Municipal liquor stores reported a 27th consecutive year of record-breaking sales in 2022, but increased operating costs drove down net profits, according to a State Auditor’s report.
Municipal liquor stores saw a net profit of $27.3 million on $432.2 million in sales in 2022, a decrease of $9.4 million or 25.6% from 2021 earnings. However, total sales generated increased by $8 million or 1.9% over 2021.
“2022 was a bit of a challenging year, honestly, because we were coming off the pandemic,” Candice Woods, Liquor Hutch director of operations said. “It was difficult to know where the sales were going to fall. We had such inflated numbers during the pandemic. It was hard to anticipate what the sales were going to be.”
In 2022, 176 Minnesota cities operated 211 municipal liquor stores. Among them, 83 cities managed both on-sale and off-sale liquor establishments, while 93 cities restricted their municipally owned establishments to off-sale liquor stores.
Litchfield Liquor manager Angela Decker was unavailable for comment.
Hutchinson saw $7.3 million in sales, moving to 11th in the state. Litchfield was at No. 43 with sales of $3.1 million. Glencoe was at No. 52 with $2.45 million.
“We’re (Hutch Liquor) the highest volume single location store among the municipals,” Woods said. “So like Alexandria, they have one (store) out on the highway and they have one (store) downtown. Detroit Lakes, one out on the highway, one downtown. They’re capturing both kinds of traffic.”
During 2022, Minnesota’s municipal liquor operations reported operating expenses totaling $98.1 million. This was $11.5 million, or 13.3%, more than the previous year.
Liquor Hutch had significant projects in 2022 due to the construction of the new police station such as modifying the parking lot, adding a separate wall due to the connection with the grocery store and landscaping.
“All of those expenses went into our 2022 expenses,” Woods said. “It makes our net profit look low when in fact, we made enough that we transferred the $550,000 .... It’s very deceiving in how it’s laid out, but that’s the major expense there. That makes us look like we have less profit.”
When accounting for net profit as a percentage of sales, Litchfield was No. 25 with 11%, Glencoe was No. 39 with 9.8% and Hutchinson was No.82 with 6.2%.
According to Woods, it’s challenging to make direct comparisons because cities might not use the same accounting methods. Each city has the flexibility to structure its accounting systems in a way that suits its needs, resulting in variations in how expenses, such as freight costs, are accounted for.
“It’s not apples to apples,” she said.
Hutchinson includes freight expenses for the products they bring into the store as part of their cost of goods, Woods said. This makes gross profit appear lower. However, she acknowledged that other stores might handle this differently. Some might treat freight expense as a separate expense, not factoring it into gross profit margin but considering it later in the net profit calculation.
“It’s accounting systems,” Woods said “We just don’t all do it the same way. All of the people that manage these stores understand that when you look at this report.”
Profits generated by municipal liquor operations fulfill two purposes. First, these profits are used to maintain sufficient reserves for purchasing inventory and sustaining operational facilities. Second, any additional profit can be transferred to other city funds to supplement existing revenue sources.
During 2022, Minnesota’s municipal liquor stores made net transfers of $22.9 million, a decrease of 0.7% in 2021. Net transfers totaled $8 million among metro area establishments, compared to $14.9 million for Greater Minnesota establishments.
In Hutchinson, $550,000 was transferred to the city from Liquor Hutch, while $354,412 was transferred to Litchfield from Litchfield Municipal Liquor, and $220,000 was transferred to Glencoe from Glencoe Wine and Spirits.
State law requires cities whose liquor operations show a net loss at least two of the past three years to hold a public hearing to determine whether to continue liquor operations. Thirty-one Minnesota cities reported net losses for 2022, 18 more than 2021. Twenty-even of the 31 cities with losses were in Greater Minnesota. Buffalo Lake reported a net loss of $1,515 and was required to hold a public hearing in 2023.
Among individual liquor operations in business for all of 2022, total sales ranged from $98,753 in Hanska to $21.9 million in Lakeville.
