September 01, 2022
Source - Virginia ABC News Release
Virginia ABC Announces Fiscal Year 2022 RevenueMore than $622 million contributed to the commonwealth
The Virginia Alcoholic Beverage Control Authority (ABC) released its unaudited draft financial results for fiscal year (FY) 2022 to the Virginia Department of Accounts and the Auditor of Public Accounts showing gross revenue of $1.4 billion, up $60 million over FY 2021. ABC revenues include the sale of distilled spirits, Virginia wines and mixers and the collection of license fees and other miscellaneous revenues which include a one-time net gain on the sale of ABC’s former central office and warehouse facilities in Richmond.
Each year, per the Code of Virginia, Virginia ABC remits earnings to the commonwealth for designated state programs and services. For FY 2022, ABC contributed a total of $622.8 million, an increase of $6.4 million over the previous year. This reflects $243.6 million in profits from retail sales, $294.8 million in taxes (retail) and $84.4 million collected in wine and beer taxes.
“The shifting landscape of a post-pandemic economy and our ability to continue adjusting our response to consumer demand demonstrates the resourcefulness of our ABC teammates, particularly those in retail and distribution,” said Chief Executive Officer Travis Hill. “Having completed our first year in the new facilities in Hanover County, we are looking forward to greater growth and capacity to meet the changing e-commerce needs of our retail industry in FY 2023 and beyond.”
During FY 2022, ABC store sales increased 3.1%, from $1.3 billion in FY 2021 to $1.4 billion in FY 2022. This growth was driven by sales to licensees, with sales to retail customers declining by 2.4%. Sunday sales declined for the first time since being authorized in FY 2015, from $104.9 million in FY 2021 to $98.9 million in FY 2022 but was 24.5% higher than pre-pandemic Sunday sales of $79.4 million in FY 2019. Commercial property owners and contractors impacted by the pandemic and supply chain disruptions put a damper on ABC’s FY 2022 plans to increase their retail footprint across the commonwealth, resulting in two new stores generating $3.7 million in sales. ABC also oversaw six store expansions/remodels and 10 store relocations to growing market areas, enhancing customer service and accessibility.
While the rate of online orders declined over the course of the year as customers returned to in-person shopping, online ordering remained materially higher than pre-pandemic levels. As expected, following the pandemic, licensees re-opened and restocked their bars and consumers returned to dining out, resulting in FY 2022 sales to restaurant and hospitality businesses exceeding pre-pandemic levels. Licensee sales reached $229.5 million in FY 2022, 43.2% higher than FY 2021 sales of $160.3 million, and 22% higher than pre-pandemic sales of $188.1 million in FY 2019, demonstrating significant post-pandemic recovery and growth in this segment of the commonwealth’s economy.
According to FY 2022 sales, the top five brands purchased in Virginia ABC stores were:
These five brands repeated their FY 2021 standing as the top five brands in Virginia. Of the five top sellers, Tito’s Handmade vodka saw the most impressive leap in sales, from $57.9 million to $66.9 million, a 15.6% increase, followed by Jim Beam from $23.2 million to $24.2 million, a 4.3% increase. Sales of Hennessy VS and Patron Silver fell in FY 2022 due to supply chain disruptions. Hennessy VS sales went from $52.8 million in FY 2021 to $42.5 million in FY 2022, a 19.4% decrease. Patron Silver sales went from $28.9 million in FY 2021 to $28.6 million in FY 2022, a 1% decrease. Jack Daniel’s Old No. 7 Black sales were unchanged at $30.4 million for both years.
Suppliers and Virginia ABC continued to be impacted by supply chain issues in FY 2022 and worked mightily to fully meet the ongoing increased consumer demand level. Greater demand for aged products quickly depleted inventories manufactured years ahead of the pandemic with no ready supply to supplement inventories. Packaging issues, workforce availability, ingredient shortages and shipping bottlenecks are just a few of the challenges that presented additional pressures on performance throughout the supply chain, from manufacturer to retailer.
During FY 2022, Virginia ABC completed projects, made significant institutional changes and invested in its employees to support continued growth. This included:
•The successful move from the Richmond warehouse to a new distribution center in Hanover County, enabling retail operations efficiencies such as automating shipment of our highest volume products and greater shipping volume into the future. During FY 2022, the distribution center set a new production record, shipping over 36,000 cases in a single day.
•The addition of a chief transformation officer to drive sustainable infrastructure changes that build upon ABC’s capabilities to demonstrate higher responsiveness and deeper impact for their customers and community.
•Employee wage and salary increases, and the permanent implementation of pay adjustments instituted at the start of the pandemic. In addition to across-the-board state pay increases, Virginia ABC used its status as an authority to make targeted investments in compensation to remain competitive as the labor market tightened, enabling it to recruit and retain a workforce that is essential to generating revenue for the commonwealth and supporting ABC licensed businesses.
Virginia ABC’s final, audited results will be released in the fall. For more information about ABC’s sales and revenue, visit www.abc.virginia.gov.
Canned cocktails are gaining momentum in the push for lower state tax rates but beer brewers push back
October 20, 2021
The spirits industry is pushing for states to lower excise taxes on canned cocktails.
Since the repeal of Prohibition, distillers have paid much higher taxes to make and sell spirits than brewers pay for beer.
The booming popularity of canned cocktails has brought more attention to the issue, helping Michigan and Nebraska pass laws to lower taxes on those drinks this year.
John Granata, co-founder of Jersey Spirits Distilling and president of the New Jersey Craft Distillers Guild, has been pushing for lower excise taxes in New Jersey for years. For the first time, however, it seems like state legislators are finally listening.
"It was a surprise that legislators were even entertaining it," Granata said.
The spirits industry has an effort underway to lobby states to lower taxes on canned cocktails to more closely mimic those placed on beer and hard seltzer.
Excise taxes have been placed on alcohol dating back to the early days of the United States, but since the repeal of Prohibition, spirits have been taxed higher than other forms of alcohol by the federal government and states. Liquor's high alcohol content carries a taboo that separates it from beer and wine in the eyes of some lawmakers and watchdogs. Producers, importers, wholesalers and even retailers in some states have to pay excise taxes on alcohol, although they typically pass the cost down to consumers.
Granata's distillery started selling canned cocktails during the pandemic as a way to offset on-premise sales lost during the health crisis. New Jersey had been slow to legalize to-go cocktails. Most of Granata's ready-to-drink beverages have an alcohol by volume of roughly 10%.
"Once we got into that, we started thinking about the taxes," Granata said. "The state taxes became a stumbling block in trying to do things on an even larger scale. With the price points that were already set, it became challenging."
On top of federal excise taxes, Jersey Spirits Distilling pays $5.50 per gallon in excise taxes to New Jersey on those drinks because they contain spirits, while a beer manufacturer would only pay 12 cents for the same amount, even if beer had a higher ABV. If New Jersey passes a bill moving through its state legislature, the distillery would pay 15 cents for every gallon of its canned cocktails.
'Alcohol is alcohol is alcohol'
The pandemic and consumers' desire for convenience have driven up the sales of canned cocktails. In 2020, U.S. consumption of canned cocktails grew 52.7% from the previous year, accounting for 6.9% of the total volume in the alcoholic ready-to-drink category, according to IWSR data. The higher sales have encouraged liquor companies to take the offensive in a fight for tax parity.
"With all of the attention that came organically, we started getting much more engaged," said Les Fugate, vice president of state and local public affairs for Jack Daniels distiller Brown-Forman. "We're always looking for the opportunity for our products to get treated the same, and this is the perfect way to demonstrate that alcohol is alcohol is alcohol."
The spirits industry thinks that canned cocktails can see even more growth if distillers could pay lower excise taxes, making the drinks cheaper for consumers. A six-pack of hard seltzers usually sets consumers back about $10, around the starting price for a four-pack of lower-end canned cocktails. Distillers argue that canned cocktails have similar alcohol content as beer and hard seltzer and are treated unfairly just because their drinks contain spirits.
So far this year, Michigan and Nebraska have already passed laws to lower excise taxes on canned cocktails. New Jersey and Pennsylvania have bills sitting in their state legislatures, while Hawaii, North Carolina, Vermont, Washington and West Virginia have bills that will roll into their 2022 sessions.
"This excessive tax burden is unfair to consumers and creates a steep hurdle for many small craft distillers who want to enter this growing category," said Lisa Hawkins, senior vice president of public affairs for the Distilled Spirits Council of the United States. "States are taking a closer look at this issue to provide consumers with more convenient and equal access to spirits-based RTDs, and to ensure these products are being taxed fairly."
A DISCUS survey of craft distillers from earlier this year found that 62% of respondents who aren't currently making canned cocktails cited the higher tax rate as a barrier to entering the market.
Federal changes are far away
Despite some wins on the state level, changes on the federal level seem far away at this point.
"You start to hear a little bit about the conversation at the federal level, but right now I think most of the attention is at the state level," Fugate said.
Even on the state level, there is opposition, most notably from brewers and beer distributors, who fear losing a competitive edge. Beer consumption has been declining in recent years as consumers switch to hard seltzer or spirits or opt out of drinking altogether.
This spring, Boston Beer founder Jim Koch reportedly sent letters to a handful of beer industry trade groups urging them to work together to oppose the growing movement, according to Beer Business Daily. In addition to brewing Sam Adams, Boston Beer also owns Truly Hard Seltzer, which has seen slowing sales growth this summer. A representative for Boston Beer did not return CNBC's request for comment.
"Legislation to lower taxes on canned cocktails is bad for state budgets and bad for good-paying local jobs that depend on our nation's beer industry," a spokesperson for the Beer Institute, a beer industry trade group, said in a statement to CNBC. "We look forward to working with elected officials at all levels on ways to help bolster local jobs and strengthen public safety that doesn't involve giving a subsidy to liquor companies."
Alcohol industry watchdogs are also opposed to lowering excise taxes on canned cocktails.
"There's no reason why they should be given a reduction in taxes," said Michael Scippa, public affairs director for Alcohol Justice, a California-based organization. "Our real concern, one of our steadfast goals, is to raise taxes on all alcoholic beverages because they're just too low and many haven't been raised in generations, making them moot in terms in generating revenue."
Source: Tax Foundation - By Janelle Cammenga
Of all alcoholic beverages subject to taxation, stiff drinks-and all distilled spirits-face the stiffest tax rates. Ostensibly, this is because distilled spirits (liquor) have higher alcohol content than the other categories, like wine and beer. This round of information is on us, so help yourself to the following map to see whether you're shaken or stirred by how your state's distilled spirits taxes compare with the rest of the nation.
Data for this map comes from the Distilled Spirits Council of the United States (DISCUS). To allow for comparability across states, DISCUS uses a methodology that calculates implied excise tax rates in those states with government monopoly sales.
In this category, Washington state has a huge lead on the rest of the states with an excise tax rate on distilled spirits of $35.31 per gallon. The Evergreen State is followed by Oregon ($21.95), Virginia ($19.89), Alabama ($19.11), and Utah ($15.92). Distilled spirits are taxed the least in Wyoming and New Hampshire. These two control states gain revenue directly from alcohol sales through government-run stores and have set prices low enough that they are comparable to buying spirits without taxes. Missouri taxes are the next lightest at $2.00 a gallon, followed by Colorado ($2.28), Texas ($2.40), and Kansas ($2.50).
Like many excise taxes, the treatment of spirits varies widely across the states. Spirits excise rates may include a wholesale tax rate converted to a gallonage excise tax rate; case and/or bottle fees, which can vary based on size of container; retail and distributor license fees, converted into a gallonage excise tax rate; as well as additional sales taxes. (Note that this map does not include a state's general sales tax, only taxes in excess of the general sales tax rate.)
Distilled spirits tax rates may also differ within states according to alcohol content, place of production, or place purchased (such as on- or off-premises or onboard airlines).
Map: How High are Distilled Spirits Taxes in Your State? https://files.taxfoundation.org/20210616121157/2021-distilled-spirits-taxes-compare-2021-state-distilled-spirits-taxes-2021-state-liquor-taxes-and-tax-rates.png
Source: Wine & Spirits Daily
With the boom in ready-to-drink sales, the taxation and availability of RTDs (particularly spirits-based) has been top-of-mind for producers and legislators. Indeed, Michigan and Nebraska recently passed laws lowering taxes on spirits-based RTDs and several other states are considering similar legislation.
One of those states is New Jersey. The New Jersey Assembly is considering a bill that would equalize the state excise tax for spirits and beer products with 9.9% abv or lower at 12 cents/gallon. Spirits producers currently pay $5.50/gallon.
You may recall, beer industry members formed a coalition against the bill in New Jersey, sending a letter to the state Senate pointing out the disadvantages of equalizing the excise tax on and accessibility of spirits-based RTDs, most notably that tax revenues would decrease [see WSD 06-02-2021].
In response, the Distilled Spirits Council has submitted testimony to the New Jersey Senate Budget & Appropriations Committee ahead of the hearing on the bill later this week.
As aforementioned, New Jersey is not the only state taking a closer look at RTDs, nor is it the only state "in which the beer industry has decried this type of consumer-friendly legislation and leveled myth-based criticisms at the spirits industry," per the testimony penned by DISCUS svp of state public policy Jay Hibbard.
Jay outlines a few "misrepresentations" made in arguments against treating spirits-based RTDs similar to malt-based. To wit:
DISCUS estimates the state would realize more than $34 million in new tax revenue from the category within three years, and that equalizing the tax will increase jobs in the state's spirits industry.
"It is a myth that distilled spirits are 'harder' than beer or wine," writes Jay, pointing to the standard drink definition as containing 14 grams of pure alcohol - that's about 12 fl oz. of 5% beer, 5 fl oz. of 12% wine, or 1.5 fl oz. of 40% abv spirits. "Put simply, there is no beverage of moderation, only the practice of moderation."
DISCUS also alludes to the recent malt-based hard seltzer launches with higher abv, such as White Claw Surge and Truly Extra, both of which are about 8% abv. As such, "it is a myth to suggest that an 8% or 9.9% abv spirits-based RTD should not be treated as a 'low-percentage alcohol' product."
The testimony concludes: "Finally, for all the claims that the sky-will-fall made by the beer industry, should New Jersey adopt a fair and equal state tax rate, the state's action will have no impact on the Federal Excise Tax rate currently imposed on low-alcohol spirits products, which will continue to be taxed at a rate nearly 400% higher than beer products of the same ABV. Beer will continue to enjoy a marketplace price advantage."
We'll have more as the legislation progresses.
ource: Beer Business Daily
As you may know, the New Jersey Assembly is considering a bill which would equalize the state excise tax for spirit-based canned cocktails at 8% or under ABV.
That bill may or may not pass (the president of the Senate introduced it, so..). But something remarkable happened during the debate that I have not seen before in my many moons in the bev-alc industry: A coalition formed against the bill which included everybody on the same side, (except the wine & spirits guys, obviously).
Collectively they sent a letter to the New Jersey Senate pointing out the disadvantages of equalizing the excise tax on and accessibility of canned cocktails, most notably that tax revenues would go down.
But, also, "The history of alcohol beverage taxation in the United States and in jurisdictions across the world is to favor malt-based beverages for a lower excise tax rate than hard liquor of any kind. We urge the Committee to keep this policy in place," per letter.
But here's the interesting thing. Check out the signatories to this letter:
-Beer Wholesalers' Association of New Jersey
-Boston Beer Company
-Brewers Guild of New Jersey
-Constellation Brands Beer Division
-Mark Anthony Brands International
-Molson Coors Beverage Company
-National Beer Wholesalers Association
Wow. I've never seen a coalition like that. Even if this bill passes, "this is a powerful template going forward to fight equalization," Beer Institute chief Jim McGreevy told BBD. "We are working closely with Bob [Pease at the BA] and Craig [Purser at the NBWA] to coordinate and distribute our messaging on this important issue."
WHY IS IT IMPORTANT TO BEER? About 15 years ago, the former DISCUS chief, Admiral Peter Cressy (ret'd), set about a strategy to change state laws to allow Sunday sales of hard spirits. As an industry, we kinda laughed and said, "good luck." Ten years later we woke up to find that the vast majority of states now sell liquor on Sundays (and in more channels).
And it matters because the average state excise tax on liquor canned cocktails is $10 a case, compared to $3-4 for malt-based products. So yes, it's significant.
OUR TAKE. DISCUS is in it for the long game, and now that hard seltzers and canned cocktails are hot, equalization of taxes and access for those products are their top priority, and they will go state-by-state, starting with the larger states that have the highest tax differential between malt and spirit-bases, and going from there. If the beer industry doesn't act now, we'll wake up again in another ten years to find that not only are canned cocktails equalized with beer and malt-based seltzers, but hard liquor has somehow slipped into being equalized too. Slippery slopes and all that.
For 75 years, beer has ruled the cold box in the off-premise. This has been their domain, and beer distributors are the masters of that crucial real estate - as it is fast-moving and requires lots of merchandising. I've heard beer distributors say, "the wine and spirits guys don't know how to service a cold box or c-store." That may be true today, but how hard is it to create a merchandising division and a c-store division, if the velocity and margins are there with RTDs? W&S distributors aren't stupid, and they aren't poor. They could ramp those capabilities fairly quickly, particularly in metro and chain markets, if the velocity and margins are there for canned cocktails. Beer distributors could lose their competitive advantage in that hallowed section of the store.
Now, add onto that if states start to reduce the excise tax and lift restrictions on channels, that just accelerates the spirits companies' motivation to invade the space. Cans are the future. They want in. It's good that our government affairs execs, brewers, and distributors recognize this seminal threat and work together to fight it before it gets out of hand.