Benchmarking Your Liquor Store
Benchmarks provide an important input to business planning and a baseline for you to compare your liquor store against the industry as a whole. In summer 2018, ABLE BC collected data from their membership to start creating an economic snapshot of BC’s private liquor industry. They surveyed private liquor store members and non-members to help develop KPIs or benchmarks for your business, based on store size, customer demographics, and region. Surveys were sent electronically and by mail to private liquor stores across the province.
The five key benchmarks in this article include results from those surveys as well as the LDB’s data, which you can use to incorporate into your business planning.
Benchmark 1 – Sales Growth
The LDB’s 2017/2018 Annual Report states that overall LRS annual sales in BC grew by 1.2% in total litres and 6.9% in wholesale dollar value in 2017-18, so the first benchmark you should establish is measuring your overall sales change during this time period, relative to the channel as a whole.
To develop further benchmarks, ABLE BC drew on the LDB’s data resources for specific LRS channel metrics. The LRS channel covers a diverse set of businesses in size, corporate structure, and location, ranging from very small to large-scale operations. The large stores (based on annual sales) account for 25% of all LRS alcohol purchases at wholesale (see Figure 1 below). Sales are estimated and based on LDB data available on wholesale purchases and an average gross profit margin of 28%. Larger stores tend to work on lower margins.
When looking at the data, the median (the point where 50% of all stores are above the median and 50% below) provides a more likely profile for the overall channel than the mean (or average), because of the skewing caused by large stores.
Benchmark 2 – Product Sales Mix
In order to create the product mix of a hypothetical median store, we analyzed LDB data including average and median purchases for all stores and each product categories, the top boundary of small stores and the bottom boundary of large stores along with each product category, and average purchases for Vancouver, Victoria, and the rest of the province’s postal codes. The average sales for each product category were then used to assess the impact of product mix changes on the large stores.
As stores grow larger, the product mix tends to vary, but not by a lot as a comparison of median and average shows in Figure 3. Larger stores tend to sell more wine and relatively less beer for instance, compared to smaller stores.
You can apply this data to your own business planning by comparing your product sales mix with the data in Figure 3. You may see over or under-performance in any given category. Being different, however, does not necessarily mean you need to change. It may be that you have one category substantially smaller than the benchmark. This might suggest that there is an opportunity to focus on increasing sales in that category, but not at the expense of those that are over-performing.
One of the fortunate by-products of the monopoly wholesale system is that the LDB publishes fairly detailed market sales information by product category and sub-category each quarter. An overview of this is presented in each edition of The Publican, but you can dig more deeply into subcategories by going to the detailed Liquor Market Review at www.bcldb.com/publications/liquor-market-review. The LDB does not break down the product categories by channel, so changes may be more due to action outside, versus within the LRS channel.
As an industry, it’s important to get a good handle on operational metrics, which was the goal of the ABLE BC initiative to survey its members. Unfortunately, a limited number of responses means that no statistical level of significance can be derived, so although the results are interesting, caution should be used in assessing these results for comparison purposes. Responses were all from mid-size and small stores (which together account for 90% of all LRSs) and were split evenly between Vancouver postal codes and the rest of BC (see Figures 4 and 5). No responses were received from Victoria postal codes or from large stores.
Benchmarks 3 Operational Metrics (Small and Mid-Size Stores Only)
Benchmark 4 – Location
Location within the province also has a large bearing on metrics. Stores located in urban areas are generally larger than their peers outside major centres. For instance, LDB data by location shows:
Greater Vancouver has a 50% higher population density than Victoria, so it is notable that Victoria’s LRSs have higher average sales despite having a smaller market. Survey respondents in the Lower Mainland commented on the increased level of competition resulting from GLSs, new grocery entrants, and relocations of LRSs into the area.
While there are a significant number of stores in the large and mid-size segments, the majority of the 343 stores in the rest of the province are very small LRSs.
Benchmark 5 – Competitors and Other Retailers
As a last measure of comparison, it is useful to compare a benchmark that is common to all retailers, no matter what their sector—sales per square foot. We also have the benefit of two data points in our industry, the LDB and Alcanna. The following comparison includes some other well-known retail names:
Based on this data, the LRS channel is a very efficient retailer even when comparing it to major retailers. Check https://retail-index.emarketer.com for other retailers’ results.
When comparing your own data to these benchmarks, it is important to bear in mind the many environmental factors that could influence your particular results, including:
- Location – possibly the key determinant, this includes geographic location, size, etc. but might also include exterior/interior design and layout.
- Accessible Market – knowing the demographics of your market is key. The ‘Define Your Local Market’ article in the Fall issue of The Publican is a good starting point for how to more accurately assess your potential market.
- Staff Capability – focus on your staff’s expertise in specific product categories.
- Competitive Environment – the level of competition may act as a brake on your performance.
- Resources – for all small businesses there is always a challenge in having the time and money to invest in better marketing, training, inventory, etc. For many, this may be the single biggest constraining factor.
Benchmarks are guides, not absolutes, as each store’s metrics will be influenced by local environmental factors. Key performance indicators are best used as a reference in your annual planning process to identify areas for improvement in the coming year.
ABLE BC will continue to survey LRSs on an annual basis to expand our data set and adjust benchmarks as needed. LPs will also be surveyed in the future. On behalf of ABLE BC, I’d like to thank those who took the time to respond to the survey and we encourage more people to participate in upcoming surveys.
Paul Rickett is principal of VARKeting! A company specializing in turning liquor industry data analytics into effective business strategies. He also runs a median-sized LRS in the Lower Mainland. Paul can be reached at email@example.com.