The Alcoholic Beverage Control Study Committee finished its first day of deliberations Monday as Mississippi Department of Revenue officials told lawmakers that the warehouse is not able to keep up with demand.
Lawmakers heard testimony from new DOR commissioner Chris Graham, former DOR commissioner Herb Frierson, Mississippi Lottery Corporation board member Gerard Gibert and Dawson Hobbs from the Wine and Spirits Wholesalers of America, a trade association that represents distributors.
The committee is trying to find out the best way to improve the state’s alcohol distribution system, which handles spirits and wines. Mississippi is one of 17 states nationwide that are known as control states, which means government handles wholesale distribution of at least one of the three categories of alcoholic beverages (beer, wine and spirits) and even retail, like Alabama.
This improvement could be more money to upgrade or replace the state’s spirits warehouse, shifting control of its operations to an outside vendor or even a state-chartered corporation like the Mississippi Lottery or divesting the distribution to private wholesalers.
Mississippi and Alabama are the only control states in the region and the rest have alcohol distribution handled by the private sector.
Washington, which was the latest state to switch from a control model to a licensed model, was a big topic of discussion. The state now has the country’s highest excise taxes on spirits, something that Hobbs said was a product of occurring via ballot initiative rather than legislative action.
Also mentioned was Virginia, which has transitioned their ABC to a legislatively-chartered entity much like the Mississippi Lottery Corporation.
Frierson said the New Hampshire model would be a good one for the state, where a vendor runs the warehouse. He visited the site and was greatly impressed.
“It totally changed my mind on ABC warehouses when I went to New Hampshire and saw a warehouse totally different than ours that ships twice as much liquor as we ship and did it with a whole lot less people,” Frierson said.
In recent months, the warehouse staff has been fighting a massive backlog caused by a large increase in orders during the COVID-19 pandemic. The ABC announced it cease taking orders for 10 days in July before complaints from package store and restaurant customers forced the agency to change course. The ABC declared that they’d take orders, but it might take a month for customers to receive them. During normal times, it usually takes only a few days for deliveries to arrive for customers.
The numbers for fiscal 2020 show the strain on the system. 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.
Graham said he was looking to hire more temporary workers to work extra shifts at the 211,000 square foot spirits and wine warehouse in Gluckstadt. He also said that the workforce, who normally worked four 10-hour shifts apiece weekly, have added an extra day to keep up with demand.
The DOR has put limits on orders with both a maximum and a minimum. The agency has also changed the online ordering system to end the practice of retailers being able to change their orders once they’ve submitted them. Graham said these changes are designed to help the warehouse fill some of the backlog.
“It’s an effort to ensure that we can ship as much product as we can to as many permittees as we can,” Graham said.
Associate Commissioner of Revenue Meg Bartlett — who oversees the state’s warehouse — said the agency needs a funding stream to pay for repairs and maintenance at the facility, which was built in 1983. She also said the facility’s crucial conveyor belt was past its expected lifespan and needed replacement.
She also said the warehouse is putting limits on how much of a particular product that one retailer can buy.
“What we’re trying to do is get more cases out every day,” Bartlett said. “But we’re also trying to do some things to stop some of the panic buying, which we believe is still continuing today.
“They’re afraid that if I don’t order, I don’t know when I’ll be able to get my next order so I’m going to order the 100 cases whether I think I need it or not.”
The warehouse works on a bailment system, which means the state stores the products of distillers and vendors without the state having to purchase it. The only time the state has to purchase items is for a special order or if a bailment item is broken or damaged.
Once a specially ordered item ships to the permit holder, they pay the warehouse for the item.
Gibert, who is the former CEO of Venture Technologies, said that either transitioning to a vendor to run the state’s warehouse or a state-chartered corporation like the Lottery would likely improve the warehouse using artificial intelligence and robotics technology to increase efficiency and reduce the workforce.
The Mississippi Lottery Corporation is a legislatively created corporation has a board of directors chosen by the governor with the advice and consent of the state Senate. It is subject to public records laws with a few exceptions and the board’s appointment of a corporation president is subject to approval by the governor.
Pure privatization would transfer alcohol distribution to private wholesalers, much as done with beer statewide. The downside of this possibility is that the state would lose about $80 million annually in profit from the warehouse.