A sobering era for municipal booze

  • Article by: DAVID PETERSON , Star Tribune
  • Updated: May 21, 2012 - 9:29 PM

Added competition has led some cities to wonder if it makes financial sense to give up the liquor business.

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A state record $6 million in sales last year made it possible for Edina Liquors to add a tasting zone during recent renovations of the store. But many municipal stores in Minnesota are barely profitable, or subsidized by the cities.

Photo: Jim Gehrz, Star Tribune

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Municipal liquor, once a reliable source of cash for Minnesota city governments, is being shaken up by heightened competition and changes in consumer habits, and that's forcing many cities to either increase their tab or decide it's closing time.

Dozens of Minnesota cities lose money year after year, forcing them to subsidize a business that competes directly with privately owned stores in nearby cities. Then there are places such as Lakeville and Eden Prairie, which make hundreds of thousands of dollars to help fund government operations and keep taxes down. Topping the list is Edina, which makes as much money as the 137 least successful cities combined.

"Some cities are rock stars," said Tom Agnes of Brooklyn Center Liquors, president of the Minnesota Municipal Beverage Association. "Others don't do as well."

But winners and losers alike share one thing in common: An awkward embrace with alcohol, a substance long viewed as a vice.

In Savage, not every council member believes the city should even be in the liquor business. But with alcohol profits drying up, the city is contemplating a much more aggressive marketing push, such as community ed classes devoted to the delights of beer and wine.

Some of the ideas have city leaders wincing. During a recent backstairs session on ways to boost liquor consumption and sales, Mayor Janet Williams openly wondered whether they're all even legal.

Winners and losers

Municipal liquor sales were a post-Prohibition creation, intended to give authorities a way to keep a watchful eye on liquor consumption. Edina, for instance, won't sell beer in kegs, fearing it just fuels teen keggers.

Today, all cities with municipal booze are waging war with the private sector in ways that few of their peers in city government ever do.

Steve Grausam believes his Edina municipal liquor store is the busiest the state has ever seen, soaring past $6 million in sales last year. His response was to gut the whole thing, rebuild it from within and install a permanent tasting zone in hopes of luring more high-end buyers.

It's not just cities with well-to-do residents where municipal liquor thrives. Some modest beer-drinking inner-ring suburbs sit near the top of the list for both sales and profits. Affluent Savage, meanwhile, has seen profits plunge from a peak of $550,000 in 2007 to $155,000 in 2010, endangering their use as a backup for library bonds.

"MGM, Sam's Club, CostCo, Liquorville, the boutiques, I mean it just goes on and on!" lamented Savage City Administrator Barry Stock as his council weighed the options. "It's taking a bite from our sales."

Savage isn't the only place with a hangover. A review of the state auditor's annual reports since 1995 shows that since that year, 46 cities have dropped the business altogether, shuttering more than 70 stores and bars.

Yet that shakeout hasn't eliminated all the big losers from the game.

Just hanging on

A rising number of cities are doing so badly that state law requires them to ask the public whether to drop municipal liquor. The average annual number of cities in that position jumped from about 25 in the late '90s and early 2000s to 40 in the past several years. Of the 211 cities in municipal liquor in 2010, the state auditor found, 40 lost money. Another 29 barely broke even, making less than $10,000.

Even though one of the main premises of municipal liquor is its ability to create a funding source for the city, plenty of officials who are losing money at booze are reluctant to let go of the shot glass.

Jeremy Germann, administrator in Wells, is willing to consider getting out of the liquor business, but it would be a gut-blow to the city. "That's several jobs in a small town, and another empty storefront on Main Street," he said.

"We want to keep as many things going here as possible so people have reason to relocate here or stay here. It's the same with the pool, the golf course, even the movie theater is run by the city -- and they may not operate if the city is not involved with those endeavors."

In Edina, meanwhile, towering profits are a big deal, Grausam said. They're "keeping property taxes 4 percent lower than they'd otherwise be. When you own a million-dollar home in Edina, that's a big chunk."

Fierce competition

The forces that create winner and loser cities in the metro are complex, and they involve clashes with other "muni" cities as well as private operators.

Farmington, for instance, is barely scraping by and asking a lot of serious questions about the future of municipal booze. Its residents' commutes take them through two aggressive and successful municipal liquor cities, Lakeville and Apple Valley, in a business where convenience is crucial.

Savage reports that it was doing a lot better before nearby non-muni cities, eager for tax base, allowed new liquor operations to set up shop near their stores. Eden Prairie's municipal liquor stores face similar challenges from non-muni Chanhassen, and has been fighting back with discounts.

But any sharp swerve away from the modest post-Prohibition traditions of the muni causes some civic leaders to cringe.

When Savage's mayor heard her staff talk of private competitors putting out "these fancy almost-magazines," and of the need to "start to do things that really bring 'em into the store," she twitched a bit and offered this mild thought:

"We don't have to go whiz bang or real flashy."

David Peterson • 952-746-3285

  • related content

  • Victoria McNamara of St. Louis Park tasted a merlot while shopping at Edina Liquors recently while store workers Don Hultmann, left, and Joe Ruiz greeted customers as they entered the store.

  • TO LEARN MORE

    The Minnesota State Auditor's reports on municipal liquor can be found online by visiting www.osa.state.mn.us and then choosing "Reports and data."

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