Interview with Vertner Smith, Jr., February 8, 1985

SMITH The wholesale liquor industry in Kentucky covers the last forty years. As I told you during our last conversation that there were 29 different distributors. And in most cases that represented 29 different owners. Now we're down to about seven owners and it looks like they will diminish further as time goes on.

SYVERTSEN Has this been a general decline from 29 to seven or has it been very rapid over say the last ten years or so?

SMITH No, its been just, its been about like the small distilleries, I mean, they've just gone out of business one by one. And only the more hardy seem to be surviving, or the more foolish, I don't know which. And I was thinking last 1:00night about our interview today and I remember when we started our business it was purely a family business. My father was president and I was the vice president, because we had to fill the officers slots. My mother was the secretary-treasurer and that was about it. My mother and my sister and I and my father all worked doing various things, the reporting, the federal reporting requirements were different then. We had to keep track of all our disposition and receipts of distilled spirits. My sister did that. I did it for a while and thank the good Lord, they eliminated the 52A or the 52B I'm not sure which 2:00report. But when they, they didn't eliminate the receipt report, we still have to keep track of receipts. We have to keep our invoices in numerical order now and that substitutes for the old form that we were filling out on a daily basis and recapping and trying to foot to coincide with our sales and inventory. And of course, we started out at 313 West Main Street, that is now, I think, called Shippenport Square. Al _____ is building a great big complex there. Its going to be an extension of the Galt House and he is going to have apartments also, plus convention facilities to serve the Galt House and it is going to take up the whole block except that part of, that square block, except that part that is 3:00occupied by Louisville Gas and Electric. We moved in 1960 to 2777 South Floyd Street to a sixteen thousand square foot warehouse, one floor. We originally were in an old loft building. They are still prevalent on Main Street. And they are gems now if people want to buy 'em and restore them or convert them to office use or other type of use. We had about 11,000 square feet in that building total, but there was so much isle space. We were on five different floors. We had an elevator, a freight elevator that would hold 50 cases of 4:00fifths of whiskey and it was kind of difficult to move inventory around. When we moved out on South Floyd Street, we thought that that would last us until the end of time. Well we weren't there ten years and we had to build something about three times the size that we had on Floyd Street. And then I guess six or seven years after we were here, maybe not that long, five years we felt that we had to grow more. We had a bid on, had plans drawn and at a great expense to the management. Got bids and we found out that the bids for the what 28th, no lets see 16,000 square feet we were going to add on, the building is 44.9 right now. 5:00We were going to add 16,000, but that would cost us almost half as much as the original building costs. So we got a material handling expert in and he said, "Well you could utilize the space that you have much better." He laid out a plan that involved our palates being, the palate racks being fastened to the floor and then we have an order picker that goes down these palate racks. And of course then we started building other warehouses out in the state. We have one in Hopkinsville, that was our first expansion. And then our last expansion was in Lexington. Now those two are exactly the same size, the same plans were used. The format was exactly the same about seventeen thousand square feet in each one 6:00of those. It has been kind of interesting you know you really don't, you're not aware of the changes that occurred until you start thinking about them. Like you know my father was a salesman, as was I, in addition to my other responsibilities. As I said my mother and sister worked in the company and it was a real family company. Its still a family company, but its, there's not the total family involvement. I have two of my four sons working here. My mother is on the board still. My sister has nothing to do with the company other than she has some stock in a trust fund that was left to my mother for during her life. We have got, our business got very impersonal. And that is a sad thing and I 7:00think everybody will acknowledge it used to be that if we had a problem we just called the president of the company up. That doesn't happen anymore. You have to go through the channels. You have to call the state manager. If you can't get the state manager then you go to the regional sales manager and then to the sales manager and then, you know. You have so many things, there's an exhaustive chain of command that must be, and I mean exhaustive. I mean, if we have something that the state manager can't handle, he will refer it to the area manager, the regional sales manager. And it keeps being knocked up until somebody finally says, "Well we can do something about it." or "We can't do something about it." But I can remember a time when we just called up Lyons 8:00Brown or Owsley and just said, "Look, we've got a problem in our market. We need help." And we didn't go through the state manager. And that was the accepted practice. Now we do, and I don't regret that, too much. I think their business has grown so much that they had to order it in a fashion where that they would be efficient. We used to origi nally, we used to write out our invoices, do them manually on the typewriter. And the girls would have these extensions, they would have these laminated cards so they could figure out, you know, the 9:00fractional cases and the fractional prices. And then we were the second distributor to get an IBM tabulating machine. It was quite sophisticated. But that and that served us well for about 15 years. And then we got a computer and since we've gotten our first computer, we've had I guess three different configurations. We are going into our fourth right now. My son is in New York attending class to learn how to fool with this machine. It gives us very 10:00valuable information and it gives it to us very quickly. I will be, I have a computer like that at home in my basement. I will be able to access the mainframe here, Hopkinsville, and Lexington from my home or from here. So we will be in better touch with our total operation. And hopefully we will have better control over our business transactions. But going back to the beginning of this innovation, it was very difficult to run all the invoices manually. And then they got a little easier with the IBM Tab Card set up. Of course, the 11:00computer made our job a lot easier. And of course, as the chips keep getting improved, we're getting better equipment. We're getting a better memory, we're getting quicker reports. Our invoices are being processed a lot faster. So it has been a real God-send in that regard. The business in the last ten years has changed considerably. We lost our credit law, I think in 1976. And then we lost the Fair Trade.

SYVERTSEN Could you go back and discuss the Credit Law?

SMITH Yeah the credit law was a device that the state thought was in the best interest of the people in the alcoholic beverage industry. I think it was also a 12:00form of prohibition. You've got to remember that when we repealed the ________stead Act, then we set about to do everything to have legal prohibition. The state and the various subdivisions thereof did everything in the world to make it difficult to sell liquor, certain delivery hours and we still have certain delivery hours. For instance, in Ashland we have to have our trucks off the street by 4:00. And if they are not off we are subject to a fine. In Louisville it used to be that you couldn't deliver before daylight and you couldn't deliver after dark. But I think we've come into the, perhaps the 20th century in that regard here. There is not prohibition about that, but they have 13:00taxed the hell out of our product. And of course, we have the local option which means that a community may elect to go dry or wet depending on its status at the time of the petition. Its, thats kind of interesting and that has changed. And I will try to address your question about the Credit Law. I think the Credit Law was one of those prohibitive things that the state put in place to not let people who were indigent or who were al coholics or who were not taking proper care of their family. It was sort of a fail safe for that sort of thing and it 14:00applied to wholesalers also. And I guess the rationale, and I am not sure of this, because I was not a member of the General Assembly at the time the Fair Trade Law was passed, the rationale was that if the retailer had to pay us cash for the goods then he would be less likely to extend credit to his customers, because all of his money would be tied up either, you know, be tied up in inventory. But, and I think it was in 1976, they decided that you know that you could charge. And the, it wasn't our intention to lose the, to lose that part of 15:00the bill, because it was, we think that it helped the rather unsophisticated retailer stay in business. Because if he had to plan on what he was receiving and had to make some provisions for paying for it, he would not, he would be a better manager.

SYVERTSEN Not overextend himself.

SMITH He would not overextend himself or wouldn't think that all the money in his cash register was his and he could go out to the race track or something foolish. And time has proven that. A lot of these people have gotten small business loans and have not managed their money well and they've just ended up going bankrupt and they're in debt to some of the wholesalers, not to mention the federal government. So that was thrown out and it was interesting

SYVERTSEN Now we're back on the cash basis again?

SMITH No, no. We're on a credit basis.

SYVERTSEN Okay, we are still on the credit basis?

SMITH Yeah, the cash law was thrown out. I don't mean that the credit law is. I wish it were, but it hasn't been. Interestingly enough the commissioner then was Bernie Keene came to the wholesalers and said that he was interested in doing things for all segments of the industry and wanted to know if he could help us __________ some sort of credit law that his department would administer. And we 17:00said, "Yes, commissioner, that is very nice. We think that we can come up with something that will be fair to everybody." So what we did, we got the Tennessee Credit Law and the Indiana Credit Law and took the best parts out of both of them and presented them to him. And he then took our proposal to the retailers and the retailers said, no, they didn't want any, we had some provisions in there for 25 days credit or I think it was 15 days originally. And they said no, they didn't want that. So he said, "I can't help you all if you can't agree." So what happened is, as a result of that, every wholesaler has his own credit terms. And retailers have since gone back to subsequent commis sioners and said 18:00look we are confused. One wholesaler has 10 days one has 30, one has 20, one has 25. We would like to have a uniform law. And we have said that we are not interested. And one of the reasons that we are not interested, we think that the state while they really want help will end up, you know they're just so bureaucratic and they have got so many other things, that they might not end up helping. That was true of a situation in Colorado. The state has a black list and in theory, and as soon as a retailer refused to pay a wholesaler, no other wholesaler could sell them, but the state was not enforcing that. So they finally asked the state to abolish the law and they would take care of their own credit. And that is what we are doing. I think that's better anyway. Because in the State of Massachusetts they have 60 days credit. There's no reason to give 19:00somebody 60 days. The federal law, in the absence of any state law or any other local laws, says that 30 days is considered sufficient. And that's when we decided what our credit was going to be, our terms, the length of the days that a person would have to pay from the time he received the delivery. We decided originally at 25. And we gave them a five day grace period which meant that we would always be in the 30 day perimeter. Well everybody started taking advantage of the grace period and started paying us on the 25th day. And finally we 20:00restated our policy and we went to 20 days. And we, monitor and, that's one nice thing about a computer, you can monitor those people who always take advantage of the grace. We finally have written letters to those customers and told them that our terms are not 20, are 20, not 23 or 24 or 25 as their past paying records indicate and that if they continue to be late in their payments, we are going to have to suspend their credit privileges.

SYVERTSEN In the Wall Street Journal, th

Pause

SMITH That was, I guess, the most shocking thing in our industry. For a long time, we had a pleasant relationship with our customers and with the commissioner and with our suppliers. But as the market began to change, as the suppliers got fewer, the distributors got fewer and to some extent the customers 21:00got fewer. I think the atmosphere just changed. It is a little colder now. Its objec tive and analytical. And of course the whole social environment toward our industry is unpleasant right now. And I don't think the federal excise tax is going to impact very well on it. We have gone through a number of tax increases since we have been in business. You enjoy, some business prior to the tax being 22:00imposed. The consumer will go to the retailer and say, "Look I want to buy some merchandise." And he will buy it to save money. The retailers are not going to buy a great deal of inventory, because they are going to have pay. They are going to have make a declaration on October 1 of 1985 on any inventory they have in excess of 500 wine gallons, 80 proof whiskey. I think that is the law, I am not certain, but they are not expecting everybody to report. And that boils down to about 250 cases of 80 proof whiskey which incidently, that is another thing that I have noticed change drastically in the late, the middle to the late 50's, 23:00the big sellers in the State of Kentucky were very low priced bottling bond whiskey or very low price, straight whiskey. That probably constituted two-thirds of our business. Well as you know, as the statistics are amazing. The Brown goods particularly Kentucky or domestically brewed Brown goods keep going down and down and down they are projected to go down through this year and I suppose next year too. I mean that is the natural trend. I have heard that they think that it may be up as much as eight percent and that is kind of bad, because most of our business is in Brown goods. We represent the largest selling 24:00straight bourbon in the state of Kentucky. We have also Jack Daniels which is fourth or fifth. I am just talking about in everything, I mean, including the rum and vodka. And of course, we have Forester which is very popular in this state. That constitutes a large proportion of our total business.

SYVERTSEN Early Times as well?

SMITH Yeah, Early Times, Old Forester, Jack Daniels.

SYVERTSEN Jack Daniels has held on to its market share fairly well hasn't it?

SMITH Well they are flat nationally. They are off in this market, that is another thing that has happened. Since we are in a market that is deregulated, the retailers and to some extent I guess the wholesalers have preoccupied 25:00themselves with selling things at discount. Now Jack Daniels' present policy is that they do not want a distributor to discount their goods under any circum stances.

SYVERTSEN 'Cause they have a reputation as a premium brand.

SMITH That's correct. They say, you know, we spent a lot of time and a lot of money positioning Jack Daniels in the market and we don't feel that it needs to be discounted. Well you have got display advertisers and, when I say display advertisers, I'm talking about Walgreens and Taylors and Supersavers and oh, Super X, Begley, Shoppers Village in Lexington. And to a lesser extent some 26:00other smaller customers. Those ads cost them money and they figure that part of the payment of those ads is in the form of discount from the distributor for the product that they're featuring. But Jack Daniels does not have a discount and you know they're getting a little concerned about their costs, so they'll say, "Hell, I'm not getting anything from the distributor." And Jack Daniels will not have a rebate offer either, because again that detracts from the image of the brand. So they're sort of getting lost in this

SYVERTSEN Coupon war in effect.

SMITH Oh, market repositioning, whatever you want to call it. We find, I 27:00personally and I'm sure that I speak for other people in the industry, not perhaps, not all of them, but I think its, the way we're discounting is pretty unconscionable. But its something that we were forced to do. Somebody else went out and decided that that was in their best interest and then we found out we were losing market share. So we had to join the fray. And this type of discounting is where you go to a Walgreens or a Taylor and say, "Okay, we have a 100 case discount. Now you get so many dollars per case." And then they can buy 100 cases and we deliver it to 22 different stores in the case of Taylors. Fifteen or sixteen in the case of Walgreens. We bill each store and we collect 28:00from each store. Now it is conceivable that a store three blocks from one of these stores would buy 10 cases of a product and get less of a discount than one of these drug outlets would get three blocks down the street that was part of a 100 case purchase. I think that is unfair and I don't, I think that sometime it is going to come home to haunt us. But that is one of the things that I was alluding to. We did not make that type of sale. As a matter of fact, when some other wholesalers started doing it, we didn't do it and another big wholesaler didn't do it. And the one that started doing it decided to stop doing it. What happened was Shoppers Village went to court and it was written into the law that 29:00you could not do it. And it was part of a tax bill, but Senator Maloney who is familiar with our industry knew that there would be a problem in this area so it was put in a tax bill. So Shoppers Village hired a lawyer and got the law struck down, because it was not, that part of the bill did not relate to the title of the bill. This had nothing to do with taxation. The distillers had some friends from Bardstown who also got the Affirmation Law struck down. But that has not been challenged, but if it is ever challenged by anybody, it will be thrown out 30:00for the same reason ours was thrown out. Because it has nothing to do with tax revenues, but that's where we are. I was thinking that you might talk to a fellow by the name of David Earl Maloney. Did I mention his name?

SYVERTSEN No, you didn't. I don't believe so.

SMITH Well

SYVERTSEN Is he related to _____ Maloney in Lexington?

** Side 2 **

SMITH ________________'s Company was one of the mortalities and they went out of the business about three or four years ago. And they were a fine firm, but they just analyzed what they were doing. They went out before the Fair Trade was abolished. I was thinking, I am not too sure about that, but they looked at their product line, they looked at their prospects. David Earl and his brother, 31:00Bernie ran the company and they were running it on behalf of their family. And I think they decided they could just invest that money and get a better return on it with no particular risks and certainly not all the headaches that you can encounter in a business such as this. I think a lot of people that are presently in the business would get out if they weren't locked in. I don't see any new money coming into this business and that's another reason why the numbers keep diminishing. It's just, it's not, the only time if you, if somebody bought a 32:00license in Kentucky, it would be somebody who is already in the business, who was just trying to broaden his base. It wouldn't be somebody who thought that this was a way to make a living and had some money and wanted to go out and give it a go.

SYVERTSEN Is the real problem the fact that the big money, chains may more and more buy directly from the distillers instead of going through the wholesaler?

SMITH That has only happened in one market to my knowledge, but that is a threat. The chains have become such a threat. And a threat is not a good word, 33:00they've become so forceful, lets put it that way. They have become so forceful and such a factor in the market that they can dictate to the wholesaler what he will pay for the wholesalers' goods and services. That is the bad thing. And this has happened in Kentucky and it will continue to happen in Kentucky. There is a young man that opened up out on Dixie Highway. He is going to change the whole complexion of this liquor business in Jefferson County. He has already made a Walgreens Drug agent, drug store which is a big, national drug store, they've reviewed their prices and they have come down on 20 or 25 key brands and they're going to sell them at that price everyday. And that's in response to 34:00this fellow opening this warehouse type of liquor outlet up. So, as you see that, I'm sure that Taylor is going to respond, I understand that Taylor is going to open four or maybe five liquor barns and the only thing they'll have in them is liquor. So that is going to drive the small entrepreneur out of business, or what we used to call the Mom and Pop store. Their days are rather limited. Unless they have an unusual type of service, that they have a full line of wines and liquors which drug stores and these discount stores don't handle. And if they're very personable and knowledgeable about their products, they can 35:00survive. But the discount stores are going to take a great deal of the cream off the top of the market. I mean they are going to sell the volume brands and the low margins and you know that is going to hurt the small retailer, because he can't buy in that volume to get that low and he doesn't, it just, it just doesn't matter, its simple logic. The drugstores have a lot of other merchandise other than even patent drugs or prescrip tion drugs. They've gotten into food, they have gotten into appliances, they're gotten into garden accessories,

SYVERTSEN Radios, TV's, microwaves,

SMITH Exactly, telephones, so a little liquor store, I think is in for a shock.

SYVERTSEN Historically speaking, if you were to look back to the 40's and carry it forward, do you think that perhaps under Kentucky state law there were too many retail licenses allotted at any point.

SMITH Well I think we touched on this briefly, I think maybe, no. I don't think there were enough probably. Because you got, there was some hints of impropriety in the issuance of some of these licenses by the state or by the local 37:00authorities. But I have mixed feelings about that. I could answer that either way. If they wanted to maintain the Fair Trade which I told you I did not embrace. And as a matter of fact, I was probably the only wholesaler that would actually say that publicly that I did not think it was in the best interest of good marketing. We hired a lawyer. We became part of the wholesalers group. I didn't want to sign the original complaint against the department of ABC, but 38:00the lawyer said, "Look, if you don't, it'll indicate that there is not any unanimity." I said, "Well, there isn't any unanimity." I said, "That ought to be understood up front. The only reason, I am contesting it, in favor of contesting and establishing the Fair Trades, we're not in a position to start discounting." We didn't have any programs written, I mean you know, all of a sudden it just happened. And we were able to delay it for about a year, a little over a year in which time we had all the programs in place and then when it got beyond Henry M_____'s Court when it went to the Supreme Court, I said I did not want my name, I was not going to be a signatory. And I wasn't, but I still, our company still paid its share of the legal costs, because we are members of the association and it was expensive. And I don't think we got, I think we just wasted the money.

SYVERTSEN The retailers though hadn't apparently decided to carry the case 39:00further, the Kentucky case.

SMITH You can't carry it any further than the Kentucky Supreme Court.

SYVERTSEN Well, I thought there was a chance they could carry it into federal court, because the Kentucky situation was slightly different from the California, the court decision in California.

SMITH I don't think it was. In honesty, I don't.

SYVERTSEN A lawyer told me that, that was why I was wondering what your perspective on that was.

SMITH No, I think it was pretty much the same. We sat down with our suppliers and we determined what the price was going to be. The state had not one damned thing to say about what the price, except they said we couldn't go beyond a minimum mark up. Now that's the only restriction they had and really they were just a clearing house for our maintenance of prices. Now that is my opinion, now 40:00the lawyer that defended us said oh, we think that we, you know we, he's got to say this if he is going to defend you, that we can differentiate between this particular and it was Taylor and a nut up in St. Matthew by the name of Phil Mason that protested the Fair Trade Law. He said there's a little, enough difference between the Kentucky situation and the California Medcal situation to perhaps ward it off. I didn't want it warded off, because I, this fellow across the river was just getting all the business and he's still doing a damned good job. And I just didn't see how we could protect our market, unless we got into a 41:00competitive situation. I think we are in that competitive situation. I don't know, I didn't expect it to be as drastic as it was. We are selling less units now than we sold before, but that is a reflec tion of market trends. And we are making a hell of a lot less money, because we are discounting almost everything that we sell. And not with any frequency, we don't discount things every month, month in and month out. Some distributors are doing that, we are not. We elect to have some sort of program that will tie in with any media support we are going to get or with points of sell that we receive from the supplier. We would 42:00like to go in and say look mister retailer heres what we have for you. We have this lovely case stacker that takes five cases and, you know, we will be glad to put it up in your store for you and you will be surprised at the volume, the increased volume that you'll find if you mark it down and advertise it. And that's you know, a lot of wholesalers just saying, I've got four dollars off and the retailer has got to use his imagination. We try to support our discounts with some kind of point of sale. We can't do it all the time, because all of our suppliers don't have point of sale material, but most of them do.

SYVERTSEN It was suggested to me at one point that the retailers split over whether to challenge the Kentucky case when they lost the related issue of getting an inconjunction until it could be carried to a higher court. And that's why I had to approach the question to you the way I did.

SMITH Well, I don't think the retailers could raise the money to go to a higher court. As a matter of fact, they had a chance to appeal a decision by the Kentucky Supreme Court and they didn't do it. Now the Kentucky Supreme Court said that they thought that there was a sufficient similarity in the Medcal case 44:00which the Supreme Court had heard and the Kentucky case. They ruled that you know that it was, that it was illegal I guess, or they struck the law. And then somebody, and I don't' know who it was, I can't remember, somebody petitioned one of the judges for an extension. And they got the extension and it was for a brief period of time, three or four months. And then they reconvened and took the position again. And then I think that any party that wanted to dispute the decision had ten days in which to appeal it. And that process wasn't followed, so I don't even think they could have gone to the United States Supreme Court, because they hadn't exercised all the legal remedies they had at the state level.

SYVERTSEN Good point. As you know the Supreme Court tends to look with disfavor upon such a situation as that.

SMITH You know, we have always been, and I'm not trying to portray myself in a light that is favorable to me, but we have tried to obey the law. When the Supreme Court said, okay go ahead and start discounting, we waited and I think it was five or seven days until it became effective. It didn't become effective at the time of ruling. I'm not sure. There was a little thing in there, it might have been a weekend, I'm not certain. So when it became effective, we started discounting. Then one of the judges was petitioned by, I think it was the 46:00Department of ABC, and asked to reconsider. And they stopped it. They said, okay we'll do this. So we had trucks on their way to Ashland and we had trucks out in the state and had, now we had received the order, we had processed the order, but the invoice bore the next day's date on it. So we had to, and we had a lot of trouble about that. We were probably the only distributor that did not deliver those orders, because at midnight you could not deliver anything the next day. Now our trucks weren't on the street. The orders were already 47:00processed and on the floor to go out the next morning and we had to, we had to rebill everything and needless to say we

SYVERTSEN It was a mess I bet.

SMITH It was a terrible mess and we lost a lot of business. And of course the retailers all, they have a chant, if you do something that doesn't suit them, they'll say, "We don't understand you, Vertner. Everybody else is running." And this was what we heard then. Every other distributor was delivering goods, even though the Supreme Court said wait a minute, we want to examine one last segment or whatever. I can't remember what the hell it was, but there was a stopple of non-Fair Trade activities for a brief period of time. And then they finally decided once and for all, and then the legal remedies were not sought by us nor 48:00by the retailer, or certainly by the distillers.

SYVERTSEN As you were talking I was thinking of the old law of supply and demand and how the prices are coming down, yet the volume of sales have not gone up on the Brown goods or the more heavily distilled products. And I guess from what you say, there's not much likelihood that even if there theoretically were a further price drop that there would be much change.

SMITH Well, we have had another thing happen and this happened in the middle of January. Rebate offers became legal. As long as they were not handled, the rebates were not given by the wholesaler or the retailer. They had to be given by a supplier or a third party representing the supplier, a clearinghouse. I 49:00don't think the rebate offer has had any great effect on our business. Now true in January, it started about mid-January. We didn't put our rebate offers out until February, because again that is in keeping with our total program. We want to be able to discount certain items, and say, okay mister retailer, we are going to discount this a dollar a bottle. The manufacturer is going to give the consumer a dollar and a half or a dollar a bottle. You add something to it and advertise it and you will have tremendous volume. But if you look at one of those rebate offers they're kind of, we had one customer and one of our salesmen came in from Hopkinsville, and said somebody came in and bought eight bottles of Early Times thinking he was going to get eight dollars refund. Well, he's only 50:00going to get one, so one household per offer. But you know people don't read those things and they'll be, and I have done the same thing. I didn't buy it because there was a rebate on it. I bought a Batamax and the guy said, I asked him about the tapes. And he said, well, here are some tapes, they cost eight or nine dollars, but he says you get a manufacturer, the manufacturer will give you a dollar back on 'em. So I carried the receipt around and I carried it over my visor and I looked at it one day. Hell, the damned offer expired a month before I bought the damned tape. But I got it and I sent it in. I mean it was, you know, I bought three tapes. I guess I could have gotten three dollars, I'm not sure. I didn't look to see if there was a limit.

SYVERTSEN Going back, lets try to go back a little further again, we have been talking a lot in the present, lets go back over the past a little bit. What, back in the 40's, you joined the wholesale end of the business back in the mid 40's if I recall right. Is that correct from our earlier conversation?

SMITH Yeah, 1945.

SYVERTSEN What kind of volume were you doing at that point and roughly where were you amidst the other 29 or so wholesalers at that point?

SMITH We were pretty far down the list. My father was the general sales manager at Brown Foreman. And they had a very, very difficult financial time of it. They 52:00couldn't afford to pay him, so Lyons became the president and sales manager. My father left and did something else, he was in the brokerage business and then he went back to work for Brown Foreman as their broker. He was a person that would represent them in the state of Kentucky and the state of Tennessee and southern Indiana. And he represented other people also. He represented Julius Wile, he had some blending shares which he said was his most profitable thing, because back then everybody was using, making blended whiskey. And this blending sherry 53:00from Spain gave the whiskey a good color and added something to the total package. And so my father and Lyons have always been friendly and I think Lyons, my father was out there one Sunday, and he said, "Vertie," he says, "I want you to go into the wholesale liquor business." He said, "I'll give you the entire line for the state. The entire Brown Foreman line, you have exclusively for the state." But you have got to remember that were no trucks, everything that was shipped at that time, we shipped freight collect. Well their contribution to our immediate business was 660 cases of whiskey, 60 cases of Old Forester, these 54:00were all in fifths, they didn't have all the sizes that you have now. And 600 cases of King Black label which is something that you probably never heard of.

SYVERTSEN I've seen references to it, but I, they were still carrying quite a few lines.

SMITH That's one of, my father was always one, when he was down there, he said, "You've got too many labels. You've got Old Tucker, you've got Labroe and Grand, you've got Kentucky Dew. He said lets just concentrate on one or two labels." Well he was way ahead of his time, because that's what they ultimately did. Anyway we could not support an operation on 660 cases of whiskey a month. We had hired a, we had rented a warehouse from a fellow name of Mural Wisenger who was an Englishman, who also owns Stewarts and owned the Wisenger Gaulbert and he 55:00inherited a lot of money and he just enjoyed it. He would come over in his bolder and his cane and look at his building and would never offer to make any improve ments, but it would encourage us to do so. But anyway, we finally got affiliated with Chandley and we got about 6,000 cases from them. That put us in the ball game. We became a fairly large distributor by measuring any measurement then.

SYVERTSEN This would be about when?

SMITH This was in '45 or maybe 40, by '45 'cause I think we represented Chandley 56:00or just got it right after I got out of the service and joined the company.

SYVERTSEN Did you find representing Chandley difficult with the Rosensteel's?

SMITH Yes, we did. We finally agreed to give up the line. We sold, we had another house called State Distributing Company that we, that was a house that was in violation of the law. I think Mr. Rosensteel had some money in it. We bought that house and paid some lawyers here whenever they wanted. Then they decided that they wanted it, would like to change the distribution system in the state. And they came to us and we agreed that if they bought our other house 57:00that we would give up the line in both houses. We had it in two houses and we picked up Hiram Walker which was, they were much more pleasant to do business with. You know, felt more comfortable with them. I think Mr. Rosensteel had a fiftieth anniversary every year and you'd have to buy, or they, it was expected of you to buy a lot of merchandise. And that didn't do too well with me or my father, my father principally. At that time, they had state stamps and our manager at the other house would go to these big functions, and they'd tell him when he, what they expected and he'd say, "Fine, fine. Give me the order blank." He'd sign it and he'd come back and tell my father. My father said, "God damn it, Archy, what in the hell are you thinking about? We can't take that much." He said, "Oh Vert, don't worry about it. I'll never send them the stamps." They 58:00couldn't ship the whiskey in the state, unless the stamps were affixed. And that was thrown out in 1961, I think.

SYVERTSEN Somewhere between the late fifties and early sixties.

SMITH Well it was when Governor Clemens was elected. I happened to be in the hospital

SYVERTSEN Clemens was elected in November of '47. Then Weatherby, then Chandler.

SMITH Well, no, then I'm talking about Breathitt, then Breathitt. It was right after Chandler was re-elected for the second time, because the democratic party thought

SYVERTSEN It was Chandler's second administration, then Bert Combs, then Breathitt.

SMITH Then it was Bert, no it was Governor Combs. I say Clemens, I'm sorry. I had Bert Combs,

SYVERTSEN They were closely aligned.

SMITH Well, it was that particular power structure, that's when one governor 59:00could confer on, he could name his heir. But anyway Bill May who is a power broker was in the hospital and my mother-in-law was dying. And he said, "Vertner," he said, "We're going to fix you all." I said, "Well, what do you mean Bill?" He said, "Well, we are going to take the stamps away from you." And he says, "That God damned Harry Davis," who was our Executive Secretary who became Happy Chandler, he was with Happy Chandler's first ad ministration. And he became his hatchet man. He was his Execu tive Assistant and he would get up and when they, the laws were passed, he took note of everybody that didn't go along with Happy. And Happy would call them in and discuss the matter with them.

SYVERTSEN And Happy had no real love for the liquor industry did he?

SMITH No, and that was because Dan Street refused to give his primary campaign $10,000 which is a peddling amount of money.

SYVERTSEN That's the '54 campaign Chandler's second run, second administra tion.

SMITH That's correct and then Brown Foreman was cited for giving whiskey away in violation of the law.

SYVERTSEN And they lost the case.

SMITH Oh yeah, they were closed for, oh they were fined. I don't think they closed.

SYVERTSEN It was a heavy, heavy fine for giving away sample bottles for the tourist group.

SMITH Well, and also they were entertaining the media at Derby time and their distributors.

SYVERTSEN I understand in a similar case in '59, it was decided that the beer 61:00people could continue to do that. They could give some away. But the

SMITH Well they've changed.

** Tape 2 **

SMITH Getting to the continuation of that tape, you know, they recog nized that under certain guidelines that hostility is necessary to the success of the business.

SYVERTSEN We've even benefitted by that, you may have heard, at the Oral History Association meeting back in September of last year, Brown Foreman contributed some distilled spirits for

SMITH Did they distribute, did they contribute the distilled spirits or the money to buy it.

SYVERTSEN Now that technicality I'm not sure about, but I know there was an arrangement whereby they somehow helped underwrite the reception.

SMITH Well normally,

SYVERTSEN Which is a scholarly meeting of course, but you know.

SMITH What they have done in recent years, they don't, they will give the person money or the organization money you know, and its tacitly understood that they'll use their products to buy that, to use that money for. And this is the way, we can't give liquor away. I don't take any liquor out of here. I buy it at the retail store. And the Heart Association has asked me for a contribution of liquor. And I can't remember who the director is now, some doctor. I said, "We can't do this, but I will give you $250 to help you." And he said, "Well that would cover me." And then I told him where to go get it and then I sent him a check, dropped the check in the mail, didn't pay the customer for thirty days, I got madder than Hell. I, he said, "Well," he said. I said, "All you have to do is endorse my check over to the cus tomer." Because I called him before-hand to 63:00see how much it was going to be and it was like three or four dollars, I gave him three or four dollars more than the whiskey was going to cost. They were going to take it out to Harmy Landing, they had a golf outing. But anyway that's, I think that's the way most people give whiskey away. At one time Brown Foreman used to have something called a vault and that was part of an executive's perk. They were able to withdraw whiskey from the vault, but that fine that they got stopped that. I think they have a travel and entertain ment budget which allows them to go out and buy it at the retail liquor store, which 64:00I think they should have done anyway, but every once and a while they try to draw stuff out of our place. And you know, there are some extenuating circumstances. We are permitted to let our suppliers have samples. We charge them and also charge them the state consumption tax plus a nine percent sales tax. They have to pay that, because we pay it. But the $10,000 that Brown Foreman, and it wasn't Brown Foreman, it was the Kentucky Distillers Association. But Dan Street, I think was the president of it at that time. And they said to Governor Chandler said, "Governor, we'll be glad to support you in the general election. We have never supported anybody in the primary election." 65:00And he won the primary and didn't accept their money in the general election and then really put it to them. But the power, this Bill May who told me that, you know, we were going to get what was coming to us. And I said, "Well, I don't think we have anything coming to us, but Bill if you say we are going to get it, we're going to get it." Well we did. They thought that the wholesalers backed Happy Chandler, because Harry Davis did quit his job as our Executive Secretary to go with Chandler. And he may have done some work for him during the election, but if he did, it was not with our support or even endorsement. And this was a bad time for both the wholesalers and the distillers. We thought at one time 66:00that the stamps were a control measure. That it would help the agents determine whether the whiskey was tax paid and whether it should be in the distribution channels in the state. We were mistaken about that, because it held up shipments and you had to buy the damned stamps for the stay and then mail them with your order. It was a very cumbersome thing. And I don't think very many states have stamps on the bottles.

SYVERTSEN What exactly was their purpose then?

SMITH It was a control thing.

SYVERTSEN But not, not very effective?

SMITH It was to make sure that the tax had been paid on the liquor. There are so 67:00many, all the people that haul liquor in Kentucky have to be licensed. They're licensed transporters. And there's a record of these transactions. I mean you just, its not easy to bring in contraband whiskey and sell it through legal channels. I think you can bring it in anyway. I mean you can get an old flat bed truck and load it up, but I'm talking about a wholesaler. So that was a bad time.

SYVERTSEN You weren't sorry to see the stamps go?

SMITH No, I was not. Not at all.

SYVERTSEN And of course the Clemens faction and Weatherby even early in the mid-fifties, as I understand it, did support the elimination of those stamps.

SMITH Well it was not, well, sure it was Governor Combs' administration in which they were eliminated.

SYVERTSEN And Weatherby and Combs were part of the same faction.

SMITH That's correct, Weatherby, Combs, Clemens, and Breathitt all, plus Bill May and a fellow, I can't remember, some lawyer, I think who has since died and Cox, Lewis Cox.

SYVERTSEN Miller?

SMITH Lewis Cox. Not Miller. Miller was Louisville. No Miller represented us in a suit against the state for, he also represented Beam. The state was charging, this all goes back to the thing that Chandler, you know, he raised the production tax from a nickel to a dime. That chased a lot of industry out of Kentucky.

SYVERTSEN To Indiana.

SMITH Miller Cox got the idea that the governor could not put the ten percent 69:00tax on an imported goods, because that was in contraven tion of or in contradiction of the GATT, the General Agreement on Trades and Tariff which the President of the United States handles himself to you know to get favorable trade relations with other countries. So he won the suit easily. And we got back our ten cents a case whatever it was from day one as did everybody else.

SYVERTSEN So you kind of felt that Chandler had almost a vendetta against your industry dating back to the issue of Dan Street and Brown Foreman is that correct?

SMITH Yeah, I think, well, not necessarily Dan Street and Brown Foreman. I think 70:00Dan Street, because he was with Brown Foreman. And because he was on the Kentucky Distillers, I think it was called, it might have been the Kentucky Distillers Council then, but it is the KDA now. And they just decided not to back him in the primary.

SYVERTSEN After all he was a tee totaler and had campaigned as a tee totaler. So 71:00the whole situation is somewhat ironic.

SMITH I've got a letter from his daughter I got this morning on my desk, Meme. I used to go with Meme when I was at Centre and I think Governor Chandler had a reason to be a tee totaler. His wife was an alcoholic. She was a mess. But you're right, he was a tee totaler, but I don't think he made any great big issue of it. The thing that really made him mad was the fact that the distillers would not back him in the primary and he didn't care about what their standing, long standing position was. You know there's an old passage in the Bible and he always quoted it, "If you're not for me then surely you're against me." And that's the way he thought. If you didn't come up with the money then you're against him.

SYVERTSEN Had the industry as a whole to your knowledge, now this is going back a little further then when you entered it, but to your knowledge, had the industry during Chandler's first administration and campaign supported him?

SMITH Not to my knowledge.

SYVERTSEN Had you talked to your father about this?

SMITH No, I can't answer that. David Earl Maloney might be able to answer it. Or Leon might be able to answer it.

SYVERTSEN Leon _____?

SMITH No, Leon Levage. I don't think Leon Sh______, Leon is not quite that old. 72:00David is, his father died and they had a poultry and a warehouse business and it was combined. And I think David was one of the youngest executives in the wholesale liquor business, by virtue of his father's death. He represented his family, he was the oldest. Maybe Bishop Maloney was older, but he was committed to the cloths. I think David represented the family's interest in Maloney, Davidson. He was not, because they had a poultry operation, he was not drafted, 73:00because that was considered critical.

SYVERTSEN Critical to the war effort.

SMITH Yeah, and he may know something about that. I don't.

SYVERTSEN It was my understanding that the original Fair Trade statute for Kentucky had been proposed largely or the rudiments of that law had largely been made up by the wholesalers as a group. Do you know anything about how they participated in the drawing up of the law and was your father involved in anyway to your knowledge?

SMITH No, my father was not, he was not in the wholesale liquor business then.

SYVERTSEN Do you know of anything or have you heard anything about how the wholesalers at that time had cooperated in drawing up the law? Did they try to make the law largely to imitate some other state law or portions of other states' law?

SMITH I can't answer that. I'm sure they did and I'm sure that when, there was a, I had a booklet that I just gave away to somebody and it was the presentation to the General Assembly on why the state needed a Fair Trade Law. In the preamble, it stated that all segments of the industry were for it and they were at that time. And it, this was not the ordinance form, but this was an introduc tion to the legislators that, you know, of the necessity for having the Fair Trade Law.

SYVERTSEN I have never seen that. I hope I come across something of that sort.

SMITH I think I might be able to find it for you. I think I gave it to Henry 75:00Mays, 'cause Henry Mays is a good friend of mine and he struck down the Fair Trade Law. I knew he was going to do it. We never discussed it. He, all during it, it took about three years to finally get around to you know knocking it down. I kidded him one night at his home. I had gone up the river on my boat and his house was right near the Kentucky River and we were spending the night. And I said, "Henry, if you don't quit fiddling around with the God damned case that 76:00you have before you, I think it's going to be decided by the court." You know, by another court, I said you know or the legislature, excuse me, the legislative body. He said, "Well don't you know there are three separate divisions of our government?" I said, "Yes I am familiar with the executive, legislative, and judiciary, but" I said, "God damn it, they seem to overlap." And I said, "If you don't get on the stick, the General Assembly is going to knock it out." But I really didn't, you know, he knew how I felt about it, but I mean, I never said anything to him one way or the other. My wife who is a very delightful person happened to say something that I had said and I said, "Candy, for God's sake, it's not appropriate to talk about that in the Judge's presence." We were having dinner down town someplace. And I said, "Henry, strike that." I said and you 77:00know I knew how he felt before I ever expressed how I felt. He couldn't understand why liquor was so high in Kentucky. And when you get in the small communities of the state, it's a lot higher than it is here. I mean back even under Fair Trade, I mean, they had little groups that got together and decided you know it was in their interest to sort of move it up a little bit more.

SYVERTSEN Well, this does involve the commerce clause of the constitution in some ways. And I guess you have seen even in the Wall Street Journal there was an article recently, during I think the past week, on the impediments to trade, put up by states in apparent violation of the commerce clause.

SMITH No, I did not see that. But I did know that the state, and I can't remember, its the Attorney's General's department went down to Nicholasville and got a hold of a whole bunch of people that operated coin laundry machines and just gave them a good going over, because they all seemed to raise their price at the same time. You know, if they looked around the liquor industry, they'd be appalled. But that's, you know, I think they needed headlines so they run out and get three people that had laundries in a place, Nicholasville, that's not much of a place anyway and make a big commotion about it, because they seem to be conspiring to fix prices.

SYVERTSEN What can you tell us about the nature of the acquisition of wholesale liquor licenses from the 40's to the present, the process and is it, is there quite a bit of political influence?

SMITH There was, not anymore. Our license was issued by Governor Willis, who is incidently Sally May's father, the judge's father-in-law. At one time I think they were issued by the governor period, or somebody like Bill May or somebody. I'm going to have to cut this kind of short, I have got to meet Robby Brown in fifteen minutes. He's laid up and I told him I'd come by and entertain him. He's an interesting fellow. He's got a hell of a coin collection and a great stamp collection.

SYVERTSEN I didn't know that. I saw the bottle collection.

SMITH And he's got an early American bottle collection,

SYVERTSEN Wonderful bottle collection.

SMITH Yeah, anyway at one time in this state, and I'm sure that it was true in other states, in Indiana, I think even the politicians were silent partners in the wholesale houses. I mean that they were not high profile, but they had some of the action. That was not true in this state. Although, one enterprising distributor took Senator, I mean Representative Perkins into one of his 81:00prospective suppliers and introduced himself and his Congressman. Tried to you know create some leverage to get the line. But right now there are probably four or five wholesale liquor licenses that are available and you can, anybody can apply that qualifies. Doesn't mean that you have to be a republican or a democrat. You just have to have the appropriate building and a lease on it and whatever the annual fee is and you're in business. But back in the early days the, I think I told you in an earlier conversation that they, there was a direct correlation between the wholesale licenses and the retail licenses. There was a further correlation between the retail licenses and the number of people in, the 82:00number of the population. Now they were strained at a little. You go to, I used to be a street man, I used to have a route and I worked a little community called New Haven, Connecticut, I mean Kentucky. Excuse me, hell I was getting confused. They haven't got 550 people. They had four liquor licenses. And the law says that there should be one for what every 1,500?

SYVERTSEN I think that's right.

SMITH And then the law further states that there should be one whole saler for every so many liquor licenses, retail package licenses. It has nothing to do with drink licenses. And they have, you know, I think, and I think the state was wise. They found ways to get around the quota system. They created an air, 83:00special airport license. The legislative assembly agreed that any license that accommodated a traveler in a certain type of community, it was wet. I mean you just can't accommodate a traveler who wants a drink in a dry county. But all of the motel and hotel licenses are convenience licenses now. And you don't have to, at one time you would have to go out and find one and pay somebody a God awful premium to get it. I mean they would go for $15,000 or $20,000. That's not true anymore. I don't think, its not true with retail licenses either. You have heard stories of licenses going for $50,000 or $60,000 and perhaps more. And I 84:00think that that was a bad situation in the licensing

SYVERTSEN I have heard of higher than that.

SMITH Yes, I wouldn't doubt it. But when somebody starts trafficking in the, just the paper that the state grants you for the privilege of doing business, I think that is wrong. They did try to change that. They said you cannot sell your license per se, but you could sell your business. When I was president of the ______ Club when the government decided that private clubs couldn't be involved in off-premise activities. We had a liquor license and I sold the liquor license to, and it was a package liquor license. I think we got $12,000 for it. But in 85:00the contract of sale, we said in consideration of the ______ law, merchandise and other considerations then this club agrees to sell and it was a little drugstore that ended up off Goldsmith Lane. But we had some inventory that went, you know, the sizes that you wouldn't keep in a bar like pints and halves and fifths, that's before they changed the names. That went. But I don't think the value of that was over $600 or $700 dollars. But we got about $10,000 for our license. I don't know what else you would like to know that I can answer, right off-hand.

SYVERTSEN I can think of a number of things, but we only have a few minutes 86:00left. Does, has the wholesale end of the industry largely had its own self-regulating operation?

SMITH No.

SYVERTSEN Distillers do. So the obvious question to ask you is does that apply on the wholesaler?

SMITH Well, that was the original idea behind the formation of the Kentucky Wholesale Liquor Dealers Association. That we would uphold certain standards. That we would try to do business in a professional way. Unfortunately, that is not the case. And you have to, I'm not being critical, I just, there are certain people that are fighting for their very survival and they really don't give a damn too much about the consequences if they can't survive. And so they are engaged in some practices that are highly ir regular both by state and federal law. And certainly you know it's easy for me on the outside to see that what 87:00they're doing is all, is just going to hasten their, the final demise of their business, but that's something that they can't see. We have unfortunately, in the state, we have a number of distributors that have products that are dual in the same market and that is not good. Because the guy will say, well I want my share of this business, and so they're lowering their price. They keep lowering their prices. They're really damaging the brand and not creating any greater market for the product. If the market share of that particular product is being 88:00treated that way, improved, then you really couldn't complain too much about that business activity. But it isn't. We are incidently at the cross roads right now. Our Executive Secretary, Fred Tuggle, who I hope you have a chance to talk to

SYVERTSEN Is he related to the Kenneth Tuggle family?

SMITH No, I think he has a son by the name of Ken, but I don't think they are related. He's going to retire. I posed the question, I said, "Are we going to try and maintain an association in view of diminishing membership, and in view of our varying philosophies on doing business?" And this is something that they 89:00haven't been able to come to grips with. And I don't know what, you know, I would like to keep it, you know, I think its important that we have a good profile and that we have assess to a lot of informa tion. Fred has been very effective, he was chairman of the whole advisory council thing. This is a part of the WSWA which includes the association directors. And he was chairman of that for two years and he was with National Distilling before we hired him for this job. And he has been a great asset. He has had the patience of a saint, but its kind of hard to go up to Frankfort for him or for his successor to ask for a 90:00certain consideration if the distributors don't seem to be unified in their desire. And maybe doing something that's entirely contrary to what he's seeking. So I don't know what is going to happen to the Association.

SYVERTSEN Well, as we said the last time we talked, off the record, the industry certainly is at a crossroads in the mid-1980's. Every end of it seems to be in a, you know, at the point its going to have to rethink where its been and where its going. The nature, the future of the business.

SMITH Yeah, that's true. One thing that I think that we ought to keep the wholesalers association just in some sort of a skeleton form is just for the purpose of political action, committing of money, that's something that I 91:00started when I was president of the association. I said, "In the past, in my understanding that," I knew ____ well, I just happened to phrase it this way 'cause it happened to be the politic way to phrase it, "that the Executive Secretary, not particularly this Executive Secretary, but the Executive Secretaries of our association have been required to take cash to Frankfort." I said, "We're not going to do that."

** Side 2 **

Blank.

Vertner Smith = Sm Interviewer = I

** Tape 3 out of 3 **

SMITH I really think its stupid. We'll have voluntary contributions from the various members and the contributions will vary in size normally with, you know, 92:00the particular owners' interest in or market share. It is closely related to that. And what we'll do is we'll give half of it to the democratic primary, the democratic candidate and half to the republican candidate. I said, I think that is a waste of money. I think we ought to commit ourselves. I think, you know, as much as I hate to say it, I think we ought to give it to the democrat. I'm a republican, but when in the hell, you know, I, if I were a republican governor or a democratic governor excuse me, had been nominated and elected and saw that the people that gave me money had given the same amount to somebody else, you know, I'd just say, "Well, hell with it. What consideration are they entitled 93:00to?" I think that's wrong, but I mean I think that more,

SYVERTSEN You could also argue that they might come after a period of time to simply expect it. Gratis.

SMITH Well they do, they do. I remember that when Harry Truman was elected president, Mr. Rosensteel called my father and said, "Vertner," he said, "We're going to have to get some money together to help Harry retire his debt." He had backed Truman to the hilt, he was as agile as he could be. I don't know how much money he collected from people like my father and his counter part in all the other markets. He went in and just said, "Harry, here's a gift from Chandley."

SYVERTSEN That's particularly interesting. That's one of the things that the 94:00Wilkeys and the Secrums and so forth and you know the republi can connection. Interesting

SMITH I don't know whether the Seagrams people are particularly republic an oriented.

SYVERTSEN But I thought they were siding closely with Wilkey.

SMITH Well Fred Wilkey was their production manager and lived in this community and then he went to work in Indianapolis, I think for some meat packing firm, and then I think he went off his rocker. I think he had a problem. I don't know what it was. And he was Wendell's brother. And Fred was the guy that said that you know they had this beautiful plant out on Seventh Street and he is alleged to have said that, "Nobody's going to work in this plant that doesn't have a college degree period."

SYVERTSEN His book outlined for industry, you know, strongly emphasizes that his executives will be liberal arts trained people and that comes out over and over in that book outline for industry. I think it was in '43 or '44.

SMITH Yeah that's, the lawyer that represented our company for a long, long time was also Seagrams' lawyer. And he never had any Seagrams products except when they came to visit, but apparently, he was John Terrin. He helped my, he was a good friend of my father's and helped us draw up our articles of the corporation. But the business has changed. You know, you had to know people, you had to have contacts, political contacts, or a lot of money to get a license. 96:00Now you don't. But the fact that you can just get a license don't, does not mean that you are going to be successful. It takes an awful lot of money to run a wholesale liquor firm, the way the supplier wants it run. And I don't know where any fresh money is going to come from. I think there are too many other investment opportunities.

SYVERTSEN If you had to put an approximate date on the break where by the political influence in getting a license really ceased or rela tively ceased, 97:00where would you put it? In the sixties?

SMITH No, no it was later than that. I am trying to think, Louie Nunn got a fellow a license from Hopkinsville and it cost him his hat, pants and overcoat. Julian Carroll gave Carol Lapp a license in Owensboro and that is the last one 98:00that I am aware of. Now when was Julian's administration?

SYVERTSEN That's the mid-seventies.

SMITH Okay, that would be about the end of it, because the fellow down there sold his license to, ultimately to Shelby Barret. Shelby Barret tried to operate in Lexington and could not succeed. Went back and operated a liquor store in the mountains and also had a beer company down there. Lapp never did use his license, he could never get a line. Now wait a minute, there was one also, Bill Mays' son-in-law had a liquor license and he opened in Wilder, Kentucky. And I don't remember who he got that license from. That might have been from Julian's, who would that have been? That would not have been, that would have been the young governor that's now in Washington, what's his name?

SYVERTSEN Wendell Ford was, well, Wendell Ford preceded Carrol.

SMITH No, no, not Wendell Ford. Maybe it was Wendell Ford, only I wouldn't characterize him as young. I was thinking about Breathitt.

SYVERTSEN Oh, I see. He's with the Southern Pacific now, the railroad people, now. What about the affirmation law? What has been your feeling on the affirmation law?

SMITH Well, I have no particular feeling about it. I don't think it, I think the distiller ought to, supplier ought to charge what he wants to charge. And I don't think the state should say that he has to, that the price he charges in his state is necessarily has to be as low or lower than any other price in the 100:00United States. I don't think that's right. I don't, I know that it does not accrue to the advantage of the retailer, to the consumer in many cases. We just got a product from one of our suppliers that we are going to introduce this month. And they came out with a $49 FOB, $49.95. And we filed, we don't file prices anymore, but we sent our prices to the Beverage Journal, so it would appear in the February issue. And they sent out another price list. The price went up $12 or $13. But I think the difference there was they found out that Kentucky was non-affirming and they're just going to put that $13 in their pocket. But I don't think it's going to make a lot of difference, because it's 101:00not a product that's going to be particularly popular, I don't think. So I don't feel that the Affirmation Law, I think that's the distiller's business.

SYVERTSEN Can I ask you similarly, you've been in the business now for a long time. As you look back over the local option, the wet-dry law, what are your key thoughts on that? Do you think it's time for a change?

SMITH I think there's going to be a change. There already has been a change. We have and I, and this is going to be interesting to note, the Supreme Court is going to hear an appeal to an election that was held in McGoffin County which was a magisterial district. In Carlisle, Kentucky which is in Nicholas County? 102:00There are two elections,

SYVERTSEN Further east?

SMITH Yes, its not too far from Paris.

SYVERTSEN Near Winchester,

SMITH There are two, at least two that I know of, elections that have been held at, that are less than what is called for in the local option law. The local option law says you can not petition for a wet election in anything less than an entire unit. Now that would be either a city or a county. Well this happened to be a precinct in Carlisle and a magisterial district in McGoffin County. Now at 103:00the first appeal level the court upheld the election, saying that a person is entitled to express his desire whether he wants alcohol or not want it. And they have sort of integrated the unit rule. So the Supreme Court is going to hear it and I think the Supreme Court might throw it out. I am not sure. I wouldn't care frankly. I think it has some good features and I think it has some bad features. I think some of the good features are that you might be able to have some local option elections near a state park where you could get liquor. I think that's the dumbest, damned thing I ever heard of. You ask people to come in the state of Kentucky and then part of gracious living happens to involve alcoholic 104:00beverages. Now I'm not talking about excessive use of it, but I'm just talking about moderate use. They've even got laws that you can't have alcoholic beverages in the state parks. Meme Chandler Lewis wanted me to donate wine for 500 people and I said, "Meme, why didn't the state do this?" They are having the Kentucky, Kentucky is hosting a group of operators, tour operators and then they are going to have the exhibitors, the people that, you know, the like all the hotels, the parks, the commonwealth convention center, the. You know all the things that might be of some appeal to tour operators. And she said, "Well the state can't buy liquor." So I said, "Well, why don't you get the convention 105:00bureau to buy it." She said, "Well the convention bureau is going to have a cocktail party. We can't ask them to do that." And I said, "Well Meme," I said, "really its, if it can't benefit me or it can't benefit one of my suppliers," I said, "you know, I'm sympathetic, but I'm afraid I can't help you." Listen I have got to go.

SYVERTSEN Well thank you so much for your very candid answers.

SMITH Do you think that we should follow it up?

SYVERTSEN Well there are a few other things that I would like to ask you if you have some time at some point.

SMITH Well, I do and I would like to, I hate to rush off.

SYVERTSEN Oh, I understand fully.

SMITH But my good friend Robby is, I would like for you to look at these

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