November 15, 2013

Four companies bid for Maine liquor contract

Maine Beverage Co., which holds the current $125 million contract, did not submit a bid.

By Jessica Hall jhall@pressherald.com
Staff Writer

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.

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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.

(Continued on page 2)

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