The Montgomery County Liquor Control Department, which runs the Nation's only county-operated monopoly on the wholesale and retail sales of liquor, wine and beer, has been suffering from declining profits in the past three years, according to a study issued yesterday.
The study of the liquor agency, conducted by consultant Leonard I. Colodny at the request of County Executive Charles Gilchrist, noted that profits from the government-run department dropped from 9.2 percent in 1977 to 7 percent this year.
"Should this trend continue and its causes not be discovered and cured," said Colodny, "it could well become the disease which could be fatal to the Department of Liquor Control."
Colodny's two-month study was released one day after an article appeared in The Washington Post detailing apparent conflicts of interest and a sustained "revolving door" pattern in the Liquor Control Department. The article indicated that men frequently move back and forth between the liquor department and jobs with distillers who sell to the county.
"There is something of a revolving door quality [in the department]," said County Executive Gilchrist yesterday. "That is a consideration. But how do you balance that with the need to have people in the department who know the business?"
Most of the county agency's ties have been to Schenely Industries, Inc., a New York-based liquor company that has no brands in the list of the 20 most popular liquors in the county, yet ranks second among all liquor companies in terms of both cases sold and dollar volume of business to the county -- more than $1.5 million last year.
The present deputy director of the department, Frank Orifici, worked for the past eight years as a salesman for Schneley to the county. His uncle by marriage, Charles Buscher, Gilchrist's adviser on liquor matters, was a former director of the department who became an executive for Schenley in charge of sales to Montgomery and other jurisdications where the government controls liquor purchasing.
According to the Colodny study, Schenley gets 10.46 percent of the county's liquor business, nearly a third more than it receives from the 18 states where the state governments control liquor purchasing.
The study also noted that the department spends $17,000 a year on newspaper advertisements but those ads do not "make new customers or the agency often advertises brands that are not well known. The report said that the liquor on sale is displayed at the front of the store, allowing customers to "run in and grab the special and go directly to the cash register."
In an interview yesterday, Colodny said that the liquor should be displayed so that customers go through the store and see other brands that are on sale.
The county executive and the county council, colodny said, should write a policy for the Department of Liquor Control that deals with customer service, merchandising practices, and what is meant by control. "These elements must be interwoven with each other . . . to give the agency the direction it is so sorely lacking and needs at this difficult and trying time."
Gilchrist's chief administrative officer, Robert Wilson, questioned Colodny's finding that Schenley gets 10.46 percent of the liquor business in Montgomery. Wilson said Colodny based his numbers on liquor sales rather than on liquor and wine sales.
According to Wilson, Schenley gets only 5.5 percent of the county's business in terms of cases of both liquor and wine, while it does an average 5 percent of business in other jurisdictions in terms of cases of both liquor and wine.
Colodny said he based his figure on liquor sales only because, "that's standard industry practice. You measure wine to wine, beer to beer, distilled spirits to distilled spirits."
Wilson said the county has no plans to purchase fewer cases of liquor from Schenley. "It's unfair to a distiller to raise or decrease the amount of stuff we're buying," Wilson said. "If it's being artificially demanded, we will take corrective action to change that."
Gilchrist said that he could see "no demonstration that the Schenley that's being bought is not being said." He said that the county has had about $100,000 worth of Pouilly-Fuisse wine on its shelves for the past year -- wine that was sold to the county by Frank Orifici, the former Schenley salesman who is now the department's deputy director -- because there had been a demand for the wine by restaurants and the restaurants then no longer wanted the wine.