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.

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.

How To Determine The Size of Your Market

August 29, 2013 § Leave a comment

This really only pertains to liquor retailers, but might be an interesting insight for others. The title is a problem that every retailer needs an answer to.

Typically we look a geographic area and say this is our market area, which, if you lived in Victoria, where I live, would mean that if you have a store in greater Victoria your market area is about 180,000 people. Sorry but if you are basing your business plan and shareholder promises on this simple demographic, you are setting yourself up for disaster.

Here are a couple of realities that play a role and have proven true over the years no matter the structural or competitive changes in the market. In other words if you want to build a solid business that can withstand wacky rule or market changes that can come at you from left field, here is where you start.

1) The maximum distance that someone will drive to visit your store is 50km.

2) 80% of your business, and that of your competitors, is premised solely on the convenience of your location. The more convenient your location the better your business.

3) 20% of your customers are up for grabs and will move to another store for reasons of price, service, cleanliness, parking, lighting, advertising/offers, product knowledge and store environment. This also means that 20% of all your competitors customers within a 50km radius are also up for grabs.

4) The growth of your business will only come from your ability to appeal to the 20% of your competitor’s customers.

5) The average customer will shop a liquor store once per month. So what is the size of your market and your risk? Go on to FreeMapTools.com (link below) and draw a 50km radius around your store. Determine how many people of drinking age live in that circle (link to statscan.gov.ca is below). Not everybody of legal drinking age drinks. The best information I have been able to get is that about 80% of those of legal drinking age (LDA) and above, drink and are therefore potential customers. So take the total number of people of legal drinking age and multiply it by 80%, this is the total number of customers in your stores market area or (TMC).

Formula 1: LDA+ x 80% = total market of customers (TMC). i.e: 100,000 x 80% = 80,000 total market of customers.

Divide this number, for ease of calculation, by the number of stores, including yours, in that circle. This will give you your total potential customers or your baseline customers – TBC (this will become really important when we talk about how to measure the health of your business).

Formula 2: Total number of customers / number of stores within 50km radius = Total Baseline Customers (TBC) per store. i.e. 80,000/5=16,000 TBC.

The number of customers that you can count on as being yours is 80% of the TBC. As I mentioned above 80% of customers shop solely by convenience and they don’t change. I call these my SCB or solid customer base.

Formula 3: TBC x 80% = SBC. i.e. 16,000 x 80% = 12,800 SBC.

The number of customers that you stand to lose to a competitor is 20% of your total number. I call these Customers at Risk or CR. When I combine these with the CR’s of others stores I call it Customers in Play or CIP

Formula 4: TBC x 20% = CR or TBC – SBC = CR. i.e. 16,000 x 20% = 3,200 cR or 16,000 – 12,800 = 3,200 CR.

Your business will only grow by attracting new customers or by ‘up selling’ the customers you have. Likely you will have to do both. In later posts, perhaps in an e-book, I will go into greater detail on strategies for both, but for now I will just focus on determining the size of your market. I refer to the number of potential new customers for my business as Customers in Play or CIP. This number changes from year to year by people who move into the area, the number of stores operating, etc. How to calculate your CIP is pretty easy. It is 20% of the total market customers. 20% of your customers are in play for you and your competitors, and 20% of your competitors customers are in play for you and them.

Formula 4: Total Market Customers x 20% = Customers in Play (CIP) or 80,000 x 20% = 16,000.

I always breakdown the CIP into my customers at risk and my competitors customers at risk for a couple of reasons. How I approach my customers at risk is different, albeit at times slightly, than how I approach my competitors customers at risk. The other reason is cost. The cost of maintaining a customer is always lower than the cost of acquiring a customer. The cost of acquiring a customer is always cheaper than the cost of getting a former customer to come back.

If you are already operating a store you likely have the ability to track the number of transactions you have in a day, month, year. Take your annual number of transactions and divide by 12. This is you of customers you have or TBC, 20% of whom will move to a competitor if properly motivated (CR).

Anyway this should give you a pretty good idea of the size of your market, how many people you can count on and how many people you need to attract to build your business. If you have any questions or comments please don’t hesitate to ask.

Tools:

Drawing a radius around your location on a map: http://www.freemaptools.com/radius-around-point.htm

Population Stats: http://www.statcan.gc.ca/

For more detailed stats (neighbourhood density and such) you will have to approach you local municipality.

Feel free to contact me by filling out the below contact fee. I am a consultant and am happy to help you with your business.

BC Liquor Store Sunday Openings: A Big Glass of Kool- Aid

July 31, 2012 § 2 Comments

On the heels of a ton of expensive advertising the BCGEU released the results of a poll done by Angus Reid that concluded that 75% of British Columbians support the opening on all BC Liquor Stores on Sunday’s. I have to say their timing was excellent as it gives a veil of legitimacy when a credible company like Angus Reid does the poll. I doubt the conclusions were ever in question.

It seems that the BCGEU, and by abstention the BCLDB, want you to believe that BC Liquor Stores are profitable, that the revenues that they are looking to generate are incremental and are not already being collected by the Government, and lastly the only way to collect these revenues is through public stores.

I guess the saddest part about all this is that there is no effective group that is prepared to take on the Goliath that is the BCGEU, and that large news companies such as the Times-Colonist, The Province and the Vancouver Sun didn’t ask a question as to the real legitimacy of the poll before publishing it.

First, BC Liquor Stores are not profitable. They don’t generate revenue. The vast majority of them are the most inefficient tax collection operations on the globe. The minority, conceivably would be profitable under traditional measures but BC Liquor Stores are not measured traditionally or individually. BC Liquor Stores don’t pay for the product they sell. There is no public reporting for each individual store’s overhead costs including labour. If you can’t include these costs you can’t determine profitability.

It has been proven on numerous occasions that the government retains more revenue by selling product through private stores and not public ones. The best guess is that 30% of the shelf price is eaten up by operational costs of BC Liquor Stores, whereas the cost of selling to private stores is 14% less than selling through public stores.

Secondly, the revenues generated are already being generated by the private sector. Opening BC Liquor Stores on Sundays is a shell game and simply moves the revenue from one store to another.

Lastly, the fact is that neither government stores nor government distribution is needed to collect tax revenues. Every market in Europe, Asia, Australia, South America, Africa, Alberta and most of the US proves this (Pennsylvania and Utah have similar markets to BC and the rest of Canada, minus Alberta). Any cost that is not pure tax collection takes money out of health care, education and the like.

Are you ready for a twist? If BC Liquor Stores had to compete like any other retail industry, then I don’t care when they are open because I know they must be a real profit centre and that means that they deliver real dollars to government. It would mean BCGEU members in the BC Liquor system create real economic value like other retail organizations and the foundations of a real and truly awesome liquor industry will exist.

The opinions expressed above are exclusively my own and should not be attributed otherwise.

Privatizing Liquor Distribution in BC A Fallacy

July 28, 2012 § Leave a comment

Last week the minister responsible for the BCLDB, Rich Coleman, announced that a short list of 4 competitors for rights to Liquor Distribution in BC. Shortly thereafter the political rhetoric reached new levels from both the left and the right. All of it, in my opinion, was crap and did not see what makes the whole issue a fallacy.

The fact is that most beer, wine, spirit and cider products in the province are privately distributed. Labatt’s, Molson’s, Sleeman, Okanagan Spring and Pacific Western Brewing account for about 80% of all the beer sold in BC yet they are all distributed by privately held companies. The only thing they are responsible to the government for is submitting the correct paperwork that accompanies their submission of tax (mark-up) dollars collected through sale of the products they distribute.

Wines such as Mission Hill, Naked Grape, Copper Moon, Peller Estate, Joie, Burrowing Owl, Sandhill, Hillside Estate, Tinhorn Creek, Road 13 and Quail’s Gate just to name a few, are all privately distributed. Again the only thing the distributors must do is submitt the paperwork and tax revenues collected.

Ciders such as Growers, Okanagan, Extra, Strongbow, Merridale, Sea Coder, etc. are privately distributed.

Every domestic brewery, winery and cidery have the choice of distributing privately or through the BC LDB.

I know what you are asking “So what does the BCLDB distribute”?

The only items that at present must be distributed by the BCLDB are spirits, spirit based beverages, import wines, and import beers (not including Heineken, Stella Artois, Miller Genuine Draft just to name a few).

Most of the revenues generated by the sales of liquor in BC are from privately distributed products. Nothing more needs to be said.

The opinions expressed here are my own and must not be attributed otherwise.

Private Liquor Retailing vs Public Liquor Retailing: Operational Differences Part II

July 27, 2012 § Leave a comment

In Part I I focussed on a number of the largest differences between public and private liquor retailing in BC. Part II showcases four behind the scenes differences that are a big deal.

The first of which is the ability to transfer product between stores owned by the same people or group. At present BC Liquor Stores can and commonly do transfer between their own stores. That means if a product is moving in one store but not another, BC Liquor Stores can legally move product from one store to another no matter where the two stores are located. It is illegal for private retailers to transfer product between private stores even if those stores are owned by the same person, or group.

Second, on average 30% of revenues generated by BC Liquor Stores are through the back door. In other words by sales to licensees such as restaurants and private liquor stores. It is illegal for private retailers to sell to licensees or other private liquor stores.

Third, any new product or a product that has arrived back into inventory gets uploaded into the computer systems at the BC LDB before anyone, including BC Liquor Stores, can order it. However BC Liquor Stores have access to order these products 2 days before private liquor stores.

Private liquor stores pay business taxes to the province that are calculated per store, thus the operations of each individual store are subject to traditional accounting practices. BC Liquor Stores are not subject to business taxes.

Part III will wrap this all up and make some conclusions as to the best plan of attack moving forward.

Liquor Inspectors To Trap Private Retailers in BC

July 26, 2012 § Leave a comment

This week the LCLB announced that they will be conducting ‘sting’ operations around the province in both private and public liquor retail stores.

What they do is hire a minor and send them into liquor stores to see if the stores check for 2 pieces of valid ID. The inspector follows them in and stands behind them in line to watch the transaction unfold.

If the store clerk doesn’t check for 2 pieces or accepts a piece of ID that is not official, then the store will receive a contravention notice. If they have received a contravention notice of any sort before, they will be fined $7500 or be closed for a specific period of time and forced to place a big red sign in a prominent position saying that they sold liquor to an underage person.

If the attempt is to curtail underage drinking then this process is flawed and here is why:

1) It doesn’t charge the offender. Only the store gets charged and not the underage person attempting to purchase alcohol. It takes at least two parties to sell to underage buyers and both should be held accountable. Let’s face it if you were caught speeding on the highway, you would be charged and most of us would think it ridiculous if the dealer who sold you the car was the only one charged.

2) Different strokes for different folks. A fine assessed to a private retailer is money out of the retailers pocket. A fine assessed to a public store is money out of the government pocket and therefore there is really no impact on the store or its employees.

3) Doesn’t get to the root of the issue. Why is underage drinking such a problem? Or why do kids want to drink? Let’s be clear the problem isn’t that kids want a drink, it’s that they want too much to drink. The problem is that, for kids, drinking is taboo or cool. This is a direct function of not making our kids aware of what wine, beer and spirits are and how they fit into a healthy lifestyle.

Let me know your thoughts.

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