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BEMIDJI — The earned high marks from Financial Director Donna Coe during a May 5 Bemidji City Council meeting. Here, Coe detailed Bemidji-specific highlights from the Office of the State Auditor's

A new municipal liquor store report is published each year, detailing city-owned liquor store profit margins. In 2023, 176 Minnesota cities operated 210 liquor stores with a combined net profit of $31.6 million.

This year's report displays 2023 municipal liquor store trends alongside relevant comparisons, which is valuable for the cities involved. The report is used by a city to gauge the financial condition and feasibility of its liquor store operations to make future decisions.

Only 31 of the 176 cities saw a net loss, with 28 sprinkled across greater Minnesota. Bemidji was not one of these cities, however, and did quite well.

Coe shared and expressed one area that should improve during her

Bemidji ranked eighth in total sales at $8.4 million — this is referred to as the operating revenue. Additionally, Bemidji ranked seventh in gross profit at $2.7 million and ninth in highest operating income at $721,000.

Courtesy / City of Bemidji

The gross profit is calculated by subtracting product costs from the revenue. Conversely, the operating income is calculated by subtracting the combined cost of products and operations from the revenue.

Overall, Bemidji liquor stores accounted for 7.6% of total city revenue, at $631,000. This ranked 59th and was listed as the main area for improvement.

"The highest net profit as a percentage of revenue ... was only 7.6% of our revenue," Coe explained. "I take it as a challenge to try and make it better, to make it a larger bottom line number."

A few different things factor into the final revenue figure detailed in the report.

In 2023, the city paid $104,000 in bond interest.

Bemidji also paid credit card fees associated with liquor store purchases. These fees cost roughly $200,000, but will soon cost less.

During an Aug. 26, 2024, work session, the council discussed whether or not credit card fees should be passed along to consumers. Then, during an the council approved a new credit card processing system that splits the fees. The system was implemented a month later.

Now, consumers pay 3% of the fee and the city pays the rest. The fee varies depending on the processing network — American Express, MasterCard, Visa, Discover, etc. Consumers who use cash avoid the fee altogether.

The 2023 report was affected by credit card fees, and the 2024 report will also be affected. The 2025 report will be the first to fully reflect this change.

Each year, the council budgets its liquor store operation at $0. This is possible because of a reserve balance, which sits comfortably at around $2.5 million with $1.8 million available.

Staff restricts a portion of the fund to ensure principal and interest payments, which clocked in at $20,000 in 2023. This restriction also adds a level of security to Bemidji's liquor store operation.

"If we had a very catastrophic year, we're still going to have a fund balance," Coe explained.

The reserve balance fluctuates each year depending on how liquor store revenue is used. For example, $305,000 was added in 2021; $126,000 was transferred out in 2022 and the city spent $16,000 more than liquor stores profited in 2023.

Ward 4 Councilor Emelie Rivera asked if losing reserve balance funds in 2022 and 2023 was a concern.

Coe explained that it was not a concern since the fund is estimated to remain stable.

City Manager Rich Spiczka further explained that a negative balance one year doesn't necessarily mean the liquor store operation lost money.

"If that number is negative on the balance after the year's transaction, it doesn't mean the operations of the liquor store lost money," he said. "It's just we spent more money that year out of that fund than it made."

The council reevaluates the $0 budget each year. However, it is unlikely that it will increase beyond the $1.8 million figure since funds are not set aside.

Thus, the city is continually exploring options to ensure the liquor stores are profitable and can operate independently, preserving the balance. This includes looking into the credit card fees, exploring insurance options and adding THC to store shelves.

It also includes exploring a third location, which, according to Coe, could result in a higher profit.

She explained that cities with three liquor stores tend to have a higher profit due to an obscure Minnesota law. The three locations could be two stores and a warehouse or three stores. Regardless, when a city has three locations, it can purchase for all three at once, giving it better buying power.

Cities with two stores cannot do this and must purchase products separately.

Coe mentioned that Bemidji's system is very strong, but if there were a third location, it could lead to higher profits.

At-Large Councilor Audrey Thayer spoke in favor of exploring a third location while expressing caution.

"It sounds like if we went for the third store, it'd be awesome," Thayer said. "But of course, I have my feelings about where we spend our money. We have a lot of drinkers. This is my opinion: I really feel that we are missing the boat in helping nonprofits that are helping that situation."

Ward 2 Councilor Josh Peterson prefaced that adding a third location doesn't necessarily mean a larger profit.

"We have not done a deep dive into rent, build, staffing, anything like that, to actually see that we would actually make an additional profit," he mentioned. "It's not a guarantee that a third location makes us come out stronger and more profitable."

Coe agreed with Peterson's sentiment, adding that it was an initial idea.

Peterson then spoke about alcohol problems within the community.

"These liquor stores are profitable for us, but I also personally believe that we can become an enabler in our community where we have strong alcohol and substance abuse issues," he said. "I feel like a percentage of these funds should be dedicated to recovery programs, and that's just my personal feeling ... I know that's not what (the funds) were intended for, but I feel it would be the right thing to at least (explore)."

No action was taken during this meeting and the city is not exploring the option to operate three locations at this time.

Overall, councilors expressed gratitude for the report.

"This is a nice report, it's nice to learn," Ward 5 Councilor Lynn Eaton remarked. "(I am) really pleased with the results."