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Utah state liquor stores really profitable, consultant says

Published: Tuesday, Dec. 13 2011 4:18 p.m. MST

SALT LAKE CITY — Utah certainly earns plenty from the amount of alcohol it sells.

Last year, the Beehive State raked in nearly $69 million in profit from liquor sales at its state-run liquor outlets. The profit margin of 27 percent was exponentially higher than the typical 1.3 percent profit other retail liquor outlets made, a report stated.

"It's a $300 million a year business that throws off enough profit to pay for all of Workforce Services or all the elected officials in the state, including the governor and the Legislature," said Bob Springmeyer, president of Bonneville Research.

The Salt Lake-based consulting firm was commissioned to conduct a comprehensive study for the purpose of developing an enhanced, long-term business plan for the Department of Alcoholic Beverage Control on liquor sales.

Springmeyer presented the results of study to the DABC commission on Tuesday. How the commission will use the information is still to be determined. 

The DABC has been the subject of legislative audits. The most recent found the agency had been "incompetently managed" and accused the former executive director of committing a felony by doing business with a company owned by his son.

The allegation is under investigation by the Utah Attorney General's Office. Currently, the head of the Department of Commerce is temporarily running the agency.

Among the chief findings from the study was that the DABC "should be run like a retail operation," he explained.

The stores should be located in commercial areas that are convenient to the public, such as existing retail sites like strip malls or shopping centers with grocery stores, he said.

"Follow the Wendy's model, letting McDonald's pay all the money for the site location research, then locate accordingly," he commented. The study also recommended that the agency hire a director who has extensive retail experience.

The state operates 42 full-service retail stores open to the public, and two club stores that only service licensees. In addition, there are 67 independently owned and operated package agencies — small retail liquor outlets operated by privately under contract with the department.

"This is an exceptionally profitable business for the state — almost $70 million," he said. "They should be much more profitable."

He said the DABC stores could increase their profit margin up to the 30 percent to 35 percent range by improving efficiency in their operations. The report recommended the consolidation of stores in Murray and South Salt Lake, and the Avenues and downtown wine stores in addition to converting three stores into package agencies — the Avenues and two in Park City.

Springmeyer said several existing stores could be re-evaluated and possibly relocated to more appropriate commercial areas that would increase their visibility and potential profitability.

Another suggestion was to develop a franchise-type agreement for existing and future package agencies to include territorial protections, payment terms, compliance and performance standards.

Springmeyer said there are some areas around the state that are currently underserved that could present more opportunities for the DABC to establish additional retail liquor stores. However, there may be a few areas that are over-served as well, he said.

"We probably need a few more stores that could better serve the population, but we could locate those stores more efficiently in commercial areas," he said. 

E-mail: jlee@desnews.com

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