Municipal liquor profits rise, helping cities' bottom lines

Municipal liquor appears to be holding its own against an increasingly crowded field of competitors that include more national and big box chains.

A report released Monday from the State Auditor shows higher sales and profits in 2012 for on- and off-sale stores in 207 Minnesota communities.

The stores' contributions to city coffers — put to a variety of uses, such as for parks or building improvements — also rose about 14 percent from 2011, to about $23 million. And cities are increasingly touting the benefits their stores provide.

Lakeville's liquor operation channeled $1.1 million to the city in 2012 and $1.7 million last year. "It bought a snowplow, and heaven knows, we need that now," said Brenda Visnovec, director of liquor operations. Profits from the three stores also funded police and fire department equipment, a fire training facility and a new heating and cooling system for city hall.

The auditor's results don't factor in 2013, but they show some encouraging trends, especially for Twin Cities area stores. Edina's net profit of $1.5 million was the highest among cities. No metro stores had losses, and the number of cities with money-losing operations fell from 36 to 25.

In addition to returning about $50,000 to cover administrative costs, Farmington's stores gave $20,000 to a fund for community projects, including a veterans memorial now being built, said City Administrator David McKnight. "We put up huge posters in the stores telling customers their purchases had helped contribute to the vets memorial. This is something we can do more of, because we're thanking people for shopping and telling them where their dollars are going."

In Savage, the city just finished a major renovation of one of its stores, and the sign now features the city logo. Both of the city's stores promote projects they have funded over the years, such as the town's library.

Municipal liquor stores were a post-Prohibition creation, intended to help authorities keep a close eye on liquor consumption. In cities that run municipal stores, no private stores are allowed to operate.

Apple Valley, Brooklyn Center and Robbinsdale were the only metro-area communities among 64 statewide where net profits declined in 2012. Officials in all three said profits took a one-year hit during store remodeling projects. In Robbinsdale, the renovations also involved relocating a store, according to Finance Director Larry Jacobson.

An ambitious renovation at one of Richfield's stores shut it down last year while the work was done, dampening overall sales for the city's four outlets, said Bill Fillmore, director of liquor operations.

But customer response to the makeover has been overwhelmingly positive, Fillmore said. The 50-year-old outlet at 65th Street and Lyndale Avenue S. was gutted, and now sports polished concrete floors, new lighting and windows, a tasting area and a flashy new cooler that spans an entire wall.

Fillmore believes commercial and housing redevelopment in the area, including a new apartment complex, have driven customer traffic to the remodeled store. "We're seeing a lot of new faces, including younger shoppers," he said.

Competition from merchants like MGM, Trader Joe's and Costco has prompted municipal operators to sharpen their business practices, said Paul Kaspszak, executive director of the Minnesota Municipal Beverage Association. In the past couple years, Savage and Farmington have revived their liquor operations with managers hired from Lakeville.

Savage's liquor operations had to adjust to a new species of suburban competitor: big-box merchants like MGM, which in 2009 opened a store in neighboring Prior Lake. Under new management, Savage responded with a major makeover of its County Road 42 store in 2013. The store was closed during remodeling, cutting into overall sales in 2013, Stock said. But profits have risen thanks to increased sales of higher-margin products and staffing cuts.

Farmington's municipal operations had performed so poorly in recent years the city had discussed exiting the business. Sales and profits have rebounded under the new manager, who expanded the selection of craft beers and more aggressively promoted specials.