Thursday, April 24, 2014
Four companies have submitted bids to run all or parts of Maine’s wholesale liquor operations under a 10-year contract that could generate as much as $451 million for the state.
Four companies have submitted bids to run all or parts of the state’s wholesale liquor operations under a 10-year contract.
2012 Press Herald File Photo / Shawn Patrick Ouellette
The current contract holder, Maine Beverage Co., did not bid.
Pine State Trading of Augusta submitted proposals to handle both the administration and trade marketing of the liquor contract. Other firms submitted bids on only part of the contract, according to the state’s Department of Administrative and Financial Services.
All Maine Spirits LLC of Augusta submitted a bid for only the spirits administration, while CDM Communications of Portland and Dirigo Spirit Co. of Cumberland bid for the trade marketing piece of the contract.
Details of the proposals were not immediately available. The state’s Department of Administrative and Financial Services said the proposals are confidential until an award is made by the RFP (request for proposal) review team. After the award selection, the proposals are considered public information and can be released.
With the new contract, Maine is seeking a way to increase the amount of money the state collects from liquor sales, while lowering retail prices to make the state more competitive with New Hampshire’s state-run liquor stores. The state also wanted to pay higher commissions to agency liquor stores.
The contract award is expected to be made this winter or next spring.
In September, the state sold a $220 million bond that will be repaid with revenues from the liquor contract. The proceeds of the bond offering were used to repay $183.5 million that the state owed to Maine hospitals. Any additional proceeds would fund transportation, clean water projects and the state’s rainy day fund.
Maine Beverage did not submit a bid, according to a list of bidders released by the state. The company could not be immediately reached for comment, but previously indicated it would not be interested in the new contract under the way it was structured.
The new liquor contract will replace the state’s 10-year deal with Maine Beverage, which will expire in mid-2014. The contract with Maine Beverage was awarded by the state at a time of fiscal crisis, when it needed help closing a $1.2 billion budget deficit.
Maine Beverage got the 10-year contract in exchange for an upfront payment of $125 million. The contract guaranteed a gross profit of 36.8 percent of annual sales. The fair-market value of the contract was pegged at $378 million in a study done in 2009 by Deloitte & Touche.
From 2004 through 2012, Maine Beverage generated about $339 million in gross profits after state revenue sharing. Its total operating income over that time was $286.5 million, according to historical financial data included in the request for proposals.
Maine Beverage is owned by Martignetti Cos., which owns a liquor operation in New Hampshire, and New York private equity firm Lindsay Goldberg & Bessemer.
In January, Maine Beverage offered the state a guaranteed $320 million to extend its contract without a bid process. That offer was quickly rejected by Gov. Paul LePage, who said the contract was worth more than that.
Under the request for proposals, bidders were invited to submit bids for warehousing and distribution of liquor throughout the state. A separate proposal was sought for marketing and advertising. Bidders were required to pay a $500,000 deposit to the state to apply. Losing bidders will get the money refunded.
The deadline for bid submissions was 2 p.m. Thursday.
The new contract request does not require an upfront payment, besides the bidding deposit, and does not guarantee the winner any gross profit margin. The changes to the structure of the contract were part of efforts by the state to direct more liquor sale proceeds into its coffers instead of the contractor’s.
The four Maine companies bidding on the liquor contract have different backgrounds.
Pine State Trading currently distributes Maine’s liquor in its distinctive yellow and green trucks under an agreement with Maine Beverage Co. It bid for both the administration and logistics of the contract, as well as the marketing aspects.
Meanwhile, All Maine Spirits, formed last year by six Maine residents for the sole purpose of bidding on the liquor contract, bid for just the administration and logistics parts of the contract. Its chairman is Eben Marsh of Scarborough, who served as director of the Maine Bureau of Liquor and Lottery Operations under Gov. Angus King.
All Maine Spirits could not be immediately reached for comment.
For the marketing portion of the contract, there were two bidders.
CDM Communications of Portland is a marketing and advertising agency that works with clients ranging from Oxford Casinos to Dead River Co. to Kennebunck Savings Bank. The company declined to comment.
Meanwhile, Dirigo Spirit is led by Ford Reiche, co-founder and former president of Maine logistics company Safe Handling. That business, a rail-to-truck transportation logistics company that shipped and warehoused 1 billion pounds of products a year for customers including Country Kitchen and Poland Spring., was sold to Savage Services Corp. in 2009.
“This RFP was very well crafted and executed by the state of Maine. They are well on the way to a great and well-deserved outcome for our state. We are very pleased with the proposal which Dirigo Spirit was able to present. And very proud to put have together such a team and set of resources over the past two years. Dirigo Spirit Company is feeling confident,” Reiche said in a statement.
In January, LePage said the state would retain operational control over liquor sales when the current contract expires. Gerald Reid, director of the Bureau of Alcoholic Beverages and Lottery Operations, however, later clarified that the state would only take over administration of the liquor operations if no bids were acceptable.
The language in the liquor contract grew out of debates among legislators about the best way to structure the contract.
LePage’s proposal, L.D. 239, sought to award a 10-year contract for managing the state’s liquor operations, leaving the state to use annual profits to repay a revenue bond that would be used to retire the hospital debt. The competing bill, L.D. 644, proposed by Senate Majority Leader Seth Goodall, D-Richmond, sought to collect an upfront payment of $200 million from the chosen vendor, allowing the state to repay hospitals without borrowing money. In the end, legislators decided that it would be more financially beneficial to Maine to have the bidders submit bids based on their costs of providing services, with excess profits flowing to the state.
Jessica Hall may be reached at 791-6316 or at: