Perham used as comparison in Detroit Lakes liquor store discussion
After a special Detroit Lakes City Council meeting that was held Thursday afternoon, general consensus of aldermen present is that the city should build a new liquor store rather than remodel or expand the existing one.
Aldermen and staff discussed for about an hour and a half the profitability of a new store, the challenges of the existing one and who are the biggest competitors.
Tony Stoll with BHH Architects in Perham took a look at options for expanding the liquor store in the current space. He also worked on the new Perham liquor store.
The existing Lakes Liquor is 8,200 square feet, with 3,500 square feet of storage space. There are 19 cooler doors.
The biggest challenge with the existing liquor store, Manager Brad MacMaster said, is the cooler space, and the coolers themselves. Because of their age, he said the rollers won't even push beer forward in the coolers, causing staff to have to push products up as they are sold.
The new Perham liquor store is 8,500 square feet, by just comparing the blueprints of the two stores, it's easy to see the shape, space and size of the Perham building is more accommodating.
It's the storage to retail floor space ratio that makes the difference, Stoll said.
Even though they are only 300 square feet different in total size, in the Perham store, there is 5,500 square feet of retail space, and in Detroit Lakes, that number is 4,000 square feet.
To expand Lakes Liquors, Stoll presented four options. To the east, toward McDonalds, it would only be a small expansion, and not worth the cost, he said. To the north, toward Highway 10, it would be infringing on the already inadequate parking lot.
Then with two options to the west, it would affect parking for city hall, which also is already inadequate.
"You're pretty restricted" for expanding in the existing location, Stoll said.
Building Official Dave Neisen also said that having a new building, like Perham or Fergus Falls, would attract more shoppers because of the aesthetics of it.
Alderman Ron Zeman countered that yes, the Perham liquor store may look like a Carnegie building from the outside, but inside, it's the just the same as other liquor stores.
Cost of building new
The Perham liquor store was about a $1.2 million project, City Administrator Bob Louiseau said. Louiseau was the Perham city administrator before coming to Detroit Lakes, and was involved in the liquor store project.
City Finance Officer Lou Guzek roughly figured for a 10,500 square foot building -- which is the size recommended by consultants -- besides the cost of building and land, extra costs would include an increase to utilities. There are three full-time and two part-time employees now, but more part-time are hired in the summer. MacMaster said he could get by with the three full-time in a new store, but would likely need a couple more part-timers.
Louiseau said that one thing to consider whether the city decides to go forward with a new building or remodel the existing one is the changing customer base. More women do the shopping, and it's been proven that lower shelves and wider aisles are more appealing.
"If Walmart is doing it, someone has probably taken a good hard look at numbers or they wouldn't be doing it," he said.
Alderman Madalyn Sukke agreed that Lakes Liquors is not a user-friendly store right now.
"I think Brad's about maxed out," she added.
She said she's not in favor of remodeling the existing building because why pour money into a building that's already outgrown.
"If this was a regular retail business and not government owned, you would say you're a damn fool to get rid of this store," Zeman said. "Just because you move a store and make it bigger doesn't make it better -- that's my fear."
Zeman was in favor of remodeling and trying to give MacMaster the space he needs in the liquor store, but was not in favor of moving the store all together.
"It is nice here, but it would be more logical on Highway 10," Justin Wegleitner, Holiday Inn, said.
Profitability of new store
Making it the third most profitable municipal liquor store in the state, Lakes Liquors brings in about $5 million a year. In comparison, the Perham liquor store brings in about $1.5 million.
Using rough, estimated numbers, Guzek figured in order for the city to build a new 10,500 square foot building, it would cost about $2.2 million. In order to pay for that project and continue to provide the income it already does, sales would have to increase $692,000, or about 15 percent a year.
MacMaster said that over the last 10 years, sales have doubled, but from 2009 to 2010, they only increased less than 1 percent. Two things that hurt the store last year, Guzek said, were that 10,000 Lakes Festival, was no longer held in 2010, which was quite profitable for the liquor store, and with the realignment of Highway 10 and the liquor store not right on the highway anymore.
Mayor Matt Brenk said he called Perham City Administrator Kelsey Klemm to ask about the liquor store. He said that Klemm said the liquor store sales increase 25 percent after the new building was built.
"How do you feel about the $692,000? Is it doable," Alderman Jamie Marks Erickson asked MacMaster.
"It's doable," he said. "It's not going to jump as easily as a store with challenges. We have challenges, but..."
He added that it's hard to jump 15 percent in sales when the store is already such a success, but a new store would likely bring more sales, too.
With the extra space, MacMaster said he could certainly expand the beer selection, and there are many variations of vodka and rum that he could have where there is no room now.
"Wine is limitless, the amount of product we could have," he said.
MacMaster used one cooler door at Lakes Liquors to show the success it has and what he could do with more beer selection. The merchandise behind one door includes Summit, Finnegans, Anchor Steam, Schell and Sam Adams. It brings in 25 percent of the sales, or over $52,000 in one year.
Sukke said the decision isn't just one for the next year or two, but rather for the next 15 to 20 years. Maybe it won't be as profitable the first year or two, but a new store would in the long run.
"We make decisions that's hopefully in the best interest of Detroit Lakes to grow," Tucker said. "In my mind, the only decision is to build a new liquor store."
Alderman Bruce Imholte agreed, saying that it needs to be looked at as a business and not a city operation.
"One, it's a monopoly, and two, people are never going to stop buying booze. They just aren't."
Marks Erickson said that she was in favor of a new, right location and completely not in favor of adding on to the existing building.
"Every time you add on, you lose something," she said.
Alderman Dan Wenner agreed that a remodel wasn't a good idea because of the "poor return on investments" is just remodeled. He added that the crescent area makes the most sense to build a new store because it's close to downtown, Central Market, Highway 10 and CVS Pharmacy, which will be going into the old Stop N Go location.
Brenk said that this needs serious consideration because with the common cuts to local government aid, it's the liquor fund that helps subsidize those cuts, and helps the city complete many projects it wouldn't be bale to if there were no liquor fund.
He added that it can't just be a new building because it would be nice and new, but it needs to keep producing such sales to help keep the city afloat.
Former long-time alderman Leonard Heltemes attended the meeting and expressed his concern that if grocery stores get the approval to sell wine, the city liquor store would take a big hit.
MacMaster said wine sales make up about 18 percent of the overall sales total for Lakes Liquors.
His biggest competition, he said, is the liquor stores of Fargo-Moorhead. There is also a liquor store on Highway 34, and one proposed for Highway 59 South, but Lakes Liquors holds more of a selection already.
Imholte said the city needs to maintain profits and respond to the changing liquor market. Obviously the liquor stores on Highway 34 and 59 found a gap to fill, and the city needs to step up and fill them first.
Detroit Lakes is allowed to have a municipal liquor store because cities under the population of 10,000 can have a municipal. Once a liquor store is established, regardless of the population growth, the liquor store is grandfathered in and can continue to operate.
And because of city ordinance, no other private off-sale liquor store is allowed within three miles of the city boundary, which can shift with annexed land.
The topic will now go to committee before a proposal is brought to the city council for a vote.