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HomeMy WebLinkAbout2025.05.27 CCM WORK5/27/25 -1- MINUTES OF THE PROCEEDINGS OF THE CITY COUNCIL/ECONOMIC DEVELOPMENT AUTHORITY OF THE CITY OF BROOKLYN CENTER IN THE COUNTY OF HENNEPIN AND THE STATE OF MINNESOTA WORK SESSION MAY 27, 2025 CITY HALL – COUNCIL CHAMBERS CALL TO ORDER The Brooklyn Center City Council/Economic Development Authority (EDA) met in Work Session called to order by Mayor/President April Graves at 8:27 p.m. ROLL CALL Mayor/President April Graves and Councilmembers/Commissioners Dan Jerzak, Teneshia Kragness, and Laurie Ann Moore. Also present were City Manager Reggie Edwards, Finance Director Angela Holm, Liquor Operations Manager Greg “Woody” Keehr, City Attorney Siobhan Tolar, and Interim City Clerk Shannon Pettit. Councilmember/Commissioner Kris Lawrence-Anderson was excused. ACTIVE DISCUSSION ITEMS LIQUOR STORE OPERATIONS, STORE #2 City Manager Reggie Edwards introduced the item and invited Finance Director Angela Holm and Liquor Operations Manager Greg “Woody” Keehr to continue the Staff presentation. Finance Director Angela Holm explained the purpose of the presentation is to provide additional information to the Council/EDA about liquor operations. The desired outcome is to obtain guidance from the Council/EDA on continued liquor operations. Ms. Holm pointed out that shifts in social and economic conditions during 2020 and 2021 impacted the stores’ long-standing customer base. Construction of the new store in Shingle Creek Crossing in 2019 led to higher expenses at a time when profit margins were lower than expected due to depreciation and bond payments. Liquor Operations Manager Greg “Woody” Keehr showed a graph with historical sales data operation including the sales, cost of goods, and gross profit. In 2017, the sales were around $6.4 million. Sales decreased in 2020 due to COVID-19 and civil unrest but increased again in 2022. They refocused their marketing and discount programming to increase profits. 5/27/25 -2- Mr. Keehr showed the historical sales data for Store #1. He pointed out that Walmart left Brooklyn Center in 2023, which impacted their sales. The annual sales are just under $2.5 million. The profit margins are improving due to improved purchasing strategies. He also showed the sales data for Store #2. There has been good growth from $1.7 million in 2017 to just under $2.5 million in 2024. They have been able to get better pricing due to chain purchasing with the two stores. Mr. Keehr showed a map of Store #2 and its competition. There are more than ten liquor stores within driving distance of Brooklyn Center. Liquor purchasing follows the gravity flow model, which means people will shop in the most convenient location to their current position. Store #1 would retain a small percentage of customers currently shopping at Store #2 if it were to close. Mr. Keehr explained that Liquor Stores started with six full-time roles in 2017. In 2023 and 2024, there were up to eight full-time employees. In 2025, there are six full-time roles. He pointed out he took on the operations role and eliminated that position. They are currently down an assistant manager. Mr. Keehr showed a graph depicting staffing cost reduction since 2020 for each of the stores. When the extra full-time positions were hired, it doesn’t appear the part-time folks had decreased hours. Once he started working with the City, he was able to decrease part-time hours and decrease staffing costs. Plus, the full-time employees offer more consistency and are more committed to the purpose of the stores. Mr. Keehr explained that the management and full-time roles have had expectations set to allow more experience on the floor. The reduction in overall part-time hours has resulted in cost savings of over $32,000. They have reduced the hours at Store #2 because they were losing money during the first two hours during weekdays. The goal for staffing is to use full-time employees for a majority of hourly coverage and then use part-time staff to cover the gaps. Mr. Keehr noted they are prioritizing focused purchasing and focused pricing. They offer purchase deals on the top 30 or more selling products. There is increased profit through lower costs. There is cyclical sale pricing on products to maximize sales and the competitive pricing on products increases the repeat customer base. Chain buying for two locations allows them to save money between the stores. Mr. Keehr added as for focused pricing, he hopes to maximize profit through a set pricing structure. The consistent evaluation of pricing will maintain the gross profit margin. They will also create store sale pricing to be competitive with both local stores and larger chains. They will advertise in windows and on displays to show savings. Mayor/President Graves asked if there is a benefit to the member program. Mr. Keehr explained the member program is a drain on the computers and requires internet access. Plus, the stores were sitting on liability while waiting to see if customers would spend their points. As an alternative, they have Mellow Mondays which offers ten percent off THC products on Mondays, and Wine Wednesdays. Tuesday is Senior Day. It is attractive for customers to get immediate savings rather than earning points for future savings. 5/27/25 -3- Mr. Keehr showed examples of products that have been subject to focused purchasing markdowns. For Cuervo Tequila Liters, one case costs $221.90 at $18.50 per bottle. With a 28 percent margin, they can sell it for $25.99. That price is extremely inflated for the area. Purchasing through a small deal costs $187.24 at $15.61 per bottle. With a 28 percent margin, they can sell it for $21.99. When they utilize a chain deal cost, costs $162.00 at $13.50 per bottle. With a 32 percent margin, they can sell it for $19.99. The profit is higher for them and the cost is lower than competitors. Staff is trained to explain a liter of tequila is a better deal than the smaller bottle. They implement a similar strategy for E&J Brandy 1.75 and Remy Martin VSOP 750, which is a high-quality item. Mr. Keehr reiterated the proposed pathway to profitability is to maximize profit through a set pricing structure, create in-store sale pricing, and daily category sales. He showed three tables with profit margin percentages for liquor, wine, and beer based on product size. Mr. Keehr explained another way to increase profitability is to create a monthly recap of sales. He prepares a detailed report to both the City Manager and Finance Director. He showed an example of the table he prepares each month. Ms. Holm pointed out that the total net change for future years is shown to be positive. Staffing adjustments were added to the previous estimates. The full-time employees are committed to the cause and are prepared to do the work. Councilmember/Commissioner Kragness thanked Staff for the presentation and noted the numbers look better. She suggested Thirsty Thursdays be another special day. Councilmember/Commissioner Jerzak asked if a lease has been negotiated and if the necessary building improvements are included. He added the presentation didn’t include any information on shrinkage. Ultimately, he wouldn’t invest in the business from the perspective of an investor. Ms. Holm explained they are in the middle of lease negotiations. The terms are seemingly favorable. They have been waiting to receive guidance from the Council/EDA regarding the future of the stores before finalizing a lease. The landlord wants a ten-year lease. The City Attorney is assisting Staff in the negotiations. Councilmember/Commissioner Jerzak pointed out cannabis will be another competition source. Also, the lease is likely to require fixing up. Mr. Keehr stated the lease may require new HVAC units, updated flooring, and painting. They already have new signage coming in. The counter was recently re-wrapped as well. There are five HVAC units to consider, and the City will continue maintenance of the units should the lease continue. Councilmember/Commissioner Jerzak noted Councilmember/Commissioner Lawrence-Anderson has previously indicated her preference to close Liquor Store #2, and he agrees. Mr. Keehr reiterated that he would have less buying power if he couldn’t do chain purchasing. Councilmember/Commissioner Jerzak stated closing the store would save them money. Mr. Keehr stated closing one store impacts the profitability of the other store. With the current numbers, 5/27/25 -4- turning a profit is more likely with two stores. He has previously worked with Richfield and Edina municipal stores, and they each had a location that didn’t make a profit. However, they kept the stores because of the purchasing power and convenience for customers. Also, closing the store will cause people to lose their jobs. Councilmember/Commissioner Jerzak acknowledged Mr. Keehr’s passion and support of his employees, but the Council must also think about the taxpayers. Dr. Edwards pointed out the taxpayers have not paid anything to the liquor stores. Instead, there is a spenddown from the reserves. The projections show that both stores will make money in 2026 which would generate money for the enterprise. Councilmember/Commissioner Moore stated she is not in favor of a ten-year lease. If Brooklyn Center opened up the opportunity for small businesses to sell liquor, then they would be supporting entrepreneurs. Robbinsdale had municipal liquor stores for several years and had to close. Other types of businesses need to be less restrictive in Brooklyn Center. She thanked Staff for the presentation and the more favorable numbers. She noted her appreciation of their effort and concern for current employees. Mayor/President Graves noted the initial opening of the stores was contentious. One location was supposed to host another small business as well. Even despite COVID-19 and civil unrest complications, one store is continuing to turn a profit. Ultimately, she supports Staff’s recommendations and trusts in their professional experience. Dr. Edwards added the lease has to return to the Council for review. Councilmember/Commissioner Jerzak noted the lease expires on June 30, 2025, so it needs to be addressed quickly. Ms. Holm explained leasing is the best option for Brooklyn Center. They have been aggressively negotiating with the landlord in recent weeks. Councilmember/Commissioner Kragness asked what the term of the current lease is. Ms. Holm stated the term was for one year because they were considering the purchase of a building. The rent would have gone up significantly if it were to extend past one year. The landlord approached the City early in 2025 and said he wouldn’t increase the rent if Brooklyn Center entered into a long-term agreement with them. The landlord has been responsive and is aware that the City is a good tenant. Mr. Keehr explained the pros and cons of entering into a 10-year lease. Councilmember/Commissioner Jerzak asked what had changed since the last presentation, because they previously said Store #1 would be instantly profitable should the other store close. Ms. Holm stated nothing has changed with Store #1. It has been consistently profitable and has to make enough to cover the other location. The adjustments in staffing change the numbers to allow both locations to be profitable. 5/27/25 -5- Councilmember/Commissioner Jerzak asked what caused Staff to seek out input from the Council. Ms. Holm stated the auditor looks at the fund in totality. ADJOURNMENT Mayor/President Graves moved and Councilmember/Commissioner Kragness seconded adjournment of the City Council/Economic Development Authority Work Session at 9:05 p.m. Motion passed unanimously.