Fear of liquor shortage sparks concerns among retailers

Beth LeBlanc | The Detroit News

Lansing — Logistical issues at Michigan’s largest liquor distributor have led to roughly $65 million in delayed gross sales and tax payments to the state and dwindling supplies at state liquor stores with no guarantee of a fix before Thanksgiving.

The state has demanded a corrective plan of action from the distributor and questioned the company at public meetings, but retailers who have dealt with weeks of delayed, missed or incomplete shipments say the issue isn’t being solved fast enough.

“This is impacting our bottom line and how we feed our families,” said Mike Mitchell, vice president of Markham Enterprises and a member of the Midwest Independent Retailers Association.

On Friday, Republic National Distributing Company told the Liquor Control Commission that it was making progress on addressing the issues but acknowledged those changes might not be fully realized by retailers and consumers until early December.

At the very least, the company has a goal of catching up with all of this week’s orders by Saturday evening, said Joe Gigliotti, region president of control states for Republic National.

“It’s been reported that there’s a shortage of liquor in Michigan,” Gigliotti said. “There’s not a shortage; it's in our warehouse trying to get delivered to our stores.”

The issues began to develop over the summer when Republic National, the largest of the state’s three designated liquor distributors, consolidated its two operations centers into a larger facility in Livonia.

“It seemed to overload the system,” Gigliotti said. “Not because the system’s not capable; it was just new to everybody.”

Michigan employs a three-tier system when it comes to liquor sales. The first tier, licensed manufacturers, sell their liquor to the state. The state, as the second-tier wholesaler, takes orders and distributes that liquor through authorized distribution agents such as Republic National Distributing Company, which warehouse and then distribute the liquor to the third tier: bars and liquor stores.

State law prohibits liquor stores from purchasing from other liquor stores and limits liquor bars who purchase from liquor stores to one case a month. In that sense, retailers are dependent on their distributor, and Republic National is the largest in the state.

The state sold roughly $1.5 billion in distilled spirits in 2018. About $70 million of that went to the state’s authorized distribution agents, of which Republic National Distributing received roughly two-thirds.

The Liquor Control Commission expressed frustration with the company Friday, saying Republic National hadn’t taken the state’s complaints seriously until recently. The commission extended the deadline from Nov. 4 to Dec. 6 for liquor suppliers to choose their distributors in the event that any of them would like to choose a distributor other than Republic National.

The recent issues with deliveries across the state give rise to questions about a system that is overly reliant on a single distributor, said Liquor Control Commission Chairman Pat Gagliardi.

“Should we have (authorized distribution agents) that have that much of the market?” Gagliardi said. “Because here we are stuck with it.”

The delays at Republic National began in late August and have been plaguing the company, state and retailers since.

The state has received 762 complaints regarding delays since Nov. 8 and 85 calls through a help line started Nov. 12, said Pam Hamilton, director for the financial management division of the Liquor Control Commission.

Those complaints have included missed, delayed or incorrect deliveries; poor customer service and closed doors when retailers frustrated by the wait drove to the warehouse to pick up their product.

Other complaints included ones from retailers who said checks they made out for their supplies as far back as August still have not been cashed, Hamilton said.

The number of unreconciled invoices is so great that the state has roughly $58 million in gross sales and $7 million liquor tax revenue unaccounted for, a discrepancy the state described as a “loss” but which the company stressed was only a “delay.” The potential loss could grow to $100 million by the end of the year if the accounts aren’t reconciled, Hamilton said.

“This proves to us that we are not being sent accounting data on a timely basis, which is supposed to be within two days of delivery,” Hamilton said. “We’re learning this firsthand through the licensees.”

The company moved some its operation back to a former facility in Brownstown Township to alleviate some of the overloaded system in Livonia. In addition, the company has hired more than 120 temporary workers to assist its 584 full-time employees, created a call center to field complaints, and plans to send some sales employees out on deliveries.

Last week, the company stopped taking new sales for three days in an effort to catch up on orders. On Tuesday, Republic National shipped 300,000 bottles, a record shipment for the company ahead of the holidays, when demand increases significantly.

“That is part of the issue,” Gigliotti said. “Unfortunately, we’re fixing this, for lack of a better term, during the busiest time of the year.”

Though the company has improved its communication with the state, the issues seems to only be getting worse, according to the commission.

Gagliardi remained uncertain Friday about the company’s ability to provide stores with liquor in time for the Thanksgiving holiday.

“We’re in a quandary because we don’t know, do we?” Gagliardi said. “We think it’s getting better based on what RNDC has told us but we’re hearing from our licensees, the retailers, that it’s not getting better.”

The frustration from the commission was echoed by retailers, who said they are on the “front line” of the industry when customers are searching through their sparsely stocked shelves.

“I’m not going to be prepared for the holiday times, which is the most critical time of our business, and I don’t just speak for myself,” said Steve Soka, a district manager for Franklin Liquor & Deli in Southfield.

“If I don’t have inventory, I’m definitely not going to make any money," he said.

eleblanc@detroitnews.com