Municipal liquor stores boom, giving cities' coffers a buzz

City-owned liquor stores in the Twin Cities area are setting sales records this summer, courtesy of money-conscious consumers who are taking "staycations" instead of traveling, and cooking at home instead of dining out in restaurants.

In Edina, a July promotion in the city's municipal liquor stores led to the record sale of more than 9,300 bottles of one brand of wine during the month. Tellingly, the sale wasn't for 40-year-old "tawny port" the store sells for $156 a bottle. It was for Columbia Crest wines that had been marked down from $7.99 to $4.99 a bottle.

"Customers see that and say, 'Wow, prices are good,'" said Steve Grausam, liquor director for the city of Edina. "People are looking for value."

Sales in municipal liquor stores in Edina, Richfield and Lakeville have hit all-time highs this year, and they're not alone. While bars and restaurants are hurting, both privately owned and city-owned liquor stores are doing great this year, industry representatives say.

Frank Ball, executive director of the Minnesota Licensed Beverage Association, which represents bars and retail liquor stores, said bar business is down close to 30 percent, partly because of the statewide smoking ban. But "off-sale" retail stores -- where people buy wine or beer to drink off the premises -- "are all doing quite well," he said.

His counterpart with the Minnesota Municipal Beverage Association, Paul Kaspszak, said sales are up in city-owned liquor stores across the state. That's not because individuals are spending more on alcohol -- it's because there are more customers.

"I don't know if it's a windfall for cities, but it absolutely helps," Kaspszak said. "In my experience, they're looking at it as a godsend. ... Sales and profits have been going up for years and years. But what's happening is that more and more cities are relying on their municipal liquor stores to fund things that their general funds used to pay for."

The year 2007 marked the 12th consecutive year of record profits for municipal liquor stores, the auditor's report said. The most profitable city operations were in Lakeville, Edina, Richfield, Eden Prairie, Apple Valley and Columbia Heights.

Social-purpose background

Municipal liquor stores were started largely to control alcohol consumption. Lakeville's stores were established in 1934 to foil bootlegging, said city liquor operations director Brenda Visnovec. Lakeville and Edina don't sell kegs of beer and don't sell tobacco to minors in their stores. Though Edina promotes its sales through direct mail, it doesn't advertise prices, relying on word of mouth to bring people into the stores.

And they're pouring in. While the average sale in Edina is within 50 cents of last year, Grausam said, the number of customers is up by 12,000. In Lakeville, sales are up 3.5 percent over last year and customer counts have increased by 3 percent.

"People are learning how to enjoy cooking again, making it a social adventure at home," Visnovec said. "They're cooking for friends and having a little glass of wine."

"If you go out somewhere, they're charging for a glass of wine what we charge for a bottle," he said.

Wine seems to be driving most of the traffic, even in Richfield, where beer traditionally made up half of all sales. Younger clients are buying more wine, Fillmore said, pushing beer down to about 40 percent of sales. Richfield, Lakeville and Edina liquor managers all said sales of high-end wines have suffered as heavy production of less expensive varieties -- fondly known as "good juice" -- has yielded high-quality wines even under $10.

While consumers seem to be gravitating to lower-priced wines regardless of their income, those who prefer high-end vodkas, whiskeys and even craft beers appear to be sticking to those habits. Grausam said that may be because while people are reluctant to spend $20 on a bottle of wine that will be drunk in a single dinner, they're willing to spend $60 for a single-malt Scotch that will last for weeks.

Though there have been conflicts in some cities over whether it's appropriate for cities to sell liquor -- Shorewood sold its liquor operation in 2007 -- cities such as Lakeville promote their stores as a money-saver for taxpayers. Profits from the store reduce Lakeville's property taxes by about 4 percent, city officials say.

In Edina, some of the $1.1 million in 2008 net profits from liquor sales went to the city's general fund. The rest was used to help support the city's art center and ice arena.

Lakeville's $1.4 million profit was used mostly for infrastructure projects such as civil defense sirens, paying down the debt on a police station and architectural services.