Philip Beekman, president of Joseph E. Seagram & Sons Inc., was showing slides to about 300 distillers gathered here for a convention last week.
After about a dozen or so graphs and charts, on flashed a slide showing a Seagram's 7 advertisement that appeared in a California magazine, featuring an attractive woman holding a gift box of the liquor in one hand and the new half-gallon size in the other. The holiday bargain prices were there, too.
It looked like a typical magazine liquor ad. But, Beekman told the audience, there was just one little problem.
That ad was illegal in 25 other states - for seven different reasons ranging from "cannot show price" (Arkansas, Georgia, Iowa, Maine, Minnesota, Wyoming) to "cannot show a woman" (Alabama, Kansas).
Increased state and federal regulation is just one problem facing the distilled spirits industry.
"The alcoholic beverage market is in trouble," says John Maxwell Jr., liquor industry analyst for Morgan Stanley & Co.
"People are drinking more moderately," Maxwell told the distillers, who were gathered for the fifth annual national convention of the Distilled Spirits Council of the United States (DISCUS), "and we have a phenomenon which many in the industry refuse to discuss - marijuana. Marijuana smoking is now prevelant among all classes and certainly is having an adverse effect on the consumption of all alcoholic beverages."
As if that wasn't enough, Maxwell also said that general beverage competition is up and the growth in consumption of hard liquor is slowing.
Another outside speaker did not paint too rosy a picture either. Florence Skelly, executive vice president of Yankelovich, Skelly & White Inc., a research and public survey firm, warned of an increased public demand for full disclosure, "especially in matters of health."
But, she did give her audience some hope. Social trends such as the rising age, independence and individualism of the female population are providing "exciting new marketing possibilities," she said.
Sales of distilled beverages are rising at a rate of only about one per cent a year - down from solid 6 per cent growth in the late 1960s and early 1970s, but up from an estimated 2 percent drop in sales from 1975 to 1976.
The industry is at a crossroads. In an attempt to bring the conservative distillers into the 20th Century, major liquor firms have brought in several outsiders to run things. Coming from marketing and more progressive management backgrounds, these new leaders may save the troubled industry by using modern marketing techniques.
"This industry is under new management," said Raymond Herrman Jr., chairman of the board of "21" Brands Inc. "Four of our top chief executives were not even in this business five years ago."
But, Herrmann added, "I don't share the grim view most people have. He also heartily endorsed DISCUS, saying, "Our industry, more than most, needs a strong trade association."
Herrmann was not just whistling John Barleycorn when he said the distillers needed to get together to fight off industrywide challenges.
"The Niagara of regulation is drowning all of us," says Sam Chilote Jr., newly elected president of DISCUS. He points to regulatory threats from not only the Bureau of Alcohol, Tobacco and Firearms, but from the Food and Drug Administration, the Federal Trade Commission, dozens of state capitals, Congress and practically every state.
"Our best defense and our basic defense is a strict adherence to our own code of good practice," Chilcote said.
But there is little indication that the regulatory climate will improve for distilled spirits. DISCUS itself publishes a booklet called "Summary of State & Federal Regulations Relating to Distilled Spirits." The print is small, and the book is big - 95 pages.
There are solid indicators that the liquor industry has not kept up with the times. Certainly, the tradition has been to avoid price increases. "Our lack of progress is evidenced by comparing the consumer price index with the index for spirits over the same period," says Seagram & Sons President Beekman, who came from Colgate-Palmolive only a year ago. "Since 1967, consumer prices have risen 70 percent, while liquor prices are up about 16 percent.
And in raw numbers, the picture is no better. In 1967, 325 million gallons of distilled spirits were sold. In 1972, that number went to 393 million, a growth of 21 percent over that five-year period. But five years later, last year, the total was 432 million, only a 10 per cent rise. And Beekman estimates only a 7 percent jump to 1982.
Indeed, sales increases have barely kept up with the growth in the population.Americans drank an average of 2.55 gallons of distilled spirits each in 1967. In 1972, that number went to 2.83, but in 1977 it rose only slightly to 2.84, and Beekman estimates a drop to 2.81 gallons by 1982.
At the same time, Morgan Stanley's Maxwell is predicting a continuing meteoric rise for soft drinks, now the most popular beverage in the U.S., having surpassed coffee in 1976. In 1977, Americans drank an average of 36.3 gallons of soft drinks, he estimates.
All this information has led the industry to seek out the advice of consumer and marketing experts in droves. Indeed, the name of this conference was "Strategies for the Future," and practically all of the guest speakers were experts in marketing or public opinion.
Harvard Business School professor Stephen Greyser, who also is the executive director of the prestigious Marketing Science Institute there, gave the distillers a basic marketing lesson in his talk.
He cited several problem areas that had to be watched carefully by the liquor industry. He said the switch to metric sizes will be scrutinized by consumer advocates who expect to see the consumer getting less for his money - which according to industry insiders is true.
Greyser also said the liquor industry must "talk to the question of label warnings for such things as the effects of liquor on pregnant women." He suggested, for example, that the industry might go as far as to fund some of the necessary research by an independent body - and agree to the parameters of the study in advance.
And, he cautioned against the "neoprohibitionesque attitudes" of the existing health bureaucracy - using Health, Education and Welfare chief Joseph Califano's recent attack on cigarette smoking as an example.
That is one warning the distillers probably didn't need to be reminded of. DISCUS itself has been lobbying, with some recent success, to keep the Food and Drug Administration out of alcohol labeling, presently under the jurisdiction of the Bureau of Alcohol, Firearms and Tobacco.
"If ingredient labeling becomes a reality, it will cost the liquor industry $9 million just in startup expenses," says DISCUS President Chilcote. He claims that the FDA approach to product labeling "seems systematic of the negative, anti-industry attitudes which permeate the whole Department of HEW."
Greyser, fellow Harvard professor Theodore Levitt, Skelly and others all told the industry that they must advertise some product differentiation. Too often, the distillers were told, if you just took one bottle out of a liquor ad and replaced it with another, the public would not notice the change.
"And break the one percent barrier," Levitt told the audience. "That is the one percent price increase every year. You are going to have to raise prices four, five or six percent to pay for some of the marketing that must be done."
"What we will see," he said, "is an intense marketing war - a spirited war of spirits, and the giant brands will raaise market share gradually, but not profits. The extra revenue from price increases will be consumed in marketing costs."
But, Levitt warned, the increased and improved marketing efforts will be the only way to insure profits for the future.
Levitt told the distillers to prune their enormous product lines "that consume money and effort." A recent study showed 16,000 brand names in the liquor industry.
There are indications that the leading distillers already have begun to head the words of the marketing experts. Seagram Distillers doubled its advertising budget for this year and, according to industry watcher and newsletter editor Marvin Shanken in a recent interview, "is moving up prices 5 percent to 6 percent" in the coming year.
But other firms holding the line "are acting like the British military and polishing your boots while the other side has tanks," says Levitt.
There is little doubt that the industry must cut down on the number of labels.The proliferation of brand names came partially as a result of intense state regulation.
For example, several states have laws that force distillers to sell liquor at the lowest price it is available in any other state. To combat that, the industry created separate brand names for many states. With states introducing an average of 4,000 new laws a year aimed at the liquor industry, it is unclear how fast that reduction can occur.
Some positive trends already are showing in the industry. Although a federal law prohibits advertising that distilled spirits - like beer - in some cases have few calories because of reduced proof, there has been an increase in sales of lower-proof liquors and of "white goods" at the expense of "brown goods." Marketers say it is part of a general move toward "lightness" by health-conscious consumers.
With wine now approximately 12 percent to 15 percent of the alcohol market, and beer on the upswing, though, the pressure is greater than ever before for distillers to introduce and promote new kinds of distinct drinks and new kinds of packaging - like bottled or canned one-drink cocktails appearing in many convenience stores.
But without access to the broadcast media (for several years the federal government has prohibited broadcast advertising of distilled spirits) it is difficult to introduce a mass product using only print.
According to Greyser, print media is just now getting more attention from the creative advertising community's top people because of newly prohibitive costs of broadcast advertising.
"They need a lot of sharp positioning, strong consistent product personality," he added. "Positioning is very important because it implies that there is something of value being offered."