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Home My WebLink About1998 01-20 CCP Work Session • AGENDA CITY COUNCIL WORK SESSION JANUARY 20, 1997 7:00 P.M. CONFERENCE ROOM B 1. Discussion of Liquor Store Study A) Recommendations - nature of stores to be operated ( convenience v. shopping) - 69th recommendation would change from neighborhood operation - issue of 2 store on Brooklyn Blvd. based on recommendations - abandonment of 63rd & Brooklyn Blvd. consultant recommendation v. operating experience - investment costs /options • - relationship to temporary siting questions - public comments received both for and against operation of municipal liquor - is there reason/need for public debate of long -term future B Discussion of direction on temporary operation questions - short-term renewal of Northbrook lease (additional year) - temporary re- location of 63rd operations across the Boulevard C) Discussion of direction on long term questions: - pursuit of location on 69th, if economically viable - alternate location of permanent store across street on 63rd - pursuit of a Cub location - future of Humboldt store • 2 Discussion of direction on meeting with Human Rights Commission I Discussion of future work sessions Wading pool task force suggestion (Council Member Peppe) Other Items ` 5. Miscellaneous • I • January 15, 1998 • MEMO TO: Michael J. McCauley, City Manager FROM: Jane A. Chambers, Assistant City Manager/HR Director SUBJECT: Liquor Store Performance Projections for Boulevard Liquor Store Relocation Options Attached, please find the following itemized estimates of costs projected for two options with regard to the Boulevard Liquor Store. One option available is to move the Liquor Store on a temporary basis to a vacant store at Boulevard Shopping Center. The second option for the store is to construct a new building on the South -west corner of Brooklyn Blvd and 63rd on a former gas - station site that is now vacant. The following materials are submitted for your review with regard to these two options. The proforma spread- sheets and loan amortization have been provided by Finance Director Charlie Hansen. Page 2 Estimated Moving and One -time Relocation Costs Page 3 Estimated Leased Store Proforma Page 4 Estimated New Store Proforma Page 5 Estimated New Store Construction Costs Page 6 Schematic showing placement of New Store on Site and Parking Space Page 7 Loan Amortization. Schedule LEASE OPTION: The proposed lease space is the smaller of two currently empty spaces in the shopping center, and is leasable through Kraus Anderson. Estimated one time moving costs to this site are $20,000. Anticipated performance over time of the Liquor Store in this location is shown on page 3, and includes an estimate of the leasing and operations costs. Anticipated lease time at this site is two years. The proforma is based on an estimate of sales 18% above the 1996 sales at the current site, and includes a 3% annual inflation estimate. NEW CONSTRUCTION OPTION: Page 4 attached shows the projected performance of a new store, and includes the cost of loan payments for construction and purchase of land. Page 5 outlines details the estimated construction cost, including land purchase, and assumes a $100,000 reimbursement to the Liquor Fund for the current Fire Station site. Page 6 shows the feasibility of placing the store on the proposed site, and of providing required parking. The mechanism for providing the land purchase an& construction funds could be an internal loan to the Liquor store. A loan amortization schedule is included on page 7,to show a possible repayment schedule. The proforma for a newly constructed store is based upon a 27% increase in sales over the 1996 sales at the current store, and a 3% annual inflation. • cc: Charlie Hansen, Finance Director Sheetl City of Broo � kY n Center • Boulevard Liquor Store Estimated Moving and One-time Relocation Costs Proposed 4000 Square Foot Store Lease New Construction Boulevard Shopping Center Signage $ 3 included in new construction Surveillance Use Existing Equipment $ 500.00 $ 500.00 Mover Expenses $ 2,000.00 $ 2,000.00 Cooler Installation and Purchase $ 13,000.00 Included in new construction Wiring $ 1,000.00 Included in new construction $ 20,000.00 $ 2,500.00 • I Page City f Brooklyn Center Y Y Boulevard Liquor Store Leased Store Proforma • 1997 1998 1999 2000 2001 Budget Budget Budget Budget Budget Operating Revenues 936,000 1,030,000 1,147,000 1,181,410 1,216,852 Cost of Sales ` 70 9,515 780,715 878,719 905,081 932,233 Gross Margin 226,485 249,285 268,281 276,329 284,619 Operating Expenses Salaries & Wages 102,862 112,894 116,281 119,769 123,362 Fringe Benefits 16,541 19,445 20,028 20,629 21,248 Supplies 3,800 3,800 3,914 4,031 4,152 Consulting (audit) 825 840 865 891 918 Telephone 1,500 1,500 1,545 1,591 1,639 Advertising 2,000 4,000 4,120 4,244 4,371 Repair & Maintenance 2,595 2,210 2,276 2,345 2,415 Rent/Relocation 20,000 28,000 28,840 29,705 LOGIS 1,924 1,811 1,865 1,921 1,979 Other Contractual Service 8,075 5,020 5,171 5,326 5,485 • Central Garage Charges 935 571 588 606 624 Insurance 5,385 5,860 6,036 6,217 6,403 Utilities 7,080 9,880 9,000 9,270 9,548 Administrative Services 9,657 8,139 8,383 8,635 8,894 Depreciation 5,580 4,810 5,100 5,100 5,100 Total Operating Expenses 168,759 200,780 213,173 219,415 225,844 Nonoperating Revenues /(Expenses) Other Revenue /(Expense) 1,000 1,000 1,000 1,000 1,000 Interest Expense 0 Nonoperating Totals 1,000 1,000 1,000 1,000 1,000 Net Income 58,726 49,505 56,108 57,915 59,775 Cash Flow Analysis Add back depreciation 5,580 4,810 5,100 5,100 5,100 Deduct loan principal Deduct capital outlay 20,000 5,000 Net Cash Income 64,306 54,315 61,208 43,015 59,875 Page 3 City of Brooklyn Center Boulevard Liquor Store New Store Proforma • 1997 1998 1999 2000 2001 Budget Budget Budget Budget Budget Operating Revenues 936,000 1,030,000 1,240,000 1,277,200 1,315,516 Cost of Sales 709,515 780,715 949,966 978,465 1,007,819 Gross Margin 226,485 249,285 290,034 298,735 307,697 Operating Expenses Salaries & Wages 102,862 112,894 116,281 119,769 123,362 Fringe Benefits 16,541 19,445 20,028 20,629 21,248 Supplies 3,800 3,800 3,914 4,031 4,152 Consulting (audit) 825 840 865 891 918 Telephone 1,500 1,500 1,545 1,591 1,639 Advertising 2,000 4,000 4,120 4,244 4,371 Repair & Maintenance 2,595 2,210 2,276 2,345 2,415 Relocation 2,500 LOGIS 1,924 1,811 1,865 1,921 1,979 Other Contractual Service 8,075 5,020 5,171 5,326 5,485 Central Garage Charges 935 571 588 606 624 Insurance 5,385 5,860 6,036 6,217 6,403 Utilities 7,080 9,880 9,000 9,270 9,548 Administrative Services 9,657 8,139 8,383 8,635 8,894 Depreciation 5,580 4,810 15,600 15,600 15,600 Total Operating Expenses 168,759 183,280 195,673 201,075 206,639 Nonoperating Revenues /(Expenses) Other Revenue /(Expense) 1,000 1,000 1,000 1,000 1,000 Interest Expense 0 33,800 32,955 32,045 Nonoperating Totals 1,000 1,000 - 32,800 - 31,955 - 31,045 Net Income 58,726 67,005 61,561 65,705 70,012 Cash Flow Analysis Add back depreciation 5,580 4,810 15,600 15,600 15,600 Deduct loan principal 13,000 14,000 15,000 Deduct capital outlay 20,000 5,000 • Net Cash Income 64,306 71,815 64,161 47,305 65,612 Page 4 CITY OF BROOKLYN CENTER NEW BOULEVARD LIQUOR STORE CONSTRUCTION COSTS Land Purchase $200,000 Grading, Landscaping, Parking lot 10,000 Construction - 4,000 sq. ft. Building 400,000 Signage, Misc. 10,000 Total Costs $620,000 Reimbursement to Liquor Fund for former site 100,000 Net Cost $520,000 I Page 5 �in ELK RIVER CONCRETE PRODUCTS • 6550 WEDGWOOD ROAD - P.O. BOX 1660 • MAPLE GROVE, MN 55311 -6660 J (612) 545 -PIPE • WATS 800 -557 -PIPE - FAX (612) 545 -8399 �^ UDED PROJECT 7, 064 S� �J 4 "✓ \ 't�+t . "Su) 61- /JP_l - 'A Wi>a DATE /�� B C 5 • J - e 1 1 0Cos� ' oco 3 ra _5 dam. l_ nci7 - 7 I mo • Page 6 �� CITY OF BROOKLYN CENTER i NEW BOULEVARD LIQUOR STORE LOAN AMORTIZATION SCHEDULE INTEREST RATE: 6.50% Beginning Ending Principal Annual Principal Annual Principal Year Year Balance Interest Paid Pavment Balance 1999 1 520,000 33,800 13,000 46,800 507,000 2000 2 507,000 32,955 14,000 46,955 493,000 2001 3 493,000 32,045 15,000 47,045 478,000 2002 4 478,000 31,070 16,000 47,070 462,000 2003 5 462,000 30,030 17,000 47,030 445,000 2004 6 445,000 28,925 19,000 47,925 426,000 2005 7 426,000 27,690 20,000 47,690 406,000 2006 8 406,000 26,390 21,000 47,390 385,000 2007 9 385,000 25,025 22,000 47,025 363,000 2008 10 363,000 23,595 24,000 47,595 339,000 • 2009 11 339,000 22,035 25,000 47,035 314,000 2010 12 314,000 20,410 27,000 47,410 287,000 2011 13 .287,000 18,655 29,000 47,655 258,000 2012 14 258,000 16,770 31,000 47,770 227,000 2013 15 227,000 14,755 32,000 46,755 195,000 2014 16 195,000 12,675 34,000 46,675 161,000 2015 17 161,000 10,465 36,000 46,465 125,000 2016 18 125,000 8,125 39,000 47,125 86,000 2017 19 86,000 5,590 42,000 47,590 44,000 2018 20 44,000 2,860 44,000 46,860 0 423,865 520,000 943,865 Page 7 MEMORANDUM TO: Michael J. McCauley, City Manager - FROM: Charlie Hansen, Finance Director C 14 DATE: December 1, 1997 ` SUBJECT: Liquor Stores Marketing Study Jerry Olson and I have reviewed the marketing study prepared by Grinsted & Associates. The study outlines the options the City has to chose amongst regarding liquor stores. This memo gives my evaluation of the options. Jerry Olson's memo is attached. The study identifies the relocation of the Brooklyn Boulevard store to the north east comer of 69th Avenue and Brooklyn Boulevard as the ideal solution. Jerry and I support this, but want to be sure the magnitude of change this represents is understood. It will require substantial resources to acquire land and build a store. Land acquisition would have to begin immediately and couldn't wait for the long delayed development proposed for the comer. The store would be in direct competition with privately owned liquor stores in Brooklyn Park and would emphasize low prices and high volume. It involves a degree of risk which needs to be understood and supported by the City Council. With or without the 69th Avenue store, the study recommends relocating the Northbrook store. The city would acquire a parcel adjacent to a new Cub Foods store on the site of the current Westbrook. Mall. The biggest problem with this is the uncertainty over when, or even if, Cub will commit to building. Jerry isn't as sure as Grinsted that Northbrook's customers would follow the store to Westbrook. Even with some defections, we would see higher sales due to Brookdale traffic. Westbrook would be the same change in market orientation and risk as at 69th Avenue. The resources to acquire and build the store would also be similar to 69th. The Northbrook lease expires on March 31, 1999. This is a very short window of time in which to make a Westbrook store happen. Waiting to the last minute to renegotiate the lease would leave the City with no leverage to negotiate a good lease. • Grinstead recommends abandoning the 63rd and Brooklyn Boulevard site even if neither Of the two above sites is developed. This would be a major error. Grinsted projects that • 52% of the Boulevard store's customers would switch to Humboldt or Northbrook. This contradicts his own statements made several times in the study that Humboldt and Northbrook are neighborhood convenience stores. Such stores don't attract customers from more than a mile away due to their poor locations. The existing Boulevard store is doing much better than Grinsted predicted. Combined September /October sales are up 26.5 % over the same two months last year. A new store with better exterior visibility and an improved interior would do even better. The existing store is an almost invisible component of the Fire Station. Jerry and I believe that most of the Boulevard's customers would be lost to warehouse liquor stores in neighboring cities if Brooklyn Center doesn't have a presence on the west side. If nothing else can be built, a new store should be built on the fire station site at 63rd. This is a critical time for decisions to be made to enhance the liquor store and allow design of the fire station. Any of the options to be considered needs an evaluation of construction costs and return on investment. Jerry and I are eager to assist in this process any way we can. • MEMORANDUM TO: Charlie Hanson FROM: Jerry Olson DATE: November 24, 1997 SUBJECT: Comments on Grinstead and Associates consulting project I feel G & A's suggestions as a whole have some very good points. Some other areas of a more specific nature show, in my opinion, that they are not totally in tune with Brooklyn Center consumers (ie. Premium wines, micro beers, warm case beer). Also in defense of G & A they didn't have information that #2 has generated a 27 %+ increase in sales per month since Rainbow opened. I feel their estimate of 15.5% was based a great deal on his question to us of how much has sales changed since Rainbow • has opened when he was here! I am also not sure they were aware that a grocery store had closed across the street from #2 in 1995. I know I mentioned the road closure at # 1 for most of 1996. I agree on almost all of their suggestions on the Humboldt store. - I have been trying to give it a "face lift" for the last two years. It has been in need of a paint job for two years, both inside and out. The carpeting is the original from 1985. The sign on the boulevard is also the original and has faded badly. A new face is needed. - As far as adding windows, I have agreed with that since the building was under construction, but I lost all the arguments with the architect at the time. In fact, I lost almost all the arguments with him • at that time. But, I'm not sure we could absorb the cost to do this now, maybe sometime down the road. - I am, and have been in the process of eliminating several different brands and packages in this store along with instructing Jeanie and John to do the same. This will reduce the inventory to some degree. - G&-A's suggestion in regard to Micro Beers was tried back in 1995 and 1996. I devoted even a larger area than they are recommending, but I eventually closed almost all of it out because of lack of sales. In regard to not carrying cold case beer, I'm afraid we would lose a significant number of customer if we tried this, customers want cold beer. The percent of case sales is too high according to records! We are trying more and more premium wines at this time and have been since early summer. Sales have shown some improvement at the . Boulevard store and some at the Northbrook store, but very little at the Humboldt store. I feel the increase at Boulevard is mainly because we are attracting a different clientele there since Rainbow opened. I believe G&A ideas on advertising have merit. I have already increased my advertising budget for 1998, but I did not increase it to the 1% of sales as they suggest. Point to ponder! With the information available to me to date regarding that a location would be available at 69th and Brooklyn Boulevard in approximately Spring to early Summer 1999, it is possible an arrangement could be worked out that would be advantageous to the liquor operation. • It would be more cost effective if we would delay demolition of the present store on Brooklvn Boulevard ( #2) until the 69th location is complete. This means we wouldn't lose all of the late 1998 (Thanksgiving, Christmas, New Years) sales. This would also mean that we could use that time to observe what effect Rainbow is having on the Northbrook store. During the same time frame, if the CUB location becomes available we would be able to relocate #3, providing we can get a decent site. Summarv: I feel G&A suggestions and recommendations have some good points and some not so good. Their last suggestion that if neither of the two new locations become available we still vacate the existing Boulevard store is completely unacceptable. The other two stores will not pick up the sales and profits from this location (and we will lose most of the $75,000+ per year that will be generated by the Boulevard store). Not enough of these customers are going to travel to the other two stores. I strongly feel that the present location should not be abandoned unless the 69th and the CUB scenario are attained. I did not comment on the policies and controls such as pricing because I have always done what they are recommending. If you would like more in -depth and detailed remarks I would be happy to sit down with you anytime at your convenience. MEMORANDUM TO: Michael J. McCauley, Ci ty ty Manager FROM: Charlie Hansen, Finance Director G H DATE: January 15, 1998 SUBJECT: Municipal Liquor - Rex Newman Letter to City Council Rex Newman wrote a letter to the City Council regarding the Liquor Stores and on the marketing study conducted by Grinstead & Associates. The letter raises some issues and questions the absence of certain financial information Grinstead study. I am providing the following information in response to Mr. Newman's letter. Grinstead & Associates are outside marketing experts. They were hired to study our market and the potential of possible liquor store sites. There was no point in having them produce historical financial data when city staff has better access to the reports. Attached are reports showing balance sheets for 1993 through 1996 and profit & loss summaries for 1987 through 1996. We are about a week away from issuing our first preliminary 1997 profit and loss report. I expect that the 1997 profit will be in the ball park of the 1996 profit. The lost opportunity costs of private enterprise stores are also questioned. The City Assessor estimates that a potential private store with a land value of $200,000 and a building value of $400,000 would pay about $33,000 in total property taxes in 1998. The city would receive about 25 % of that. License fees are set in state law and limited to $200 per year. The profit to the city of a city owned store is greater. Mr. Newman also concludes that the transfer from the Liquor Stores in insignificant since it is less than 1 % of the city b ty g � In budget discussions last fall it was noted a th t the new Police Station will have at least $100,000 a ear in increased operating costs. Y p � The Liquor q Stores transfer of $75 to $100,000 a ear shouldn't do t be eliminated without a plan for replacing it in the budget. • City of Brooklyn Center Municipal Liquor Fund • Balance Sheet December 31, Last Four Years ASSETS 1996 1995 1994 1993 Current Assets: Cash & Investments $150 $1,945 $44,488 $43,890 Accounts Receivable 2,637 8,169 1,344 2,815 Returned Checks Receivable - net 0 524 768 959 Inventories: Liquor 328,589 301,000 284,034 274,491 Prepaid Expenses 16,633 6,468 2,902 1,323 Total Current Assets $348,009 $318,106 $333,536 $323,478 Fixed Assets: Land $107,406 $107,405 $107,405 $107,405 Land Improvements 12,904 12,904 6,719 4,228 Structures 299,761 299,761 299,761 299,761 Equipment 143,013 143,013 127,897 149,535 Leasehold Improvements 27,834 27,834 27,834 27,834 $590,917 $590,917 $569,616 $588,763 Less: Allowance for Depreciation (268,062) (245,317) (227,077) (272,392) Total Fixed Assets $322.855 $345,600 $342,539 $316,371 Total Assets $670,864 $663,706 $676,075 $639,849 LIABILITIES AND RETAINED EARNINGS Current Liabilities: Accounts Payable $40,559 $81,794 $108,813 $78,403 Accrued Salaries 8,940 5,783 5,808 5,736 Accrued Vacation /Sick Leave 24,006 23,708 23,695 21,478 Current Portion of Long -Term Debt 26,886 24,828 22,812 20,959 Total Current Liabilities $100,391 $136,113 $161,128 $126,576 Long -Term Liabilities: (Interfund Loan) 584,384 $111,344 $136,172 $158,985 Total Liabilities $184,775 $247,457 $297,300 $285,561 Retained Earnings: As of January 1 $416,249 $378,775 $354,288 $364,221 Net Income 169,841 137,474 139,036 90,067 Operating Transfer to General Fund (100,000) (100,000) (100,000) (100,000) Equity Transfer In (Out) 0 0 (14,549) 0 Total Retained Earnings Dec 31 $486,089 $416,249 $378,775 $354,288 Total Liabilities and Retained Earnings $670,864 $663,706 $676,075 $639,849 CITY OF BROOKLYN CENTER LIQUOR STORES TEN YEAR SUMMARY OF OPERATIONS 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL SALES $2,850,307 $2,696,776 $2,698,373 $2,615,955 $2,664,667 $2,678,840 $2,455,551 $2,414,126 $2,583,594 $2,527,159 COST OF SALES 2,157,659 2,043,179 2,023,603 1,976,173 2,011,103 2,025,288 1,863,843 1,844,619 1,977,728 1,930,254 NET OPERATING REVENUE 692,648 653,597 674,770 639,782 653,564 653,552 591,708 569,507 605,866 596,905 OPERATING EXPENSES 524,691 510,477 526,645 537,247 519,237 516,901 490,545 458,353 457,079 434,311 OPERATING INCOME 167,957 143,120 148,125 102,535 134,327 136,651 101,163 111,154 148,787 162,594 NON - OPERATING INCOME 11,481 6,993 5,402 3,725 2,315 3,619 13,043 12,811 9,792 6,918 NON - OPERATING EXPENSE 9,598 12,639 14,491 16,193 17,757 19,194 20,514 21,727 22,842 23,866 INCOME BEFORE TRANSFER 169,840 137,474 139,036 90,067 118,885 121,076 93,692 102,238 135,737 145,646 TRANSFERS 100,000 100,000 100,000 100,000 65,000 130,000 110,000 135,000 90,000 110,000 NET INCOME $69,840 $37,474 $39,036 ($9,933) $53,885 ($8,924) ($16,308) ($32,762) $45,737 $35,646 I I liquorlenyearAs 1/14/98 3.15 PM