5.4. SR 09-13-2004
Item 5.4.
MEMORANDUM
TO: Mayor and City Council
FROM: Pat Klaers, City AdminiltibOr
lY~
DATE: September 13,2004
SUBJECT: Westbound Liquor Store Discussion
A number of Councilmembers have requested that the Westbound Liquor store issue be on
a worksession agenda for discussion and consideration. The fmance director will have
financial information to present to the City Council at the meeting. This information
includes fmancial projections on a Westbound store and these projections being combined
with the existing operation at Northbound, so that we can get a sense as to the impact on
net profits. Construction estimates and the amount of bonds needed for a new store will also
be presented.
In general, a new Westbound store will not generate increased profits for the first few years;
but over time increased profits will be realized. A key figure in the financial assumptions is
the gross sales amount at a Westbound and whether or not this store will significantly impact
gross sales at Northbound. Also, it should be noted that debt on the cutrent Northbound
store is paid off in 2007.
Attached for YOut information is a newspaper article on municipal liquor stores in the Apple
Valley and Lakeville area.
S:\Council\Pat\2004\ Westbound. doc
ST. PAUL PIONEER PRESS WWW.TWINCITIES.COM
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APPLE VALLEY
City eyes more
liquor profit
Council hopes to
boost revenue at
municipal stores
BY LAURA YUEN
Pioneer Press
Wes Jacobson can pat him-
self on the back each time he
buys a bottle of zinfandel from
Apple Valley's city-owned liqnor
store. For every purchase,
some of that cash goes to his
city's parks and recreation pro-
grams.
But the real reason Jacobson
stops by the Cedar Avenue cor-
ner shop has little to do with
civic-mtndedness and every-
thing to do with convenience. "I
live five or six blocks from
here," he explatned, walktng out
of the store tottog a bag of ice
and hard lemonade.
Serving a small radius of res-
idents is not the way to create a
cash cow - even if the city
owns a local monopoly on sell-
tng booze. The City Council is
considering new strategies to
boost revenue, such as addtng'a
third liquor store and hirtng a
consultant to recommend a new
location.
"What we don't want is
another neighborhood store,"
Bonnie Shea, the city's outgoing
manager of liquor operations,
recently told council members.
Clearly, Minnesota cities
enjoy the money-maktng poten-
tial of municipal liquor stores as
much as their ability to control
the distribution of alcohol.
Liquor sales in Minnesota
topped more than $240 million
tn 2002, according to the most
recent data available from the
state auditor's office.
In Apple Valley, the two strip-
mall liquor shops had salos of
about $5.5 million, according to
the state reporl. It's not a small
number, but city leaders speak a
little enviously about the cash
generated by next-door neigh-
bor Lakeville.
Sales from Lakeville's three
stores totaled $9.5 million in
2002, beattng out the other 232
Minnesota cities that operated
their own liquor stores. The
money has helped pay for
Lakeville's ice arena and land
for its library. The city educates
its residents about those bene-
fits every chance it gets, said
Brenda Visnovec, Lakeville's
manager of liquor operations.
The ongoing building boom.
tn southern Apple Valley is trig-
gering some of the city's Icon-
cerns. It's likely that some of the
new townhouse dwellers are
fetchtng theit drinks from one
of two Lakeville stores near
Apple Valley's southern border,
council members said.
Lakeville's biggest money-
maker is the sleek standalone
shop near Interstate 35W and
County Road 46. Visnovec says
visibility from the freeway is
unbeatable. City administrators
picked that location after study-
tng growth patterns and expect-
ed retail and commercial devel-
opments.
The two strip-mall
liquor shops had sales
of about $5.5 million -
not a small number.
But city leaders speak
a little enviously about
-the cash generated by
next-door Lakeville.
But customers also appreci-
ate the stores' unusual activi-
. ties, such as organized tours of
wtneries in Dakota County.
About 30 percent of the cus-
tomers who are members of the
stores' wine clubs are from out-
. side LakeviIle, Visnovec said.
"It takes a whole lot of hard
work," she said of her stores'
success. "We are constantly
evolving."
Shea, Apple Valley's retirtng
liquor store manager, said her
shops are also putttng a premi-
um on customer service and
employee training.
Location, she and others con-
tend, appears to be the stores'
biggest hurdie.
The shop at Pilot Knob Road
and Essex Avenue, for example,
is "a disappotntment," said
Council Member Tom Goodwtn.
"It's convenient and well placed
for that part of town. but it never
m.adethe margins we wanted."
Goodwin remembers when
developers had plans to build a
major grocery store tn that
area. The city built the shop
with visions of a bustlil1g shop-
ptng center, but the grocery
store project fell through.
Today, the liquor store is,
attached to a PDQ gas station
and convenience store. Nearby
bustnesses - a Domino's pizza
jotn~ a small Chinese restau-
rant - attract some traffic but
are hardly major desttnations.
And then there's the prictng.
Shea said the liquor stores'
prices are competitive with
other stores, private or public.
But Council Member John
Bergman said he'll usually head
to an MGM Liquor Warehouse
to save a few bucks. .
"If I need six bottles of wtne,
I'll go to MGM," he said.
Although city officials hope
to increase revenue from the
liquor stores, city parks and
recreation programs have
enjoyed steadily tncreastng pay-
ments from the liquor fund. For
2005, city budgeters are recom-
mending returning $400,000
from the liquor fund to the city,
up $100,000 from this year.
The council recently request-
ed estimates for an outside con-
sultant who could research
staffing levels and recommend
possible store locations.
.~
Laura Yuen covers Apple Valley
and Eagan. She can be reached
at lyuen@pioneerpress.com or
651-228-5498.
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Northbound Liquor
Profit and Loss History
and End of Year 2004 Estimate
Projected End of Year to Date
Year 2004 Sect. 3. 2004 2003 2002 2001
Sales $ 4,318,000 $ 2,758,091 $ 4,152,235 $ 4,072,018 $ 3,981 ,509
Cost of Sales 3,195,320 1,907,573 3,040,286 2,997,847 2,962,967
Gross Profit 1,122,680 850,518 1,111,949 1,074,171 1,018,542
Operating Revenues 5,000 3,402 4,041
Operating Expenses 482,500 274,340 473,831 476,253 428,639
Depreciation 63,000 63,000 65,880 69,664 74,017
Operating Income (Loss) 577,180 513,178 576,279 528,254 515,886
NonOperating Revenue (Expenses) (15,300) (4,499) (16,858) 6,025 3,484
Income (Loss) Before Transfers 561,880 508,679 559,421 534,279 519,370
Transfers Out 233,300 233,300 183,300 158,300 148,300
Ice Arena 230,000 230,000
Public Safety Building Project 120,000 120,000
Net Income (Loss) (21,420) (74,621) 376,121 375,979 371,070
Principai Retired 155,000 155,000 145,000 140,000 80,000
Notes:
2004 Depreciation is an estimate.
Principal Outstanding: $480,000
-Public Safety Building Project contribution may not be needed if funds are available in the construction
fund.
Prepared September 8, 2004
Updated September 9, 2004
9/10/2004
Finance
CiJ
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g,)'Q ~ r?\,l
Assumptions Used for AnalysesN~ '>.? ~ f/
and General Comments ~O\}> \ 0 \, ~
Westbound 2004
1. Construction estimated at $1,927,500 for 10,000 square feet. Construction Management
fees are not included. A five percent contingency is included.
2.
Revenue Bond of $1,100,000 assumed with balanced financed by with cash in Liquor Fund.
Westbound sales and operating expense estimates based on original amounts in Dakota
Study which were updated and revised by Dave Potvin in August, 2004 and September 8,
2004. (This includes the estimated profit decrease at Northbound.)
Northbound revenue bond may be prepaid "only in the event that the City Council shall have
reasonably determined that such redemption is necessary in order to a~low the Ci~ to J
construct or finance a second municipal liquor store." ~(W~,.;tJ ~~
5.
Cash flow needs have been increased to ensure that adequate cash is available to fund
ongoing operating needs plus leave a reserve available for unforseen expenses.
6.
New revenue bond was estimated at a six percent interest rate. This may vary substantially
depending upon the market at the time of issuance and whether this is purchased locally or
on the open market.
7.
Sales estimates to not take into account changes in liquor laws or the addition of private
stores to the market.
~
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Prepared September 8, 2004
Updated September 9, 2004
9/10/2004
Finance