Ivan Raconteur
Herold Journal Editor
Despite some challenges in the past, Howard Lake city staff are optimistic about the future of the city's municipal liquor store, and predict the operation will generate profits for the city in 2016.
Reasons for the staff's optimism include a new plan for maximizing profits, and the elimination of debt associated with a 2005 remodeling project, for which the final payment was made in November.
City Administrator Nick Haggenmiller recently provided some background on the store's operation.
"The City issued Liquor Store Revenue Notes in 2005 to remodel the first floor of the building. At that time, the liquor store was contributing upwards of $100,000 annually back to the general fund," he noted.
"Subsequent years saw expansion in competition, the enactment of the statewide smoking ban, and substantial employee theft.
The once robust transfer [to the general fund] dwindled, and was further eroded with annual debt service payments of $50,000.
These payments were funded entirely from the operation of the liquor store," Haggenmiller noted.
"While it's clear the city is not likely to issue additional debt against the operation, the council is carefully choosing next steps to ensure a vibrant and profitable future for the liquor operation, as well as ensuring the historic building is properly maintained," he added.
In 2014, the city council voted to discontinue the on-sale portion of the business, which was less profitable.
"Ultimately, the council did its due diligence in considering all facets of the operation, and made a really tough business decision that will soon bear fruit for the greater community," Haggenmiller noted.
"This message gets lost in the emotion of the good people losing a good social institution in the community.
"What the city is working on now will ensure a successful, profitable future for the operation, help offset taxes, and hopefully, in the next year or so, once again provide a place for social gathering."
Profitability plan
Haggenmiller explained the liquor store has operated under a basic profitability plan since 2013. In July of 2015, this was reviewed by the Minnesota Municipal Beverage Association, and the Howard Lake Liquor Commission and was greatly enhanced, according to Haggenmiller.
Changes, including proper pricing, reviewing product selection and merchandising, adding tobacco products, and creating a customer service culture were implemented.
Haggenmiller has been working closely with liquor store manager Myra Laway to make sure objectives are being met.
"In the past, Myra has done a great job running the bar and off-sale together, otherwise known as a combination facility," Haggenmiller said.
"Moving forward, she has been directed to focus on running a lean and customer service oriented liquor store.
We're out of excuses, and 2016 will be the year we see profits return and we're hopeful overall sales and profits will grow again."
If sales and profits don't increase, the city council will once again consider tough decisions regarding the liquor store operation, Haggenmiller noted.
Based on gross revenues, the liquor store is actually ahead of the last several years.
On Dec. 1, 2015 the city council conducted the statutorily-required "continuation hearing" for the municipal liquor store.
Minnesota Statute requires cities with a liquor store that has shown a financial loss in any two of the previous three years to hold a public hearing to determine if the city should continue operation of its municipal liquor operation.
During the public hearing, Laway and Haggenmiller gave a brief presentation reviewing the store's historic operation, detailed information on 2015, and proposed 2016 initiatives.
There were no comments from the public during the hearing.
After reviewing more than 24 years of financial information, and understanding the business has contributed well over $700,000 to the general fund to offset property taxes and the levy, the council decided to continue the operation.
The muni model
"The 'muni-model' has been under a lot of scrutiny statewide, especially in the Twin Cities metro area as new and larger retailers, such as Costco and Total Wine, have saturated markets previously dominated by municipal liquor stores," Haggenmiller noted.
"Howard Lake, 35 miles away from the Twin Cities, has different market factors impacting the business.
"In Howard Lake, we're taking this seriously and have adjusted our operation accordingly.
A study commissioned by the council and completed by David Drown and Associates suggested the on-sale to be financially detrimental to continue operating due to costs associated with labor, insurance, and poor internal controls."
Howard Lake plans to keep its municipal liquor store viable by offering competitive prices, tremendous customer service, and easy access for customers.
"A little-known fact," Haggenmiller commented, "is that we actually have the ability to buy and sell many products under the same terms as our big-box competitors.
With that in mind, we encourage folks who have a preferred brand or product to come to the store and check us out if they haven't done so recently.
If there's something you want to see us carry, tell us. That's the value of shopping local."
Future plans
Over the course of 2016, the city council will discuss and consider options with the former on-sale space, Haggenmiller noted.
Currently vacant and used for light storage and occasional events, the space is likely to be opened up for use by the general public for private events, similar to the community center.
"The council may also market the space to a private operator, as the city has received inquiries from folks interested in the space for things such as a coffee shop, tap room, or restaurant," Haggenmiller commented.
"This discussion and final decisions will depend greatly on possible grant funding for the preservation and enhancement of the entire building, with the goal of converting the second floor into a community and event center."
Haggenmiller shared a quote from Mayor Pete Zimmerman, who stated, "After several hard years and some really tough decisions, we are ready for profitable, efficient, and friendly operation in 2016."
