November 4, 2012

Retailers have much at stake in liquor bidding plan

Payment to Maine sellers has remained stagnant even as their store expenses have increased.

By Jessica Hall jhall@pressherald.com
Staff Writer

Liquor retailers have a lot at stake in the state's plan to solicit bids for the exclusive right to wholesale all of the liquor sold in Maine.

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Adam Nappi, owner of Bow Street Market in Freeport, says retailers and resellers as a group support efforts to close the gap between prices in Maine and New Hampshire.

Gordon Chibroski/Staff Photographer

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Under state law and the present contract, prices are tightly controlled by the state, much of the money flows to the wholesaler, and New Hampshire liquor stores continue to undercut Maine retailers.

In 2004, Maine awarded a 10-year pact for warehousing and distribution of liquor to Maine Beverage Co. in exchange for a $125 million up-front payment and profit sharing. The new contract must be awarded by a June 2013 deadline.

Two potential bidders have emerged so far. Maine Beverage, as well as a new company, Dirigo Spirit, have said they are interested in bidding, but other suitors are expected to emerge.

With the new contract, the state Bureau of Alcoholic Beverages and Lottery Operations is looking for a way to increase the amount of money the state collects from liquor sales, while lowering retail prices by $2 to $7 per bottle to make Maine more competitive with New Hampshire's state-run liquor stores. The state also wants to pay higher commissions to agency liquor stores, said Gerry Reid, the liquor bureau's director.

"We're looking forward to being active and engaged in that process through the Maine Grocers Association. Retailers and resellers are working with the administration. There are responsible ways to drive the business," said Adam Nappi, owner of Bow Street Market in Freeport.

"As a group, the retailers and resellers support the idea of a new competitive landscape. We'd support the redistribution of the value stream," Nappi said, referring to the potential change in the commission structure for retailers and resellers.

The Maine Grocers Association said it submitted a proposal a year ago to increase the "discount rate" or the percentage of funds that go to agency liquor stores. The grocers' group wants to increase to 15, 16 and 18 percent the percentage that goes to agency liquor stores, up from the current levels of 9, 10 and 12 percent, according to Shelley Doak, executive director of the grocers association. The percentage varies by the product sold.

"It's no secret that Reid has expressed support for agency liquor stores. It's an issue that's being considered as part of larger deliberations, but what any increase would be is still being determined," Doak said.

Nappi expressed support for increasing commissions for retailers because payment has been stagnant under the current contract, even as store expenses for insurance, gas and wages have increased. The state dictates what liquor is sold and sets retail prices.

"If our expenses are up 150 percent, we still can't negotiate a better price. You have to try to increase volume," Nappi said.

But even that poses higher costs because increasing volume involves more gas, more traveling and more employees, said Dean Nowell, Bow Street's operations manager.

THE NEW HAMPSHIRE FACTOR

In addition to increasing commissions to agency stores, the state liquor bureau wants to decrease retail prices for consumers in an effort to make Maine more competitive with neighbor New Hampshire. The state of Maine estimates it loses sales of 200,000 to 500,000 cases of liquor annually to New Hampshire, where prices are lower through state-run stores.

"We support (Reid's) thinking on closing the gap on the top-selling items. If they're going to lower the price, it will be less compelling to travel," Nappi said. "It would be great for the partners of the Maine system. We need to close the gap."

Bow Street already boasts a variety of traditional and specialty liquors and wines, as well as local distilleries. The attraction of lower prices could help Bow Street and other retailers compete more effectively against retailers in New Hampshire.

"We expect as we become more competitive, the market will change. It will send the message if you consume it in Maine, buy it in Maine," Nappi said.

"Lowering the price to consumers is something we all support," Doak said. "A lot of these products are less expensive in New Hampshire. How do we educate and build consumer awareness as things change? So many seasonal visitors are coming to the state having done their shopping elsewhere – groceries, liquor, supplies. We need to build awareness that those items are best bought in Maine."

It's difficult to police restaurants and customers who travel to New Hampshire to buy liquor for use in Maine.

Although consumers are allowed to buy small quantities of liquor in New Hampshire for personal use, it's illegal to buy multiple cases and bring them back into Maine. So restaurants and bars can't stock up with cheaper New Hampshire liquor and bring it back to Maine.

Changing the price for consumers won't immediately lead to a surge in Maine liquor sales overnight because it will take time to educate the public of the change.

"You're not going to change perception overnight," Nowell said.

Paula Truman, wine and spirits manager for Bow Street, agreed: "Perception is the monster."

MARKET FORCES, MARKET THINKING

While some opponents of the current state liquor contract have complained that Maine gave away significant revenues in an attempt to fill a budget gap, others in the liquor industry have said privatizing the liquor contract wasn't so bad, in theory. It led to improved distribution and access to online ordering and increased responsiveness to individual stores.

Having a more business-focused mindset has generally helped improve the liquor business overall, Nappi said.

Maine Beverage Co. declined to comment and its distributor, Pine State Trading Co. did not return calls seeking comment.

"Privatizing the spirits business was a big advancement. Private-sector thinking has been better than bureaucratic thinking. Market forces work really well," Nappi said.

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

jhall@mainetoday.com

 

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