Are liquor stores profitable? This will no doubt be a question on your mind if you are thinking about starting up your own liquor store. After all, you will want to make sure that your business is profitable and that you are making a good return on your investment.
The answer to the above question is almost always ‘Yes’. Most liquor stores are very profitable. However, the level of profitability varies from liquor store to liquor store and from region to region.
Profitability depends on several factors like the store’s location, operating hours, what products it carries, the type of customers it attracts, how well it is run, the competitive landscape, etc.
In this article, we will discuss the top factors that impact a liquor store’s profitability and what you can do to increase the chances of your liquor store becoming successful.
When Are Liquor Stores Profitable? – Factors that Affect Profitability
Here are the top factors that affect the profitability and therefore the commercial viability of a liquor store:
- Location
- Operating Hours
- Range of Products
- Prices
- Type of Customers
- Controlling Operating Expenses
- Inventory Management
- Supplier Management
- Competition
- Upsell / Cross-sell
1. Location
A liquor store needs to be in a location where there is a high footfall of potential customers. The store should also be easily accessible and visible. If the store is located in a remote area, it will not get much business and will struggle to be profitable.
When you consider a location for your liquor store, think carefully about the type of customer you want to attract. If you want to attract a high-end clientele, then you need to be located in an upmarket area. If you want to attract a more diverse range of customers, then you should consider a location that is more central.
Also remember that by keeping your liquor store in a well-lit, visible, and easily accessible location, you will be able to attract a certain type of customer who will not go anywhere near a shady-neighborhood liquor store.
And such a location is also likely to deter would-be thieves.
So think carefully about your liquor store’s location because this is something you cannot change afterward.
2. Operating Hours
Your liquor store’s profitability will depend on your store being open and accessible when your customers want to buy some alcohol. Because if you’re closed, they’ll just go somewhere else and you will lose the revenue and the profit. And worse, you may lose that customer forever, especially if they find the other liquor store has what they always look for.
So consider having long operating hours so that customers can come and buy liquor at their convenience. This means that you need to be open late at night and on weekends.
Unfortunately, this will also mean that you will have to pay your staff for more hours, and your overheads will be higher. But if you want to increase the chances of your liquor store being profitable, then you need to be open when your customers are most likely to buy from you.
3. Range of Products
You can never know what a customer walking into your liquor store is looking for. But you can bet your bottom dollar that if they don’t find what they are looking for, they are going to walk right back out and go somewhere else. This is one of the main reasons why customers leave a store.
So try to carry the widest range of products possible. Think carefully of your target market and consider what they would be most interested in. A large set of choices is what customers expect from a business of any kind.
If your store is located near a university campus, then you should try to carry a wide range of beers, as this is what most students are looking for. For example, this can be a good market for craft beer because not all students will be interested in cheap but well-known brands.
But if your store is located in a more affluent area, then you might want to focus on carrying a wider range of wines and spirits including expensive wines from other countries.
The bottom line is that the more products you have in your store, the more likely it is that a walk-in customer does not leave empty-handed.
4. Prices
You can be sure that many customers walking into your store will be sensitive to price and so how you choose to price your products will have a large impact on your profitability.
Now for many standard products you may carry, there is not much room to move on price. For example, the big brands of beer are all going to be priced around the same because that’s what the market dictates.
But for other products, you may have more flexibility. And it’s important to find that sweet spot where you are able to make a good profit but also attract customers with a competitive price.
Do your research on competitor pricing and find out what other liquor stores in the area are charging for similar products. This will give you a good idea of what is possible and help you to make a decision on pricing.
Of course, you can always offer discounts and sales on certain products from time to time to attract new customers or entice existing customers to buy something they weren’t quite planning to buy.
5. Type of Customers
Different types of customers have different spending habits when it comes to alcohol products and this will impact your liquor store’s profitability.
There are those customers who come in and just buy what they need for the night. They might buy a couple of bottles of wine or a six-pack of beer and that’s it.
Then there are other customers who might come in and spend a lot more money to stock up their cellars. They might buy a bottle of high-end vodka, some mixers, wines, and even snacks. Or they might buy a few cases of beer because they are having a party.
It’s important to attract both these types of customers because the low revenue, low margin customers might come in large numbers, while the high revenue, high margin customers may only need to come to your store occasionally.
6. Controlling Operating Expenses
Like with all businesses, controlling operating costs is one of the surest ways of improving profitability or at least protecting it during tough economic times.
The most common operating expenses that a liquor store has are rent, staff wages, insurance, utilities, and inventory costs.
You cannot escape rent and if you want your store to be in an upscale neighborhood you’ll need to pay accordingly. You could limit staff times to busy periods or offer lower wages to attract less expensive employees.
You can shop around for better insurance deals and be sure to compare utility providers every few years to ensure you’re getting the best rate possible.
Of all these expenses, inventory costs are probably the most flexible where smart management can help improve your store’s profitability and so it’s important to get this right.
7. Inventory Management
One of the key objectives of Inventory Management is ensuring that there is enough supply to meet customer demand.
You need to have enough products in stock to meet customer demand but not so many that you are tying up a lot of money in unsold inventory. You don’t want to offer discounts, later on, to get rid of excess inventory, do you?
To effectively manage your inventory make sure you understand which of your products sell the best and which sell the worst. Accordingly, put systems in place to monitor stock levels and set proper reorder levels to make sure you never run out of stock of your best-sellers.
One of the best ways to manage your inventory costs is to manage your suppliers. That’s next.
8. Supplier Management
In Supplier Management, you are finding ways to negotiate with your suppliers so that you can squeeze out extra profit from each bottle of alcohol that you sell.
If you are placing an order with your supplier for your best seller, consider placing a bulk order and demanding a volume discount.
If a supplier comes to you with a new product that they want you to carry, ask for discounts and full refunds if the product doesn’t sell.
Also, don’t be afraid to ask for products on consignment. Many distributors will be happy to have their stock sit in your store rather than in their warehouses.
Negotiating favorable terms with suppliers is a sure-shot way of improving your liquor store’s profitability. And if you cannot get what you want, there are always ways to change suppliers.
9. Competition
As the saying goes, if there is no competition maybe there is no market. At the same time, most of your products are commodities and so too much competition can be a bad thing.
If your target market has many stores to choose from, a smaller percentage of them will enter yours. So when selecting a location for your store, scout the area and look for existing competitors or think about where new competitors may crop up.
Also, remember that many supermarkets can also be your competitors as they will all have liquor aisles. And if they order drive-through pickups or home delivery, they could become a real competitor to your small liquor store. They will also be able to negotiate better terms with distributors.
10. Upsell / Cross-sell
Always look for opportunities to sell your customer something extra than what they came looking for. In your liquor store that could mean selling them a higher-priced bottle of wine or Cognac instead of the one they originally asked for.
You could also upsell them by selling them accessories like wine glasses, corkscrews, or gift baskets.
If someone is buying for a party, make sure to cross-sell them items like chips, dips, and sodas. If you have a liquor store with a bar, then you can also sell them mixers and garnishes.
There is no limit to how you can get creative with your upsell and cross-sell strategies but just remember that the key is to offer your customers more value than they expect and to do it in a way that benefits them.
Conclusion
As you can see from this article, a liquor store can have a wide range of profitability depending on many factors.
Some of these factors are the store’s location, the products it carries, product prices, when the store is open, how it keeps expenses under control, how it manages inventory, how it handles suppliers, and its direct and indirect competition.
If you’re considering starting a liquor store or if you already have one, use this article as a checklist to make sure you are doing everything possible to maximize your store’s profitability.
Cheers!
