Maine official wants to cut liquor prices to improve sales

Gerry Reid, at left, the director of the Maine Bureau of Alcoholic Beverages and Lottery Operations, gestures during a hearing before the Legislature's Legal and Veterans Affairs Committtee Monday. Reid was explaining details of a plan to rebid a contract for the state's wholesale liquor business. He said Monday that Maine was losing about $30 million a year in alcohol sales to New Hampshire.
Scott Thistle | Sun Journal
Gerry Reid, at left, the director of the Maine Bureau of Alcoholic Beverages and Lottery Operations, gestures during a hearing before the Legislature's Legal and Veterans Affairs Committtee Monday. Reid was explaining details of a plan to rebid a contract for the state's wholesale liquor business. He said Monday that Maine was losing about $30 million a year in alcohol sales to New Hampshire.
By Scott Thistle, Sun Journal
Posted Jan. 28, 2013, at 5:32 p.m.

AUGUSTA, Maine — Those in the business of selling liquor in Maine may be missing out on as many as 200,000 cases, or $30 million worth, of hard alcohol sales a year.

That’s how much liquor is being consumed in Maine but being purchased somewhere else — mostly New Hampshire, according to Gerry Reid, director of Maine’s Bureau of Alcoholic Beverages and Lottery Operations.

On Monday, Reid briefed lawmakers on the Legislature’s Veterans and Legal Affairs Committee on a proposal that would, if it works, cut that figure in half.

“If people consume our products in Maine, we want them to purchase them in Maine,” Reid said. “It’s as simple as that logic.”

And the way Maine captures back some of that business is equally simply, he said — lower liquor prices by as much as $4 a bottle on some of the most popular brands.

“It is a substantial opportunity to claw back value for our citizens,” Reid said.

He said he made a conservative estimate that the state could gain back about 100,000 cases in sales with the changes. That result also would mean more sales and alcohol excise tax revenue for the state.

But that idea is only a small part of a proposal by the administration of Gov. Paul LePage that would rework the way Maine runs its wholesale liquor business and ultimately could yield up to $35 million a year in new revenue for the state’s general fund coffers.

Maine and New Hampshire are two of only 18 states nationwide that control the price and importation of hard liquor. Maine sells liquor through licensed vendors, which take a share of the profits, at state agency liquor stores.

Maine is in the last year of a 10-year contract with a third-party vendor that leases the wholesale distribution of alcohol. The deal, struck under the administration of former Gov. John Baldacci, was done to close a state budget shortfall. In essence, the state leased away its liquor business in 2004 for about $125 million in cash that was made in three payments.

Reid told lawmakers Monday that 2011 figures show the cost of distribution is only $7 million but the vendor took in more than $36 million in revenue.

Reid and LePage want to change state law and allow Maine to put the business out to competitive bid in hopes of recapturing most of that profit.

The proposal not only would lower the price of popular liquor brands such as Jack Daniels and Captain Morgan, it would provide larger profits for state agency liquor stores. Reid said their margins are far below industry standards.

Reid also attempted to allay fears that cheaper booze would lead to greater alcohol abuse, noting that the price reductions only would be on the largest bottles of liquor, those from 750 milliliters up to 1.75 liters.

“We would not make any price reductions on small sizes,” Reid said. “We also would not reduce price one penny on value products.”

Reid used the example of Orloff vodka.

“It’s a very, very big product in the state of Maine. It’s a relatively low-priced product,” Reid said. “We see no strategic need to reduce the price of that any more. It’s already a great value to the consumer.”

Only about 500 of the 2,800 products offered in Maine would see price reductions, he said.

“Which I think should give you some confidence this is quite selective,” Reid said.

Alcohol consumption rates nationwide are fairly consistent despite varying price ranges for products and growth in per-capita consumption, Reid said.

“It suggests, while it doesn’t prove, that price per ounce or price per serving is not a big driver of internal consumption within a state,” he said.

The contract in place doesn’t expire until June 2014, but several changes to state law are necessary in order to allow the state to put out for bid the portion of the work it wants to replace under a new contract.

Reid told lawmakers that work needs to be done this session. While Reid did not suggest what the state would do with the new revenue Monday, LePage has proposed that some of the money be used to help finance bonds that would pay off the state’s $186 million debt to its hospitals.

Committee lawmakers had several comments and questions for Reid on Monday.

One from Sen. John Patrick, D-Rumford, focused on whether the state might be able to get the same amount of money it’s looking for from the contract “up front.”

“With the same type of contract we have right now?” Patrick asked.

Reid said the proposal before lawmakers does that.

“It gives us everything we have without paying as much for it,” Reid said. “What it doesn’t do is what I call the private sector loan, which it doesn’t deliberately because that is always costly.”

Reid said the way the state maximizes the value of the enterprise is to rebid it in a way that allows private interface but not private financing.

Others also questioned whether Maine is doing enough to enforce its current liquor laws.

Rep. Diane Russell, D-Portland, said a supplemental budget proposal from LePage leaves vacant a liquor enforcement agent opening and that part of the losses in sales to New Hampshire might be recaptured with better enforcement.

Reid said lowering prices would be key to keeping consumers in Maine for liquor purchases.

After the hearing, Rep. Mike Beaulieu, R-Auburn, said he was hopeful Maine could do better than Reid’s conservative estimates regarding recapturing New Hampshire sales.

“It’s an interesting proposal but I would like to think we could do better than recover just 100,000 cases in sales,” Beaulieu said. He also said he agrees with some of his colleagues that they need to take a look at the value of enforcement.

“We’ve talked about boots on the ground in order to prevent some of these businesses from buying from New Hampshire if you were able to double check or at least check more often,” Beaulieu said.

 

https://bangordailynews.com/2013/01/28/news/state/maine-official-wants-to-cut-liquor-prices-to-improve-sales/ printed on April 18, 2014