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January 17, 2013

Gordon Chibroski / Staff Photographer

A Crown Royal display at the Bow Street Market in Freeport. Maine's top liquor official said Wednesday, Jan. 16, 2013 that the state will seek a contractor for wholesale liquor operations that will handle administration, distribution and marketing. That contradicts a plan outlined Tuesday by Gov. Paul Le- Page

Maine liquor chief, LePage differ on state duties

By Jessica Hall
jhall@pressherald.com
Staff Writer

Maine's top liquor official said Wednesday that the state will seek a contractor for wholesale liquor operations that will handle administration, distribution and marketing.

That contradicted a plan outlined Tuesday by Gov. Paul LePage, who said the state plans to take back management of liquor sales and seek a contractor to handle only distribution.

At a news conference in which he announced plans to pay off $186 million in Medicaid debt to Maine hospitals by issuing bonds secured by future liquor sales, LePage said that with the next liquor contract, the state would assume the administrative duties.

He called the decision to turn over the liquor business to a contractor in 2004 for $125 million "an enormously bad decision."

He noted that Maine Beverage Co. now manages the liquor operation from a small office in Augusta with just nine employees.

A news release from the governor Tuesday said "the state will retain operational control over liquor sales starting in the summer of 2014 when the current 10-year private contract expires."

But Gerald Reid, director of the Bureau of Alcoholic Beverages and Lottery Operations, said Wednesday that the state doesn't want to manage the liquor business day to day.

"The language of taking back the management is very misleading," he said. "We want to purchase from the private sector the same services -- order processing, accounts payable, accounts receivable, shipping -- the same as we do today."

What would change is the structure of the contract and how much money the state collects from liquor sales, Reid said.

Under the 10-year contract that took effect in 2004, the state received an up-front payment of $125 million. It also gets a small portion of the revenue.

The state has made $185 million on liquor sales in the last decade, the governor said Tuesday. In 2009, the financial services firm Deloitte & Touche pegged the fair market value of the contract at $378 million.

Pending legislative approval, the state will seek bids in April or May for the next liquor contract, which will be structured without an up-front fee. The state will seek a greater portion of the revenue than it receives now, and will not guarantee a minimum profit margin for the contractor.

Maine Beverage Co., now gets a guaranteed gross profit of 36.8 percent of annual sales.

In any new contract, collecting more revenue from liquor sales is seen as a way for the state to pay off its debt to the hospitals.

If no bids are acceptable, Reid said, the state could take over administration of the liquor operation and hire a firm for only the distribution.

Although the state liquor board could handle the administrative tasks, he said, "We prefer not to take back the management. We prefer to have a private contractor do it."

When asked to clarify the difference between Reid's description of the contract and the governor's comments on Tuesday, LePage's spokeswoman said it was "disingenuous" to say they were contradictory.

Adrienne Bennett said the governor was giving a broad overview of the contract. "We are ensuring that we are getting a better result for the state. ... The governor gave a 10,000-foot view."

When asked to clarify what the duties in the contract would include, Bennett said the request for proposals "is for what Gerry said," referring to Reid's characterization.

In a briefing before the Legislature's Veterans and Legal Affairs Committee on Wednesday, Reid distributed a presentation that said the state would seek bids for a contractor to provide "operations, administration and trade marketing."

Maine Beverage Co., which handles administration, uses a subcontractor, Pine State Trading, to distribute liquor to stores throughout the state.

Maine Beverage Co., owned by Massachusetts-based Martignetti Cos. and the New York private equity firm Lindsay Goldberg & Bessemer, did not respond to requests for comment. The company has said that it would be interested in bidding for the new contract.

Dirigo Spirit Co., formed by the Auburn businessman Ford Reiche, also has expressed interest.

"Dirigo Spirit Company has long been advocating for a revised state liquor contract, one that is more fair to Maine taxpayers, retail and on-premise liquor resellers," Reiche said in a written statement. "A revised contract will generate increased and much needed revenue for the state of Maine that is currently being forfeited under the current contract."

He said, "Dirigo Spirit Company supports a revised contract under which the state would retain the majority of the revenue, while partnering with a Maine-based company to manage logistics and marketing."

In addition to collecting more money from liquor sales, Maine officials hope to lower retail prices to make the state more competitive with New Hampshire. The state also wants to pay higher commissions to agency liquor stores, Reid has said.

 

Staff Writer Jessica Hall can be contacted at 791-6316 or at:

jhall@pressherald.com





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