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Record sales, lower profit: Liquor store building boom puts pressure on bottom line

New Hampshire Union Leader

September 04. 2018 2:11PM
New New Hampshire Liquor and Wine Outlets — on both sides of Interstate 93 in Hooksett — were part of the redevelopment of the welcome centers. Shown here is the northbound side. (DAVID LANE/UNION LEADER)

NH Liquor Commissioner Joseph Mollica at the state's warehouse in Bow in March 2017. (DAVID LANE/UNION LEADER)

CONCORD — The New Hampshire Liquor Commission is scheduled to break ground today on renovations of its Lancaster outlet, the 30th project in a building spree that started six years ago.

The spacious and modern new liquor and wine outlets have received rave reviews from consumers, but all that construction along with tougher competition from neighboring states is starting to strain the commission’s bottom line.

State liquor stores are raking in record sales but for the past three years have not delivered as much money to the state budget as lawmakers had hoped, prompting some to question the level of spending on the big new stores all over the state.

Since 2012, the NHLC has relocated or renovated 29 of its 79 stores; is currently building new stores in West Lebanon, Dover and at the Portsmouth Traffic Circle; and now launching renovations in Lancaster.

Liquor Commission Chairman Joe Mollica defends the investments as necessary as neighboring Maine and Massachusetts ratchet up the competition through changes in their liquor control laws and more aggressive pricing.

“We experience a significant return on investment from our new stores, which are all experiencing double-digit sales increases with some producing as much as 30 percent sales growth,” Mollica said. “Eight of NHLC’s top 10 performing stores are new facilities. We are looking forward to opening our new 20,000-square-foot store at the Portsmouth Traffic Circle late this year, which will further bolster revenue.”

The sales figures are indeed growing, but the state treasury is not seeing a corresponding increase. NHLC deposits to the state budget actually went down from $141 million in 2017 to $136 million in 2018, and have missed budgeted targets for the past three fiscal years.

“We are charging their profit and loss statement for all these liquor store expansions they’ve been doing, and this is where we come in very vocally as the staffing levels are creeping up,” said state Rep. Tracy Emerick, R-Hampton, vice chair of the House Finance Committee division with NHLC oversight.

“We built these bigger stores. It’s nice, but bigger stores take more people,” Emerick said. “We’ve been cautioning them for the past two budget cycles, saying, ‘You are growing awfully fast. We like the new store look, but your overhead is going to get ahead of you.’”

Record sales, lower profit

Despite achieving record sales for the fiscal year that ended June 30, the liquor commission’s contribution to the state treasury was its smallest in the past four years.

The commission hasn’t met its revenue target in the state budget since 2015. It missed by $3.8 million in 2016 and by $3.1 million in 2017. Combined with the 2018 shortfall, that’s $15 million in revenue over a three-year period that the state did not receive.

“There are management issues and accounting issues,” Emerick said, “but the net effect is the bottom line isn’t growing as much as the top line.”

According to the liquor commission annual reports, net profit declined from $157 million in 2016 to $154 million in 2017, even as gross sales increased from $682 million to $703 million.

Liquor Commission profitability is not just a matter of concern to the state’s bottom line, it’s critical in the battle against opioid addiction, as a portion of the gross profit from NHLC operations goes to the state’s alcohol abuse, prevention and treatment fund.

The commission’s own news releases often tout that fact, stating, “The NHLC plays a crucial role in delivering substantial revenue each year to support critical state programs, including education, health and social services, transportation, natural resource protection and substance use prevention and treatment.”

Which is exactly why lawmakers say they need to have reliable numbers in the state budget, something Mollica says he is anxious to work on as well.

Need for accuracy

“Everything that we try to do is to meet revenue goals. And what we are working on now with the governor in his upcoming budget, as well as the Senate and House, is to make sure that our revenue projections are accurate, and that the numbers represent what the liquor commission is able to produce, rather than a number that may be elevated in a way that we cannot substantiate,” Mollica said.

“Accurate numbers are the most important thing to the governor and senators I speak with and those are the numbers we are trying to produce.”

If budget writers had accepted the revenue estimates first put on the table by the Liquor Commission for 2018, the target would have only been missed by $300,000, not $8 million, according to Mollica.

State Rep. Norm Major, chair of the House Ways and Means Committee, which develops revenue estimates, says many factors go into the projections beyond the agency estimates, including past performance.

“We take their revenue estimates and then we look at what we think the economy is going to be doing and a lot of other factors,” he said. “We may say the economy is going to do better and we may increase their estimates because of that. It’s working together to come up with the best estimate that we can.”

Revenue from business taxes and other sources was so robust in the past two fiscal years that the state is enjoying a substantial budget surplus despite the failure of the liquor commission to hit its numbers. But that situation is not likely to continue.

Law changed

The liquor commission was untethered from most of the legislative oversight that was in place in 2009, when a law was passed giving the NHLC more authority to operate as an independent business.

That change came with a quid pro quo, according to Commerce Committee Chair John Hunt, a veteran Republican lawmaker from Rindge.

“As far as a number of legislators were concerned, it meant, ‘We’ll give you that authority, but we firmly expect you to hit your revenue numbers, and if you don’t there has to be accountability along the way.”

Rep. Major is among those who believes the building boom will pay off eventually, even if revenue projections have to be a bit more realistic for the near future.

“Usually these investments will give you a short-term dip, but in the long term they produce,” he said.

Whether the legislature has the patience for that to play out remains to be seen.

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