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Utah's state-owned liquor stores should operate more like private retail shops, offering products that customers actually buy and restocking more often, a new state audit released Tuesday shows.
This "demand-driven" way of inventory management would increase "turn rates" the number of times a store's inventory turns over in a single month and reduce the costs of carrying bottles that no one buys, according to the audit, which was presented Tuesday to the state liquor board.
The audit also looked at high employee turnover rates, which have been a problem for the Utah Department of Alcoholic Beverage Control (DABC) for many years.
On the inventory issue, the DABC has set a goal of at least one "turn" per month for each of the state's 44 liquor stores. But, 68 percent or 30 of the stores fail to meet that benchmark.
Store size and location in either an urban or rural area seem to affect turn rates.
About 90 percent of inventory at the store in Murray, for example, turns at least once a month. Only 40 percent of inventory at the store in Hurricane turns in a month, auditor Rachel Dyer told the board.
"Rather than simply replenishing inventory, DABC may improve inventory turns by considering more frequent shipments of high-demand product (e.g. biweekly shipments instead of weekly) or reducing inventory of low-demand product, which will create more available space for high-demand product," auditors noted in the report.
State Auditor John Dougall said the DABC needs to model practices followed in the private sector.
"The ultimate goal for any retail store is to deliver products right when consumers want them," he said, adding that "there's a lot of opportunity for improvement."
DABC Executive Director Sal Petilos agreed, saying that while the audit was being conducted the department implemented a new centralized ordering system that has already led "to a reduction in out-of-stocks while meeting increased demand for products."
Jay Yahne, the owner of the Hive Winery in Layton, said promoting a high turn rate may be good for state coffers, but creates poor selection for consumers.
"You'll only be selling budget alcohol from large out-of-state manufacturers," he told the commission. "The policy doesn't allow for craft products that come at a higher price. It knocks out small local craft producers."
The audit also showed that liquor stores continue to have high employee turnover, especially among part-time clerks, due to low pay and morale.
In 2013, the overall turnover rate for liquor store clerks was 55 percent, up from 2012 when it was 47 percent. The 2013 turnover rate for part-time clerks was 63 percent compared to only 21 percent for full-time clerks.
Earlier this year, state auditors conducted a survey of 450 retail clerks working for the DABC. Of the 152 people who responded, 42 percent believe there is low morale in the stores.
"Based on feedback from store employees, it appears that one reason for low morale is a perception of compensation," the audit states. "Some employees also indicated that the requirements of the job such as checking identification, screening for intoxication and refusing sales, warrant higher pay."
The significantly lower turnover rate in full-time positions "suggests that an increase in pay and/or benefits may be a factor in decreasing the high turnover rate of part-time clerks."
Part-time retail clerks, who receive no health insurance, retirement or other benefits, make $8.60 an hour while full-time employees make $9.60 and receive benefits. Almost 80 percent of DABC retail clerks work part time.
"Our employees are grossly underpaid," commissioner Olivia Vela Agraz said after the presentation. "We need to hire more full-time employees with benefits instead of treating them like second-class citizens."
Utah alcohol sales are at record high levels, growing by more than $20 million in the 2013-2014 fiscal year to $367.2 million. That's an increase of nearly 6 percent from the previous 12 months.
All the profits flow back into state coffers, and the Utah Legislature sets the DABC budget and employee pay rates, said Chairman David Gladwell. "We'd love to pay employees more."