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.

What Do I Know

August 28, 2013 § Leave a comment

I have now been in the beverage alcohol industry for 20 years. I have been a sales rep, sales manager, importer, category manager and now a retailer. The problems that retailers and suppliers ‘enjoy’ are the same now as they were 20 years ago. The fact is that no one has looked at the process and offered real solutions. It is those solutions that I have to offer after twenty years.

For suppliers – don’t guess at the market and don’t rely on ‘what the numbers say’. This is a relationship business. Test your proposition first and this means ask for real orders. A guess always leads to either out of stocks or having to reduce your price and neither improves your bottom line.

For retailers – ask yourself who is in charge. You are not in charge if all you do is give BDL (Labatts and Molsons) or the LDB your money each week. The fact is that they are in charge if this is what you do. You need, I stress need, to reduce your dependence on them in order to improve your bottom line or to maintain your current approach to business. There is more risk in ‘staying’ safe than ever before. You are guaranteed to lose by standing still and being okay with the status quo.

If you want specifics let me know ’cause I’m happy to share.

Private Liquor Stores vs Public Liquor Stores in BC: Operational Differences

July 19, 2012 § 11 Comments

It seems that the underlying assumption about liquor retailing and distribution in BC is that it is a level playing field. I have to make this assumption for two reasons. 1) the level of debate by our political leaders never discusses the structural differences between operating a public and private liquor store, and 2) whenever I point out the differences people are incredulous and respond with ‘no way… That’s not possible!”

Disclaimer: the following is not controversial, full of sound bytes or going to impact your day one way or the other tomorrow. It will simply outline the operational (read: dull) differences between operating a private liquor store and a public liquor store in BC.

The first issue for a private liquor store operator is always cost and primarily cost of goods. For public liquor operators the first question is always about public safety and here is why.

In BC, public liquor stores, also known as BC Liquor Stores or BCLDB, are never charged for the goods they sell. On the other hand private retailer is charged the BC Liquor Store retail price less 16%. In addition private stores must pay in full 2 days in advance of the order being compiled. No terms are available. The base gross margins BC Liquor Stores start at is estimated at 80% whereas as private liquor stores start at 16%.

When the BCGEU and the BCNDP suggest it isn’t fair that private stores get a discount when BC Liquor Stores don’t get the same discount, keep in mind that there isn’t a private liquor store operator in the province that wouldn’t rather have the same deal BC Liquor Stores have when it comes to cost of goods.

In BC all spirits and imported product must be distributed by the BCLDB. That’s right the same organization that supplies and operates BC Liquor Stores, the direct competitor for private liquor store operators. As a result the LDB can block orders from private stores and redirect that stock to their own BC Liquor Stores without notice to the private retailer or importing agent. The only way for a private liquor store operator to block LDB stores from access to an imported product is to buy all the stock available in BC. If a product is yet to arrive in BC, the BCLDB can block the sale to private stores even if the private store has paid the supplier and the freight forwarder for the product.

In BC, BCLDB buyers must approve all purchase orders requested by agents. Thus they have the power to refuse the order for a private store or have advance knowledge of the orders existence and arbitrarily decide to take the order for themselves.

In BC, BCLDB buyers have access to purchasing data of every private liquor store in the province. Private Liquor Stores only have access to their own data and not the data of their private or BCLDB competitors.

In BC the BCLDB can decide to open a store wherever it wants and is not subject to municipal zoning by-laws or community consultation. A private liquor store is subject to municipal zoning by-laws and must go through a re-zoning application process and community consultation if the property has not been zoned for a private liquor in the past. Furthermore, the LCLB, through the BC LDB forbids an LRS license (full service private liquor store) for being situated within 1000m of another LRS. Strangely an LRS can open directly beside a BC Liquor Store, Private Wine Shop (ie. Everything Wine) or a Duty Free store if the municipality approves of it.

The one thing that BC Liquor Stores are not supposed to do is to have available products that are called specs. These are products that have been deemed by BCLDB buyers as not for retail sales in BC Liquor Stores. However when a BC Liquor Store does make it available for sale in their stores, even when notified of the infraction stores, are not held accountable to remove the product from their shelves.

If your are a supplier to the BCLDB and you want a display of your products in BC Liquor Stores it is strongly suggested by BCLDB buyers that you buy advertising in Taste magazine which is published by the BC LDB. Thus the BCLDB is demanding a financial inducement to promote specific products. It is illegal (BC Liquor Act) for private liquor stores to have any financial relationship for any reason with suppliers. A private store having a financial relationship could face a stiff fine at best and at worst complete closure of their business.

Hours of Operation. Private Stores can be open from 9 am through 11pm 7 days per week 52 weeks a year. BC Liquor Stores can not open before 9:30 and most are not open past 9pm or on Sundays. That means, notwithstanding BCLDB Signature stores, private stores can be open 32 hours per week more than public stores. In the case of BC Signature Stores, private stores can be open 21 hours more than BC Signature Stores.

As a matter of policy BC Liquor Stores have not offered cold product or chilling facilities, whereas all private stores offer refrigerated product.

As a matter of policy BC Liquor Stores have restricted their advertising to Taste Magazine, BCLiquorStores.com and their mobile app, yet they are allowed to charge suppliers for advertising their products. Private stores can advertise on any medium but can not ask for, or receive payment, whole or in part, from suppliers for advertising their product.

As a matter of policy all promotions developed and executed by private liquor stores are supposed to be approved by BC LDB promotions first. Promotions planned by BC Liquor Stores do not need approval of private liquor stores before being executed.

Okay here is the one you have all been waiting for… Public Safety. We could also call this social accountability.

Underage drinking and bootlegging is a problem in private and public liquor stores, however public liquor stores are not held to the same level of accountability for these infractions. Private liquor stores could suffer fines or closure for any number of infractions as determined by the LCLB, whereas public stores will not be closed for such infractions. Furthermore fining a public store means money going from the government to the government and thus is not a real punishment. Only recently have LCLB inspectors been allowed to enter BC Liquor Stores as per BCGEU guidelines.

At the end of the day there are two indisputable facts about liquor distribution and retailing in BC.

1) the BC Government, whether NDP, Liberal, Social Credit, Green or Conservative Party, would collect taxes from the sale of liquor in BC whether or or not distribution and retailing are operated by the government through the BCLDB.

2) It is not a level playing field between public and private liquor retail in BC.

I don’t believe in ideological or broadcast solutions. I believe that retailing is about meeting the needs of your customers and community. If BC Liquor Stores can cover their costs by doing so then they should stay open. If they can not I fail to see why they should remain open. Nevertheless the playing field should be equal and let the best and most responsible operator win.

The thoughts and conclusions expressed above are my own and should be attributed otherwise.

Taboo Pressure

October 16, 2010 § Leave a comment

BC recently changed their drinking and driving laws. The Union BC Municipalities are petitioning the BC Government to adopt a progressive alcohol tax that adds more tax to higher alcohol items. Both are in the hopes of reducing and limiting’ irresponsible drinking’. My thoughts are pretty simple; neither gets to the heart of the issue and therefore neither will have the desired effect.

First what is ‘irresponsible drinking’?  I think we can all agree that having a couple of glasses of wine or beer with friends is not the problem. Neither is getting piss drunk and puking all over yourself. The problem is getting piss drunk and either getting behind the wheel of a car, or exiting a bar and starting fights or damaging property, or drinking yourself silly and beating up ones kids or spouse, of drinking while you’re on the job or pregnant, or simply drinking yourself to death. By the way this was not meant to be a comprehensive list. In other words it is the social cost of over indulgence.

None of the above instances are economically motivated, nor will they be significantly derailed through economic actions. I believe that it simply encourages other illegal behaviours like smuggling, experimenting with expensive narcotics, breaking & entering, that sort of thing.

Rather I believe that these issues are cultural.  We are brought up understanding that drinking is a taboo (n. a prohibition imposed by a social custom or as a protective measure – Merriam-Webster Dictionary). One that our parents relish and joke about, but kids are forbidden to do. What happens is that we create a taboo. A taboo that is alluring and seductive. A taboo that it accessible and energized by peer pressure. If your buddies are trading shots you are likely to do that to.

Pricing will play a role in eliminating the problem but won’t solve it. My guess is that deconstructing the taboo will significantly reduce the social motivation for over consumption. By the way deconstructing the taboo won’t happen if it comes from the ‘authorities’. It seems that is a sure-fire way to encourage the opposite behaviour.

The next question is how and who will have the political motivation to do make  the ‘how’ happen.  Love to hear your thoughts on this.

Thanks for reading this.

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