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State Liquor Commissioner Joseph Mollica poses in an aisle of the state's $20 million liquor warehouse in Bow on Tuesday. (DAVID LANE/UNION LEADER)

Mike Cote's Business Editor's Notebook: State liquor commission's expansion plan is paying off

THOUSANDS OF cases of wine and spirits are stacked to dizzying heights at the giant warehouse on Route 3A in Bow that Exel operates for the New Hampshire Liquor Commission.

Familiar brands printed on cardboard cartons hint at their popularity by the number of boxes piled 40 feet high on wooden pallets awaiting shipment. It's where Captain Morgan meets Kendall-Jackson.

Many of those cases will be purchased by tourists and cross-border consumers stopping at one of the 79 New Hampshire Liquor & Wine Outlets, whose reach beyond the Granite State has helped the stores grow by 20 percent over the past five years. The rapid clip of store construction overseen by NHLC Chairman Joseph Mollica during that period has helped extend that reach as the state's liquor business faces new competition.

Last year, the commission built its biggest store - a 33,000-square-foot calling card - in Nashua near the Pheasant Lane Mall on the Massachusetts border. With half of New Hampshire's wine and spirit sales coming from out-of-state shoppers, Mollica knows those customers are the key to growing the Granite State's liquor business to a $1 billion-a-year operation.

Last year, the commission made headway toward that goal, growing sales 5.65 percent and hitting an all-time sales record of $678.4 million. The 244,000-square-foot warehouse with the 40-foot-high shelves, completed in late 2013 at a cost of $20 million, has been helping to drive that growth, Mollica said during an interview at the warehouse last week.

Within two years of the warehouse's completion, the state saved more than $3 million in storage and transportation costs, with wine and spirit brokers saving $4 million due to lower handling fees, the commission reported in January 2016.

Those savings came with expensive consequences: The state paid $2.5 million to settle a legal dispute about the bidding process with former partner Law Warehouse, a Nashua company that lost the contract after 40 years. The liquor commission also spent thousands battling XTL-NH, another bidder on the contract, before a judge ruled in the state's favor last year.

Despite the fallout, Mollica said making the change was an easy decision.

"The product that's out here on the shelves is owned by the brokers, our business partners," Mollica said. "It was important to make sure that in order to get shelf price where we needed it to be competitive, they needed to have the best deals that they could have. Obviously, the state has an interest in them having the best deals because it reflects on our pricing."

Mollica, a former restaurant owner, was appointed to the commission in 2010 by Gov. John Lynch, when the commission was a three-member body. These days, it's a two-person entity, with Mollica overseeing store development and Deputy Commissioner Michael Milligan charged with enforcement and store management, which includes overseeing 400 full-time and 1,000 part-time employees.

Mollica said his hospitality background helps him understand the commission's customers, especially the restaurant and bar owners.

"For 15 years I was a licensee in New Hampshire," he said. "I was a licensee in New Jersey and Massachusetts as well, but they are open states so it's a little bit different than the way it works here."

Mollica also has that restless nature common to entrepreneurs.

"I owned five different restaurants so I always tried to look for a new opportunity, build a business up and then move on to something else," he said. "It's kind of my personality. I don't like to be bored. I like the challenge, starting something new, starting something fresh. And building this brand has been able to help me achieve my personal goal and help the state as well."

New competition

While the warehouse bidding process and the resulting legal battles brought unwanted publicity to the commission, one of the factors driving the change was getting ready to set up shop along the state's southern border.

Massachusetts recently began relaxing limits on liquor store ownership, opening the door to national retailers like Total Wine & More, which has been engaged in a price war with smaller package stores, prompting sanctions by the Mass. Alcoholic Beverages Control Commission. Total responded by suing the state.

"Total sells below cost, and cost is a moving target in the liquor business," Mollica said. "If you buy 100 cases, you pay one price and you're a small package store. If Total buys a 1,000 cases, they pay another price. What really is the shelf price of the product?"

Last year, Total Wine paid a $37,500 fine over similar allegations in Connecticut.

"They're going through the same thing in Massachusetts now. They kind of bring a lot of controversy wherever they go," Mollica said. "Let the stores in Massachusetts fight amongst themselves. People are still coming to our state to buy products, so that's a great thing."

The liquor commission has made sure customers have plenty of places to do that, building stores in new locations, remodeling older ones and in some markets replacing two smaller stores with one larger one, as it did in New Hampton. Last year, the commission upgraded or opened seven stores and has renovated or relocated 26 of them since 2012. New stores are scheduled to open this year in Rochester and Warner, with locations under development in Portsmouth, Dover, West Lebanon and Colebrook.

All that activity was inspired in part by the looming threat of big-box stores arriving in Massachusetts.

"We've been preparing for that for about five years, knowing that they were on their way. And I think because we were prepared, we haven't felt the pain," said Mollica, who added that New Hampshire sales are up about 4.5 percent this year. "In a lot of states where Total Wine comes into, those local retailers don't have the opportunity to get ready. "

Meanwhile, the commission is preparing for growth beyond its liquor and wine outlets, reaching out to send its product to any adult who wants to buy it.

"Part of what we're looking to achieve with our new next-gen point of sale system is to make sure that we have the availability for FedEx or UPS to come here with a fulfillment that would take place here at the warehouse," Mollica said. "And then either a licensee or a personal home could have that product delivered directly to them and enjoy our great prices."

Contact Business Editor Mike Cote at 668-4321, ext. 324.

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