Department of Commerce, Alcoholic Beverages Division

Director:  Lynn Walding

Website:  http://www.iowaabd.com/

Selected as a Charter Agency by Governor Tom Vilsack, the Iowa Alcoholic Beverages Division committed to increasing its revenue and savings from Iowa’s liquor wholesale operation by $1.25 million in FY04 and by a total of $5 million through FY05

The division met that goal and then some – posting its single largest annual growth rate ever in FY04. An additional $9 million (for a total of $49 million) was transferred from liquor revenues over the prior fiscal year – a $7.75 million increase over the pledged amount. The division achieved that gain on liquor sales of $134 million at wholesale, a growth rate of 10.34 percent (in dollars) over the previous year. As liquor sales continued to climb, the division easily eclipsed its revenue commitment again in FY05 with a General Fund contribution of over $50 million from gross liquor sales of over $146 million.

The vast increase in sales numbers was largely the result of several Charter initiatives geared toward revenue growth, including improved tracking for the division’s Temporary Price Reduction (TPR) program. Improved TPR tracking allowed the division to increase investment in supplier-discounted products while working with suppliers to minimize out-of-stock products and maintain a plentiful stock of the leading brands. Furthermore, because of current consumer trends of consuming higher-quality liquor, the division aggressively pursued the addition of premium and superpremium distilled spirits to its product portfolio.

Also in accordance with current premium liquor consumption trends, the division experimented with a variable mark-up rate (VMR) on the wholesale price of vodka, replacing the normal 50 percent mark-up. The VMR ranges from 40 percent to 60 percent in twopoint intervals, yielding a price compression that encourages consumers to trade up to top-shelf spirits. While consumers can enjoy premium liquor for a lower price, the “trade-up” behavior allows the division to collect more revenue without a corresponding increase in consumption. For instance, it’s better to earn 40 percent on a $30 sale than 50 percent on a $5 sale. 

The division did not just focus on the revenue side of the ledger. After its private liquor distributor filed for bankruptcy, the division, as a Charter Agency, was able to save a significant amount of money by resuming control of its own warehouse and distribution duties. Consequently, the money previously paid to the private contractor is now deposited directly into the state’s General Fund – all while fostering an environment conducive to innovation and customer service. The move allowed Iowa taxpayers to save at least $1.5 million over the next two years, and minimally $850,000 each year thereafter.

Further initiatives aimed at cost savings involve the use of technology to reduce operating costs. In August 2005, the division unveiled a new online liquor licensing system that enhances customer service while reducing paper, printing and postage costs. The division is also working toward establishing an online ordering system that will allow licensees to place liquor orders 24 hours a day, seven days a week. Finally, a sales and inventory management system for the liquor warehouse and a system for electronic beer and wine tax reporting are being developed and will take effect in 2006.

For more information:

Jim Kuhlman

515-281-7406

Kuhlman@iowaABD.com