Municipal liquor stores in Koochiching fared well in 2006, according to a Minnesota Auditor’s report.
State Auditor Rebecca Otto’s report issued last week on 2006 sales of Minnesota’s 248 municipal liquor stores showed a combined net profit of some $20 million, generating $16.4 million in revenue for city budgets.
City-owned liquor stores in Koochiching County that have long operated in Littlefork, Ranier, Big Falls and Northome performed well, managers say.
State law allows municipalities with fewer than 10,000 people to own and operate on- and off-sale liquor establishments. Throughout the state, there were two new stores in 2005-06, and seven others ceased operations, the report stated. Of the 44 cities that reported net losses, 33 of them were to hold city hearings for negative showing in two of three years.
Paul Kaspszack, executive director, Municipal Beverage Association, said the report is receptive to municipal store concerns, but cautioned that data does not always tell the entire story.
The Northome on- and off-sale municipal liquor store served a city of 243 people and was lost to a fire on July 22, 2006. It appears in the report as the lone municipal store in Koochiching County to lose money with a 11.6 percent net loss of $17,047.
“It was a great loss of revenue in that short year,” said Northome Clerk Treasurer Karin Elhard.
The fire is not noted in the report and Elhard said the store was an important part of Northome, where it shared a building with the city owned laundromat and community center. Construction of a new building has been delayed by the insurance settlement, said Elhard.
The structure was declared repairable and the city sought funds to convert the structure into a one-story city hall, community center, liquor store and laundry. With a budget ceiling of $600,000, the city expects to begin building in May.
“We are not taking on debt for the building,” she added.
The Northome liability insurance is paid through store operations and provided through the League of Minnesota Cities, which also provides workshops on loss control, prevention and education.
“All of our staff are well trained and this helps the customers and everyone,” she added.
Kaspszack said municipal liquor stores face the same issues as privately owned stores. Each survives by staying current on issues and trends with good marketing, management and customer relations. He noted the stores might show a one or two year losses for investments in inventory or remodeling costs that are absorbed into operations.
The difference with municipal operations, he added, is that decisions are sometimes made in the community interest and not necessarily for profit. City officials may choose not to allow off-sale of beer kegs if they believe it is a source of teen drinking. They may refuse to allow promotional activities such as ‘all you can drink’ nights to discourage binge drinking and intoxicated drivers.
Mike Fairchild, city administrator and manager of the Littlefork municipal liquor store, said the city owned on- and off-sale establishment presents “a different standard.”
The store benefits are with civic control and care to avoid questionable operations, he said. Revenue from the liquor store offsets local tax levies, and offers discretionary revenue available for unbudgeted surprises.
Littlefork, with a population of 705, earned a 4.3 percent net profit of $15,544 in 2006 from liquor store operations.
Yet, Fairchild notes, that not everyone agrees with the concept of a municipal liquor store. He said some feel it is unfair competition and others think alcohol “a dirty business.”
“There are pros and cons,” said Fairchild. “But in a small place like this it is a good thing.”
The store is not a liability, but the Littlefork City Council has discussed selling the store to private owners, said Fairchild. One reason is that in his four years as manager, the liability coverage has doubled to more than $10,000 annually.
“That is the difference between making a profit or not in the small towns,” said Kaspszack.
The city of Ranier operates an on- and off-sale municipal liquor store. With a population of 173, the city showed an 8.5 percent net profit of $31,163 in 2006. The city transfers $5,000 of the profit to the city’s general fund each quarter.
“We have not lost money, but some years are good and sometimes we struggle,” said Gretchen Cole, store manager since 1997.
Cole said city officials like to have control of store hours. The store closes early enough to discourage people from driving to Ranier from nearby bars.
“Otherwise, we would be the last bar open and would carry that liability,” she added.
The resorts and restaurants in the area offer different types of services and Cole says they are not competition, and actually increase her business by bringing more people to town.
“If I could change anything it would be putting in a bigger parking lot,” she said. “Other than that, we are a quaint village bar and like a family. We welcome tourists and we all have a good time.”
Big Falls runs an on- and off-sale establishment in a city of 269. The liquor store had total sales of $311,429 with 6.2 net profits of $19,365 in 2006. The city transferred $5,000 in liquor store funds to the city general fund.
Joan Nelson, city clerk, said the store is a service to local residents and provides jobs in addition to generating city revenue. The city added a deep fryer food service to the liquor store and the Lions Club runs a charitable pull tabs booth.
The city council has considered selling to private ownership but the down years discourage private ownership, Nelson added. The Dram shop, a term for liquor store insurance, the smoking ban, and poor hunting, snowmobile and tourist seasons all impact sales, she said.
The Municipal Beverage Association is officially neutral on the tobacco ban with members on both sides. He cautioned businesses not to take a ‘sky is falling’ perspective and look at the change as they would any other factor in running a business.
“Those that are not doing well are saying there is no other way to do business,” Kaspszack said.
Kaspszack said cities get out of municipal liquor for three reasons. The first is purely political. A given council or councilor has an interest in supporting a move to private owners, or change their perspective of whether government should view alcohol as a commodity or a controlled substance. The second, he said, is bad management. The third is the decline of a town and its population base.
Another risk to municipals, he added, is stagnant operations and cities that view the stores as source of revenue, without any reinvestment planning for remodeling and expansion.
“They need to step back and understand the history that led to this, evaluate the community need and develop and approach,” he added.