By Robert Willams
After struggling to make money that transfers to the city’s general fund, but reporting profits the past two years, the Frazee municipal liquor store was again a hot topic of Monday’s city council meeting with members sharing conflicting views on the future of the city’s involvement with the on sale and off sale establishment and whether or not to be involved at all.
Councilman Mark Flemmer broached the topics of a needed manager, more inventory control and the idea that the city could sell the business and allow private enterprise to take over.
“Looking at getting the city out of the liquor business completely opens up a lot of possibilities for other options in town for other people to step up,” Flemmer said. “There are a lot of advantages and the reason I’m bringing that up is the entire time we’ve had a liquor store in town, the whole purpose of a municipal liquor store is to transfer money to the city to help out with property taxes. We have transferred zero. Based upon that, why are we running a city liquor store?”
Profits generated by municipal liquor operations generally serve two purposes. First, municipal liquor operations use profits to ensure that they have an adequate level of reserves to purchase inventory and maintain their facilities.
Second, profits in excess of what is needed to fulfill the first purpose may be transferred to other city funds to supplement existing revenue sources.
During 2020, Minnesota’s municipal liquor stores had net transfers (transfers out minus transfers in) of $21.3 million. This represents an increase of 2.7 percent from the total net transfers made in 2019. Net transfers totaled $6.7 million among metro area establishments, compared to $14.6 million for greater Minnesota establishments.
Flemmer reported negative numbers for off sale (-$34,000) and a positive profit for the on sale ($66,000) side of the business.
“Why that’s happening, why those numbers are, nobody can seem to tell us that,” Flemmer said.
He also reported gross sales numbers from 2017 ($704,000), 2018 ($715,000), 2019 ($609,000), 2020 ($584,000) and 2021 ($572,000).
“We’re seeing a steady decrease in sales,” said Flemmer. “My theory is either we hire a manager to try to increase our profits over there or it’s time for the city to say goodbye and get out of the liquor store business. Put it up for sale; somebody might be able to run it a lot better.”
The Office of the State Auditor listed Frazee as one of 24 municipal liquor stores with a second recent year of losses in its 2020 annual review of all 213 munis in Minnesota. Statewide, municipal liquor had a 25th consecutive year of record sales, $410.6 million in 2020, an increase of $38.5 million in 2019.
Flemmers comments opened up a can of worms and plenty of commentary from across the council.
Three different managers have recently tried to run the store with inadequate inventory software plaguing the business, according to councilman Mark Kemper.
“Blaming the people who are in there now because our numbers don’t look right isn’t their fault,” said Kemper. “If you want to blame somebody, blame the people that put it in in the first place.”
Councilwoman Nicole Strand highlighted a lack of action from the council in her comments for a second consecutive month.
“Well, then we can just sit here and blame ourselves because we’ve talked about it for the whole four years I’ve been on the council and nothing has been done,” she said. “We haven’t fixed the software; we have gone for three years without an actual manager even though we’ve talked about it numerous times…we keep going around in circles and circles and chasing our tail and nothing happens. I agree with Mark (Flemmer). We need to make a decision. We need a manager who is full-time, in charge, who is held accountable.”
Kemper and Strand argued about inventory control software. Strand pushed on why nothing has been purchased in four years. Kemper stated three such systems have been purchased in the past 10 years to no avail and he wanted to continue researching systems that are being used successfully in other areas.
According to Kemper, a system he discussed that is being used in Lake Park was installed in May and has not gotten up and running yet, leading to hesitancy from the liquor store committee to move forward.
“That’s part of the problem,” he said. “I want to talk to somebody that’s got the system and see that it works.”
Mayor Ken Miosek reported that since the COVID year of 2019 the store has been making slow, but steady improvements.
“At that point in time the liquor store was teetering,” he said. “Right now, for the last three years we’ve been on a steady increase of making money. Actually, we’re starting to feed back into the account of the liquor store money that was gone so that it can be sustainable on its own in order to put money into the coffers and pay for other things.”
He stressed an accounting system was top priority with a manager down the road.
“We haven’t even got enough money to even pay for a manager,” Miosek said.
The mayor also questioned Flemmer’s numbers stating they do not reflect what is in the city’s books. Flemmer said his numbers were from the city’s books.
City administrator Jordin Roberts reported that a shared inventory between the liquor store and the event center is leading to incorrect reporting.
“That isn’t being tracked properly in the system,” she said. “It’s looking like the off sale has a lot higher expenses and a lot less revenue because the off sale is basically eating the cost of (inventory) for the on sale. The on sale looks like its pure profit, whereas the off sale has higher expenses.”
Conservative estimates by Roberts for a full-time manager equate to a minimum of $70,000 per year, including full benefits.
Miosek was steadfast, backing up the fact that the store is showing a profit and that the city is currently working to build back a liquor fund that was taken down to nothing before being able to move any proceeds to the general fund.
Flemmer and vice mayor Mike Sharp noted that keeping overhead at a minimum by closing early and dropping the number of employees in the bar from three to one has contributed greatly to showing positive fiscal results.
Miosek also stated increased competition in the area being a big factor on profits.
“There’s a lot of other things too,” Miosek said. “There are seven liquor stores in this whole area, which there weren’t five, six, seven years ago when the liquor store had big money.”
Flemmer fired back with the lack of contributions from the store to the city fund being the main reason why the city should get out of the liquor business. He also noted improvements that need to be made to the building, including handicapped accessible restrooms. He was backed up by Strand.
“If you’re not going to do things that are going to improve what is happening down at that store so that the store can contribute to the city in a financially positive way then there is no point for the city to be involved,” she said.
The mayor is behind slowly building the account up to do such things.
Event Center manager Jolene Tappe added a front line and emotional perspective.
“I know that this is a city building, however, I invite all of you to go sit at the liquor store Saturday morning or afternoon and visit with the locals,” she said. “They’re the ones who come in every Saturday and if you just want to hear about the town, anything that’s happening in our town, you can sit and visit with those locals. This is business, I get it, but if it’s not hurting the city to have that building. It’s not costing the city anything because it’s fully sustainable. It’s a place for locals to gather and regardless if that is important to any of you or not we are a small community and for some people that’s home every night of the week just to watch TV and visit. I know you don’t make money off of that. I get that, but why can’t we keep something like that for our locals. That’s my thinking. People think that the city puts money into that building when in reality they don’t.”
Kemper backed up Tappe’s comments on the business being able to sustain itself while admitting that it isn’t moving money into the general fund.
“Selling it is going to get you nothing,” Kemper said. “It’s going to get you a license for beer. That’s it.”
Flemmer jumped on the latter.
“Why has every other city around the area been able to transfer money from their liquor store accounts into their city? Why is that?” said Flemmer.
He did not get any solid answers.
Flemmer has made similar suggestions in the recent past including a presentation in 2021 claiming expenses exceeded profits the past several years.
Sharp stepped in to try to resolve the issue at the ballot.
“This may be some issue that just has to come up for a vote for the citizens to decide,” he said. “Should the city be in the liquor business period if the goal is not to transfer money.”
“We could transfer money right now, not a ton,” said Kemper. “As long as we’re making money I don’t see a problem.”
According to the 2020 state audit, Frazee showed gross profits of $197,533, operating expenses of $167,853 and a total net profit of $29,792 with no money transferred.
By way of comparison, Vergas had $203,737 in gross profits, $121,484 in expenses and total net profit of $84,695. Net transferred to the city fund from that was just under $25,000.