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SALT LAKE CITY — Business is booming at the Utah Department of Alcoholic Beverage Services, and that could soon lead to new problems.
The entire system generated $557.45 million in sales during the 2022 fiscal year, with nearly $230 million of that going back toward the state in some form or fashion. Most of the profits — almost $135 million altogether — ended up in the state's general fund, while $54.5 million went toward the uniform school fund and $31.23 million in sales tax was generated, according to the agency.
Though the figures continue to rise, officials say the department may soon hit a market cap because the warehouse — where all the booze travels to before it is distributed to retail stores restaurants and bars — is running out of space. It's an issue that could cause ripple effects for the state's budget and the hospitality industry in the coming years, if it is not fixed, says Tiffany Clason, executive director at Utah Department of Alcoholic Beverage Services.
It's why the department is seeking $85 million in one-time funds from the state Legislature to help fund an expansion to its main warehouse in Salt Lake City, as well as $2.5 million in ongoing funds tied to the project.
"(It's) not a vanity project. It's a mission critical to what we do," she said during a Utah Legislature Infrastructure and General Government Appropriations Subcommittee meeting on Monday.
"We've got a really big job to do," Clason added. "If we want to continue to reap the benefits of being a control state — both fiscally and then with all the public health and safety value ads that we see through being a control state — it's imperative that we're able to deliver on stellar customer service."
Clason explained to the committee that since Utah is an alcohol-control state, every product sold in its retail stores or distributed to bars, restaurants and other hospitality industries starts in the state-run warehouse. The warehouse is beginning to fill up because the state's growing population is drawing in more retail store customers every year, while new bars and restaurants are also sprouting up, too.
If we're out of space, at some point there will be a stagnant point where we can't continue to bring in more product because we simply don't have it.
–Cade Meier, Utah Department of Alcoholic Beverage Services
The department conducted a feasibility study on the matter in June 2020 but ultimately decided to redo the study in November of that year because of the supply chain and staff shortages that emerged after the original study. Based on the current average growth, projections indicate that the warehouse could run out of room by the 2026 fiscal year, said Cade Meier, the department's deputy director.
That would make it impossible for the market to grow.
"If we're out of space, at some point there will be a stagnant point where we can't continue to bring in more product because we simply don't have it," he said.
Utah Department of Alcoholic Beverage Services officials project that the market would be capped at $689.2 million in revenue by the 2026 fiscal year. If they are able to expand the building, it could remain on pace to exceed $800 million in state revenue by the end of the decade.
Clason said the department already owns the land next to the warehouse, where the expansion would take place. The department estimates the project would cost about $110 million in one-time costs and $2.2 million in ongoing funds to add new space and other operations.
A spokesperson with the department clarified that the department is seeking $85 million in one-time funds now, and will seek the remaining $25 million at a later time. If approved, the project design phase will begin in July, and construction could begin as early as next year.
While the warehouse is the department's top building priority at the moment, it is also looking for funds to add a new retail store in Ogden, while also replacing stores in Moab and Roy, to add more space.
The projects are expected to cost almost $31 million in one-time funds and another $1.14 million in ongoing costs; however, the three stores, combined, are also projected to generate $8.5 million in revenue just in the first year, alone.
The Legislature is expected to decide in the coming weeks what projects it will fund in the 2024 fiscal year. Lawmakers have until March 3 to approve funded bills and the state budget.
