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HomeMy WebLinkAboutMay 19, 1977OFFICIAL PROCEEDINGS SPECIAL MEETING OF THE CITY COUNCIL CITY OF COLUMBIA HEIGHTS, MINNESOTA MAY 19, 1977 The meeting was called to order at 7:18 p.m. Roll Call: Logacz, Norberg, Hentges, Nawrocki--present Heintz--absent Mayor Nawrocki stated that this meeting is the continuation of the special meeting held Monday, May 16 for the purpose of discussing proposals regarding the City's liquor operations, particularly the possibility of opening a dis- count-type liquor store. At Monday's meeting, there had been discussion on the study conducted by Real Estate Research Corporation on the Columbia Heights municipal liquor operations. At this meeting, Mr. Bob Grignon, formerly of Real Estate Research Corporation and who had worked on the Columbia Heights study, was present as a consultant. Mr. Watson pointed out that he had informed Mr. Grignon of the discussions that had been held at the Monday evening meeting. The initial questions asked of Mr. Grignon were: 1. is the estimated sales figure of $2.5 million rqalistic? and 2. is it possible to operate on a ten to twelve percent mark up'on goods sold? Mr. Grignon replied that the $2.5 million in sales is possible, but to be conservative he stated that the Council may want to use a lower number. He also stated that the Council may want to try a fourteen or fifteen percent mark up on goods sold. He felt these two changes would put the proposed liquor store on a more comfortable range of operation. Councilman Heintz arrived and joined the meeting at 7:24 p.m. Councilman Hentges asked Mr. Grignon about the average sale of liquor. Mr. Grignon replied that there are different shopping patterns - some people will 'stock up' when they shop and others will shop once a week. Councilman Hentges then asked who the Council could expect to have as customers. Mr. Grignon replied that Columbia Heights itself is the primary market area. He also stated that the secondary market area is larger in this case than had been described in the Real Estate Research Corporation study of municipal liquor in Columbia Heights; this being due to the difference in the types of operations. Councilman Hentges asked Mr. Grignon to estimate how much an operation like Surdyk's spends on advertising in a year. Mr. Grignon stated that he would estimate that Surdyk's spends more than $20,000 a year on advertising. He reminded the Council that Surdyk's serves the entire metropolitan area. The Columbia Heights operation would not include this large of an area. Mr. Dick Martin, 4032 Washington Street, had been present at the Monday evening meeting and was present again. He asked if Mr. Grignon was at the meeting as a "favor" to Mr. Watson. Mayor Nawrocki stated that Mr. Grignon was present at the City's request and was receiving monetary compensation for doing so. May 19, 1977 Councilman Norberg asked Mr. Grignon for projections of possible revenue that would be produced using a fourteen percent mark up on goods sold. Mr. Grignon lessened the volume of sales projected in the staff-prepared report by twenty percent and made the computations. He stated that by using these two adjusted figures the operating resolts are almost the same as those shown in the staff's report. Counciman Norberg stated that a greater mark up, then, would not necessarily increase profitability. Mr. Grignon stated that this was correct, considering the lower volume figure. He explained that the profitability would increase as the volume increases. Mr. Grignon then did sales projections considering populations of market area and annual average per capita liquor sales. Mr. Grignon's method of computinz sales allowed him to come up with three figures~ low, average, and high. Mayor Nawrocki described the figures as bei~g pessimistic ($1,960~000 in sales), optomistic ($3,200,000 in sales), and reasonably attainable ($1,960,000 in sales). There was discussion on what would happen to the City's other municipal liquor stores. Councilman Hentges felt they would all have to be closed. Mr. Grignon suggested leaving the #3 store open for convenience-oriented people. A gentleman in the audience stated that he felt the presentation of information was directed at Councilmen Norberg and Hentges to try to make them see the proposal with the same optomism that others on the Council see it. He went on to say that honorable men can view thin~s, such ~ this proposal, di?f.~ently. He also said he was not supportive of the idea. Mayor Nawrocki stated that larger volume, lower price operations are a sign of the times. He cited the example of corner groceries which are being phased out by supermarkets. The gentleman replied that the numbers contained in staff's report and those presented tonight were merely speculative. He asked if the ~ity should be in the speculating business. Mayor Nawrocki pointed out that the present Council did not make the decision for the City to be in the liquor business~ and since there has been no great citizen movement urging that the City get out of the business, it is the Council's duty to run the operation as best they can. The Mayor went on to say that the original justification for municipal liquor was that the City would control the dispensine of liquor. He gave some of the history of liquor operations in the City. He stated that entering this new aspect of the liquor business involved a degree of speculation. He also stated that, according to the Real Estate Research Corporation study, the reason that people don't buy their liquor in Columbia Heights is the higher price. The discount operation would eliminate this reason. May 19, 1977 Dick Martin asked Mayor Nawrocki about the City's present liquor operation. Nawrocki stated that he is not satisfied with the operation and has not been for some time. There was some discussion on profits from liquor sales being used to lessen the burden of City property taxes. Mayor Nawrocki stated that Warren Armstrong, a former City of Columbia Heights Mayor, had stated that liquor is a "peculiar commodity.'T He said that he agrees with this philosophy. Major reasons for municipalities being in the liquor business are: to offset taxes and to control, as previously mentioned, the dispensing of liquor. He also said that the loss of the liquor business would "be another nail in the coffin of the business district along Central Avenue.'? A thriving business will stimulate other business. Mayor Nawrocki then stated that he felt the City should proceed with this proposal. "There's no argument that speculation is involved. .there is a low possibility of losing money or doing anything worse than breaking even." He went on to say that there were some things to be done before the operation could be started. A favorable lease agreement for the proposed site must be reached. Job specifications for a store manager must be written. He emphasized the importance of good management for the operation. He suggested that the Council indicate to staff, in the form of a motion, whether or not they wish to proceed with the plans for the proposed operation. There was a lengthy discussion between Mr. Watson and Councilman Hentges on the source of funding for the operation. Councilman Hentges felt a transfer of monies from another fund would be necessary. The Mayor pointed out that the Council was 'laboring at a certain disadvantage' in discussing this particular aspect, as Finance Director John Schedler was not present at this meeting. Motion by Logacz, Seconded by Heintz to direct Staff to continue their efforts toward establishing a discount liquor operation. Mayor Nawrocki stated that, if this motion prevails, he will ask that the number one priority be to start the search for a manager for the operation. An ad hoc discount liquor store committee was formed to work on the various aspects of the proposal. The City Manager, Finance Director, City Attorney and a Council member, possibly Nawrocki or Norberg were to be on the committee. Councilman Norberg asked if, by approving the motion, there would be a commitment of funds. Mayor Nawrocki stated that there would be no funds expended beyond the salaries of those staff members working on the proposal. Roll Call: Logacz, Heintz, Hentges, Nawrocki--aye Norberg--nay Motion carries. Motion by Logacz, Seconded by Heintz to adjo~t ~0'~~. A~°~ ~-~-~ -~ ~ ~~~-~~zJ~ Bruc~ G. Naw~ocki, Mayor Secretary Call: All Ayes CITY ~F COLUMBIA HEIGHTS Discount Liquor 5-i6-77 Sales Pattern No. Days Ope~ No. Customers Needed Per Day Total Sales Annual Per Day Sales 246 Weekdays 330 ($15 ave sale) 8 Day BeFore 1200 Holiday ($25 ave sale) 52 Saturdays 800 ($25 ave sale) 306 Total Days Open Annually $4,960 $ 1,220,000 30,000 240,000 20,000 1,040,000 $ 2,500,000 Presently store ~ ~ & #3 average $1,955 per weekday $4,750 per Saturday The new store would have 6.6 times the floor display space asstores #2 and #3 combined. Projecting a 5 fold increase in present volume weekday sales would be $9,775 and Saturday sales would be $23,750. Revenue Sales Cost of goods sold Gross Margin Operating Expense Annual Revenue 12% 10% $2,500,000 $2,500,300 2,200,000 2,250,000 300,000 250,000 190,820 190,820 $ 109,18-6 $ 59,I80 Investment $350,000 Return 31.2% 16.9% ,.OLuMBIA HEIGHTS Discount Liquor 5-16-77 First Year Expense Projection Personal Services Accounting Staff Rent-Building Cash Registers Insurance Utilities Maintenance Other Expense Advertising Supplies Depreciation Leasehold Improvement Amortizat,ion $98,300 8,5OO 21,000 2,760 lO,O00 8,OOO 3,000 4,400 20,000 4,OOO 4,8OO 6,060 190 ~ CITY OF COLUMBIA HEIGHTS Discount Liquor 5-16-77 The expense project.ion is based on the following assumptions Personnel Manager $20,000 Asst. Manager $14,000 2 Full Time Clerks @ $4.50 / hour Several Part Time Clerks 52 hours per week ~ $3.75 per hour 2 Full Time Stockers @ 3.50 per hour Part Time Stockers ~ 3.25 24 hours per week with 20% fringe average Accounting Staff allocation $8.500 per year Rent Building: First year 21,000 and City installs front doors at cost of $6,666. Electrical check out, put all present utilities in good working order, and any repairs to building as it now exists should be completed by the lessor before the building is occupied. Next four years $28,000 or $2.00 per Sq. Ft. Cash Registers; Rent 4 registers $57.48/month/register or $2,760 annually. The continual refinements in the electronic Cash register industry, both in circuitry and printing mechanisms, would suggest that waiting 2 to 3 years before purchasing registers and renting for now would afford the City the opportunity to be using the best and latest equipment at approximately the same cost as a purchase now. Insurance Workmen Compensation Inventory Contents-Equipment Other Includes percentage increases for 1977-78 Capital Equipment Refrigeration and Heaters as Bid Security and Conveyor as bid Fork Lift reconditioned Clark w/charger Shopping carts & misc. equipment $2,000 3,000 3,000 2,000 $10,000 $21,O64 10,113 8,900 8,000 $48,077 Depreciate over l0 years - annual expense $4,800 CITY OF COLUMBIA HEIGHTS Discount Liquor 5-16-77 Renting a fork lift is very expensive compared to a purchase. New Used Purchase price 512',488 58,900 Depreciate annual cost 10 years 5 1,250 5 890 5 yea rs 2,500 1,780 Rent annual 5 3,600 Plus 51.25/hour maintenance charge. Leasehold Improvements Campions bid for carpentry work is out of line and this work including 2 new doors in rear of building can be done for about $12,000. We have a firm quote on the front doors installed of $6,666 from Gateway Glass. Many of the items in the ~1.ectric~l bid are normal items the Lessor is responsible for. With these adjustments the total cost of Lease improvements would total $30,300 or writing off over the life of the lease the annual expense would be 56,060. CITY OF COLUMBIA HEIGHTS Cash Outlay - Start up discount operation Equipment Leasehold Improvements Increase Inventory Rebuild Inventory to Prior Level of $80,000 Transfer inventory from discontinued stores to reach $260,000 level. Contingency start up Total Investment 48,000 30,300 i80,O00 30,000 288,300 50,OOO 338,300 ll,700 350,OOO Cash Flow Cash on hand 6-1-77 (Estimated) June Inventory Provided by Operations 7-1-77 ~uly 8-1-77 Inventory Operations Contractor Payments Loan from other Funds 115 (140) 2O (5) (70) 25 (40) 9o --O- August 9-1-77 Contingency start up Operations Contractor & Equipment Purchase Increase Loan to total of $115 -(12) 25 (38) 25 --O- Sept. Operat ions Repay Loan 3O (30) ~O-- Loan should be repaid by the end of December 1977. Discount Liquor 5-16-77 ( OOO omitted ) CITY OF COLUMBIA HEIGHTS Convert Store # 1 to Restaurant Discount Liquor 5-16-77 Remodeling - Campion Aprii bid Plus electrical and plumbing work and plumbing fixtures Contingencies $ 12,750 3,250 4,OOO $ 20,000 Rent 2,000 sq. ft. @ $3.50/year 5 year lease $ 35,0OO Expense Write off remodeling over 5 year lease provide heat and A/C for 2,000 sq. ft. Rental Loss Interest loss on investment of $20,000 @ 5¼% Net loss over 5 years $ 20,000 16.000 36,000 '150) (4. ~ 5O) It would require rent at $4.32 per sq. ft. to cover heating and A/C expenses and interest loss. There would undoubtedly be some maintenance costs applicable to this area of the building over the next 5 years. OFFICIAL PROCEEDINGS SPECIAL MEETING OF THE CITY COUNCIL CITY OF COLUMBIA HEIGHTS, MINNESOTA MAY 19, 1977 The Meeting was called to order at 10:32 p.m. by Mayor Nawrocki. Roll Call: Logacz, Heintz, Norberg, Hentges, Nawrocki--present Motion by Hentges, Seconded by Heintz to appoint City Attorney Ronald S. Kalina Secretary Pro Tem for the Meeting. Roll Call: All Ayes It was noted that the purpose of this meeting was to conduct a Public Hearing on the Proposed City Code. Traffic, Public Health and Safety, and Misdemeanors portions of the Code were discussed. Motion by Hentges, Seconded by Logacz to adjourn the meeting at 12:35 a.m. Roll Call: All Ayes Secretary