October 3, 2013

State seeks bids for 10-year liquor operations contract

Contract will replace state's 10-year deal with Maine Beverage Co., which expires in mid-2014

By Jessica Hall jhall@pressherald.com
Staff Writer

The state of Maine on Thursday sought bids for a 10-year contract to run the state's wholesale liquor operations that could generate more than $592 million in gross profits.

The request for proposals, titled "Maine Wholesale Spirits Business," seeks bids for the contract, which would run from 2014 to 2024. Bidders are invited to submit a proposal for warehousing and distribution of liquor throughout the state, and another proposal for marketing and advertising.

The projected gross profit for 2015 totals $46.2 million and increases annually to $66.5 million in 2024, according to the documents included in the RFP.

The figures are "not a guarantee of future performance," the documents said. "Bidders should view these figures as planning guidelines."

The new liquor contract will replace the state's 10-year deal with Maine Beverage Co., which will expire in mid-2014.

The contract with Maine Beverage was awarded by the state at a time of fiscal crisis, when it needed help closing a $1.2 billion budget deficit.

Maine Beverage Co. got the 10-year contract in exchange for an upfront payment of $125 million. The contract guaranteed a gross profit of 36.8 percent of annual sales. The fair market value of the contract was pegged at $378 million in a study done in 2009 by Deloitte & Touche.

From 2004 through 2012, Maine Beverage generated about $339 million in gross profits after state revenue sharing. Its total operating income over that time was $286.5 million, according to historical financial data included in the request for proposals.

"Since 2004, the private contract to run Maine's wholesale liquor operation has been a famously bad deal for the state of Maine. The governor and the legislature have now adopted a very well thought out plan to solicit competitive proposals that will improve the state's financial standing by tens of millions of dollars annually," said Ford Reiche, president of Dirigo Spirit Co., which plans to submit a proposal.

The new contract request does not require an upfront payment and does not guarantee any gross profit margin. The changes to the contract's structure were part of state efforts to direct more liquor sale proceeds into its coffers instead of the contractor's.

In September, the state sold a $220 million bond that will be repaid with revenue from the liquor contract. The bond offering's proceeds were used to repay $183.5 million in debt the state owed to Maine hospitals.

All Maine Spirits, another bidding group, said it looks forward to submitting a proposal.

"We've developed a team of participants who are all Maine residents. We're most anxious to put together a proposal and anxious to participate in any interviews that will be part of the process," said John Menario, a director of All Maine Spirits.

Maine Beverage, a venture of Martignetti Cos. of Massachusetts and the New York private equity firm Lindsay Goldberg and Bessemer, did not return requests for comment immediately. Martignetti Cos. also owns a liquor operation in New Hampshire.

A bidders' conference will be held Oct. 16, and the deadline for submitted questions is Oct. 18. The deadline for proposals is Nov. 14.

Each bidder must provide a deposit of $500,000 for any damages suffered by the state if the contract implementation gets delayed. If the operations start as scheduled on July 1, the deposits are refundable to all bidders.

 

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