Good Spirits

Governments hope lower prices on high-quality liquor will boost tax revenues.
by | January 2003

The holiday party season is winding down, but some government officials would like their constituents to keep right on drinking. And as long as they're imbibing, why not get them to drink the best? Top- shelf liquor. Fine wine. Quality cordials.

For states and cities in the liquor business, a high-class drinker is a more generous contributor to the tax base than one who tosses back cheap booze. That's why places that control liquor sales, such as Iowa and Pennsylvania and towns in Minnesota, are trying to make connoisseurs out of those who swig indiscriminately.

In Minnesota, about 230 cities operate 260 municipal liquor stores, with annual sales ranging from $100,000 to $9 million. Government-run stores typically have a reputation for poor service and high prices. Now, however, with budget issues at the top of public agendas, many municipal operators have decided to renovate stores and find ways to increase liquor sales. They're getting savvy about marketing. They're setting up shops so traffic flow improves sales. They're holding wine and cordial tastings to bring in customers.

Paul Kaspszak, executive director of the Minnesota Municipal Beverage Association, is careful to point out that those who run the stores are not pushing people to overindulge. Rather, they are trying to get people who drink to shop at city-owned establishments rather than private ones in neighboring communities and to thirst for high-quality liquors and wines. "For the most part," he says, "everyone's becoming more marketing conscious--not to get people to drink more but to drink better."

Minnesota cities have a choice in deciding what role they want their municipally owned liquor store to play in the community, he adds. They can exist to control alcohol, employ a few people and make a few dollars. Or, if the water tower is falling over and the streets are buckling, they can go aggressively after liquor sales for the revenue. "Most are somewhere in between," he says.

It's important for citizen-drinkers to know that municipal liquor sales benefit property owners, says Brenda Visnovec, director of liquor operations for Lakeville, Minnesota. Lakeville takes in about $750,000 a year from liquor sales, much of which has gone to renovating police and fire stations and city hall. The city has had the lowest tax-capacity rate in Dakota County for about 10 years, Visnovec says, in large part due to the liquor operations. "We stress that the No. 1 reason to be in business is control, that it makes the community safe, but profits make it more reasonable to live in," she says.

Iowa's strategy is to get the prices of top-shelf liquors lowered to nudge consumers toward buying the best. The plan is to ask distillers to drop prices on top brands. The state then would reduce its markup by 10 percent. Those two actions should result in more revenues from sales without increasing the amount that people drink, notes Lynn Walding, administrator of the Iowa Alcoholic Beverages Division. Pennsylvania wants to stem the tide of liquor sales lost to border states. The commonwealth has opened new superstores with wide product selection and knowledgeable employees. Part of their job is to make fine wine drinkers out of those with plebeian tastes.

Jonathan Newman, chairman of the Pennsylvania Liquor Control Board, adds that it looks as though the legislature is going to pass a measure to allow the state to open 10 percent of its stores on Sundays, under a two-year pilot program, to compete with Delaware, Maryland and New Jersey, which have stores that stay open on Sundays. "I think there is a sense out there that it was the right time," Newman says. "If the state is going to stay in the business of selling wine and spirits, it should do what it takes to make it consumer friendly and more profitable."

Pennsylvania has 638 stores with 4,000 employees that do $1.2 billion in sales annually, bringing in profits of $300 million a year to commonwealth coffers. Newman believes special events can only improve those numbers.

Last year, a wine festival brought in the likes of Frances Ford Coppola and Mario Andretti, both of whom own wineries, and European winemakers such as Michael Mondavi. Tasters were able to sample numerous wines that sell for $100 to $200 a bottle. "It's that high- end consumer, the wine geek, that Pennsylvania has lost," Newman says. "They buy out of state, or on the Internet. We're trying to win back wine lovers." Last fall, Pennsylvania experienced a spike in retail alcohol sales that Newman hadn't seen before in his three-year tenure. "I believe it's a business in its infancy, and I believe in a socially responsible manner we can bring in more business."

Ellen Perlman
Ellen Perlman | Former columnist |