HomeMy WebLinkAbout05.14.12 Work Session Packet City of Farmington Mission Statement
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foster a promising future.
AGENDA
CITY COUNCIL WORKSHOP
May 14, 2012
6:30 p.m.
1. CALL TO ORDER
2. APPROVE AGENDA
3. LIQUOR OPERATIONS DISCUSSION
4. CITY ADMINISTRATOR UPDATE
5. ADJOURN
PUBLIC INFORMATION STATEMENT
Council workshops are conducted as an informal work session.All discussions shall be considered fact-finding,hypothetical and unofficial
critical thinking exercises,which do not reflect an official public position.
Council work session outcomes should not be construed by the attending public and/or reporting media as the articulation of a formal Ciry policy
position. Only official Council action normally taken at a regularly scheduled Council meeting should be considered as a formal expression of
the City's position on any given matter.
‘14/46, City of Farmington
430 Third Street
, 1 Farmington,Minnesota
1 651.280.6800•Fax 651.280.6899
aaous`a www.cifarmington.mn.us
TO: Mayor and City Council Members
FROM: Randy Distad,Parks and Recreation Director
David McKnight,City Administrator
SUBJECT: Workshop Liquor Operation's Discussion
DATE: May 14,2012
ATTACHMENTS: Exhibit A MMBA Report
Exhibit B 2012 Annual Work Plan
Exhibit C Inventory Tracking Information
Exhibit D Tom Wartman's Downtown Liquor Store Lease Extension Offer
Exhibit E 2012 YTD Financial Report
Exhibit F 2009 and 2010 State Auditor Metro Area Liquor Store Operations Reports
Exhibit G Recent Related Newspaper Articles on Municipal Liquor Stores
INTRODUCTION
At its January 23,2012 workshop,the City Council discussed the acquisition of property in which to relocate the
Downtown Store,but determined it first wanted to have the Minnesota Municipal Beverage Association(MIVIBA)
complete an analysis of the City's liquor operations in order to see if there were ways the City's liquor operations
could become more profitable.
DISCUSSION
On March 20,2012,Paul Kaspszak,MMBA's Executive Director and three of its members,Brenda Visnovec,
Liquor Operations Director for the City of Lakeville, Steve Grausam,Director of Liquor Operations for the City of
Edina and Tom Agnes,Liquor Operation Manager for the City of Brooklyn Center came to Farmington and
conducted two separate meetings with City representatives. The first meeting was with Mayor Todd Larson,Council
Member Julie May,City Administrator David McKnight and Parks and Recreation Director Randy Distad. A second
meeting occurred between the MMBA group and Liquor Operations Manager Randy Petrofske and Liquor Store
Manager David Trihus at the Downtown Liquor Store.Both of these meetings focused on the MMBA gathering
information about liquor operations.The MMBA then used the information gathered at the two meetings to complete
an analysis of liquor operations in Farmington.Included in your packet shown as Exhibit A is a report containing the
analysis completed by the MMBA.
The MMBA strongly believes that additional revenue can be generated by our operations. They also state that now is
the time to take specific,strategic and targeted action. The report contains recommendations from the MMBA about
the operational changes that Farmington should undertake in order to become operationally more efficient in order to
become more profitable. In summary these include:
• Complete a thorough review and update of the liquor store's written policies and procedures(operational
manual)
• Review and discuss if any liquor store organizational changes should be made
• Suggest forming a Liquor Committee
• Provide on-going training to employees about liquor store finances
• Develop a formal written plan addressing issues in order to form a comprehensive operational strategy
• Provide updates more regularly to City Council and City Administrative staff members
• Increase gross profit by reviewing mark ups,retails margins and competitors pricing more frequently
Staff members have already started to address MMBA's suggestion about store policies and procedures including:
• Controls have been created in the Point of Sale(POS)System that either provides or restricts certain
privileges for liquor store staff related to inventory control,product pricing,ringing discounts and voiding
sales
• Pricing has been adjusted on certain products to stay competitive with other liquor stores in the area while
increasing the gross profit margin
Staff have created an Annual Work Plan for 2012 that is attached as Exhibit B that will begin to address additional
recommendations made by the MMBA including:
• Revising and updating the liquor stores operational manual
• Product pricing
• Marketing and advertising
• Having regular liquor management meetings
City Council member Julie May requested information about how inventory is tracked at the liquor stores.Attached
is Exhibit C,which is a response to her request for information about how inventory is tracked.
City Council had requested a meeting to occur with Tom Wartman who is the landlord for the Downtown Store,
which is located in the City Center Retail Development. A meeting occurred on Thursday,April 26,2012 with Mr.
Wartman. At this meeting a request was made of Mr.Wartman to provide the terms for extending the lease for six
months. Mr.Wartman stated the minimum extension he would be interested in would be for one year. Attached as
Exhibit D is a copy of an email received from Mr.Wartman providing the terms on extending the Downtown Liquor
Stores lease for one additional year. As a reminder we currently pay$21.00 per square foot at the downtown liquor
store and$16.00 per square foot at the Pilot Knob liquor store. Mr.Wartmann has proposed to lower the lease rate to
$20.00 per square foot if we extend our current lease for one year. Our current lease expires on August 1,2012.
Going into this study part of the work focused on potential new locations for the downtown store. Staff did look at a
number of potential locations and was contacted by some property owners about interest in selling their property.
Staff stopped working in this area of the report because concern was expressed about making decisions about the
future of the downtown store before we knew the results of the MMBA research and allowed the City Council time
to review this information and have discussions on the issue.
Exhibit E,which is attached,shows the year to date preliminary financial report for the liquor stores. This
information takes into account the inventory cost corrections by store that we made you aware of two weeks ago.
Exhibit F shows the comparison of metro area city liquor operations from the annual report prepared by the State
Auditor for 2009 and 2010.
One final issue that we wanted to share related to the liquor stores was the amount that is transferred to the General
Fund each year to pay for the services provided by administration,finance and human resources. In 2012 the liquor
store is transferring$70,007 to the General Fund for these services. Staff that performs the work related to the stores
tracked their time in April 2012. Using the hours worked in this month and 2012 wage and benefit information and
projecting it over a full year,the number that should be transferred is around$46,000. If we were to make a proposal
for 2012 I would increase the$46,000 by about 10%to cover those months that will produce more work or issues
that makes this number$50,600. It should be noted that we are not sure we could go and get these same services for
what our actual costs are but we are able to provide them to the liquor store since we have the services in place today
in the city.
DISCUSSION ITEMS
We see the following items as discussion points for the City Council at this point. The items include,but are not
limited to,the following:
1. Future of city liquor operations
2. Lease issues related to downtown store
• Wartman proposal
3. Organizational issues/structure
• Department placement
4. Inventory control
5. Information sharing/City Council needs/liquor committee
6. Financial issues/transfers
• Profit goals
• Transfer amounts and uses
• Fund balance
Respectfully Submitted,
Randy Distad,
Parks and Recreation Director
Date: May 1, 2012
To: David McKnight, City of Farmington
From: Paul Kaspszak,Tom Agnes, Steve Grausam, Brenda Visnovec
Thank you for the opportunity to meet and discuss your municipal liquor operation.
• The facility numbers used in the upcoming charts were provided by the
city and are attached.
It is important to note some of these numbers are different than the State
Auditor's Report.
According to RandvDistad:
It appears to me that in 2008 the state auditor's final number is based on
the state auditor's office taking the income(loss)before transfer amount
of$106,679 and subtracting the depreciation amount of$54,621 leaving
the City with a net income of$52,058.
In 2009 it looks like the same computation was made based on the
income(loss)before transfer amount of$50,868 and subtracting the
depreciation amount of$50,571 leaving the City with a net income of
$297(which is one dollar less than the state auditor's amount of$298).
A Note Concerning Depreciation from the MMBA Team:
Depreciation is a normal expense of doing business, especially in the
private sector.
In the municipal liquor world our goal is to make money—is there more in
the checkbook than the year before? However,we are judged/
compared/examined using accounting methods. This often causes a
large conflict.
An operation can have more money in the checkbook at the end of the
year, but have to hold a public hearing because depreciation (a cash
expense treated like salaries, electricity etc.)causes an accounting net-
loss. A net-loss in the private world is often a good thing, in our world it is
not.
The point in Farmington is that while you could clearly be doing much
better, a$50,000 profit in 2009 is better than the$298 indicated in the
auditor's report.)
1
• As you can see in the chart below, the stores have generally produced a net-income.
However, in many cases this amount has not been enough to cover desired transfers to
other city needs.
250000
200000
150000 Ala kmipek_
150000 ' A 10/1
50000 —IP—Income Pre-Transfer
o —E—Income Post Transfer
-100000 —
-150000
-200000
In addition, operational net-income percentage is consistently lower than the Metro
average indicated in State Auditor's Reports.
10%
8%
God Milk
—4—Net Income%
4% — — — — - - —
—0—Metro Net Income
2%
0% i e
Oti Oti O�i Off` Oh O(o \ O`b O°i
ti0 ,LO 0,LO ,ti ,LO ti0 't. LO ,LO i "t'
2%
Consequently, the city desires to generate additional income.
The city has asked the liquor manager to consistently generate and execute new ideas to
achieve financial goals and will support efforts that do not succeed. In short, the city is
looking for the liquor manager to leave his comfort zone and change the operational status
quo.
To date, this initiative has not achieved the desired outcome.
In our opinion, while liquor management appears to have a desire to succeed, decisions
are based on a strong attitude of defensiveness and excuses.
Based on numerous observations and discussions over several years of interactions with
the city and liquor operations, we strongly question whether this mindset can be overcome
in order to attain operational objectives.
2
Following our meeting, liquor management was asked to complete a basic analysis and
identify immediate goals. See attached. Unfortunately, it took multiple contacts by our
team to obtain the information.
This activity was a starting point. Ultimately, it is up to the city to determine the viability of
this and future efforts and success of the outcome. The window of opportunity is very
small and the urgency is very high.
• Due to the current intense scrutiny of the operation and failure to act during previous
administrations (one of our team started meeting with city officials in 2007, see attached
memos), we suggest a liquor committee be formed. See attached guidelines. The
committee should meet monthly.
• Furthermore, we question the decision to make the Park and Recreation Director in
charge of the liquor operation. Our concern is not based on his overall abilities. Rather,
his expertise and education is parks and recreation, not liquor/retail management. We
suggest liquor management report to the city administrator and provide a weekly written
bullet point report. See attached example.
• A stronger regular focus must be made on financial information including sales, expenses,
gross profit, net profit and more. During our visit, liquor management did not have a basic
knowledge/strategy of how these items relate to each other in your operation.
For example, some facilities generate a higher net income by striving toward a higher
gross profit with less gross sales. Others strategically work toward a lower gross profit
with higher gross sales.
Here are two examples from MMBA Members:
2010
Sales YTD = $1,787,782
Gross Profit=24.4%
Net Margin = $436,171
2011
Sales YTD = $1,762,096
Gross Profit=25.23
Net Margin =$444,587
Manipulating the overall gross profit less than one percent resulted in greater net margin
dollars!
Gross sales for this facility were over$25,000 dollars less from 2010 to 2011 YTD but the
net margin increased by over$8,000 due to a manipulation of gross profit by only.83%!
These are my numbers for this year. I set a goal of growth at a sacrifice of some gross
profit .... It is working to improve my bottom line. Would the growth have been there
without aggressive prices..... I doubt it. I focused on the bottom end of the cooler on beer
and some lower end wine and spirit which seem to develop repeat sales and word of
mouth increase in traffic. I realize I am in (city) it may be just an anomaly. This big picture
is the most important....not just sales, not just gross profit but a blend of both. Staying
vigilant in motoring both will help make the store successful.
3
2010 YTD=$ 666,579.37
GP%=23.108
GROSS PROFIT=$ 154,031.80
2011 YTD=$694,647.85
GP%=22.76705%
GROSS PROFIT=$158,150.81
As you can see in the charts below, your sales trends are decreasing while overall metro
sales have been increasing:
Sales
6000000
4000000 1,' '
2000000 riptill I " ' I " ■Sales
0
Metro Sales
150000000
100000000 Mirrni
50000000 ' IN Metro Sales
riiT'iTiI �
2001 2003 2005 2007 2009
In addition, your gross profit is below the metro average.
30 -
!
25 :
20 -
15 -- -0-GP%
-0-Metro GP
10
5
20012002200320042005200620072008200920102011
4
Furthermore, your gross profit dollars are very close to total expenses, leaving the smaller
net income indicated earlier.
1200000 -
1000000
800000
600000 _ ._.___.__ —♦--GP$S
400000 —;t-Expenses$S
200000
0 1 1 1 I A 1 1 I 1 ,
Oy O'L 03 OR O`P 00 01 O'b O0s yO ,y'y
,tiO ,LO ,LO ,LO ,LO ,LO ,tiO ,tiO 1. ,tiO ,tiO
As a result, the recently completed and attached basic analysis and goals document
should be expanded to a formal written plan to address these issues and form a
comprehensive operational strategy.
• As suggested in 2007, we also suggest a thorough review and written policies concerning:
Which staff are allowed to void sales?
How are discounts, voids and returns tracked in the point of sale system and are they
audited on a routine business?
Who is allowed and who has access to change inventory levels through data entry or
adjustments?
Are there policies established regarding merchandise returns?
Are employees allowed to ring up their own sales?
Who has the ability to adjust product pricing in the system?
Who has the ability to price override or adjust tax amounts at the point of sale?
If there is a discrepancy in the inventory, how is it handled?
How often are inventory levels adjusted and is there a audit trail?
What are the opening and closing procedures for the stores?
5
• During our meeting with city officials, a couple of legitimate questions were asked
concerning possible privatization and the role of government in a liquor operation.
How much can a city charge for a private off-sale license?
State Statute, 340A.408, Subd. 3 Intoxicating liquor;off-sale. (a) The annual license
fee for an off-sale intoxicating liquor license issued by a city, when combined with any
occupation tax imposed by the city, may not exceed the following limits:
(1) $1,500 for cities of the first class;
(2) $560 for cities over 10,000 population located outside of the seven-county
metropolitan area other than cities of the first class;
(3) $380 for cities over 10,000 population other than cities of the first class or
cities described in clause (2);
(4) $310 for cities of between 5,000 and 10,000 population; and
(5) $240 for cities with less than 5,000 population.
(b) The annual license fee for an off-sale intoxicating liquor license issued by a
county or town shall not exceed$800.
(c) The fee set by the jurisdiction issuing the license shall be reduced by$100
if the following conditions are met:
(1) the licensee agrees to have a private vendor train all employees within 60
days of hire and annually thereafter in laws pertaining to the sale of alcohol, the
rules for identification checks, and the responsibilities of establishments serving
intoxicating liquors;
(2) the licensee agrees to post a policy requiring identification checks for all
persons appearing to be 30 years old or less; and
(3) a cash award and incentive program is established by the licensee, to
award employees who catch underage drinkers, and a penalty program is
established to punish employees in the event of a failed compliance check.
(d) Population for purposes of this subdivision shall be as determined by the
state demographer.
Other than making money,why should government be in the retail liquor business?
Earlier this year,the following was presented by the Community Preventive Services
Taskforce, an independent, nonfederal, unpaid group of public health and prevention
experts, and appears in the April 2012 issue of the American Journal of Preventive
Medicine.
The privatization of retail alcohol sales is the repeal of government(i.e., nation, state,
county, city, or other geo-political unit)control over the retail sales of one or more types of
alcoholic beverages, thus allowing commercial retailing of those beverages. States with
government control of alcohol sales are referred to as control states, and states with
privatized sale are referred to as license states. The privatization of retail alcohol sales
generally applies only to off-premises alcohol outlets—retail locations, such as liquor
stores, where alcoholic beverages are sold for consumption elsewhere. Privatization does
not generally affect the retail sales of alcoholic beverages at on premises alcohol outlets—
locations such as bars and restaurants, where alcoholic beverages are sold for
consumption on-site. Re-monopolization of retail alcohol sales is the re-establishment of
government control over the retail sale of one or more types of alcoholic beverage.
6
Summary of Task Force Recommendations & Findings
Based on its charge to identify effective disease and injury prevention measures, the
Community Preventive Services Task Force recommends against the further privatization
of alcohol sales in settings with current government control of retail sales. This finding is
based on strong evidence that privatization results in increased per capita alcohol
consumption, a well-established proxy for excessive consumption.
The Task Force recommendation against privatization of retail alcohol sales is based
solely on evidence related to public health consequences, which may be one of several
factors to consider when making decisions on whether to privatize retail alcohol sales.
Results from the Systematic Reviews
Eighteen studies qualified for the systematic review.
• Seventeen studies assessed the effects of privatization on per capita alcohol
sales, a well-established proxy for excessive alcohol consumption and related harms.
o Overall, there was a 44.4%median increase in per capita sales of
privatized alcoholic beverages within the jurisdiction that underwent privatization
during the years following privatization of retail alcohol sales(interquartile interval
(1Q11:4.5%to 122.5%; 17 studies).
o During this same time frame, sales of nonprivatized alcoholic beverages
within the jurisdiction that underwent privatization decreased by a median of 2.2%
(IQ!:-6.6%to-0.1%;9 studies).
o One study in Finland assessed the effects of privatization for groups
reporting different levels of alcohol consumption. It found privatization increased
consumption across all groups.
o One study in Sweden found that re-monopolizing the sale of medium-
strength beer was associated with a general reduction in alcohol-related
harms.
These results were based on a systematic review of all available studies, conducted on
behalf of the Task Force by a team of specialists in systematic review methods, and in
research,practice and policy related to excessive alcohol consumption and related harms.
More information can be found at:
http://www.thecommunityguide.org/alcohol/privatization.html
• In conclusion,we strongly believe additional revenue can be generated by your operation
over and above the$70,000+annual rent reduction recently negotiated. However, now is
the time to take specific, strategic and targeted action. This discussion may be hard for
the participants, but it is critical for future success.
We are very committed to helping you succeed. As always, please contact us if we can be of any
service.
7
ATTACHMENTS
Park Recreation
Income , General Improvement Arena Operating 1 Income
Gross before Fund Fund Fund (Pool) i After 1 Net
Year Profit Expenses ;Transfers Transfers Transfer Transfer Transfer : Transfers • Depreciation j Income
2001 601,061 390,773 : 210,288 20,000 65,000 15,000 0 ' 110,288 ' 0 I 110,288
2002 560,395 424,134 ; 136,261 20,000 ; 65,000 15,000 0 36,261 • 0 I 36,261
2003 629,150 446,510 ; 182,640 j 25,000 I 40,00.0 ; 40,000 0 ; 77,640 0 I 77,640
......- -- -- _-_ -----------------
2004 708,611 519,101 1 189,510 ; 30,000 0 • 80,000 . 0 ' 79,510 ' 0 79,510
2005 925,382 867,024 : 58,358 34,750 45,400 45,400 0 ; (67,192) 0 ? (67,192)
2006 849,082 860,163 : (11,081): 36,500 60,000 60,000 0 ; (167,581) 0 ; (167,581)
2007 •1,044,972 : 885,982 ' 158,990 ; 58,000 I 0 , 0 0 i 100,990 0 j 100,990
2008 :1,074,823 : 968,144 : 106,679 , 61,000 0 • 0 50,000 ; (4,321), 0 1 (4,321)
2009 •1,048,087 . 997,219 ; 50,868 ! 63,996 . 0 0 • 75,000 ; (88,128): 50,571 ( (138,699)
--- ----- -- ------ -----
2010 , 998,845 , 947,093 ; 51,752 ', 66,300 0 ' 0 75,000 i (89,548)i 33,816 I (123,364)
2011 1,047,515 . 917,388 ' 130,127 , 70,007 : 0 0 20,000 , 40,120 ; 22,324 f 17,796
Totals 9,487,923 : 8,223,531 ! 1,264,392 ; 485,553 , 275,400 265,400 • 220,000 28,039 106,711 1 (78,672)
8
FARMINGTON LIQUORS ANALYSIS & IMMEDIATE GOALS
APRIL 2012
GOALS
Be price competitive with Apple Valley and Lakeville,but avoid pricing wars with
Rosemount.
Review and analyze our staffing needs.
Stock liters for new items and replace more 750's with liters.
Double our active number of wine club members.
Attract new customers from Apple Valley,Lakeville,Rosemount,and Northfield.
Attract new and current Farmington residents to become regular customers.
Increase total amount spent per transaction.
Take advantage of more Good deals that make sense for us.
Continue to eliminate slow moving items.
COMPETITION CONSIDERATIONS
Many customers have started shopping for their groceries at Target in Apple Valley
or Cub Foods in Rosemount and Lakeville. All have liquor stores near them.
Many residents don't work in Farmington,and pass by several liquor stores on the
way home. We need to try and get more residents to shop locally.
Rosemount is very aggressive with their pricing,but we cannot get into pricing wars
with them.
ON-GOING GENERAL MARKETING ACTIVITIES
Utilization of an on-going wine coupon with the local grocery store.
Offering a mix your own beer six pack.
Eliminating all 12 ounce 6 pack cans to sell 16 ounce 6 pack cans.
Utilizing warm beer shelving to promote new beers or popular beers for particular
holidays.
Offering wine promotions of 6 for$36.00,4 for$40.00, and we will be starting a 2 for
$25.00 promotion soon.
9
Utilization of reusable wine bags that offer 10% off non-sale wines.
We post our sales on flyers at both stores as well as on the city web site.
We offer monthly hot specials in beer,liquor and wine.
Continuing staff product education.
Utilization of in-store tastings as well as wine club tastings. We will move wine club
tastings to different locations throughout the year.
Utilization of Customer Suggestion sheets.
IMMEDIATE ACTION PLAN
Provide monthly reports to the city administrator as well as city council members.
Have weekly liquor management meetings to discuss operations.
Continue to take advantage of zero-movement report to eliminate slow movers.
Continually analyze product mark-ups for potential modifications.
Pts & %Pts= 50-55%
750 mls= 35%
Liters= 30-35%
1.75's=30-35%
Wines=50-55%
Cordials=35-45%
6pk beer=35-45%
12 pack beers=25-35%
24 pack beers=25-30%
Misc. and mixes=50-60%
Visit other area stores to better understand the market and see what others are doing
to draw customers into their stores.
Do a follow-up pricing survey with Lakeville and Apple Valley to assure we are
maximizing profitability.
10
Farmington Liquor Development Meeting:
June 12, 2007
Peter Herlofsky, City Administrator - Farmington
Brenda Wendlandt, Human Resource Director— Farmington
Brenda Visnovec, Liquor Operations Director— Lakeville
Issue:
City staff realizes that with resources and turnover within the city, the Liquor
Store Manager and staff had not been receiving the attention or tools necessary
to operate effectively.
Goal:
Provide Liquor Operations Manager and the tools, resources, goals and
expectations to succeed.
Topics:
Profit:
A 2007 Product Price Survey conducted in the month of March 2007
showed wide margin variances between Farmington Liquors and their
primary competitors in Lakeville, Apple Valley and MGM —
Rosemount/Burnsville.
While competitive pricing is essential, the need to provide loss leader items has
diminished with the dramatic increase in the price of fuel. Liquor stores for the
most part have truly become a destination of convenience. It is no longer cost
effective for customers to drive out of their way to save a couple dollars.
Recommendations
1. Analyze mark ups— Should be very close to the following:
a. Wine 40-50%
b. Liquor Large sizes - 30-32%
Small sizes - 48%
Cordials - 45%
c. Beer 25% on large size Domestics
30% on small size Domestics and Imports
10% on deepest special of the month
d. Misc. 32% on mix and Pop
50% Miscellaneous
2. Product Price Reviews should be completed on a quarterly basis, however
bi-monthly is preferred especially on Liquor and Wine Categories. As this is
11
a well-defined objective, this may be a responsibility that can be delegated
with final review and approval given to the Liquor Manager.
Attached is a profit variance analysis report. Insert quantities
sold in 2006 to analyze how much additional income could have
recovered ifpricing would have been in line with competition.
3. Analyze Cost of Goods On Hand on a monthly basis. Should not exceed 8-
10% of your annual gross sales. Analyze these cost of goods by category.
MMBA does a survey of successful liquor store operations every four years
of which the most recent was conducted in 2005. At this time the annual
turns per year in each category were as follows:
a. Beer— 23.3
b. Liquor— 6.5
c. Wine — 5.0
d. Miscellaneous— 7.6
In Lakeville, our turns per year are as follows:
a. Beer— 35.5 (far too many turns due to space limitations)
b. Liquor— 12.9
c. Wine— 8.2
d. Miscellaneous— 13.6
Inventory:
The year end budget reveals a reduction of approximately $37,000 due
to an inventory adjustment.
Inventory analysis and proper maintenance is essential in ensuring that there are
no intentional or non-intentional inventory losses by employees, shoplifting, or
vendor errors.
Recommendations
1. Ensure that written policies are established regarding employee
purchasing, discounting, inventory receiving, processing and monthly
reviews are established.
2. Establish goals for the liquor manager which will ensure that his if fully
knowledgeable of the point of sale and inventory system, and that he has
the ability to utilize the software to it fullest potential. We often see cities
invest money into a "Rolls Royce" inventory system only to have it
minimally effective due to lack of training and knowledge.
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3. Loss of product cost US Retailers nearly 2% of their annual sales. Make
sure that accountability is in place and that inventories are conducted on a
monthly basis with a brief summary provided to the Finance Director for
checks and balances. A fiscal year end inventory report by category should
be provided to both City Administrator and Finance Director.
In order to determine whether your inventory is currently
accurate, attached are four items that are highly susceptible to
employee and customer. Have the liquor store manager provide
you the current on hand inventory prior to asking him or another
staff member to provide the current on-hand physical count Any
variances should be investigated,
If it is determined throughout this process that additional knowledge of the point
of sale software is needed, additional training by the software agent should be
pursued.
Employee Satisfaction/Productivity/Effectiveness:
There are current full-time employees but no true hierarchy within the
organization.
As issues and procedures are established regarding inventory and product pricing
processes are established, responsibilities can be established by those best suited
for the responsibility.
Recommendations
1. With no chain of command, does everyone have all parameters within the
point of sale and inventory system? If so, it severely compromises the
organization as there as numerous ways to steal product and/or money if
audits are not in place.
Questions that should be asked which may trigger a concern would
include:
Which staff are allowed to void sales?
How are discounts, voids and returns tracked in the point of sale system
and are they audited on a routine business?
Who is allowed and who has access to change inventory levels through
data entry or adjustments?
Are there policies established regarding merchandise returns?
Are employees allowed to ring up their own sales?
13
Who has the ability to adjust product pricing in the system?
Who has the ability to price override or adjust tax amounts at the point of
sale?
If there is a discrepancy in the inventory, how is it handled?
How often are inventory levels adjusted and is their a audit trail?
What are the opening and closing procedures for the stores?
Once these questions are answered, a chain of command and possible job
descriptions may be established. Most importantly, accountability is very
important, not only for the protection of the revenue and inventory but for
employee satisfaction.
2. Employee Satisfaction Survey— Brenda Wendlandt stated that she is
planning to have one on one conversation's with the employees in order to
see what their perception of the operation is.
Reviewing the items noted above will provide a strong basis for establishing goals
for the upcoming six months.
Discussion Topics
Farmington Liquors
September 24, 2008
Beer Pricing:
As we discussed, our new front line on premium cases of beer will be $19.99.
While our full mark would result in a $20.49 front line price, that twenty dollar
price point is just too critical to surpass. I have inquired of other retailers in
the area and they will be doing the same.
Wine Cellar Concepts:
The wine cellar is quite long but narrow in design. In the far back there are
wooden shelves with larger format bottles on the shelf and overstock behind.
You expressed your dislike for overstock being so visible to the customers and
Dave commented that the customers often confuse the overstock placed on
the top of the wooden shelf as product for sale, which is at a level clearly over
ten feet in height.
Recently Dave has made several changes in the layout of the gondolas in
order to better define the categories. You also mentioned that you are having
wood signs made so that at times when staff can't get back to the customers,
14
the signs should at least assist them in finding what they are looking for.
These are both very good strategies.
Suggestions:
• As we discussed, from a customer viewpoint entering your main store area
makes the wine cellar room seem like vacant storage or a project that isn't
quite finished. You have short gondolas of 8'throughout. Based on the
depth of the store verses the width, this probably serves you best, but it
does give the perception that you don't have adequate selection. You
have a good selection, but a thought may be to place the gondolas into
12'sections and place them at an angle. To a customer it may be nicer to
select from 12'of red wines than 8'of any specific varietal. Perception is
key in marketing. By placing them at an angle, it would ensure that you
don't harm your sightlines and would make the room appear fuller.
• Again, referring to the vacant appearance from the main entrance. You
have added a Chateau Ste Michelle wine rack with some height against
that back wall. The height of that rack is very good against that high
ceiling you have in there. While investing in some customized wine
shelving would be ideal, I fully understand the city's position on spending
money at this time when the economy is so weak. So use what is
available. You have the largest displays located on the back side of the
gondolas and on the western wall which completely removes these
displays from the customer's line of sight. I would place the large displays
on the east wall with large signage or possibly even banners above them.
Again, making the room appear to be much fuller than it really is and
bringing those high ceilings lower.
• May I also suggest that you then request some wooden display items or
materials from the vendors to set against that wall? Alternating large
displays with wooden bins, racks or displays would give off the impression
of a true wine cellar. As discussed, we have some wood wine boxes that
you could borrow, and a couple of wine barrels that we have kept in
storage. You are welcome to use these, or contact your vendors and ask
them to provide you some racks.
• Close out wines: You have a table placed in the very front of the room
with discount wines on them. New products are the lifeblood of our
industry and a general rule is to remove the bottom 10% of your
performers and then replace them with new items. I learned this from
Professor Dave Brennen at the MMBA Conference a couple of years ago
and I believe all municipalities should utilize this concept. It's a lot of
work as it is a constant cycle, but it's important in keeping customers
enthusiastic. We take our bottom 10% of our wines and place them into
the cellophane gift bags. We maintain a cost of about $7.00 on them and
sell them as mystery bags at $10.00 each. We started this in February and
15
have sold 1,600 to date making $16,000 in additional sales. Now when
the wines begin to range higher than the $10.00 retail price, which in turn
increases the cost, we incorporate free goods, or discontinued items in
which vendors are blowing out, in order to lower the cost. We place them
at the register so that they become impulse purchases, not replacement
purchases. It's gotten to be that customers will purchase 3 or 4 at a time.
A note on this however, is that occasionally wines go bad. In order to
have customers repurchase the mystery bags you have to ensure that the
product is good. You are much better off to pour bad wine down the
drain and negative adjust the product as a loss, than sour a customer.
• Add some color or greenery. When trying to create a wine cellar, look at
the internet. Look at pictures of wineries and cellars and see what they
have that you could incorporate. On many of the pictures you see vines
and other greenery. This is a very low budget item if you purchase at
Michael's or other craft shops, but it makes a huge impact in perception.
Primary Store Layout:
You asked if I had any suggestions for the main floor area. In all honesty, we
ran out of time before I could really look into it, but I'd be happy to take
another look.
The couple suggestions that I would make include:
• There is a lot of distance between your counters and your walls or display
shelving. So as we discussed, your gift bags and drink accessories are not
in close proximity to your registers. I would try to get these items closer to
your registers as these are high impulse items.
• Again, your shelving is situated in very short gondolas on the floor. I
would again try to make them longer in order to make the customer walk
and look down an entire shelf. Think of it as a Cub store. When you are
grocery shopping, you may only need an item or two out of the aisle, but
you continue to search because the aisle continues. By having short
lengths on your gondolas, you are giving the customer an opportunity to
stop looking and consider themselves done.
• Make you own six packs. As we discussed, and as some of your staff has
inquired, the make your own six packs have been huge for us in getting
people into the craft or new beers. We take discontinued six packs, new
items and seasonal items and negative adjust them into a different number
designated as a make your own six pack number. We then positive adjust
the six packs in order to maintain and accurate inventory. While some of
the singles come from 6 packs that only retail for $5.99, we sell the make
your own six packs for $7.99. Customers will pay more to sample beers
before investing into a whole six pack of a single item. This is an
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outstanding way to increase your sales and more importantly your profit
margin. We've sold over 700 of these six packs to date.
• We discussed the fact that your customer's appreciate the Jagermeister
kept in the four foot freezer located on the sales floor. I'm wondering if it
maximizes sales to square footage by providing so much space to a single
item. While I think it's nice in concept, I'm not sure it's selling you any
more product and is there something more valuable to put in that space.
This is something that only you could answer.
I really appreciate the time we spent together. Steve Grausam and I do this
often where we just walk through and critique each other's facilities. It's a great
tool as you often can't see the forest for the trees sometimes. You work day in
and day out at the same location and you can tend to get blinders on, or at least
I do.
In closing, I would like to make on last suggestion. You are very passionate
about the city and the liquor store operation. You stated that you expect people
who are Farmington residents to shop at your stores, and if they don't they
shouldn't even live there. I couldn't agree with you more, but I believe the era of
customer loyalty is gone. Liquor has become all about convenience, pricing,
selection and ambiance. You do those three things well and you will draw from
outside your area. You don't do those things well and you lose people from
within your area.
Remember, you are more than welcome to come pick up those wooden boxes or
wine barrels to use, and if there is anything I can do to assist you please let me
know. The power of brainstorming is highly underrated!
Discussion Topics
Farmington Liquors
March 24, 2010
Gross Profit:
The gross profit average among metro municipal liquor stores according to the
most recent State Auditors report is 24.9%. Farmington is at 24.1% with
Lakeville currently at 24.9%, Apple Valley at 25.5% and Savage is at 25.8%.
During our discussion, there are several ways in which you can increase this
profit:
17
Product Pricing and Marketing:
1. Review your cost of goods on a more regular basis. You stated that
your staff entering invoices will notify you if there is a large increase
and that you and Dave review your retail margins on a yearly basis.
While the monitoring of large increases at point of entry is good, a goal
that would help increase your gross profits would be to review your
retail margins on a quarterly basis.
2. Review your markups. It has been proven that even in these
economic times, price is not the primary factor in why people shop
different locations. Service and selection will outweigh pricing 8 times
out of 10. As we discussed, your markups are currently 30% Liquor
except for small sizes you are at 40%, wine at 50% and beer at 25%.
The Minnesota Municipal averages for gross profit margins are:
a. Liquor Liters and 1.75"30%.
b. Liquor 375's and 200 ml's 50%, makes the customer trade to
larger size and will either increase profit or total sales.
c. Cordial and Liqueur's 45%, these are not price sensitive with
exception of Bailey's and Kahlua. These two brands are market
driven.
d. Wine 40-50% (Lakeville is at 50%)
e. Beer Domestic 12 packs and larger 25%
f. Beer Domestic 6 packs and smaller 30%
g. Beer Imports and specialty beer 30%
3. Watch your price points. As we discussed, in your advertisements and
your website specials you have price points ending in .97 and .98.
These should always end in .99. No customer is going move to a
different location for $.03 cents, but these pennies increase your gross
profit over time. In one of your advertisements you had a half dozen
items ending in .97. If you sold 100 of each of those six items while
on sale, you are decreasing your net income by $18.00. You do this
on a monthly basis and your losing $216 to your bottom line annually.
It doesn't seem like a lot of money but over time these pennies will
add up.
This is an item that is reiterated at every MMBA event as it is these
little details that can make the difference. When we spoke about this,
you stated that this was Dave's idea and that you knew better but
wanted to let him run with it. Make sure you encourage your staff to
bring ideas forward, but you do need to be the leader and take a stand
if an idea is going to negatively impact your operation.
4. Look at all angles of a marketing concept. In looking at your
advertisements over the year. You had one that stood out where you
18
offered 19% off any wine or liquor purchase in the month of
December. While not a bad idea to draw customers in to your store,
make sure you add qualifiers to your add. I don't recall if I saw any on
this advertisement or not. Example —Your mark up is 30% on liquor,
so if you have a liquor that cost you $10.00, your retail price would be
$12.99. You take 19% or $2.47 off that item you are then making
only $.52 cents or a 5.2% mark up. We all know that there are certain
items that are kind of bastardized in the market such as Windsor
mags, these are items that no one wants to cross that line of$18.99
so we all make a little less profit on them. On these kind of items, you
may be losing money on if you don't clarify them as an exclusion. The
other thing is you want this type of an advertisement to be a draw, not
just a give away. Make sure you put exclusions and possibly a ticket
price they need to meet so that you aren't giving 19% off every sale.
Example: Receive 19% of any liquor purchase over $50.00, excludes
features or sale items. This type of advertisement will also entice the
customer who is currently purchasing $35.00 worth of product to
spend a little more.
Labor Costs:
Your labor costs are currently running at 10.3%. The MMBA average is just
slightly under 10%, Lakeville's is 8.5%.
1. Kudo's to you and city staff for adjusting your new part-time starting
wage. That will help significantly. However, use this to your advantage
if you can. I am not familiar enough with protocol as it applies to
unions so maybe this isn't possible, however you stated that you really
could use some additional part-time help but that you were just going
to have your current part-time employees absorb more of the hours. If
it's acceptable to the union, there would be benefits to brining on an
additional part-time person rather than dividing the hours available to
current part-time personnel including:
a. Lower wage—You stated that some of your part-time sales
clerks are at close to $15 per hour. If you have 10 hours of
staffing needs and you were to bring on one new staff member
at the wage of $10.40 per hour, your reduction in labor expenses
would be close to $2,500 not including a reduction in FICA, PERA
and other benefits.
b. You have better coverage for vacations and illnesses. If you
currently have 5 part-time employees to call on, you would then
have 6 instead, making the coverage of vacations and illnesses
easier on you.
2. You have stated that you currently have five full time individuals.
Yourself, a Manager, two leads that aid in entering invoices and then
one full-time sales clerk. You stated that you are leaving a manager's
19
position vacant. I question the validity of a full-time sales clerk unless
they have additional duties or responsibilities that can not be completed
by part-time staff. If you there are not additional responsibilities for
this person and if union allows it, I would recommend eliminating that
position replacing it with two part-time sales staff. Depending on the
step that this employee is currently at could save the city tens of
thousands of dollars in labor costs and benefits annually.
Lease Rates:
In a comparison of lease rates, your downtown location is being leased at
$24.08 per square foot and your Pilot Knob location is at 27.4%. The Lakeville
Liquor Heritage location is at $28.38. This comparison includes property taxes
and CAM Charges.
Your questions is as your leases come to term what should you do. That is a
question only your Council and City Staff can answer.
You questioned the feasibility of using a facility that is up for sales east of your
current location in downtown. (Old Tom Thumb Building) My
recommendation is to focus on a long term strategy rather than what is most
cost effective at the moment or easiest to accomplish. Again, that is for your
city to determine as it not only involves cost, but includes political and
financial objectives.
Example: Some cities such as Hutchinson determined that while they could
increase their sales and profit by moving out along the freeway, the Council
determined that maintaining the vitality of their downtown was more
important and of a higher value to the community.
This is really something that you and your City Administrator should strategize
on, but do not wait until your lease is up. With two years left on the lease,
you should be making plans now.
When discussing strategic plans with your supervisors, make sure you do your
homework and provide statistics to substantiate your recommendations.
Below are the websites we used to look at information such as land use and
zoning, current land owners and traffic counts. I have also included the MMBA
Website address which can provide you a lot of valuable information as well as
the Minnesota State Auditor's website so you can compare statistics of other
municipal operations.
htto://www.osa.state.mn.us/ Minnesota State Auditor's Office
http://www.municioalbev.com/ MN Municipal Beverage Association
20
htta://gis.co.dakota.mn.us/website/dakotanetgis/, Dakota County GIS
Provides land use, zoning, parcel and ownership information
htta://www.dot.state.mn.us/ MN Department of Transportation
Provides traffic counts by city
As always, it was great to see you again and if you have any additional questions
or concerns, please feel free to call or stop out any time.
21
Wan nee Brenda
From: Visnovec,Brenda
Sent Friday,Apra 02,2010 2:17 PM
To: tshadiedi: ;«.farming".onerin.uo
Cc: pherlofskaciJarmtnglan.mn.us
Subject Farmington Liquor Advertisement
Good Morning Lisa.
My name if Brenda Visnovec and l oversee the Liquor Operations for the City of Lakeville. Over the past couple of years I
have met with Randy on quite a number of occasions as a means in which to increase Farmington's overall
profitability. Please understand that while we are in direct competition with each other.municipal's generally work
together as we are much more viable,efficient and profitable as a whole. So white it's somewhat a conflict of Interest,my
first and foremost prionly In meeting with Randy Is to ensure increased success fat the City of Farmington.
I met with Randy a couple of weeks ago to discuss some options and concepts that would potentially increase sales white
enhancing the net income for the Farmington Liquor Operations.
I had forwarded Mr.Heriofeky a copy of issues discussed as!had previously forwarded them to Robin Roland prior to her
departure. Peter personally contacted me thanking me for the Input and asked that I forward these to you from now on.
In our meeting we specifically reviewed the state auditor's report which revealed that the gross profit generated in
Farmington in 2008 was 24.1%or nearly a full percentage point below the metro average of 25%. We looked at several
issues regarding product pricing.Including markups,advertising etc that could be negatively Impacting the gross profit.
One of the items we specifically focused on was that Randy needs to analyze all angles of a marketing or advertising
campaign.
A specific example was running 19%off all liquor and wine the entire month of December without any qualifiers_ While
the intent of drawing customers is great,the thought of discounting everything 19%in the highest sake month of the year
isn't the best concept. Reducing the lime,trying to get the shoppers to commit earlier In the month such as rumens it the
first two weeks of December,or Just using a qualifier that it does not include sate Items and must be a minimum of 4
bottles would have provided a better outcome. In the memo.C stressed that Randy needs to have a better understanding
in the difference between Mark-up,Cost of Goods Sold and Gross Profit better as ern positive that during this sale,you
were selling many items at or below cost_
This can probably be beet demenstraicd through an item example such as Smirnoff Vodka Liters. Our coal is$1 0.18.you
put Farmeington's markup of 30%it would be$13.23,but the market demands you price It at$12.99. So If you discount
that bottle by 19%your profit has just decreased to 5.48 cents or less than a 5%markup.
I apologize for the drawn out explanation,but I Just saw an advertisement in the Lakeville Life and Times for the
Progressive Wine Sale and have several concerns with It.
1. Again.Randy Is discounting without qualifiers so every individual whose Intentions are to purchase gray one
bottle of wine Is going to receive a discount,discounts should be to entice customers into the ire or increase
sales. In addition:
a. Your were club members pay$25 annually to receive 15%off their wine purceates. Between the
December advertisement and this one,customers may lose site of the value in your membership with
potential to alienate these customers or worse;reducing wine club membership renewals.
b. If you are going to do a progressive sale,make sure you start It at Iwo bottles. Reason for this is if you
have a customer whose Intentions are to purchase only one bottle,you double your ticket ring by
encouraging them to purchase a second bottle. If they do not want to purchase a second bottle,you
have at least maintained a stronger gross profit margin with them_
2. It is far too long of a period to conduct such a sale. This should be a dosignaled weekend.or even a week
would be very aggressive. Four weeks Is way too long and It loses Its impact, People don't take it seriously or
plan to go because it's too far away.basically out of site out of mind.
22
3. This type of adverdscment has more potential to reduce profits than to draw new customers. Again,an
example may work best In February one of our stares had total wine sales of$83,697 and a cost of goods sold
of$55,083. This Is a cost of goods sold percentage of 67%or a gross profit margin of 33%. If you average the
discounts offered In the Farmington Progressive Sale to reltect a 20%discount for the entire month,you have
just reduced your prop by($16,825). Reducing,your sales$67,083.increasing your cost of goods said
percentage to 83.6%and reducing your gross profit margin of 18.4%on the highest profit item in the score.
Farmington has a ton of potential and while your lease rates may hold you tack on bottom line profitability. However,
Farmington's gross profit and net income could be Improved greatly with very little effort.
I don't mean this to sound demeaning or cocky through this email and please know that I am very sincere with my
intentions.I too have had Other municipal managers provide constructive criticism(and actually encourage it)on a number
of occasions which has Improved our bottom tines dramaticettyy. One example of this was eliminating the number of 750
rel glass selection In our stores just last year. Our analysis of this suggestion shows that everyone who purchased a 760
would have purchased a filer our profit setae would increase by approximately$6.800 annually white opening space for
additional new products.II Is working together through these partnerships and by paying attention to the details that
impacts sales and profitability and my only regret is that these meetings with Randy seem to be having very little if any
impact on his marketing objectives.
If you would ever like to meet and review some options that would inaease your profitability I would be more than happy
to do so. Or if you would prefer to have the MMAA Exeadtive Oire.ctor,or another operational manager or board member
meet with you who is not in direct competition with you,that could be arranged as well. This Is Important as Farmington
has all the potential to be one of the most profitable operations In the metro area.
Thank you and have a good weekend!
41 Brenda Vlsnovec,Liquor Operations Director
City of Lakrettle t 20195 tioryotriwanue I Lakavaio,MN 55644
offke:95246$-4961 I Fotr.9S343115'4949 I www.faktvitlemru ply
the;NI..,tr,.tloaswiainc i u,this tut nt,r' v'r rnitudirr.g fl•r.ettia.ka dccunlcnt.trpr,mi.,/is pruucectl zrd ernrldrnt,,l.It■e mended nrly far rim
..r 111e ind,y+,l1/;.I Of craft rarmed cbmc.11 the!silts at lha 1 u rni at&pc a rcur trc raa[nr,'ed(content,yptu arc he dyr nptdt:dthat coy
do omination,dUtriNtIQr,ci cape of the ecivrunitati vl it.rtrietly plph bitt°d.II'rau have tecclrCS this c ITIfnt nIcOtlon it gran,rIcdtc notify thc,
C h St?Lbherillrt rrnrnni∎a1Ely bf'replying It.Irt0 amen'
2
23
Liquor Committee Duties&Responsibilities
General
Serve as a policy advisory body for the municipal liquor operation. (Note: This is an advisory
committee on policy—the committee should not micro-manage)
Operations
Review operating policies.
Review marketing/promotional strategies and activities (Note:Strategies and activities are two
different concepts.)
Personnel
Review organizational structure. (Note: Some cities have the committee screen &interview certain
employment candidates and recommend hire to the full city council. This procedure may or may
not fit into the city's general hiring procedures.)
Financial
Review Inventory, sales, expenses, gross profit, net profit, large expenditures etc.
Annual Budget
Review projected revenues and requested expenditures.
(Note:Here are some general concepts:
The committee should be two or three individuals—generally the city clerk/manager&two
councilpersons. The committee should meet every month to discuss liquor operation activities.
Committee members should also be available to management for informal consultations and
conversations.
The small meetings and informal talks allow both management and city officials to keep in touch
and avoid any communication problems which could develop.
During each meeting progress on various issue discussed at the previous meeting should be
reviewed. If issues are not being resolved and/or modifications made, discuss additional actions
and modifications.
The former mayor of Spring Lake Park developed the following:
The Six Commandments—Manager/Council Relations
1) Be Honest
2) Be Lawful
3) Tell Good News and Bad
4) Immediate Notification of News
5) No Surprises
6) Have Regular Meetings
Remember, the purpose of the committee is to discuss policy, not to micro-manage.)
24
LIQUOR COMMITTEE MONTHLY AGENDA
1)Review minutes of last meeting
2)Review of liquor manager's bullet point reports for city
council
3)Review of previous month's goals and objectives
4)Review financial report(s)
5) Review of off-sale activities and promotions
6) General operational issues (staff, scheduling, physical
plant, training etc.)
7)Liquor manager issues / concerns
8) Committee member issues / concerns
9) Determination of next month's goals and objectives
10) Other
25
Stacy Liquor Operations-Bullet Report,7/13/07
•Fat Tire;a popular craft beer from Colorado was released last week and has been selling well.
•I attended a poker tournament event at the Forest Lake American Legion on July 6th. This was
brought on by a conversation that I had with Member Olivolo. I ran into Member Wilson at the
event and we chatted for a bit. I compared and contrasted the operation versus our own. I will go
to a couple more events to see how other operations run and to determine what changes;if any,
would benefit our operation. I will consult with the local poker enthusiasts for locations. By the
way;I took third place in the tournament.
•I attended the N.B.C.C.Luncheon on Tuesday,July 10th. I met a lot of business owners/
managers and picked up some contacts for promotion and advertising.
•The Stacy Wine&Spirits walk-in cooler will be reset on Tuesday,July, 17th. It should take
about four to five hours.
•As part of action plan to raise funds for the upcoming bond payment;multiple items have been
priced aggressively to facilitate a more rapid inventory reduction.
•Stacy Bar&Grill will be hosting an outdoor"Corn Hole"tournament on Saturday,July 28th at
noon. Corn Hole is essentially a grown up bean bag toss that is much like horseshoes with a board
with a hole cut out versus a post. You'll just have to come out to see it.
•The City Clerk pointed out that Stacy B&G is in violation of GBD code restricting refuse and
recycling containers outside of an enclosure. The current containers are too large for all to fit in
the current enclosure. I will consult with staff to see if we can get by with smaller containers and
maybe more frequent pick up schedule. Thank you Sharon for being proactive prior to a
complaint.
•We do indeed have a blender. However we will be using a pre-mixed margarita product for
efficiency and consistency.
•Member Aslakson voiced concern about a tree located on the bar&grill property that could
pose a visibility problem in future years. I agree with Member Aslakson and will look into
relocating the tree on the property or moving it to another City property.
•I contacted Armor Security for a quote on security related items as requested by Mayor Daher.
If any member needs detailed information on this request please contact me and I would be happy
to go into details.
•We need to take a look at how the pull tab revenue is reported. It is currently deposited directly
into the city operating fund and is not reflected as income from the liquor operation. I know of no
other city that does this. In 2006 the deposits totaled about$12,500.00. I project the earnings to
be around$17,500.00 for 2007.
26
EXHIBIT B
FARMINGTON LIQUOR STORES 2012 WORK PLAN
GOALS
Pricing:
1. Be price competitive with Apple Valley and Lakeville, but avoid pricing wars
with Rosemount.
2. Take advantage of more "good"deals that makes financial sense for us.
3. Increase total amount spent per transaction from 2011.
4. Offer monthly hot specials in beer,liquor and wine.
5. Continue to offer wine promotions of 6 for$36.00,4 for$40.00, and start a
2 for$25.00 promotion soon.
6. Continue to analyze product mark-ups for potential modifications in order
to increase gross profit.
7. Participate in a pricing survey with Lakeville and Apple Valley to assure we
are competitively pricing our goods but yet maximizing profitability.
8. Increase overall net income by 5%from 2011.
Inventory:
1. Stock liters for new items and replace more 750's with liters.
2. Continue to eliminate slow moving items.
3. Eliminate all 12 ounce 6 pack cans and sell 16 ounce 6 pack cans.
4. Continue to take advantage of zero-movement report to eliminate slow
movers.
5. Turn over inventory at least 10 times per year.
Personnel:
1. Review and analyze our staffing needs.
2. Continue providing at least two times a year product education to liquor
staff members.
3. Reduce personnel costs when possible.
4. Have at least four Division wide staff meeting during the year.
5. Review and update the policy and procedure manual for liquor operations.
Customer Service:
1. Double our active number of wine club members from 2011.
2. Attract new customers from Apple Valley,Lakeville,Rosemount, and
Northfield
3. Attract new and current Farmington residents to become regular customers.
4. Utilize reusable wine bags that offer 10%off non sale wines.
5. Increase number of customer transactions by 5%from 2011.
Marketing:
1. Utilize warm beer shelving to promote new beers or popular beers for
particular holidays.
2. Offer a mix your own beer six pack
3. Utilize on-going wine coupon with the local grocery store in order to
encourage grocery shoppers to stop at the liquor store.
4. Continue posting sales flyers at both stores as well as on the City's web site.
5. Provide at least four wine tasting events in different locations throughout
the year.
Evaluating:
1. Utilize Customer Suggestion sheets.
2. Provide monthly reports to the City Administrator as well as City Council
members.
3. Have twice a month liquor management meetings to discuss operations.
4. Visit other area stores to better understand the market and see what others
are doing to draw customers into their stores.
EXHIBIT C
Liquor Store Inventory Tracking Summary
There is a written inventory procedure that is followed repeatedly by liquor store staff members who have
the responsibility to track inventory as product is continuously being ordered,received,counted,posted and
sold. Because this procedure is written down,the inventory tracking process is consistently completed
throughout the year. The following is a brief description of tracking and managing inventory at the two
liquor stores.
Ordering
Only two staff members are allowed to order products for the two stores,The Liquor Operations Manager
and the Liquor Store Manager. Product is ordered based on the existing inventory of product being low.
For low volume(not as popular that are less frequently sold)products staff will wait until 5-10%of the
inventory remains before it is reordered. If it is a high volume product(popular products that are frequently
sold)we will wait until 25%of the inventory remains before it is reordered. These percentages allow us to
not only not run out of popular products but it allows the less popular products to not sit on the shelf for a
long time before it is purchased. This allows our inventory to turn over more frequently,which is a good
thing because we don't want to have products that just sit on the shelf taking up space and isn't bringing in
any sales revenue for the liquor stores. Other times we will order even if our inventory is not down to these
levels if the vendor is providing a special incentive to order their products.
Posting and Tracking
Only four staff members(Liquor Operations Manager, Liquor Store Manager and the two full-time Liquor
Clerks)are able to post. Posting is the process where the product that is ordered and delivered to the store
has to be entered into the Point of Sale(POS) System,which is tied to our cash registers. We use a POS
System called Catapault,which tracks and manages our inventory. Once the order has been entered into
the Catapault System then our inventory control is managed through the computerized tracking of products
as they are sold and go out of the store. We can pull up at any time what the existing inventory is for a
certain product in the store and can then go and physically count the product to make sure it matches what
the POS system says is on hand in the store. The stores will also do cycle inventory counting each month
where a specific department is selected and then inventory is taken. Because we do a different department
each month, it results in each department being counted multiple times throughout the year to verify the
inventory we have. If the cycle inventory shows discrepancy then we complete an analysis of why the
inventory may be off and determine a corrective action to be taken. In some cases if we suspect the
inventory is off due to theft,we will move the product either closer to the sales counter or directly behind
the sales counter so staff can keep a closer watch on the product.
Our POS system allows us to set restrictions for staff members so only certain staff members have access to
entering inventory into the system. This eliminates the opportunity for inventory numbers to be changed.
The other thing our POS system requires is that a staff member must log in before they can change
inventory so we can go back and track when inventory has been changed and by whom if we need to.
Currently access to the POS system is as follows:
• Full Access(highest level): Liquor Operations Manager and Liquor Store Manager
• Limited Access(medium level): Full-time Liquor Clerks and two part-time Liquor Clerks who have
given responsibility to open and close the stores
• Restricted Access(lowest level):part-time Liquor Clerks who do not have responsibility to open or
close the stores
Transferring of Inventory Between Stores
Only the two Liquor Store administrative staff members are allowed to transport liquor between stores.
Our vendors do not do this. Generally speaking there are two situations where liquor store administrative
staff members will transfer liquor products from one store to the other. The first situation is when a small
order is placed with a vendor and it is to be split between the two stores. In this situation staff will deliver
the transfer because if we split our deliveries for small orders there is an extra up-charge for doing this and
so it becomes a cost saving measure by having liquor store administrative staff make the transfer.
The second situation is when we have product that is not selling at one store but is selling at another store
and so we want to move the product to the store that it is selling better at.
When the transfer of inventory occurs,it is always transported with a City vehicle.
In the situation where an order from a vendor is to be split between the two stores,the entire order is first
delivered to one of the stores. Once delivered,a staff member counts the delivered product against the
packing slip or invoice to verify the correct number of product was received. Once the counting has been
completed and the order has been verified,the product is then entered(posted)by a staff person different
from the staff who verified the order. The product number is entered into the store's inventory on the POS
System so that the store's inventory is increased by the number of products that was delivered to the store.
After it is entered into the POS System,a staff member different from who did the posting will then pull
and count the inventory to be moved to the other store and this amount will then be deducted by a different
staff member from the store's POS System. A transfer report is then generated to show the amount of
inventory to be transported that goes with the transfer.
The inventory and the transfer report are then transported to the other store by a person who did not enter in
the inventory into the POS System from the store that the inventory is coming from.
Once transported to the other store,the inventory is counted against the transfer report to verify the amount
of products to be transferred into the store matches what is on the transfer report.
Once the count has been completed and is verified to match what is on the transfer report,the inventory is
then entered into the store's POS System by a staff member who is authorized to do this but is different
from the person who transported the inventory.A report is then generated showing the store's inventory
increasing by the same number as what was on the transfer report.
In a situation where a certain product or products is transferred due to the need to move inventory to a site
where it is selling better,the transfer occurs in the same manner as previously described for an order being
split between stores. The same documentation occurs with the transfer report,which allows the same
internal control to be in place so that multiple staff members have to be involved in this type of transfer. In
this situation it makes a lot of sense to not order additional product if we have an ample inventory in place
in one store and it can be transferred to the other store.
EXHIBIT D
From:Thomas B.Wartman [mailto:thomas.wartrnan @gmail.com]
Sent: Wednesday, May 02, 2012 10:29 AM
To: David McKnight; Randy Distad
Subject: Farmington Lease
David/Randy,
Thanks for the mtg last week and the updates. In response to the City's request for an extension of our
lease I am willing to grant a one year extension and am willing to discount the current lease rate from
$21.00 sq. ft.to$20.00 sq. ft.,with CAM remaining the same for 2012 as 2011,per my recap. If we were
talking a 5 year extension I would be able to consider a further reduction but for only one year this is what I
can do,which saves the city appox. $520.00 a month in rents.
I'll look forward to hearing back from you ASAP as otherwise I have to consider my alternatives with
August fast approaching.
Thomas B. Wartman
952-470-9618
ThomasWartman@gmail.com
£ii ibl -- e
LIQUOR STORES Downtown Pilot Knob Total
1ST QUARTER 2012
REVENUES
Sales $ 393,655 $ 510,904 $ 904,559
Cost of Goods Sold (301,608) (381,384) (682,992)
Gross profit 92,047 129,520 221,567
Other Revenues
Miscellaneous 489 - 489
Total Revenues 92,536 129,520 222,056
EXPENSES
Personnel 37,943 40,121 78,064
Supplies 661 8,786 9,447
Services 45,207 35,942 81,149
Total Expenses before
transfers and Depreciation 83,811 84,849 168,660
Income(loss)before transfers 8,725 44,671 53,396
Transfers Out
General Fund (8,751) (8,751) (17,502)
Recreation Fund - - -
Total Transfers (8,751) (8,751) (17,502)
Income(loss)after transfers (26) 35,920 35,894
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Bizbeat: Lakeville Liquors' sales leads state munis I StarTribune.com Page 1 of 3
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Bizbeat: Lakeville Liquors' sales leads state munis Juror.Amy Senser's testimony didn't add up
Adam Yauch of the Beastle Boys dies at 47
Article by JIM ADAMS,Star Tribune I Updated:April 27,2012-7:04 PM
Ron Gardenhire:If people are fired up at me,I
understand'
But the city has lost some liquor business to new stores in Bumsville and Apple Valley.
Giant Photo S.ale.
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n'= '=v c.n_ Fh-aeas.Lakeville Liquors led the state in municipal of remises liquor sales more from south metro
V-er_ n—.el
in the latest state auditor's report,although it was second to Edina in l,,p J`, ,,l'v y i; ,y ;,�viLl4 tiCSF
net profit. Burnsville school leaders
reject four-day school week 0,
Despite having the top sales volume of more than$14.7 million in
2010,the most recent audited numbers,sales declined slightly at ` a ,ir
Skirmishes over student
Lake-ville's three stores,partly due to new stores in neighboring loan rate offer fail preview �/`"
Bumsville and Apple Valley,said operations director Brenda ` i.a r�r ,1
Visnovec.Lakeville sales led Edina,Eden Prairie,Richfield and Ir
Apple Valley.Lakeville also had the best(lowest)operating South metro arts and leisure fi
expenses-to-sales ratio,Visnovec said briefs:Young Native Pride
performance is May 10 4649
Unaudited results for 2011 show Lakeville's net liquor income
continued a dedine that began in 2008.Net income last year dropped , ,...anan ,
by about$22,400,or 2.5 percent,to nearly$1.23 million.Last year's
sales were down almost$400,000 to about$14.3 million,Visnovec
said.
Visnovec expects Lake-ville's three city stores to contribute more than F '
$2.2 million to city operations in 2012,including$1.4 million that went
to pay off fire station bonds in February.
(1(0‘c,
The City Council last year considered letting SAVE I Y
Y 9 Private firms take over its � '200,
� \
liquor business,but a consultant's study reinforced how profitable the
business is and the idea was dropped.The business has contributed
$4.5 million to city projects from 2006 through last year and has
provided a loan of nearly$400,000 so remodeling could begin this National Omen Exchange
spring on the city's new Heritage Center for seniors,veterans and
history buffs.The money is to be repaid when the old senior center is +V(t go
sold and fundraising for the new center is completed. •
eB16tiBY19r� tuaMO>�Mf0
Visnovec attributes the drop in liquor sales partly to business lost to ADVERTISEMENT
six liquor stores built within five miles of its three stores since 2008.
Five new stores are located in Burnsville at Costco,Cub,Byerly's, most read most emalled most commented
Haskell's and Liquorville.
The sixth was Apple Valley's newest and biggest city liquor store,on
Pilot Knob Road and 157th Street.It is about 1 1/2 miles from preview es over student loan rate offer feu
Lakeville's newest store at Galaxie and 160th Street,Lakeville's ��81N
northern border with Apple Valley,said Scott Swanson,director of Schools find active kids make smarter students
Apple Valley's three municipal liquor stores.
It's quiet at the Minnesota Valley refuge—too
"There's only so many disposable dollars spent on alcohol in any quiet,in fact
market,"Swanson said."When there are more stores,they divide that South metro school briefs:talaevme
up.People more often go to the closest store."
administrator writes AP stets study guide
Lakeville's loss may be Apple Valley's gain,as its Pilot Knob store South metro police blotter
has seen sales rise to$2.5 million a year. - - -
Eagan's first woman cop built a career of many
firsts
http://www.startribune.com/local/south/148950725.html 5/4/2012
Bizbeat: Lakeville Liquors' sales leads state munis I StarTribune.com Page 2 of 3
Lakeville's third store opened on Galaxie in October 2007,and city Anger marked life of man killed by Apple Valley
profits peaked in 2008 at$1.3 million.In November 2008,Apple police
Valley opened its Pilot Knob store,Swanson said.
He noted that total liquor profits reached$915,000 last year,up about
$140,000 from 2010.But total sales dropped in the same period by nr
�
about$26,000 to just over$9 million.Swanson noted his Pilot Knob
store also benefitted from a new Super Target opening next door.
"We get people to drive farther to Target,then they come and see
us,"he said
Swanson said the sales drop last year all happened at the city's store
at 149th Street and Cedar Avenue,located at the heart of a
reconstruction project for rapid bus transit.Increased sales at the
city's other two stores helped offset about$200,000 in lost sales at •
the Cedar store,he noted.
dx I n
Visnovec said customers diverted by construction also hurt sales at
her Galaxie store,a few blocks east on 160th Street from the Cedar
Avenue work ,
Crafts gain,big domestics lose `1' TransUnion.
Both liquor managers have noticed rising craft and microbrewery beer "DV 11SEMENT
sales,mirroring a national trend,while big domestic brewers like
Anheuser Bush and MillerCoors saw sales drop slightly last year.
fan gear
Visnovec said she sends e-mail blasts to Brew Club members when i
new craft beers are arriving.About three weeks ago,for example,
Voodoo Donut Beer arrived in 22-ounce bottles."It tastes like maple
syrup and bacon,"she said.The 48 hot-pink bottles were sold out •within two hours. ,° �`
In March,beer fans followed a craft beer truck to a Lakeville liquor Get your Twins
store to buy Bell's Hopslam beer,made in Kalamazoo,Mich,she gear right herei
said.Within a day,all 108 six-packs were gone. Shop Now
Swanson noted that craft brewers produce limited quantities and
restrict how much each liquor store can obtain.He said he has added digital
a larger selection of craft beers in his big Pilot Knob store. access))
"It is a huge change in what people are looking for.They are tired of
the same old thing,"Swanson said."There's amazing growth in the __ a,
craft beer segment." ' t's5'F
Jim Adams•952-746-3283
Sign up for
unlimited digital
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http://www.startribune.com/local/south/148950725.html 5/4/2012
Savage fights to restore liquor profits I StarTribune.com Page 1 of 3
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Savage fights to restore liquor profits Fe im g�m��synthetic drug
Article by:DAVID PETERSON,Star Tribune I Updated:May 5,2012-9:513 PM More expensive homes with new Minnesota building
code?
Faced with competition,it's stepping up marketing. Tams no bargain,but tickets are
1 r
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Bomb!
Fighting back against a plunge in profits,Savage is preparing to more from south metro r�}1�'
shake up tts municipal liquor operation-and market Itself more
aggressively. Lakevile developers to gain e v J
The most we've ever spent In previous years on marketing and lower park rem qc c en/1/(111
advertising is$5,000 to$8,000,and that's nothing in the real retail Minneapolis man tries to
world,City Administrator Bally Stock told council members.'We've mug undercover Eagan cop
lived the luxury of not having much competition.°
Now,competition has arrived,in the form of big-box stores and other vendor hawks dogs,
rivals,and profits have sunk. spreads smiles at ballpark ADVERTISEMENT
Sales at the city's two booze outlets peaked in 2008 at$824 million
and have fallen since-along with profits,which peaked In 2007 at mast read most smelled most commented
nearly$550,000.The low point for profits was$155,317 in 2010.
Although 2011 saw an uptick,to$177,197,that figure Is still,a city -
analysis confesses,°a fraction of what was generated in 2007.° Minneapolis man alas to mug undercover Eagan
cop
And that has consequences.The city has relied on proceeds to schools find active rods make smarter students
support major civic improvements,including an environmental
teaming center and Its library building.As recently as last year it was Its quart acme Minnesota Valley refuge-too
suggesting that liquor money could be a fallback in case a planned quiet,in fact
sports dome falters financially.
Inver grove Heights turkey hunter dies In
So costs are being cut amid lots of thought about jarder attempts to hiowdOwn
pull customers In the door. Casper's back In business following fim
A priority,officials say,is getting out the word that municipal liquor is Biz beat Car club coming to Eagan;Buck MU Is
not always more expensive. hopping
Some competitors have done a good job marketing themselves as Apple Valley,Richfield net money fortmnsa
discount liquor and they're not,"operations director Pete Matthias told corridors
council members.I'm learning a lesson there.° Savage lights to restore liquor profits
A price comparison carried out by the municipal liquor staff in
Lakeville found,according to an internal analysis prepared for the
Savage council,that Savage's prices°are competitive,particularly
1pe Adaxka.l>
when it comes to beer"-something Savage's online customer survey
found is not well known.
The analysis does conclude,however,that there are substantive as
well as perception issues: By being attentive to pricing,driving home c CHEVROLET '
the community-commitment message and providing an overall better
customer experience,Savage Liquors can capture a bigger share of
the market" .���
City officials are not sure what to do about that°community- I' d
commitment message°-the notion that a°muni,°unlike the private iL40
sector,turns over all of its profits to civic betterment
Some are convinced it ought to be a major pitch,especially 3k -
considering some residents don't even know the liquor stores are city- A+
owned. We ought to put out a press release about the profits going MEET THE TEAM
to the community,"said Council Member Gene Abbott.
ADVERTISEMENT
But others are wary,warning that in today's political environment that
Is not always something to stress.In fact,Matthles has strived to fan gear))
create stores that don't come off as city-owned but as robust retailers
much like others.
http://www.startribune.com/local/south/150318505.htm1 5/7/2012
Savage fights to restore liquor profits j StarTribune.com Page 2 of 3
With Matthies retiring,the city is not interested In promoting from
41,
within.It is seeking an outsider with a canny eye toward promotional
magic,in particular the use of social media to generate buzz.
The city Is also turning a cool eye on costs.Officials note for instance
that Savage Is the only city with just two stores to have a person with der your Twins gear
Matthies'title and status.As he throttles back his involvement,a right here!Shop
replacement will take a humbler role. Now
Saving nearly$80,000 in the short term,the city is expected to shift digital access))
from a civil-service grade 14'liquor operations director'and grade-10
"assistant liquor operations director°to a grade-11'facility managers
and grade-8°store manager.°There have also been outright arts in 6
staff over the past two years.
Just how much to pep up the sales pitch remains to be seen over the Sign up for unlimited
coming months as the new person comes aboard,but the mayor and digital access
council members signalled some unease over the prospect'We don't steals A
have to go whiz-bang and real flashy,"said Mayor Janet Williams. (may:13
'Lets focus on targeting the new people in town." C.I�:G!!7
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http://www.startribune.com/local/south/150318505.html 5/7/2012