 Lakeland Currents, your public affairs program for North Central Minnesota produced by Lakeland Public Television with host Bethany Wesley. Production funding for Lakeland Currents is made possible by Bemidji Regional Airports serving the region with daily flights to Minneapolis-Saint Paul International Airport for information available at BemidjiAirport.org. Closed captioning for Lakeland Currents is sponsored by Niswa Tax Service, tax preparation for businesses and individuals online at NiswaTax.com. Welcome back to Lakeland Currents. I'm Bethany Wesley. The Minnesota State Auditor reported that in 2016 there were 195 Minnesota cities operating 228 municipal liquor stores in the state. Cities, according to the auditor's office, were originally authorized to own and operate liquor establishments as a means to control the sale of alcohol. Pros from municipal liquor stores also provide cities additional revenue in addition to traditional taxes and fees. Bemidji operates two municipal liquor stores, both of which have had a notable year. The state legislature opted earlier this year to end a 159-year-old ban on Sunday liquor sales, giving liquor stores the option to stay open on Sundays. Also this year, the Bemidji City Council voted to fund a major construction project for its north store. And so for tonight's show, I welcome Nate Matthews, the Bemidji City Manager, and Ron Eichens, the Bemidji Finance Director, to discuss municipal liquor operations in Bemidji. Welcome. Thank you, Bethany. Let's do the stats first, just the main data here. So there's two stores. Where are they, Ron? One is on the north side of town on Paul Bunyan Drive and the other is the south side of town near the South Shore Sanford Center on Paul Bunyan Drive South. How long have there been two? Has it been for many years? It predates me, so I'm guessing it's going to be in that 30, 40-year range for sure. Okay. How many employees? There's about eight full-time employees and approximately 20 part-time temporary. Okay. All right. And so is it fair to say that municipal liquor stores are a common thing that cities run municipal liquor stores pretty regularly? Would you say it's common throughout the state? It is a common practice for cities to own and operate municipal liquor stores, both off-sale and on-onsale stores. It's been around for many years. In many cases, it predates state law where cities that are older than the state had no structure for alcohol management. And so because of that, cities began controlling liquor sales directly. Would you say it's more common rural Minnesota versus the major metropolitan area? At this stage, probably, yeah. There are some municipal liquor stores in the metro area. Okay. All right. I want to talk about the revenues. So first, let's go through the numbers. In recent years, approximately, Ron, how much revenue do the stores bring in? Sales-wise, our revenues are close to a $6 million level right now. Profit-wise, it'll be closer to the $700,000 mark. So depending on how you want to look at it, $6 million in sales and approximately $700,000 in net profit. Okay. Has that been pretty consistent? Is it going up each year? Is it declining? Sales slow and steady. I think our sales in the last five years increased between 2% and 5% depending on the year. Okay. Does one store perform stronger than the other store? Yes. Actually, the North Store is our busier store both from a customer perspective and more customers relate to more sales. So our North Store is our busier store. When you look at the two stores, is one larger than the other? Do they have specialties? Are they pretty comparable in terms of the offerings and things like that? Size-wise, I think they're pretty comparable. However, the North Store has a basement which we hold most of the inventory. So we're moving inventory down to the basement and up several times a day often. The South Store is on one level. So that's a much different layout store. But retail floor space, they're approximately the same. Okay. I want to talk about what happens with the money at the liquor stores. So the profits that are made go where? What happens to them? Are they earmarked? What? The profits are used primarily to offset property taxes in the City of Amidji. And we also have over the years used the profits in the municipal liquor store to help fund special projects for the city like our library, like the South Shore Park Shelter and other projects that otherwise would require property tax use. So for the money that goes into offset the property taxes, is there a way to look at how much taxes would perhaps go up if there weren't revenues? Is there a way to kind of offset? Yes. Property taxes would have to increase approximately 7% to 8%. If we didn't use the liquor profits or we wouldn't be doing certain things depending on how the council would want to deal with that. But it's about a 7% to 8% levy impact. Sure. So when you look at the special projects or the extra things you're able to fund with those funds, is there a set council policy or is that just something that the council routinely discusses or how do you determine which projects kind of use those dollars? There isn't a policy that I'm aware of that we have had over the years. It's kind of the expense of proceeds from the liquor store and special projects has come through a deliberate conversation over many months before the City Council would decide to use liquor store reserves or profits to fund a park project or a library initiative for instance. So we don't have a policy. The council understands that the liquor store funds are accumulated and not committed until such time that there is a project that comes up that doesn't have alternative funding and then we have that discussion as we did with the South Shore Park here in the last 18 months that we had accumulated liquor funds that could help pay for that project without tax dollars. Would you say I know that you have reserves too that you can sometimes dip into for some of those special projects, but does it give you added flexibility then to fund some of those extra community projects? Absolutely, it does. You appreciate that, the flexibility. I want to talk a little bit about the change that happened this summer with Sunday liquor sales. So obviously they've been discussing it for years. Did you kind of know what was going to happen? Were you surprised that it passed? Were you anticipating that it was going to go through? We weren't surprised it passed. We knew we felt the winds of change were coming in the industry. We just wanted to make sure that the public understood the ramifications to liquor stores, particularly small businesses like ours, with the passage of Sunday sales. But we felt that the consumers in Minnesota were really advocating and calling for Sunday sales. And so it was growing over time. And so when it passed this summer, we weren't surprised. We were disappointed, but we weren't surprised. Initially when that change came, what was the city's position? Did you want to open immediately on Sundays? Or how did the council kind of feel about that as you started to have that conversation? We were reluctant to open on Sundays because from the analysis that we've done and we anticipated that opening up another day doesn't necessarily increase the liquor market that's there and would spread sales out over just another day. And so that was our primary reason for being reluctant to open. So we're concerned about profitability and making sure that we're maximizing our revenues and expenses at the store. And just being open another day for the sake of the consumer was a concern for us. And we did look at other states that went through the same process. And their experience was just what Nate indicated that you spread six days worth of sales over seven and your total sales for a 12-month period don't increase because you're open an extra day. It just spreads the sales out to that additional day. So we did look at other states that had done this as well. Okay. Ultimately you did end up opening both stores on Sundays though, correct? We did. We ended up opening both stores in response to the other stores around us opening. And so we did that for the summer months when the tourists were here. And since that time we have closed one store, the south store. Okay. But then you remain to keep the north store open for convenience or whoever else decides to stop by. Okay. Since that it's been about four or five months depending on how you want to look at the calendar. Have you seen numbers that show you one way or the other whether opening on Sunday did end up spreading it out over the week or are you making additional revenues? I would say that we're spreading it out over seven days instead of six. We're covering our labor costs with our Sunday sales amount but that's it. So from a bottom line profit perspective we don't anticipate significant changes just because we're open on Sunday at all. Okay. So do you anticipate opening both stores up again on Sundays come next summer, next tourist season? We're going to evaluate this as a city probably in January, February and make that decision as a council and bring them the information. It's still, you know, we're still gathering it and assessing it so we're not sure yet. Okay. We're going to open both stores on Sunday. Okay. I want to turn to the north store specifically because if you're driving by you certainly can see that changes are coming. So what was the precipice for wanting to change the north store? I mean is this a new thought? Was there something that was happening recently that made you want to do that or has this been coming for a while? Well the city of Bemidji has been looking at enhancing the north store for about ten years and the reason for that is the store is old. It's 40 plus years old. And also the products that we're selling and that are coming forth are changing. And we talk about craft beer. We talk about that. We talk about the differences in wines and how wine is sold. We also feel that how we're managing your inventory needs to be done in a more efficient manner. And we've been really doing it the same way for 40 years. And so those are some of the main reasons why we've kind of precipitated the discussion at the city council table to increase our shelf capacity, increase our store customer shopping capacity and as well so we can sell more product. Okay. What is it about the north location that kind of puts the spotlight on? I mean is the south store just better positioned in terms of the footprint? Or what is it about the north store that is kind of needs some tweaking? Or the location? The location is ideal. Paul Bunyan Drive in that area is one of the busiest commercial sections in this whole part of the state. And that intersection in particular in Irvin Avenue and Paul Bunyan Drive is very busy. It's close to the university and it's close to our major retail hubs like the mall. And is a thoroughfare to people going north as well on Irvin Avenue. So we love that location and I think as the city built that store 40 years ago they cited it very well. And we also took a look at that location and how tight of a spot that is and how tricky that is for a developer to develop. It would be very difficult to redevelop that site without the liquor stores property. And so when we took a look at that site we thought it really made sense to expand our store as opposed to move somewhere else in the northern part of the city. But that's, it's a great location fundamentally. In addition to I think the south store is much newer as far as age of the facility. The north store is just tired as a building. I mean you get 40 years old you can reinvest money and repair and replace but at some point you got to look at expanding and really improving. So I think age of the building itself played into the decision as well. And now you mentioned that you know the site itself is kind of a tight. It's a smaller little site and you've got the, you had the gas station right next to it. You had looked at other sites before this current project came up correct? Yes we did. Over several years. I mean it's been an ongoing conversation. And each of those sites eventually never worked out because... Because of cost, because of location, because of feasibility and timing, many things. I think one of the bigger issues as far as expanding, when we were looking at expanding in the past it was always a third location in addition to the two that we already had and there was some legitimate concern that the market is only so big and are you just going to spread sales to three different locations that you currently had in two? So when this opportunity came up to expand and expand on the current location it was much different than in the past we were looking at potentially a third location and there was always some concern on the council level of are you going to cannibalize our other stores if you added a third location. How did this opportunity come up? Did you guys approach them or did they approach you? How did that all come together? We identified different sites that would be of importance for us to look at and this was one of them and as we were evaluating them the property owner and I continued conversations and it just continued to evolve to make sense for both of us. Primarily that's what it was. We were looking at three or four different sites and this was one of them and like I said the owner Frank Orton and I had a lot of conversations and we were able to work it out. We should explain for those outside of Bemidji you've got the store here right and then right next door has been Orton's gas station. Correct and that has been a gas station on that location for 40 years as well. I mean that was the edge of town and you look at how cities develop, the cemeteries are in the edge of town and so that was on the way out of town so it's been there for many many years and because of that the accesses to the property, the site itself it's a smaller lot size for a commercial lot typically in Bemidji and so that's why we looked at it because it's right next door to us. It would have been tough for him probably correct to sell it to somebody else and develop it as anything unless they had partnered in some way with you. Yeah my understanding in the convenience store world is you need floor space as well. The sell your Snickers bars and your chips and your pop as well and that site is limiting for a convenience store to expand because of the setbacks and because of the way the fuel tanks are currently set in the ground for instance and so it was a tricky site for even the owner to expand. They had a good business there and they own a business across the street too and so they wanted to maintain their presence on that general vicinity of town as well. I want to go through the specifics of the plan so the gas station has come down. They did the site work correct so what is, are you building a new building? Are you expanding the existing building or what is the plan for the actual store? Well our plan is to build an 11,000 square foot store where the Orton's gas station was and we would like to keep, our goal is to keep our current existing liquor store running as long as possible while we construct a store right next door to it and then after that store is built we move our product into the new liquor store and we'll take down the existing liquor store and use that as our parking for customers. And then as well we are going to be redesigning and redoing 23rd Street which is to the south of that and that street is ready to be redone as well so we're kind of doing a public works project at the same time as we're doing a liquor store there but it's a 11,000 square foot store on the corner. Was the street plan already in place or did that come up because as long as you're doing this it makes sense to redress 23rd? It came up as we looked at pedestrian access, vehicle access, utilities, all of that as well. What's your budget for the project? The budget probably is in the $3 million range, $800,000 roughly for the land and the construction side we're getting preliminary numbers hopefully in the next 45 days but we're anticipating a $3 million project in total. Who's doing the design? It's a firm out of Virginia called DSGW. So tell me about as this has come together and you're starting to put it together what is the response been? Have you heard concerns from other businesses like some of the privates outside or no it's just this is what's best for the city and you move forward? I haven't heard a lot to be honest with you from people. In fact we've been talking about it a lot and I know some of the liquor store staff have had customers come in and purchase products and say what's going on next door? What happened to the gas station? So we're getting out and this is a great way for us to promote our project but there hasn't been a lot of push back or cheerleading either. I want to talk a little bit about the role of the city in just liquor business in general. Considering some of the struggles some people have if they turn to alcoholism and stuff. Does the city council weigh that? The benefit versus having the revenue in the liquor and controlling the sale versus whether you're helping to spread something that can in some cases spread problems. That's a good question. That hasn't been discussed recently by our city council as far as supporting an industry that has an addiction associated with it. I know that that is an issue for many people but fundamentally for the city over time I don't think it has been. I think they've been able to explain to the community in an understanding way that yeah this is an industry that has that problem and that's why we're taking leadership role in controlling it. Many years ago we did have an on sale component to what we did. But that was sold. Historically when we've looked at expanding our liquor store locations we do receive some comments or letters regarding how that impacts the concerns and social issues that it creates. So when we've looked at expanding in the past that's come up. I can't say in this instance we've heard much of that. Okay it's been something that's certainly been discussed and people have the option to reach out if they wanted to do so. I want to go back because I don't know if I hit it hard enough Ron on the current north store because it's two floors that's where all your product is. So you're constantly moving from downstairs upstairs. How does that, you said something about a conveyor belt? Is that what I heard? There's an old conveyor belt that runs in reverse to get the product down in the basement when the inventory shipments come in and they come in three days a week and when they want to put product on the shelf and they typically do that several times a day in the morning and later in the evenings when it's a little slower but they're moving the product up and down via conveyor belt elevator. Fair to say then that is not going to be replicated in the new store that's something you do not want. Correct, we're going to have inventory all on one level and in addition we're going to create what's called five high shelving so we actually have, because right now I think we have four stacked shelving what's an emerging trend in the industry is to have five shelves and so you can store more product on the floor, sales floor itself in addition to having it in our back room and store general shipments come in. Do you have any idea Ron in terms of the revenues that are brought in for Bemidji? Are they pretty much in the average for the state? When you look at the amounts of monies that come in is Bemidji performing well? I would say the last few years when we've looked at that we're in the top five I think when you exclude the metro area cities we're in the top five as far as gross sales are concerned I think even the top three I'd have to look and off the top of my head I know we're in the top five. And is that based on like the populations then or is it based on how outside privates or what would drive one city to have a bigger business versus another city? I think population certainly impacts it but tourism impact as well and we're obviously a heavy tourism area and say population tourism just look at the recreation opportunities that we have here too. We're in the top five out state cities as far as sales are concerned. Would you say that once this building is operational and it's in place this will set you up for the future? We believe that will. We think our sales will increase by having a better store more convenient for the public with a better product display and a newer building. We want to make sure that that's happening and so we felt that our sales capacity for growth was limited with the current stores that we have so we needed to do something and this will I think set us up very well. One of the things that we looked at is in the retail industry you have a sales per square foot calculation and we've been pretty much at max for a number of years because we can only run so many customers through the store and you can only have so much product on the floor so on a sales per square foot basis we can't really expand in that regard so we need more floor space. Better parking is another advantage of the new store. Boats and trailers and campers and extended vehicles have a challenging time getting in and out of that tight location currently. Once the new store is up does operation as usual continue with the south store? Yes. I don't anticipate any impact on the south store I should say. No. Interesting so tell me about what are some of the other things you're keeping your eyes open in the future. We know that there's been movements to try to get alcohol sales in grocery stores and those kind of things in Minnesota. Is that something that the city or the league has taken a stand on? A position on? The city hasn't taken a stand on it yet there's not been legislation but that's probably the next step that would be looked at at the state level is to put wine in grocery stores. Who knows where that will be? As we look to the future we also look at our south store because we are very busy there too and we are evaluating what to do there because that is very tight space as well and so we are evaluating the land around that area too and that is an opportunity for us. There's a property for sale right now that we're evaluating and taking a look at so we're always trying to look ahead but the legislative issues we try to do our best and with our association of municipal beverage association folks to get our messages out. We did look at that when we discussed expanding the store locations one of the risks involved is the trend in other states that have had Sunday sales authorized the next step is what you mentioned wine and grocery and we mentioned to the council that you know that is a risk but there's a larger risk in doing nothing at the north store just because it was old and tired so the council weighed that and decided that expanding that location was a better risk to take than doing nothing and having the wine and grocery store issue come to bear we don't know where that's going I'm assuming it would take time as Sunday sales did as well. Well listen I want to thank you guys for coming on and talking about liquor stores here in Bemidji and the plans that have happened and are continuing to happen so thank you guys very much thank you for tuning in to Lakeland Currents please join us next time.