A survey by Carolina Business Brokers revealed several compelling observations about liquor store ownership:
- “Inexperienced operators quickly realize the tight margins and long hours. Those without retail experience and/or industry knowledge should keep an industry consultant close by.”
- "I discourage buyers from buying liquor stores because they get caught up in a fantasy world and typically fail. Any new buyer must be prepared to add $50,000 to $100,000 in inventory to get a handle on the demand.”
- "There is a high failure rate due to people having high and unrealistic expectations. Those that are successful are heavily capitalized. Having the Lottery is very important to bring in traffic."
Of course, statements like these shouldn’t dissuade an individual from buying one or more liquor stores, as liquor stores certainly have their share of advantages as well. In the same survey, other observers pointed out that liquor stores are a cash business, recession proof (to a large extent), and that “there will always be a market for alcoholic beverages.” These days, it’s also easy to maintain control of inventory with the help of computer programs.
Yet it’s wise to temper one’s expectations and not assume that buying a liquor store is a surefire way to make a lot of money (not to mention be one’s own boss). Managing and marketing a liquor store effectively are the keys to being profitable.
With this in mind, following are ten strategies for increasing liquor store profits.
1. Balance your inventory.
Did you know that as a general rule, liquor stores that sell more beer make less profit, and that those that sell more wine make more profit? It doesn't matter what you drink or even if you drink. What matters is that you stock and sell the items that earn the highest margins.
2. Turn your liquor store inventory six to nine times per year.
Every item on your shelves or in your storeroom represents dollars that you can't deposit or spend. Though it's important to offer customers product selection, having too much inventory can be worse than not having enough.
3. Understand that sales do not equal profits.
It seems so simple, but this misunderstanding drives many businesses into bankruptcy. Sales revenues are what liquor store owners use to pay the expenses, like the lease, payroll, sales tax, licenses, insurance, marketing, utilities, and inventory, as well as any business loans or other obligations. What is left after all expenses have been paid is profit.
4. Establish reasonable goals and objectives.
At a minimum you must know how much revenue you need to generate to meet your expenses—per week, per month, per quarter, and per year. Use an industry guide to help determine realistic goals and objectives. Determine how much revenue you need to break even, and from there you can establish profit goals.
5. Know your inventory.
Most liquor store customers either know precisely what they want or don't know what they want at all. That’s why it’s vital to command a certain level of expertise about the products you sell, especially wine and spirits. So when a customer comes in looking for the best options for a bottle of wine or corporate gift, you’ll be able to confidently make recommendations and thereby satisfy the customer.
6. Control your expenses.
All business owners are emotionally involved. Because they love their business, they have a tendency to purchase things that are not really needed. Taking the time to research the need and the ROI of purchases will help you control expenses. In other words, make sure your purchases directly contribute to the growth of the business.
7. Make your store visible online.
It almost goes without saying that a mobile-friendly Web site can be invaluable in helping customers find your store—especially impulse buyers. Do all you can to make sure your site is optimized for local SEO. Also, set up business profiles on Facebook, Twitter, and Google+, and make certain to remain active on social media. If you have the resources to develop an e-newsletter, ask customers to opt-in to your e-mail list and use the e-newsletter to keep customers abreast of specials, as well as special events.
8. Hold exclusive events.
Special events—like wine and spirit tastings—are a great way to bring new customers in the door and introduce them to new products. Offer discounts on brands featured at special events to encourage patrons to buy.
9. Encourage satisfied customers to post reviews online.
Positive reviews on major sites like Yelp can encourage new customers to patronize your business, as reviews are strong social proof and appear when potential customers do Internet searches. Equally important, local reviews are a ranking factor with search engines.
10. Love your customers.
Show them that Customers Are Really Everything (C.A.R.E) to you. “When they see you as a friend, they will increase their spend.” They will do that by returning more often, by asking for your advice, and by recommending your store to others. As you probably know, most liquor stores live and die with their “big whales”—the regular customers who buy in significant quantities. Reach out to those customers and make sure you give them a reason to return to your store time and time again.
BONUS: Most businesses suffer a cash flow crisis at some time. Ideally you will have enough cash available to sustain your liquor store business through unforeseen circumstances, like when a refrigeration unit unexpectedly breathes its last breath. But if funds are not available, a business loan can help you get through the crisis. Hope for the best, but always prepare for the worst.