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Minnesota: A tougher landscape for municipal liquor stores

Star Tribune-Minnesota_01-06-15Hours before midnight on New Year’s Eve, the sales floor at Edina’s 50th Street municipal liquor store was still humming. As customers roamed the aisles and lined up at the checkout counter, a promotional message played over the public address system, ending with the tagline – “Where Profits Get Poured Back into the Community.”

The slogan is part of a new marketing campaign noting that Edina’s three liquor stores help fund everything from the city’s art center to road repair. It’s a message Edina and other municipal operators are emphasizing with shoppers who might otherwise buy from the area’s growing field of national and big-box chains.

Across the Twin Cities, municipal liquor stores are closing the books on a challenging year in 2014, knowing that 2015 may be an even bigger test of their ability to hold their own. The latest challenge comes from national superstore Total Wine & More, which entered the Twin Cities last year and now has four outlets, with plans for more.

Total Wine superstores typically offer 8,000 wines, 3,000 spirits and 2,500 beers – a much larger selection than municipal stores – and heavily promote discount prices. Executives of the Maryland-based chain have said they believe the Twin Cities has been an underserved market.

“We’re a destination store, not a convenience store,” said Edward Cooper, vice president of public affairs and community relations. He said Total Wine stores tend to draw customers from a 10-plus-mile radius.

Savage’s liquor store on County Road 42 has been hit with “a double whammy,” according to City Administrator Barry Stock – the closing of a neighboring Rainbow Foods that drew customers to the liquor store and the opening of a Total Wine about 5 miles away in Burnsville. Stock says the city is trimming expenses, like filling a vacant store manager position with an assistant manager at lower pay.

Even before the arrival of Total Wine, city-owned liquor stores have found themselves under pressure. Twelve of 19 metro area municipal liquor operations saw their profits drop in 2013, according to the latest report from the state auditor.

The stores’ overall contribution to city coffers also fell, from about $8.3 million in 2012 to less than $7 million in 2013. The infusions help cities pay for equipment and facilities instead of doing without or finding other ways to pay for them, like raising property taxes.

Municipal liquor stores enjoy monopolies within their own city borders but can feel the impact from a Total Wine, MGM, Trader Joe’s or Costco in a neighboring city.

“Ground zero would be a good way to describe where we are,” said Mike Larson, who oversees St. Anthony’s two municipal stores – each about 5 miles from a Total Wine that opened last March in Roseville. Other new liquor stores in New Brighton and northeast Minneapolis also have amped up the competition. “We have felt the saturation of this market,” he said.

“If any city near a Total Wine has increased their sales, good for them,” said Steve Grausam, Edina’s director of liquor operations. He said the city’s Southdale liquor store has seen its weekly sales fall by 10 to 15 percent since November, when a Total Wine opened 2 miles away in Bloomington. “It’s natural for people to check out a new store. We think things will eventually level out,” he said.

Poised to compete

City-owned liquor operators say they’re responding by sharpening their business practices. Besides emphasizing funds they provide for parks, snowplows and police stations, municipal operators are remodeling outdated stores and bulking up on locally made merchandise from microbreweries, microdistilleries and boutique wineries.

And some, like Lakeville, are borrowing a page from Total Wine’s playbook and beginning to sell some of the same private-label merchandise the superstore touts.

“They’re no marketing dummies,” said Brenda Visnovec, director of liquor operations in Lakeville, a neighbor of the Burnsville Total Wine. The superstore chain sells nationally known brands at or below cost, making much of its profit from markups on the private-label goods. In some parts of the country, it can sell those private labels exclusively, but in Minnesota, wholesalers are required to offer the same merchandise to every retailer.

“We are simulating their game,” Visnovec said. Besides offering some of the private-label products, Lakeville Liquor has created a list so customers can request them.

Grausam said the $300,000 remodeling of Edina’s 50th Street store may be one reason that location has held its own against Total Wine. The same is true in Fridley, which recently finished renovating its store near Interstate 694 and University Avenue.

Fridley Finance Director Darin Nelson said the store had its strongest November sales ever after the remodel, which was completed in October.

The Fridley store makeover included a rebranding campaign using the same marketing consultants who advised Edina. Besides going more upscale, like adding a tasting area, the decor includes oversized photos from Fridley’s past to emphasize the store’s community roots, Nelson said.

Local products popular

In Richfield, sales at its 50-year-old outlet at Lyndale Avenue S. and 65th Street also shot up after an ambitious makeover in 2013, according to Bill Fillmore, director of liquor operations.

Fillmore said housing and commercial development near the Lyndale store, including a new apartment complex, also has bolstered the shop’s business. “A couple of years ago there was no reason that people would want to go there. Now people are attracted to the area,” he said.

Richfield also conducted an extensive customer survey around the time it was remodeling the store. “The products that weren’t paying the rent – out they went,” Fillmore said. All stores now carry an expanded selection of products from local microbreweries and microdistilleries, many of which have sprouted recently in the suburbs.

Fillmore notes the small-batch products can sometimes be difficult to obtain, but they tend to carry higher profit margins. “They add excitement to the business” said Fillmore, who recently filled a customer’s request for a new vodka produced by J. Carver Distillery, a start-up in Waconia. “People ask for and wait for these products to come out.”

Source: Star Tribune