Savage's city liquor stores feeling competitive heat

  • Article by: DAVID PETERSON , Star Tribune
  • Updated: February 21, 2012 - 4:46 PM

Profits at the city's municipal liquor stores have fallen as discount stores have set up shop nearby. The city hopes to turn things around.

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The downtown store has distinctive architecture, which some customers praise.

Photo: , City of Savage

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The woman had a taste for imported champagne, but that didn't mean she was about to spend one more nickel than she needed to.

"Here's what we're up against," Pete Matthies said. "A customer comes in looking for a particular type of Moët & Chandon, and we help her figure out which one it is. She goes up and scans it with her smart phone. She keeps shopping, buys a six-pack and a bottle of something or other, but no champagne. The clerk says, 'What about the champagne?' and she says, 'It's six dollars cheaper at Sam's Club.' Her phone told her that. We're educating people and they're taking our education and going someplace else!"

Welcome to the new world of municipal liquor, through the eyes of the director of liquor operations for the city of Savage.

Heightened competition is sending shivers through the industry -- emphatically so in the south metro, where Savage is hardly the only city to grapple with new competitive forces. Farmington and Lakeville have both been debating whether it makes sense for cities to stay in the business of booze.

Savage's once-healthy profits from liquor have dropped off in recent years with the arrival of big-box competitors such as Costco and MGM. It has been eliminating positions left and right, both managers and part-timers.

Even so, its spinoff benefits are being threatened: markups on Bud Lite and Grey Goose have underwritten the cost of providing Dickens and Shakespeare at the local library, but an internal memo warned last year that the city shouldn't keep counting on that.

The issue flared up in politics last fall when a longtime businessman who'd helped consult with the city on the matter ended up running for City Council, proclaiming that the city needed to bail out of the liquor business before it was too late.

"How long do you hold onto a business that keeps going down?" Joe Julius asked. "It's still making a little bit of money but not enough to fund the library bonding, which was its purpose. And we're not taxing those two sites. To me this is a no-brainer. If we hold on forever, we could be the last people on the Titanic."

Incumbents protested that the two stores do still make a profit -- roughly $200,000 for city purposes in 2011 -- and they prevailed in the election.

Having won, though, they are left with the challenge of competing more effectively in the marketplace. The latest gambit: an online survey in January and early February that drew hundreds of participants, drawn by the offer of a discount on their next purchase.

Among the findings:

• With upscale demographics, Savage residents are wine drinkers: 42 percent "always" get wine when they stop by a liquor store, versus just 20 percent who say the same for beer. And many are big spenders. Nearly a third say they usually drop $50 to $100 on a single visit.

• Price is the second-most-important lure after location, and customers are not altogether thrilled with pricing at the municipal stores. While customers give the munis an "A" for professionalism, it's just a "B" for price and "B" for selection. And they know the difference: Many of them have shopped the big-box stores and do so regularly.

• Quite a few shoppers feel better knowing they're supporting civic improvement via city stores, even though smaller groups either oppose city involvement or -- in the case of 17 percent -- didn't know the stores were city-owned.

Dozens of pages of comments suggest that the stores hit a sweet spot for many between being big enough to offer choice without being too big or chain-like to discourage human connections:

"We are on a first-name basis with Steve & PJ. They know what wines we like and always recommend a new one we might like."

"I'm not quite to 'Norm!' status at the store, but close. Everyone knows me and my wife by name, and Steve and PJ come up with good new wine recommendations on each trip."

Some folks love that it's a city operation. Wrote one: "I purposely try to use the Savage liquor stores when possible to keep the profits to be used for city purposes."

But the impact of the new arrivals on the scene is obvious:

"I do not like paying more for the same thing the competition offers a few blocks away."

"If you could match case prices that Costco provides, I would give you my business over them."

"The only comment I offer is a tough one. That is to offer the kind of wine value that Costco does."

"I go to Costco to buy all hard alcohol lately, as it seems to be at least 10-20 percent cheaper than [Savage's main outlet] Marketplace."

"Sam's Club is my first choice. It may not be a lot of money, [but] if I can save $2-5 per visit for wine and spirits over a year, it could add up. Since I'm retired, I look at saving whenever I can."

"For wine, now that Haskell's is down the road being competitive in price, I am finding out that they are better priced [than you are]."

Matthies argues that there can be confusion over who's really cheaper on what, but he doesn't deny there's a tug-of-war going on between price sensitivity and the city's need to see profits. The goal now is to address some of the issues customers are raising.

"Lived here about 6 months before I even knew Martketplace was a liquor store," one person said. "Just assumed from the name that it was a convenience store, so I never stopped there."

That visibility issue is one thing the city is addressing. It has pumped up its advertising budget and is planning new signs on busy County Road 42. It is also cutting costs in various ways, including a charity wine tasting that was costing it the better part of $10,000 a year.

But in the end, Matthies said, the city, like any business, has to stress its own market niche.

"Yes, their prices are good," he said of the big box stores. "They don't have a staff there. We have a staff here, and an educated staff, and that costs money."

David Peterson • 952-746-3285

  • ABOUT SAVAGE LIQUOR

    The main outlet, Marketplace, is located at 8200 W. County Road 42, and there also is a Dan Patch store downtown, near Hwy. 13 and the river. Website: www.savageliquor.com

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