Joe Friday was. I uh that puts me back a little bit here. But um, I would say for uh the relationship with NAP NAPCA as a member, networking and connecting with other professionals and experts in the field is invaluable. It's a it's a space for us. Um, NAPCA creates a space to share ideas and models that work in the US and beyond. This is essential for today's ever-changing, very fast-paced world of alcohol. NAPCA also provides a neutral space for us to meet with suppliers and industry representatives, allowing regulators and administrators to achieve a level of transparency and high ethical standards that's expected of governments. So it's a really great place for us to be, to be able to meet with um folks from all over the system, whether they're selling the alcohol, presenting the alcohol, or just educating us about the alcohol. NAFCA, as um Neal mentioned, has tons of uh data. The resources are so invaluable to us as members. We can tap into it, helping us keep well informed and make better business decisions. So I mean, we can't do it without NAFCA. We really need to know what other jurisdictions are doing and how we can tap into that information. And to you, it's it's only as good as how we use that data as well. So we need to use it properly and come up with the um the trends that are really valuable to our local jurisdiction.

Neal Insley 8:22

And if I could add also, um the uh NAPCA board are really the board of directors, are really uh the governing body of NAPCA. And they're made up of the uh individuals who run the alcohol distribution within their jurisdiction. So obviously on our board and and our chair leck, she will be our incoming chair uh this time next year. Um but we uh we have a board of 18 total uh from every jurisdiction that does the governance for the organization as a whole.

Jocelyn Rawat 8:59

Okay, so you've you've kind of both gotten to this, but let me uh ask a little more directly. Uh there's certainly a historical perspective um for these for communities and this type of model. So why are jurisdictions um continuing to choose the control model?

Neal Insley 9:15

Well, I I think, and from my experience and and having been involved in this, um uh obviously, and we talked about it at the very beginning, that source of revenue back into the communities are important. Uh it helps to defray uh tax burdens. It also helps to defray costs that any uh any jurisdiction is going to have to have uh some type of or should have some type of education, prevention, regulatory scheme within their jurisdiction for alcohol. I think everybody uh now understands that alcohol is no ordinary commodity. Uh enjoyed responsibly, it can be a great product, but it does have a propensity to cause uh harms if not done so responsibly. And uh control jurisdictions where they they thrive. I used to say when I was back in alcohol law enforcement in the day, it's the A and the B is kind of simple. It's that C part that uh unfortunately sometimes people struggle with. But in a control jurisdiction, uh some of that revenue that's generated can be put right back into those programs and things. So instead of uh it having to be taken at the register from the citizen, if you will, um through through sales tax or increase in sales tax, it's it's factored into part of the mission of that control system, that that's their role and responsibility, and that revenue goes directly to that source. So uh the revenue is important not only for infrastructure and and projects within a jurisdiction, but also uh to help defray those costs of that affiliated harm with alcohol that without a control jurisdiction uh falls to the burden of the of the tax tax base uh writ large within that jurisdiction. Um I think you know, some of the other health benefits, uh certainly they uh the control jurisdictions uh have a good balance of outlet density and and responsiveness to their communities. Uh I often say, you know, we use the term control jurisdiction or control system, but it's really a state-owned enterprise, is what it is. And the citizens of that jurisdiction have a direct say in how that enterprise operates and what it does. So, you know, whether you consume the product or not within a control jurisdiction, you're a stockholder, you're a stakeholder in that enterprise. And through your um through your legislature or town council or whatever, you have a direct say and impact on that enterprise because it belongs to you as much as it does an ex-person. And uh in a licensed state, you may not see that because you have private entities that are there. And nothing wrong with that. That's what private entities are supposed to do. They're supposed to be there to make a profit and make more money for their stockholders and so forth and so on. But uh, in a control jurisdiction, the impetus is it belongs to the people of that jurisdiction. And then uh another uh, you know, it creates a level playing field uh for uh regulation. Business loves predictability. Uh business loves uh that that level playing field where everybody knows the expectations. And I think uh control jurisdictions bring a lot of that to the table. They know what to expect, they know they're gonna be treated the same as everybody else. Uh, they're not gonna be able to buy shelf space or do any other things that will uh give a competitive advantage to somebody that that doesn't operate uh that way. But I will say, um, you know, even in the business setting, we're seeing more and more manufacturers, uh, spirits manufacturers or alcohol manufacturers starting to understand and really uh utilizing the advantages of a control system. Um, you know, they they've started to realize that they have excellent line of sight of their product, uh, which is very important in business, and particularly when you have a regulated commodity like alcohol, to be able to follow the product through all the way through the supply chain to the final end uh is something that is much easier to do within a control system. And then you couple that with, uh, as we talked about earlier, very granular level data that they can really see how their products are doing. Uh, they can follow it all the way to market, they can see how it's doing, they can uh look at other products and how they're doing. Um, you know, control systems are a great incubator, if you will, for a new product because of the the level of data, the level of of input that they have uh at that at that uh jurisdictional level and working with people like Kathie, uh, you know, they have to get into they have to get into one uh they really only have to have one meeting. Whereas in an open state, they are licensed state, they may have to have 15 or 20 uh with various uh suppliers or wholesalers uh to get to an ultimate objective. So I think obviously uh I may be a little biased, but I think the systems work very well. And they uh people like Kathie have really made them much more business friendly and operate uh at a high level to meet those expectations.

Kathie Durbin 14:42

I mean, I just like to add one thing real quick. Um when we talk about the money, which is really important, um, we also talk about the public safety side on it and the public health, and just to reiterate that how important it is to have those environmental strategies built into systems so that um the liquor stores are not open till 2 or 3 a.m., that they have a uh a time that they close, they have shorter hours. Um, that community is usually a safer community because of it. And so those are things that each um jurisdiction really has to drill down and decide what works for them and um maybe prevent some of the situations that are happening in other jurisdictions.

Jocelyn Rawat 15:24

Okay, so I I heard um Neal talk about how a control system is good for communities and also how it's good for um suppliers and manufacturers. And I I think you were probably talking about that being like at the national level. Um, but I think it's true on the local level too. So, Kathie, could you go a little bit more into how um how the Montgomery County system helps local manufacturers?

Kathie Durbin 15:50

Okay, so our local program is really what has um taken off, I would say, in the last five years. Um we there were laws that were put into effect um like six or seven years ago to help to uh the local um folks to be able to manufacturers to be able to self-distribute. So we were able to use them in our stores, take them to our stores and the local manufacturers and to our stores, and really use it as an incubator, as you said, so that they can um showcase their products and have another visibility of their products to be able to bring customers in instead of having to find them, um the local manufacturers. So it's really been a great system for uh our local products, and we call it the LOC program. We have Montgomery County products, and we also have the statewide products. And so we're very excited about continuing growth in that area.

Jocelyn Rawat 16:45

Okay, so so ABS has a wholesale and a retail function. So that means that there's revenue, right? ABS is bringing revenue to county government?

Kathie Durbin 16:54

Yes. Um ABS contributes $35 million to the county budget every year for resident services that otherwise would be paid for with county dollars. It contributes an additional $4 million to debt service that pays for long-term capital projects like roads and bridges.

Jocelyn Rawat 17:11

And how many jobs does ABS provide to the local economy?

Kathie Durbin 17:15

Um, approximately 500 high-paying, high-skilled positions. We're really happy about that. And also lots of benefits provided with those positions.

Jocelyn Rawat 17:24

Okay, and the $35 million that you're talking about that's going to resident services and then the additional $4 million that's going to debt service, is that after paying for the salaries and operational expenses? Yes.

Kathie Durbin 17:35

Um, so we do um transfer that $35 million that's poured back into the community for services that um would otherwise have to be paid for by taxes and other methods.

Jocelyn Rawat 17:47

Okay, so um so we get a lot of questions from county residents about our system. And thank you both. You've I think you've answered a lot of them. Um but but let me give you a few of the ones that I hear most often. Um, and the biggest one I hear is why can't I buy alcohol at the grocery store?

Kathie Durbin 18:04

So I will answer that one if that's okay for locally here. So in 1978, a Maryland law, um, state law passed designed to support small businesses. Um it prohibited the sale of alcohol in chain stores, which include supermarkets. The law applies across the state, and it's not at all related to Montgomery County or control systems. Actually, there are um, there were some chain store supermarkets that were grandfathered in in Montgomery County, and I think um three remain here in the county. But additionally, there are dozens of independent grocers licensed to sell beer and wine to go in Montgomery County.

Jocelyn Rawat 18:42

Okay, so let me make sure I I have that right. That doesn't actually have anything to do with Montgomery County being a control system.

Kathie Durbin 18:48

Absolutely.

Jocelyn Rawat 18:48

Absolutely not. Okay. Um good to know. Um, another question we hear a lot has to do with highly allocated products. Uh, many of the most hard-to-get premium whiskies sell for astronomical prices in other jurisdictions. Is it really true that alcohol beverage services sells them for the manufacturer's suggested retail price?

Kathie Durbin 19:08

Yes, it is. Um, Montgomery County does have a highly allocated or HAL program. We drop many of the products in our stores on the first Saturday of the month and sell them on a first-come, first-served basis. We offer these products at their manufacturer's suggested resale price, or I'll say MSRP. It's a lot easier to say. Uh, this ensures that all our customers have fair and equal opportunity to purchase these sought-after items at reasonable prices, unlike some other jurisdictions where such products are sold at significantly higher prices. Also, um, for the very um most allocated price uh products, we hold lotteries where residents and businesses can enter to win an opportunity to purchase at MSRP.

Jocelyn Rawat 19:52

Okay, so is that price control characteristic of uh control jurisdictions?

Neal Insley 19:58

It is. Uh each control jurisdiction handles it a little different. And uh, you know, they may try new things, but um, by and large, it's all done. Uh the allocated products are handled through either store drops that they they build some interest around, or uh they'll do, like uh Kathie mentioned, uh a lottery. But it's all held is with as much transparency uh as they can have, and and the product are uh is sold at MSRP.

Jocelyn Rawat 20:29

Okay, this is the last of my frequently asked questions. I like the idea that a portion of my alcohol purchase goes back into the community, but I prefer to shop at uh small local businesses. Does my purchase still contribute? Absolutely, it does.

Kathie Durbin 20:44

Um anytime you purchase alcohol in Montgomery County, whether it's at an ABS store, a privately owned store, or even a restaurant, you are, as we'd like to say, pouring back into the community.

Jocelyn Rawat 20:56

I love that. I feel like I'm supporting my community twice. I can raise a glass to that. Okay, thank you, Kathie Durbin and Neal Insley for participating in today's spirited discussion. Great, thank you.

Neal Insley 21:08

Thanks for having me. Enjoyed it.

Jocelyn Rawat 21:09

If there's a topic you'd like us to cover on the podcast, email us at ABS.SpiritedDiscussions@Montgomery County MD.gov. And thanks for listening.

Announcer 21:20

Alcohol Beverage Services is the alcohol wholesaler of beer, wine, and spirits for Montgomery County. And it operates neighborhood retail stores. ABS also manages alcohol licensing, enforcement, and education for more than 1,000 businesses. Its profits are used to pay for resident services that otherwise would be funded by county tax dollars.