In 2004, Maine privatized its wholesale liquor business, and there has been a debate about the decision ever since.
At the time, three bidders stepped forward. The state chose a company with significant experience in the beverage alcohol industry and with the best credentials to protect taxpayers and consumers.
Since earning the work through a fiercely competitive bidding process, Maine Beverage Co. has worked to grow the state’s asset and to be a good business partner.
As the future of the wholesale liquor business is debated, it’s no surprise that potential competitors are eager to criticize Maine Beverage.
Under Maine Beverage, the profits from the spirits business have grown.
The gross profit from the business in 2005 – the first full year under the management of Maine Beverage – was about $37 million. In 2012, Maine’s liquor business was delivering a gross profit of $53 million. That’s an increase of more than 43 percent.
Maine Beverage employs 150 Maine people through its partnership with Pine State Trading Co. and has demonstrated a commitment to communities, education and charitable organizations throughout the state.
We have placed a premium on customer service and technology, developing the proprietary systems that allow for online ordering and to track more than 2,100 products that are delivered to more than 480 locations statewide at a minimum of twice weekly.
After more than 30 years in the business, I can attest that the necessary logistics, technology and understanding of the careful balance between sales and public safety makes the administration and delivery of spirits, especially in a control state, more complex than other business-to-business enterprises.
The private sector is best suited to manage complex business enterprises. But carving up the logistics, marketing, distribution and warehousing functions of Maine’s spirits business, as LD 239 makes possible, could reverse efficiencies that have been gained in the last 10 years.
Maine’s performance in relation to other peer states has also been mischaracterized.
Information about lost sales to New Hampshire is based on unreliable data. The number we hear is that sales of 200,000 cases are lost each year, yet there is almost no way to scientifically measure this.
In a 1997 newspaper article from The Associated Press seven years before privatization, then Rep. George Kerr criticized the state’s handling of the liquor business, saying it sold 200,000 fewer cases than it had a decade before. One of the reasons: Lost sales to New Hampshire.
Then-director of the Maine Bureau of Alcohol Beverages and Lottery Operations, Eben Marsh, said: Maine “will not be able to go head to head with New Hampshire on all prices. But we can and want to make our prices competitive enough to keep the purchase in Maine.”
It didn’t work then, but that hasn’t stopped a new BABLO director from suggesting the same strategy again.
Further, the growth of New Hampshire’s spirit business is misunderstood.
In order to measure beverage alcohol consumption, the industry tracks sales in gallons. In the last five years, the gallons of spirits sold in New Hampshire have grown 2.5 percent. In that same period, Maine, with fewer tools at its disposal and tighter regulations, has grown at 2.41 percent, according to annual reports.
In the meantime, New Hampshire has undertaken an aggressive strategy to increase volume at the expense of profit.
A Concord Monitor article from Feb. 26 summed up the situation, quoting the chief financial officer for the New Hampshire Liquor Commission: The commission is engaging in “aggressive pricing and marketing efforts,” including reducing its profit margins to attract customers across state lines.
That translates into volumes rising much faster than profits. In 2012, sales were up 3.5 percent, but profits were stagnant with just a 1 percent increase.
Maine simply cannot win a pricing war with New Hampshire, and our top priority should not be to maximize case volumes at the expense of present revenue or public safety.
Instead, we should concentrate on a growth model that maximizes the return for the state and for agency stores while promoting responsible drinking behavior.
A single, private-sector contractor provides the best opportunity to seamlessly transition into the next 10-year contract period, and a profit-sharing structure offers the best means for the state’s wholesale liquor business to continue to provide the greatest return to taxpayers.
Lawmakers in Augusta should focus on getting the best deal for taxpayers, which means minimizing risk and maximizing returns. I believe Maine Beverage is the right partner.
D. Dean Williams is the president & CEO of Maine Beverage Co. He has more than 30 years in the beverage alcohol industry interfacing with state governments. He spent his early years growing up in Cumberland Center.