“Sin” businesses slow for state

Business is slowing at state agencies that make a profit, but both the Virginia Lottery and the Department of Alcohol Beverage Control have some new strategies to get back in growth mode.

And the other departments could use the help. Gov. Tim Kaine has asked state agencies to submit plans with 5, 10, and 15 percent cuts to help balance an anticipated $1.4 billion shortfall.

Although state governments across the country are dealing with slowing lottery revenue – something previously thought inconceivable – Kaine has not issued any directives to the state lottery to squeeze out more profit or boost revenue considerably, and Virginia has not made any quick moves to help out the industry.

Other states have. New Jersey has repealed a smoking ban, and Illinois is considering allowing free booze on riverboat casinos. Colorado increased betting limits, and Missouri voters voted out limits on how much gamblers can lose. The Oregon Lottery installed casino-style slot machines in bars and taverns.

Revenue at the Virginia Lottery fell 1.5 percent in fiscal 2009, which ended June 30. But across the country, states that have casinos saw revenue fall 7.4 percent.

The amount the Virginia Lottery funneled into state education fell from $455 million to $439 million.

Director Paula Otto said the lottery is increasingly losing revenue it formerly enjoyed to a new competitor: North Carolina started a lottery in 2006, and it is gaining popularity.

“It takes most lotteries two good years to introduce a full product mix,” Otto said. “As they continue to get to 100 percent strength, we feel the impact.”

Otto also said that high gas prices from earlier in the year harmed sales, in part because 80 percent of tickets are sold at convenience stores, which often accompany a gas station.

But the lottery is looking at ways to boost sales. Part of that includes refreshing and rebranding the standard games, Otto said. Two popular new scratch tickets include a Bass Pro Shop scratch ticket and also ones for the Redskins, which Otto said sell about 20 percent better than a normal ticket.

The agency is in the process of filing a request for bids to hire a new advertising agency. The expiring contract is with Qorvis.

And there’s some new technology.

“It’s time for us to take a hard look at not only the products, but how we are distributing them,” Otto said. “We have rolled out a new self-service machine and that allows us to get into what we call non-traditional retailers – for example, the Richmond Airport.”

Otto said the kiosk has been open six to eight weeks and is already paying for itself.

Meanwhile at ABC, sales in fiscal 2009 rose to $322.3 million. That’s up almost 5 percent from $307 million last year, but a slower growth than in years past, according to the agency.

ABC doesn’t advertise, although the manufactures do advertise.

One bonus this year has been keeping some stores in bigger markets open on Sundays, said Philip Bogenberger, a spokesman for the agency. ABC has not raised prices this year.

Bogenberger also said the agency might become slightly more profitable by reducing rents at stores across the state.

“We rent a majority of the stores and are negotiating rent reductions when possible,” Bogenberger said.

Aaron Kremer is the BizSense editor. Please send news tips to Editor@richmondbizsense.com.