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State Auditor reports municipal liquor store finances

In statewide rankings of cities with liquor operations, Nevis placed 32nd of 182 for net profit as a percent of sales. Meanwhile, Menahga's Northbound Spirits ranked 170th, posting the fifth-largest net loss in the state.

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Off-sale liquor operations in the Metro Area reported average sales of $3.4 million, compared to $2.2 million in Greater Minnesota. In the Metro Area, off-sale operations outnumber on-sale 35-3, while in Greater Minnesota, on-sale operations outnumber off-sale 95-82. However, on-sale operations are much larger in the Metro Area, averaging $3.5 million in sales compared to $643,526 in Greater Minnesota. (Courtesy of the Office of the State Auditor)

Municipal liquor stores in the area did middling well in 2019, according to a report released Dec. 18 by the office of Minnesota State Auditor Julie Blaha.

The report includes data about liquor store finances. These data show the Nevis and Park Rapids stores performed better than average financially, while their counterpart in Menahga failed to turn a profit.

Park Rapids

Rapids Spirits, the municipal liquor store in Park Rapids, ranked no. 1 by net profit as a percent of sales out of three off-sale-only operations in the Headwaters Economic Development Region.

Serving a city of 4,145 people, Rapids Spirits made $3,030,358 in sales during 2019, ranking 40th out of 182 cities with municipal liquor stores statewide. With a $2,263,799 cost of sales, it made a gross profit of $766,559.

Including operating expenses of $536,745 were 17.7 percent of sales, the lowest percentage in the Headwaters region.

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After expenses, Rapids Spirits had an operating income of $229,814. With non-operating revenue of $1,433, the store’s net profit was $231,247, or 7.6 percent of sales. Statewide, it ranked 64th in net profit as a percent of sales, fifth of 10 stores in the Headwaters region.

There were no fund transfers in or out of Park Rapids’ liquor store fund in 2019. Depreciation expenses totaled $36,860; pension expenses, $11,591; and total capital outlay, $4,870.

Menahga

Northbound Spirits, the municipal liquor store in Menahga, posted a significant loss in 2019.

The on- and off-sale liquor operation served a city population of 1,329. It made $851,978 in sales, ranking 96th in the state. After a $588,040 cost of sales, it still had a gross profit of $263,938.

However, operating expenses were $315,158, or 37 percent of sales – the seventh-highest among 15 municipal liquor operations in the North Central Economic Development Region. This resulted in an operating loss of $51,220.

With $4,707 in non-operating revenue, the store took a net loss of $46,513. This was the fifth largest loss in dollars statewide, trailing only Mahnomen, Isle and two cities that closed or sold their liquor operations during 2019.

At negative-5.5 percent of sales, it was the region’s second lowest net income/loss by percent of sales, and ranked 170th out of 182 operations statewide. Among 12 on- and off-sale operations in the North Central Region, Menahga ranked 11th, ahead of only Clarissa, which had an 11.5 percent loss.

Northbound Spirits also posted $9,813 in depreciation costs and $26,195 in pension expenses. There were no fund transfers in or out and no capital outlay in 2019.

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Nevis

The Nevis Muni almost tied with Blackduck to lead the Headwaters region in net/profit as a percent of sales, ranking second by less than 1/10 of a percent among the region’s 10 municipal liquor stores.

The on- and off-sale operation served a city of 417 people with $800,590 in sales during 2019, ranking 100th in the state. Cost of sales totaled $438,905, giving the store a gross profit of $361,685.

The muni had operating expenses of $297,661. Expenses as a percent of sales were 37.2 percent, ranking third of the region’s 10 municipal liquor operations. This left an operating income of $64,024.

Including non-operating revenue of $16,493, the store had a net profit of $80,517. As a percent of sales, this was 10.1 percent, the 32nd highest in the state.

Transfers out from the liquor fund totaled $35,000; depreciation costs, $7,475; pension expenses, $8,716; and capital outlay, $500.

Akeley

The Akeley Muni posted narrow margins and a high rate of expenses to land below the middle in statewide rankings.

The on- and off-sale liquor operation served a city population of 457 in 2019. Its sales totaled $501,416, ranking 134th in the state. With cost of sales totaling $257,588, it had a gross profit of $243,828.

The muni’s operating expenses totaled $221,314, or 44.1 percent of sales, the second highest among the Headwaters region’s 10 stores. This left an operating income of $22,514.

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Including non-operating revenue of $618, the store’s net profit was $23,132, or 4.6 percent of sales. This put it at 109th place statewide, eighth in the region and sixth among the region’s seven on- and off-sale operations – leading only Mahnomen, which had a loss.

Transfers out totaled $5,000; depreciation costs, $8,762; and pension expenses, $8,294.

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Off-sale liquor operations in the Metro Area reported average sales of $3.4 million, compared to $2.2 million in Greater Minnesota. In the Metro Area, off-sale operations outnumber on-sale 35-3, while in Greater Minnesota, on-sale operations outnumber off-sale 95-82. However, on-sale operations are much larger in the Metro Area, averaging $3.5 million in sales compared to $643,526 in Greater Minnesota. (Courtesy of the Office of the State Auditor)

Statewide and regional data

In general, the State Auditor’s report noted that 182 Minnesota cities operated 215 municipal liquor stores in 2019, including 89 cities operating both on- and off-sale establishments and 93 restricting their operations to off-sale stores.

Combined, these stores generated a total net profit of $27.9 million, a decrease of $1.1 million, or 3.9 percent, from 2018. On-sale operations saw net profits totaling $3.5 million, a slight increase on the previous year; off-sale stores netted $24.4 million, a 4.4 decrease.

During the past five years, net profits increased 11.9 percent across the board, with off-sale operations seeing a 14.2 percent increase and on-sales showing a 1.8 percent decrease.

Menahga was one of 33 cities, all in Greater Minnesota, that reported net losses in 2019, five fewer than 2018.

During 2019, Minnesota’s municipal liquor operations reported a 24th consecutive year of record sales, totaling $372.1 million. This was a $11.9 million, or 3.3 percent, increase on 2018. Individual stores’ gross sales ranged from $122,042 in Elmore to $16.3 million in Lakeville.

Operating expenses for these enterprises totaled $82.1 million during 2019. This was an increase of $3.4 million, or 4.3 percent, on 2018.

Municipal liquor stores supported other city programs more than the reverse. Net transfers (transfers out minus transfers in) totaled $20.8 million, a 4.3 percent increase on 2018.

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The number of municipal liquor stores has declined steadily during the last 10 years, with 10 cities discontinuing liquor operations in 2018 and 2019. (Courtesy of the Office of the State Auditor)

The report advised that:

  • Cities with low gross profits compared to similar sized stores, or as a percent of sales, should reconsider their markup policies and bear in mind that on-sale operations need a higher gross profit margin to cover their higher operating costs.

  • Cities with high operating expenses compared to similar-sized stores, or as a percent of sales, should look at operations with similar levels of sales for ideas about how to operate more efficiently.

The State Auditor’s office requires cities whose municipal liquor operations showed a net loss in at least two of the past three years to hold a public hearing about the future of their liquor stores. Based on data for 2017-19, 27 cities were required to hold a hearing in 2020, including Mahnomen, Frazee and Sebeka.
Due to lack of profits, competition, insurance costs and other concerns, the report stated that the number of municipal liquor stores continues to decline.

Related Topics: GOVERNMENT AND POLITICS
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