A study funded by the Legislature says Utah could privatize more liquor sales and generate savings by expanding privately run alcohol outlets called package agencies, which have been operating in the state since the end of Prohibition.

The wide-ranging recommendations, which also call for building larger liquor stores in some areas rather than closing them altogether, are part of a business plan that calls for additional package agencies to be tested in such places as malls and grocery stores. The strategies are to be released Wednesday morning during a legislative committee hearing at the Capitol.

The suggestions come three years after the Utah Department of Alcoholic Beverage Control (DABC) embarked on a $35 million liquor store-expansion project, which added 40 percent more retail space for heavy beer, wine and distilled spirit sales.

However, legislative auditors have been critical of the expansion project, calling for as many as nine state-run stores to close, which last year sparked a public outcry.

Lawmakers in turn ordered the DABC to cut its budget and then paid $100,000 for Salt Lake City-based consulting firm Bonneville Research to put together a business plan for the agency.

Bob Springmeyer, a principal with Bonneville, said that although the DABC has had objectives and general outlines for providing services, the agency that generates $300 million annually in sales as part of the state-run liquor monopoly "did not have a plan that would have met the test of a normal business plan expected in the business community."

The Bonneville strategy does not recommend immediate wholesale closures of stores, which the firm said would have a negative impact on profits. But it does suggest that four liquor stores be consolidated in Salt Lake County, generating nearly $2 million in savings.

The operations of the Murray and South Salt Lake stores could be combined into a single, larger state-run store convenient to consumers. Salt Lake City's 6th Avenue and 300 East stores also could be replaced with a larger store.

To generate more savings, the DABC also should consider turning over smaller stores, such as the Swede Alley and Snowcreek locations in Park City to private contractors, Springmeyer said. Privatization could be further tested by locating package agencies in commercial centers.

The privately run outlets have been in operation since the 1930s in rural areas, where it is not economically feasible to build larger state-run stores. Because package agencies are forbidden from advertising, and telephone numbers typically aren't listed in local directories, the only way customers know about them is by word of mouth.

Sixty-seven independently owned and operated package agencies operate in Utah as stand-alone outlets or as part of a larger business, such as a drug store or market. The state, however, discourages them from expanding, placing caps on monthly reimbursements — no matter how much liquor is sold.

Sen. John Valentine, R-Orem, said the package agency system would have to be examined before expansion is considered. He cited a critical audit of a bankrupt liquor outlet in Eden, which resulted in more than $300,000 in unpaid bills. Senior managers at the DABC had failed to notify commissioners of the losses for nearly two years.

"Expanding package agencies would be a legitimate discussion," said Valentine. "But there must be structural changes at the DABC first before we move on to other areas."

Bonneville's Springmeyer said the business plan he's recommending has merit "because this is probably the first time that we've had to deal with a business on how it can increase profits without increasing sales."

Key lawmakers have been reluctant to increase alcohol sales, citing concerns about overconsumption, drunken driving and underage drinking.

Springmeyer took to task liquor-control commissioners who spend 90 percent of their time deciding who gets restaurant liquor permits, while taking only a few minutes each month to look at liquor stores — which generate nearly 90 percent of the agency's income.

All state-run stores are profitable, said Springmeyer. But most are either over-performers, such as the Sugar House location that often has customer lines that go out the main entrance. At the same time, sales at many other stores are less than would be expected.

The plan calls for individual stores to set their own hours of operation and to utilize retail space more efficiently. Leasing space rather than purchasing property also should be considered, it said.

dawn@sltrib.com

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Key elementsof liquor strategy for DABC

Allow private contractors to run Swede Alley and Snowcreek liquor stores in Park City.

Test privatization further by opening other privately run outlets in malls and grocery stores.

Allow liquor stores and privately run outlets to adjust their hours of operation.

Replace Murray and South Salt Lake stores with a single, larger state-run store.

Replace Salt Lake City's 6th Avenue and 300 East store with larger state-run store.

Source: Bonneville Research