Liquor store location evaluation – draft report

A draft of a municipal liquor store report was a late addition to the addenda for the council meeting on Monday. It’s called the “NORTHFIELD LIQUOR STORE MARKET ANALYSIS AND FINANCIAL PROJECTIONS REVIEW” and it’s in two parts, both big pdfs. It was prepared by a consulting outfit in Mpls called the McComb Group Ltd (with a very interesting web site).

This report was prepared with the understanding that the results of our work will be used by the client to evaluate market and financial feasibility of a new liquor store.

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Part I and Part II

The locations studied:

  1. current location at 5th and Water;
  2. 600 Division (just north of Lansing’s);
  3. three different sites adjacent to Econofoods;
  4. the Q Block (SW corner of Hwy 3 and 2nd;
  5. NE corner of Hwy 3 and Woodley;
  6. The Crossing (NE corner of Hwy 3 and 2nd

Which location do you like and why?

I favor the current location because it contributes to the economic vitality of downtown, parking is adequate, selection is adequate, and the City has plenty of other capital expenditure items on its plate.

FYI, I’ve copied/pasted the summary of the report (pages 23-25 of the Part II pdf) here.

Chapter IV

GOALS AND OBJECTIVES

The City of Northfield has established four objectives related to their operation of a Municipal Liquor Store. These are listed below in order of significance, from least to highest.

1. To control the sale of alcohol.
2. To provide a convenient location for residents to purchase alcohol.
3. To provide an economic stimulus to the Central Business District.
4. To provide revenue to supplement traditional tax and fee revenues.

The issues relating to control the sale of alcohol are predominantly operational in nature, e.g. restricting access and sales to minors or other regulatory aspects such as hours of sale, restricting sales to intoxicated persons, etc. This is not considered as a location issue and it is assumed that the necessary control measures will be implemented equally at all of the sites that are under consideration.

The current Northfield liquor store facility is situated on the edge of the downtown Central Business District on Fifth Street and, as such, is conveniently located for shoppers throughout the area. The facility has a number of physical limitations, however, that make it far less convenient such as: limited parking, a multi-level shopping, and size and space configuration that makes for a small, crowded, and cluttered shopping environment. The three primary alternatives, the 600 Division location, the Econo Foods location, and the Q Block location, all have the potential of providing the location and facility conveniences that are lacking in the present facility. As seen the summary of site criteria ratings, there really are no significant differences between the three sites that would cause one to stand out significantly from the others, particularly as it might relate to relative convenience.

While the Q Block is located along TH-3, and has access to a greater volume of automobile traffic than the two downtown sites, the Q Block is separated from the downtown Northfield area by the Cannon River. It has less opportunity to take advantage of the retail synergies that sites convenient to downtown Northfield would have. While the Econo Foods location would be convenient for the many customers that shop at Econo Foods and is also convenient to the downtown area, there are concerns about the adequacy of parking relative to the large number of customers already visiting Econo Foods. This suggests the potential for less than convenient parking if not properly addressed. Each site has the potential of providing a convenient location and convenient shopping experience for the area’s consumers. Likewise, each location has development challenges that could result in a compromise of convenience.

Of the three primary locations under consideration, the Econo Food site and the 600 Division site are best situated to provide an economic stimulus to Northfield’s Central Business District. The Q Block site is located outside of the downtown area, west of the Cannon River and on the west side of TH-3. While this location would be a desirable place for retail development with access to the traffic on TH-3, any economic benefit to the Central Business District would be minimal. A new liquor store built at the 600 Division location or the Econo Foods site would fit well with the other retail stores in the area and would tend to further solidify the area as a convenience oriented shopping district.

It is expected that the 600 Division location would be new construction and would utilize a more urban design with zero lot lines and it would be more compatible with the store fronts of the downtown Northfield. It is assumed that a liquor store built at the Econo Foods site would be constructed as an expansion on the south side of the current Econo Foods Building with relatively consistent design elements tied into the current building. If the city is concerned about maintaining or enhancing the existing downtown area, then either 600 Division or the Econo Foods site would be preferred over the Q Block. If the city trades its present location on west Fifth Street for a location on TH-3 outside of the downtown area, particularly if viable alternatives are available within the downtown area, this will raise concerns about the level of priority given to maintaining downtown businesses.

With the information currently available, it is not possible to accurately determine which location will generate the greatest revenue stream to supplement traditional tax and fee revenues for the city. The Perkins Study, in our opinion, is flawed and our analysis suggests that the individual store sales forecasts are overstated. The financial forecasts utilize assumptions that are inconsistent with the operating history of the present store and do not provide explanations or operational changes that would serve as a basis for significant deviations. The financial forecasts have also not factored in anticipated differences in occupancy costs or development costs of the various site alternatives that have the potential of changing the relative financial viability of the alternate sites.

Without careful re-evaluation of the proposed new liquor store, there is strong likelihood that instead of providing additional revenue to the city, the new store could result in substantially reduced revenues. For example the proposed new store, if built as contemplated (10,000 square feet) and at the costs assumed by Ehlers, would be required to cover about $250,000-$260,000 in lease or debt service expenses associated with the new facility. At the 2005 operating profit rate of 4.33 percent, sales of $5.7-$6.0 million would be necessary to cover the debt costs with no added revenue to the city.

If one assumes the new store could improve its operating efficiency and double its 2005 operating profit percentage from 4.33 percent to 8.66 percent, then $2.9-$3.0 million is sales is required to cover the lease or debt service costs, without any revenue to the city. Under this scenario and in order to maintain a revenue contribution to the city of $100,000- $120,000 annually, the new store would need sales of $4-$4.4 million. Recognizing that Perkins’ sales forecasts are based on over-estimated market potential, the highest sales forecast by Perkins was $3.3 million, suggesting the likelihood of substantially reduced revenues to the city even with significantly improved liquor store operating performance. If done properly, however, the city may be able to achieve its goal of further supplementing tax and fee revenues. This may require further study:

1. To more accurately assess the area’s potential and the sales that a new Northfield Liquor Store could capture.

2. To generate income and expense forecasts in a more accurate and comprehensive manner to determine the total project costs that can be supported by estimated cash flows.

3. To establish realistic design criteria and economic cost associated with leasing, acquiring and developing the various site alternatives that are consistent with established financial parameters. Once completed, the city will have determined the development strategy that would provide the best revenue contribution to best meet the needs of the community.

15 thoughts on “Liquor store location evaluation – draft report”

  1. Good idea to think about downtown vitality issues, but parking is a problem.

    I think the liquor store should move to Hwy 3 someplace (near Woodley and Hwy 3) and the current building should be razed and made into parking and bike racks and trees.

    At that location could go a nice bulletin board with a map of the stores and a listing of eateries, etc. I vote we get Margit to do the map (like the FANTASITC one in the post office, only store specific.) Scan it on a computer and then we/she can add stores and minus stores as they come and go. Not that many will go, I hope.

  2. Why don’t we look at a bigger, longer range picture for the liquor business. In the states of Arizona, California and Washington (from my personal visits) wine and liquor are all sold in the relative comfort and ease at all the local grocery store chains. When shopping for dinner, why not shop for your wine at the same time? There is a potential bill in the Minnesota legislature called “Wine With Dinner” to move liquor to the grocery stores. With the continued costs of running a city owned store with limited tax revenues, why not support the Wine With Dinner option. It seems more convenient and the market momentum seems to support it.

  3. Holly, I really don’t think parking is a problem at the current location. Robbie and I go there nearly every Sat eve. at the busiest time and we never have a problem find a spot on the street adjacent to the store. Yes, the lot is small but parking on the street is abundant.

    Larry, you raise an important and interesting point. I didn’t read the entire report so I don’t know if the consultants raised the issue of what impact a “wine with dinner” law might have.

    But it could be argued that if both Just Food and Econofoods sold liquor, it would still be a draw to downtown.

    Hmmm.

  4. Unless a strong case could be made for a signinficant revenue increase by a new liquor store, I think it should remain in the current location. It does not look like the report supports that scenario. There are other more important projects the city will have to deal with like an ice arena. If “Wine with Dinner” passes the revenue outlook will only get worse.

    Personally, I would love to see Just Foods carry a quality selection of beer and wine.

  5. IMHO, it is essential that the liquor store remain in the downtown, and preferably on Division, in the 600 block. This is a part of the local gov’t structure, and if the city council is going to continue, as it has, to hold the economic vitality of the downtown as one of it foremost goals, then it canNOT follow that the liquor store relocate out of the DT. Even the Q-block is not as good because it allows for highway visitors that do not actually enter the core downtown.
    The liquor store is a economic benefit for the city finances, and if it was bigger, better, it could be even more profitable. Just remembering , without looking it up, I think about 180K has been transferred to the city’s general fund, from liquor store profits.
    In these times of decreasing LGA, every hundred thopusand is a big advantage.
    SO, we need to keep those dollars for the city, antiquated as municipal liquor stores might seem to some…………

  6. Griff,

    I dislike circling around the downtown trying to find a parking spot. For parking issues, I was thinking about the whole downtown area.

    The liquor store is in a prime advertising spot– take away the store and put in a beautiful and yet useful parking area and put a sign which describes what the heck is downtown. That’s what I was getting at. Not just “is there enough parking at the Muni.”
    🙂

  7. P.S. I wasn’t very clear about that 180K: I’m remembering that as an amount transferred to the city’s general fund in one year, not a cumulative amount.
    Maybe someone can provide truly accurate $ amounts of revenus from liquor store to city’s general fund , yearly?????

  8. The McComb Group is a respected retail consulting analyst. They do work for many private and municipal liquor stores. It’s good to see their name on the report.

    The “Wine with Dinner” initative is a attempted economic grab by the Minnesota Grocers Association. Wine is a high margin profit for liquor stores, and Super Valu, Nash Finch, et al would like to get that money for themselves.

    Locating municipal liquor stores adjacent to grocery stores, however, is a very good idea. In Eden Prairie, we have three muni stores – each one of them is located adjacent to one of the city’s three large grocery stores. It’s a good locational strategy because it is more convenient for consumers. Consumers like that.

    In response to Kiffi’s question about what happens to the money derived from the sales at muni stores, the $180,000 a year in Northfield goes directly into the City’s General Fund. It is lumped in with all the other General Fund revenues (Property taxes, fines, building permits, recreation program fees, LGA, etc) to help support the general operations (police, fire, streets, library, planning, etc) of the city. If the City did not have this revenue stream from the muni store, it would have to reduce its services or increase taxes. No other way around it.

    I’d like to see a new store adjacent to Econofoods. Perhaps in the area where the recycling containers are now. I think the City could negotiate an agreement with Nash Finch for that site in which NF participates in the construction cost of the store. It would be a huge competitve asset for them.

  9. Hmmmm. Get Nash Finch to chip in for the construction of a new muni next to their Econofoods store.

    I like that idea, Scott. I’ll bring that up to Councilor Scott Davis who’ll be appearing on our Locally Grown podcast/radio show next week.

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