With a strong Sunday Sales fight on the horizon for the next legislative session, it is important to look at the financial impact of the legislation.
There's an annual discussion going on right now at the State Legislature around the question of whether the good citizens of Minnesota should be allowed to purchase beer, liquor and wine on Sundays. The State Legislature sets the rules for such important life choices as this, so it's only natural that they study the issue carefully, hear from all sides on the matter and then make a rational decision that's good for all concerned, right? Right.
Now I'll be the first to admit that upon moving to Minnesota in 1996 that it struck me as a little odd that I could not buy beer, liquor or wine on a Sunday. I had moved here from Iowa where you could buy beer (OK, yes, it was 3.2 beer), liquor and wine in aisle 10 at any Hy-Vee grocery store on Sunday or any other day of the week.
When I first moved here I thought it was odd that cities with municipal liquor stores would partner with private liquor stores to fight efforts to allow Sunday sales. Why? Why wouldn't we want our stores to be able to sell on Sundays? Sure, employees aren't going to like it, but isn't one of our key objectives in the liquor business to make money, and wouldn't we make more money if we could be open on Sundays and sell more product?
This is the third municipal liquor city that I've managed in Minnesota. I'm not a brilliant business mind, but I know a thing or two about the liquor business, so let's take a look at the numbers in Edina to see if the Sunday sales idea makes any sense for us.
City staff project our 2011 total sales at our three municipal retail stores to be $13,367,072. We project our total 2011 operating expenses at $12,338,481. That means our projected operating income for 2011 will be just over one million dollars at $1,028,591.
In 2011, our stores will be open 307 days. We will be closed on 58 days. 52 of those 58 days are Sundays. 6 of those 58 days are holidays. In examining the hypothetical impact of the proposed legislation, I will assume that we would be open 359 days and closed 6 days in 2011.
Our 2011 projected sales per day is $43,540. Our 2011 projected operating costs per day are $40,190. If you do the math, the difference between these two numbers multiplied by the number of days we will be open in 2011 (307) will equal our projected net operating income for 2011: $1,028,591.
If the Legislature changes the law on Sunday sales, it will be difficult for us not to be open on Sundays, so I will assume in this hypothetical that our stores would be open for 52 additional days in 2011. If we further assume that our projected 2011 daily operating costs of $40,190 would not be materially different on Sundays, we would add 52 more days of operating costs at $40,190/day to our annual operating cost totals. This would increase our projected annual operating costs in 2011 by $2,089,729 from $12,338,481 to $14,428,210; an increase of 16.9%.
On the revenue side, if we were open on Sundays and wanted to keep our projected net operating income the same ($1,028,591), we would need total gross sales of at least $15,456,801, which is an amount equal to the sum of our projected Sunday sales scenario operating expenses of $14,428,210 + $1,028,591. This gross sales goal would require an increase in our sales of $2,089,729; and increase of 15.6%.
So, if we want to stay exactly where we are right now, fiscally, in the Sunday sales scenario we would need to hold down the increase in our projected operating expenses to 16.9% or less and increase our projected gross sales by at least 15.6%. Is that possible? Maybe, but the challenge is steep.
In 2010 our total customer count for our three store operation was 506,410. Our total sales were $12,862,719. Average sales per customer then were $25.39. For the sake of this example, if we hold our average sales per customer steady at $25.39, it would take an annual increase of 102,365 in our 2011 customer count, an increase of 20%, in order to create the $15,456,801 we need to generate our projected $1,028,591 net annual operating income. If we work the equation the other way, keeping the customer count steady at 506,410, we would need a 20% increase in our average sales/customer, from $25.39/customer to $30.52/customer) in order to gross $15,456,801 in order to net $1,028,591.
Getting back to my previous question: Is it possible to maintain our current level of net operating income in Sunday sales scenario? Short answer: I doubt it. The likelihood that we will experience an increase in our annual operating costs under this scenario of something in the neighborhood of 16.9% is high. The likelihood that we will experience an increase in our annual gross sales under this scenario of something in the neighborhood of 15.6% is, in my view, low. I do not doubt that we will experience an increase in gross sales, but I do not see any really evidence that would support an increase of close to 15.6%.
Those are the numbers I'm looking at. If I owned a liquor store in Stillwater, Winona or Moorhead, I am sure that I'd see this situation differently. But I don't. My interpretation of the numbers is that the Sunday sales scenario is not good for the bottom line of the City's municipal liquor operation. I could be missing something here, but in the end, here's how I boil it down: good for consumers, but bad for business. What do you think?
