Is It Fixable?

July 16, 2016 § Leave a comment

This week saw a first from the BC Liquor Distribution Branch; an apology letter.

A letter was send to every wholesale customer of the LDB. Given that they have a monopoly on all imported product and spirits, this mean close to 12,000 businesses was saw this letter.

The letter starts with an apology for all the shorted orders and out of stocks that have recently plagued the LDB Wholesale Centre. Over the last 3 years fulfillment rates have dropped to 91% yet overall revenues have grown to over $3B. What this means is that $300M in demand has gone unfulfilled and lost to the province’s general revenue.

The letter goes on to name a few causes. Technical, which I totally understand given that they are using databases that were old in 2009 to run $2B worth of orders through, and capacity. The first of these is easily solved and they are in the process of doing so, however the second is a little harder to solve politically although dead easy operationally.

Operationally you would simply lease more warehouse space or trucks, so why is this not happening now? Who doesn’t want an extra $300M in the coffers each year?

The answer is that the government would have to take legislative action to allow non-LDB distributors to deliver directly. All of a sudden this isn’t a revenue issue, it is a political issue, specifically political capital issue, and that is why it hasn’t been solved.

It is sad and you can’t blame the people working at the Wholesale Centre, they are doing what they can. The blame rests on the shoulders of politicians who can’t seem to see the forest through the trees, no matter what side of the political fence they sit.

Solving this issue will take bi-partisan leadership which is something that BC has lived without for decades.

This is just my opinion so if you have other solutions then by all means post them here.

Cheers

Dork UnCorked

Crown Royal Northern Harvest Update: Dec. 16

December 16, 2015 § 2 Comments

This just in….

1500 cases, about 18,000 bottles, arrived into the LDB warehouse yesterday & today, sparking a feeding frenzy worthy of Shark Week.

It took a collective 4.5 minutes for all 1500 cases to sell out.

Anytime you have a scarce resource that is in big demand there are winners and losers and the word on the street is that some stores will have tons of stock and others will have zero as limiting the size of orders only came into play with the last 300+ cases.

The chances are that you will start to see stock show up in some BC Liquor Stores in the coming days and private stores starting next week (Government stores get multiple deliveries from the LDB warehouse each week, whereas most private stores only receive 1 order/week from the LDB warehouse).

If it were me and absolutely needed to get a bottle or two to finish off my Christmas list, I would wait until Monday or Tuesday when the traffic is better and the stores won’t be as crowded… but that is just me.

Cheers

The Dork UnCorked

BC Liquor Updates: Separation of BCLDB Retail from BCLDB Wholesale

December 1, 2014 § Leave a comment

Along with wholesale pricing (see: Wholesale Pricing, & Wholesale Pricing Premium Products) the government and the BCLDB announced the separation of BCLDB Retail from BCLDB Wholesale. For those not in the industry, this may not seem like a major step, for those in the industry, this has the potential of being a game changer.

I have been in this industry for over 20 years and there is only one thing true about changes to the industry, they are evolutionary rather than revolutionary. The separation of LDB retail from wholesale is a big step in the evolution of the industry. Afterall no one in their right mind would suggest that it is a level playing field if one player was not only in charge of pricing, selection and distribution, but was also competing as a retailer.

So what details were released about this separation? None, which gives me a blank canvas to list what it would mean to me, so I will start with how it works today and contrast that to how it should work if the playing field were to truly be level.

The Present

Selection

Right now every product, whether made in or imported to BC must first be registered and approved of by the BCLDB regardless of what the market plan for the product. What this means is that BC LDB has veto power over products that are not intended for their own stores, even if the product has been specifically purchased by a private retailer or restaurateur for their own operation only.

At present the only way a private retailer can prevent other retailers from getting a product is by buying it all, however BCLDB retail can apply a ‘cross-dock’ over any product which prevents anyone but the LDB from buying that product. This embargo can last months if the BCLDB decides so. The LDB does this every year with the Bordeaux and Whisky releases.

Distribution & Inventory

At present every BC Liquor Store in the province can see the inventory levels of every product in the province; how many cases are at the LDB Warehouse, how many cases are at the agent’s warehouse and how many cases are ‘on the water’. Private retailers don’t have access to this information.

Upon the release of a new, highly anticipated item(s) such as the new raft of coolers and ciders that come out every Spring, BC Liquor Stores orders get priority over private store orders. Private store orders will only get filled after all the BC Liquor Store orders get filled.

BC Liquor Stores use a different computer system. Theirs is tied into LDB Wholesale and thus they can effectively create back orders. Private stores can not do the same.

A caveat: Publically the LDB has always stated that Cross-Docks, Priority Shipping, and ‘Back Orders’ don’t exist, however in practice they do and the current system allows the possibility for them to happen.

Data

At present Portfolio Managers have access to sales data for every product in the province, including those that they don’t currently carry. This gives the LDB an unfair advantage and makes many a private retailer uneasy. It has happened all to often where the LDB suggests to an agent that they should drop a sku from BC Liquor Store shelves in favour of an item that is currently exclusive to the private sector. Can you imagine if Save-On Foods had access to all of their competitors sales and pricing data?

The Future

The hope is that with the separation of BCLDB Wholesale from Retail, that the goose and the gander will be treated the same way and have the same levels of controls and access to data. If this is to be the case then the only difference between the BC Liquor Stores and private stores would be their ability to meet and exceed their customer’s needs, full stop. That is something worth working toward.

Let me know your thoughts and may quality ever fill your glass.

The Dork Uncorked.

BC Liquor Updates: Wholesale Pricing & Premium Wine & Spirits

November 27, 2014 § 3 Comments

In a previous post I wrote about the change to wholesale pricing in BC as of April 1, 2015. At the time of writing that piece I was aware that the BCLDB were soon to release more details including the graduated mark-ups that will be applied to premium spirits and wine. Today they released those formulas and it seems that wines over $20 and spirits over $30 are set to jump significantly in price, whereas wines under $20 will stay roughly the same as what they are today.

To be clear I can only speculate on what the result of this pricing model will be,  however my 20+ years in the business leads me to believe that this will have the effect of penalizing mid-range and premium wines and spirits and favouring lower end items.

The fact is that consumers are value driven and understand that a tax increase does not equate an increase in value… no matter how good the retail store they are purchasing from is. I fear that the real effect will be to chase premium consumers out of premium price points, exchanging them for good values at lower prices. Note that the consumer is not likely to increase the quantity they purchase, they will simply spend less. On the supply side, small artisan producers can expect slower sales for their products making it harder to justify selling them in B.C. and will be forced to either seek other markets (Alberta, Asia, US, other Canadian Jurisdictions), business channels (divert volume from retail to restaurants or ‘cellar door’ sales), or simply close their doors.

There are those, however, that are very pleased with the new calculations. Retailers in Alberta and Washington State will be eagerly expecting windfall gains as more BC residents load up or make special trips to save hundreds of dollars on their purchases. I can tell you that this happens right now within the specialty spirits category. The most ardent Scotch collectors have long been making most of their purchase outside of BC.

Admittedly I am not privy to the discussions and calculations that saw the powers that be opt for this model vs a flat tax or less oppressive percentages. I can only speculate what their short and long term motivations are and what the results will actually be. However, although I remain hopeful that they will take another look at the numbers, I believe the smart move would be to find a model that reduces the potential of sending more money to Alberta and pushing artisan producers out of business.

Attached is the pdf as issued by the BCLDB regarding the new formulas.

Mark-Up Schedule Effective April 1 2015 (2)

As always let me know your thoughts and feedback.

May Quality Be Ever In Your Glass

The Dork Uncorked

Liquor Updates: Wholesale Pricing

November 22, 2014 § 8 Comments

My phone was ringing off the hook prior to and after the announcement by Suzanne Anton and the GM for the BC Liquor Distribution Branch. The biggest, and really only, question is ‘What does this mean?’

There is a ton to talk about as the announcement involved Grocery Stores, Wholesale Pricing, Separation of LDB Retail from Wholesale, perhaps the item that will have the most short and long term impact is Wholesale Pricing.

Wholesale Pricing

Current System

Currently BC Liquor Stores do not purchase product from the Wholesale division of the BCLDB. They simply order it, it arrives and they retail it. Private stores do pay LDB Wholesale for their product. The price is a function of the BC Liquor Store retail price. In other words a discounted retail price is what private stores pay. The discount is based on the license type. Licensed Retail Stores (LRS) receive a 16% discount off retail, while Private Wine Stores (Everything Wine, Marquis, etc.) receive at 30% discount on import wine, 15% on domestic wine and cider and are prevented from retailing beer or spirits. Rural Agency Stores (RAS) receive a 12% but are not allowed to carry anything but BC Liquor Store skus. These stores are usually in small rural communities.

Wholesale System

As of April 1, 2015 a new pricing model will be adopted that will apply to all liquor retailers in the province. The price will be a true wholesale price and not a discount from BC Liquor Store retail. As of this writing it appears that pricing will be a function of product type and not be a flat tax as it is in Alberta. What this means is that there will not be a standard price. All retailers, including BC Liquor Stores, will have the choice to retail at any price they choose.

Key Omissions

  1. The new wholesale pricing structure will not be afforded to on-premise (restaurants, hotels, bars) accounts. On-premise accounts will continue to pay full retail and only from BC Liquor Stores or domestic suppliers.
  2. Private Wine Stores will not be allowed to add beer, spirits or coolers to their selection, but will pay the same price for all their products as all other retailers. In other words they are losing a 14% product cost advantage over LRS stores without gaining product options. I would guess that this might change between now and April 1.
  3. At present BC Liquor Stores can solicit advertising, or co-op dollars from suppliers, whereas it is illegal for private stores to do the same. If we are talking about a true level playing field, what’s good for the goose should be good for the gander.
  4. In the current system when a supplier reduces their price, the supplier ‘buys down’ all the inventory on-hand and incoming for BC Liquor Stores for the duration of the price reduction. It is illegal for suppliers to buy down inventory at private stores. Once again, what’s good for the goose…
  5. Speculative Listings: Under the current system BC Liquor Stores are forbidden from putting ‘Spec Listings’ on their shelves. This was done to offset the huge discrepancy in cost of goods between BC Liquor Stores and private stores and give private stores a ‘selection’ edge. Presumably under a wholesale system, speculative listings will be scrapped.

Impact: Consumer Pricing

With all retailers paying the same price for goods it will likely encourage greater competition which, for the consumer, could mean greater selection, although I’m not certain this will be come to pass, but it will likely mean greater price variation, competition and, I believe that this will be in the form of price agility.

At present BC Liquor Store can only change their prices once per month. Private stores can change their prices daily and thus be far more strategic about the timing and value of sale pricing. There are hundreds of shelves in business schools filled with thousands of books and papers dedicated to pricing strategy- agility is the winner hands down. With this in mind I suggest that everyday prices will remain relatively the same, however BC Liquor Stores are likely to start doing ‘one-day’ or ‘this weekend only’ sales which will trigger a market wide long-term response.

It is well known that British Columbians pay the highest prices in Canada and these changes ensure that this will continue. The structure will continue to be ad-volerum vs flat tax (see below for definitions of each) which means that low end products are price favoured while premium priced items are penalized. Alberta is a flat tax and that is why a product priced $70 will likely only be $50 in Alberta.

Addendum Nov. 27: We now know the graduated mark-up schedule in totality. Consumers will not likely see any differences in wine under $20 or spirits under $30, however for those that purchase at the premium end of the scale, the new model promises significant price hikes the value of which increases as the price of the product increases.

Impact: Selection

The argument was made during the announcements that overall selection would be improved. I have doubts that this will happen unless you consider 3 new sizes of Budweiser or brand extensions of Copper Moon and positive increase in selection.

Above I mentioned the doing away with Speculative listings. If this is the case, then you will likely see a plethora of new items on the shelves in BC Liquor Stores, however overall provincial selection will not likely change that much.

Addendum Nov. 27: The graduated mark-up schedule will likely negatively impact the selection of premium wines and spirits in BC. Price hikes on premium wine and spirits will significantly slow sales, meaning that importers and suppliers are likely to redirect offerings to other markets where sales are likely to be better.

Definitions

Ad-Volerum: An ad-volerum tax system is one that adds a percentage tax to the cost of goods instead of a consistent dollar value. In the new system that starts April 1, 2015 the tax on wine will start at 89% (there will be graduated values on premium and super premium wines). 89% on a wine that starts at $3 a bottle has means the government receives $2.67 in tax. 89% mark-up on a wine that starts at $6 is $5.34. In this simple calculation (prior to PST, GST, Volume mark-ups, etc.) a wine that starts at $3 would retail at $5.67/bottle whereas the $6 bottle would retail at $11.34/bottle; a difference of $8.67 which only $3 is found in the product cost.

Flat Tax: A flat tax is consistent dollar value applied to every bottle no matter the value of the bottle. In a flat tax system, the only price difference between a $3 bottle and $6 bottle is $3 as the tax value is the same for each bottle. For example in a system with a flat tax of $2/bottle the $3 bottle would retail at $5 and the $6 bottle would retail at $8.

Attached is the pdf outlining the new wholesale pricing model as issued by the BCLDB.

Mark-Up Schedule Effective April 1 2015 (2)

I would love to hear your feedback so please engage.

May Quality Be Ever In Your Glass

The DorkUncorked

The Liquor File – The Whole Pie

November 22, 2014 § Leave a comment

This weeks announced changes to the liquor industry in B.C. will go into effect on April 1, 2015, but already their impact is being felt.

Social & traditional media has been jammed with calculations, prophecies and conjecture and, full disclosure, I have been apart of it to. However, after a Facebook conversation this morning I took a step back to get a broader perspective.

We have to remember that none of these changes will change the size and value of the market. If anything all they will do is divide the ‘pie’ into more pieces and shift value around.

It is no secret that BC Liquor Stores have been losing share to private stores each year for the last 10 years. Creating a level pricing field is likely the only way that this trend could be reversed using legitimate means. I expect that BC Liquor Stores will start to act like a large grocery concern and leverage their position to either mitigate costs or corner the market on certain products. This could mean disaster for many of BC’s private liquor stores who rely on price and product agility combined with well oiled marketing machines, but it won’t mean any more money into government coffers.

The other big announcement leads to further splintering of the market. Allowing liquor in grocery stores, no matter how it is done, will not lead to any greater revenues for the province or any increased sales for suppliers. It just means that there are more places for consumers to buy booze.

I truly hope that the quality of liquor retailing in BC will improve and I hope that these changes will instill a spirit of continued improvement, however these changes will not change the fact that we pay the highest prices in the country, and it is certain, that they will only mean the pie is divided in more ways.

I would love to hear your comments and feedback so please engage.

I will also be writing a piece specific to Wholesale Pricing so look for that.

May Quality Be Ever In Your Glass

The DorkUncorked.

Is Re-Stocking Eating Your Profits?

August 22, 2014 § Leave a comment

It is no secret that margins are thin. This is especially true if you operate a private retail store in BC.

It is also true that you nor your staff work in a vacuum and that all actions and efforts will have an effect on your bottom line.

Re-stocking shelves is one of the critical cost centres in your store that is often over looked. How much labour are you putting into restocking shelves? The answer is as simple as this mathematical formula and it could save you thousands of dollars per year in labour and out of stock costs.

Weekly Sales / Shelf Capacity = ReStocking required.

Cheers

The DorkUncorked

Was this helpful? Either way say so in the comments.

If I can help you determine your restocking costs and how to make your inventory work harder for you, you can reach me at rodphillips@telus.net or by phone at 250-880-0072

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