Virginia is cashing in a $1 billion bet on its 85-year-old state liquor monopoly.
The Virginia Alcoholic Beverage Control Authority, conceived four years ago as a way to make an old government bureaucracy run like a modern business, for the first time surpassed $1 billion in retail sales in the year that ended June 30 and generated almost a half-billion dollars for the state budget.
“Customers aren’t necessarily drinking more,” Travis Hill, chief executive of the Virginia Alcoholic Beverage Control Authority, said in an announcement of the financial results on Tuesday. “They’re buying more premium products that have a higher per bottle price tag. Additionally, they’re choosing distilled spirits over other products.”
The top brand, by the way, is Tito’s Handmade vodka, which grew from $33.5 million in fiscal 2018 to $42.1 million in sales for fiscal 2019, which ended June 30.
The overall boom in sales, which grew by 7.1 percent last year at retail stores and 6.3 percent at restaurants, arose amid an expansion of stores and operating hours on Sundays, once forbidden entirely in Virginia.
“Sunday is now a shopping day for much of Virginia,” Hill said at a news conference Tuesday to announce the financial results.
ABC added seven stores — it now directly operates 380 — while remodeling eight and moving four to better markets. Sunday sales rose by 7.4 percent last year and generated $79 million for the state. It plans to open eight more stores in the next six months.
The billion-dollar milestone was the target for then-Gov. Terry McAuliffe, who had ordered a fresh look at the old Virginia ABC Department after his predecessor, Gov. Bob McDonnell, failed in 2011 to privatize the liquor monopoly the state has held since the end of Prohibition in 1934.
With the same aim, the 2015 General Assembly adopted legislation to turn the venerable state agency into a semi-independent authority, governed like a corporation with a CEO and a part-time board of directors, and allow it to keep some of the money it generates each year for the state to modernize its outdated operations.
“My ask to the General Assembly in 2015 was reinvestment in the business they decided to keep ownership of, and they’ve done that,” said Hill, 41, who became chief operating officer under the old ABC structure in October 2014 and the first CEO of the authority officially established last year.
“These are all things that are absolutely essential to a retail organization,” said Hill, citing new systems for financial management, licensing, online sales and retail transactions at about 400 ABC stores across the state.
The creation of an authority set the stage for ABC to buy its own information technology services outside of state government, as well as follow its own rules for overseeing 4,000 full- and part-time employees and purchasing goods and services.
In less than two years, ABC also expects to have a new home, with construction to begin this fall on offices and a modern warehouse in Hanover County that will serve as the distribution hub for retail stores across the state.
The impending move also will open up its coveted 21-acre property on Hermitage Road in Richmond for potential redevelopment as a baseball stadium for the Richmond Flying Squirrels and Virginia Commonwealth University, which has the right of first refusal to buy the property under budget language enacted this year.
However, Hill said ABC would not allow the property to be sold until it is assured of no interruption in the warehouse operations on which its robust retail sales depend.
“We’re not going to put ourselves in a situation where we have to move from this facility until we’re ready,” he said.
The warehouse, built in 1960 for wholesale grocery distribution, is completely full, with ABC leasing an adjacent warehouse for overflow until it moves the 100-employee operation to a new facility at Interstate 295 and Pole Green Road in mid-2021.
This year, legislators moved to allow for earlier Sunday hours, beginning July 1. The earlier hours were part of a legislative compromise that compensated ABC for the estimated loss of about $800,000 a year from increasing the sale commission to 20 percent for Virginia distillers that operate 36 state stores on their premises.
ABC has moved up Sunday opening hours selectively, targeting primarily urban and tourist-oriented areas such as Virginia Beach, Hill said in an interview. “We want to be sensitive to the communities we’re in. ...Your store in Short Pump is much different than your store in South Boston and in other, rural locations.”
In addition to expanding its network of stores, he also attributed the surge in sales to “a robust series of targeted seasonal promotional campaigns and changing consumer trends.”
The $1 billion in retail sales produced $499.5 million for the state budget’s general fund — $196.7 million in net profit on sales, $223 million in taxes on those sales, and $79.8 million in taxes on wine and beer. The general fund pays for core state services, such as public safety and education.
“We recognize how important a robust general fund is to ensure the public safety of our citizens,” Secretary of Public Safety and Homeland Security Brian Moran said at the announcement Tuesday.
Transforming ABC from a staid state agency to an authority “allowed the ABC to be more nimble, more flexible in their responsibilities,” Moran said.
The next step for the new ABC is reforming its licensing system. The authority licenses 19,000 businesses to sell alcohol and issues 130 types of licenses. Hill said ABC may move to consolidate the number of license categories and make the system work better for new business models.
Legislation adopted earlier this year already has loosened ABC’s restrictions on happy hour advertising, which Hill welcomed as a way to “clear the air” over what licensed establishments can advertise and free the authority’s fewer than 80 law enforcement agents to focus on bigger priorities.
“It wasn’t a focus for us enforcement-wise,” he said. “Writing a ticket to a business owner for advertising happy hour as ‘Wind Down Wednesday,’ that’s not where we are.”