Farmington liquor store profit was up in 2012
Lower rent payments are credited with much of the nearly $174,000 in net profit increase the Farmington Liquor Stores experienced in 2012. Farmington officials hope to see more growth in sales in 2013, too.
Liquor sales were up by nearly $200,000 over 2011's sales, according to city administrator David McKnight.
The jump in sales and profits has the Farmington City Council considering options they didn't necessarily have before -- what to do with the profits. For years, the city has reallocated a portion of the profits into parks and recreation offerings like the outdoor pool, the Schmitz-Maki Ice Arena and the Rambling River Center.
Council members plan to continue doing so. At a workshop Monday, council member Christy Jo Fogarty said being able to tell residents where the funds go is one of her justifications for the city staying in the municipal liquor business.
"I love that it goes to parks and recreation programming," Fogarty said.
Now, McKnight has a plan to get the liquor stores into a more stable financial position, help defray costs for other departments and plan for the future, all at once.
The liquor stores were struggling two years ago. Sales were around $4.285 million, but the net profit was only $17,935 at the end of the year -- just .4 percent of sales. The industry average for net profit was 6.5 percent.
Sales dropped to $4.197 million in 2011, but the city was able to reap a profit of nearly $108,000, thanks, in part to downsizing a store on Pilot Knob Road and renegotiating the rental contract.
The city's downtown liquor store sales and profits jumped in 2012. McKnight credits both a lower rental rate for the store and the increased traffic from Family Fresh Market, which shares the same parking lot.
With all of those factors, 2012 sales hit $4.397 million, and the net profit jumped to $281,542. The increase put the net profit percentage at 6.4 percent.
McKnight worked with finance director Robin Hanson and new liquor operations manager Blair Peterson to set some fundamental goals for the liquor funds, and to come up with a recommendation for the future. The goals are to maintain a gross profit of 25 percent -- which the city was able to do in 2012 -- and to meet the 6.5 percent net profit percentage of sales.
The trio proposed creating four "pots" in the liquor fund. The first pot will be for operations. In 2012, the liquor stores had a cash balance of $260,000, but McKnight would like to increase that cash balance to $300,000 and create some stability in the operating fund first and foremost.
Pot two would be for operational transfers, which would allocate an annual transfer of $50,000 to the general fund. The third pot would mean setting aside some funding for future capital needs or, if sales dictate, someday acquiring land for and constructing a city-owned liquor store.
The fourth pot would be for community transfers -- the funds that go to parks and recreation. Those transfers could also be used to help fund extras for the police or fire departments, under the proposal.
Council members liked the plan presented this week. Peterson will be at the upcoming city council meeting on March 18 to give a full report of last year's activity, and talk more about his plans for the future of Farmington's liquor stores.