Trends That Affect the Liquor Store Industry

Before applying for a liquor store loan, the liquor sellers should consider a few important things first. The past decade has witnessed dramatic changes in the sales of wine and liquor, demographics, consumption habits, and merchandising. Changes are so impactful that even the term liquor store is regarded as inaccurate, with Americans buying more wine than liquor from these local stores.

A recent study conducted by the Beverage Information Group suggests that the annual consumption of wine by Americans is 350 million cases. That would roughly account for about one case of wine per citizen every year. With stats like these, it isn’t surprising to see that liquor stores are an appealing business.

Although the liquor store business is rewarding, it is also a highly demanding one that is subject to several regulations. Besides, it is growing highly specialized these days. With the consumer knowledge of wine and spirits becoming more sophisticated and the interest in new libation experiences increasing, you must do some homework as a liquor store owner. Consumers expect great selection and quality that does justice to the price. The consumers often seek guidance and ask for recommendations from local liquor store staff.

Alcoholic beverage sales tend to improve during times of economic recession. Liquor stores generate moderate gross margins and the gross profit obtained on each sale is about 20 to 30%. Specialty alcohol products offer profits of higher margin. A liquor store must face moderate barriers to entry. Depending on the location and size of the business, liquor store startup costs are between $50,000 and $250,000. Easy access to financing for purchasing inventory is one of the major strengths of a liquor store. Financing companies and banks show a greater willingness to provide financing to liquor stores and package store business.

Challenges of Financing and Operating a Liquor Store

There are more than 47,000 retail stores selling beer, wine, and liquor in the US, earning total annual revenue of about $58 billion. Even though they follow an almost recession-proof business model, maintaining a healthy flow of funds is still not that easy for many of the independent liquor store owners. High overhead costs, restrictive government regulations, costly payroll, financial mismanagement, competition in the local market, and expensive inventory are some of the reasons for this. Lack of access to working capital is the biggest issue that many liquor store owners are bound to face.

To comply with the laws and regulations and thereby remain in business, liquor stores must abide by stringent Federal Liquor laws. The laws and regulations that retail liquor dealers must follow are highlighted on the Tax&Trade Bureau’s government website. Entrepreneurs must be aware of these regulations before they plan to invest in setting up a liquor store. The full list of federal laws and regulations is quite long.

Richard Parker, President of the Business for Sale Buyer Resource Center has noted the key issues that entrepreneurs should be aware of before they seek liquor store financing. Here are the key issues that are to be considered before you get involved in starting a liquor store.

• Maintenance of inventory
• The changing landscape of the liquor business and consumer preferences
• The importance of obtaining a license for operating a liquor store.
• The need for a hands-on type of owner

Although it is one of the most profitable retail industry sectors, traditional lenders often deny financing to liquor stores because they are treated as high credit risk. This is particularly true for all the business owners and startups that do not have established business credit. If you fall into this category, you might have experienced this sentiment while applying for a loan. That is where Building Block Capital becomes important. We are experienced in connecting entrepreneurs with business financing for liquor stores.

Trends in Financing For Liquor Stores

Recently, the trend in liquor store financing is moving towards super-sized, low margin retail stores. The trend is observed with many retail stores. Small neighborhood liquor stores are experiencing financial difficulties because they are unable to survive the competition from larger mega-chains. The evolution of mega-liquor stores resembles the dynamic between large home improvement chains and hardware stores.

To survive the increasing competition, owners of small liquor stores have started banding together in buying groups so that they can pool their purchasing power and stand against the larger mega-outlets. In many cases, this is the only way to survive. However, convenience is one of the major advantages of a local neighborhood liquor store. Impulsive buying and last-minute buying are quite common when it comes to liquor shopping. If there is enough distance between your closest mega-store and your store, a liquor store owner can make good earnings in the last-minute liquor purchase market.

The liquor industry is regarded as a recession-proof industry and it is one of the strongest characteristics of the business. Alcoholic beverages are called vice consumption items that remain in demand in good as well as bad times. This is one of the major reasons why lenders view a liquor store loan as an attractive proposition. This applies to the US Small Business Administration as well. If the customers continue buying from your store even when the economy is declining, lenders will be confident about providing you a larger loan amount or offering a longer-term that can help you attain your goals faster.

Tax on alcoholic beverages is a downward trend these days. Some of the states have started introducing tax incentives meant to support the manufacturing and distribution of local wines and liquor. More local breweries and distilleries in all cities in the country are a big source of money for state governments and liquor stores. So, the politicians usually pass favorable policies to make the best use of this opportunity and promote economic development.

Micro-winery and micro-distilling industries are other growing trends. The trend proves beneficial for a local liquor store as it can easily establish a close relationship with a local label.

Best Options for Liquor Store Loans

The first step you are required to follow is to understand the type of business loan you need. The loan options can help liquor store owners cover the common expenses, acquire an already established store, or expand their store.

Business Line Of Credit 

A business line of credit is very much like a credit card and grants you access to a particular amount of funds that you can draw upon when required. It is designed to help you handle ongoing expenses like buying more bottles or adding expert staff at times when your cash flow seems inconsistent.

Merchant Cash Advance

There is an increased chance for your sales to be in debit or credit cards these days. A merchant cash advance is an advance provided on your future sales and you are expected to pay it back with a fee with a part of your daily sales.

Business Term Loan

If you are planning to launch some bigger project or want to upgrade your store, a business term loan can be very useful to you. It allows you to break down any large expense into smaller repayments that you can afford to pay.

Equipment Financing

You might need various equipment in your liquor store and to finance the needs, you can apply for equipment loans and leases that will help you cover the costs at a lower rate. The loans can often be secured by pledging your equipment as collateral.

Commercial Real Estate Financing

The loan is useful if you have plans of buying property, leasing it, or expanding the one you already have. You may open another liquor store, simply create a back-office space or expand a cellar with the loan amount.

Marketing Tips That Will Help Increase the Liquor Store Sales

Here are some marketing tips that will make your liquor store more popular among the people. The popularity will reflect in your sales.

Host Events

Conducting mixology demonstrations and tutorials, advice on wine/food pairings, and whiskey tasting sessions will help attract new customers and improve the sales of top-priced items in stock.

Operate For Longer Hours

Keeping the shop open for as long as you can by the law will help bring in more customers and improve your earnings.

Form Partnerships with Local Producers

Setting up partnerships with local liquor producers can help a lot in your business growth. Find out if there is a small batch whiskey producer or craft brewery nearby your store and reach out to them to discuss the possibility of forming a partnership.

Develop Expertise in the Work

Developing expertise would mean investing in hiring expert staff and educating the staff your store currently has. If your staff can offer a good recommendation, you might get a life-loyal customer.

Study Your Neighborhood

If only a small percentage of people in your neighborhood are buying from your store, it is high time to conduct a self-check to find out why and find ways to serve them better. You may have to study how your competitors operate to develop some insights.

Tips for the Success of Liquor Stores 

Here are some tips that will be useful in improving the sale of liquor stores.

Up and Cross-Selling

Earning high gross revenue is important if you want to reduce the borrowing amounts and costs. The tips that will be discussed below can be very useful in increasing per-unit sales and the sales of items coming at higher price margins.

Cross-product promotion is one of the best ways to improve the quality of customer experience and increase customer purchase rates. You can try something like providing a discount on buying 3 items of the same brand. For instance, if a customer is looking to buy a bottle of plain vodka, you can provide regular vodka, a lemon-flavored vodka, and an orange-flavored vodka in a package with a discount. This way, the customers will be encouraged to buy more. This practice has high success rates and is being followed by many retail stores.

You can try more creative ways too. Attracting customers towards higher-priced items is another way to run promotions. For example, consider a customer who prefers buying a medium-priced wine. In this case, you can offer a promotion for a white wine that comes at a higher price rate than red wine. Most customers like to buy both red and white wine for parties and events. If they find red and white wine in similar price ranges, there is an increased chance that they will buy both. This way the customers will be encouraged to shop in a higher category.

Promotional Ideas to Increase the Customer Return Rates of Liquor Stores

Loyalty programs are commonly conducted to earn loyal customers that shop exclusively from your store. However, many customers aren’t impressed by the benefits offered and hence are reluctant to give their email addresses or phone numbers. Offering receipt coupons is one good way to bring back those customers. Coupons provide the merchants with control over when they want the customer to return.

Liquor Store Promotions and Product Bundles

One way you can increase customer spending is by bundling products. Many people will prefer buying a boxed cocktail set rather than buying the individual products separately. This is a good opportunity to include brands that can offer better profits. In addition to that, product bundles are something that you can give to important people in your life.

Events Will Contribute To Liquor Store Sales

The shopping experience will be a very influential factor when it comes to shopping in brick-and-mortar shops. It isn’t that easy to compete with online stores and delivery services but the experience of walking through the store in person is exclusive to brick-and-mortar stores. You can offer a shopping experience that is on the next level by hosting special events or showcasing certain products. There is no denying that it requires efficient planning and advertising that will have associated costs. However, you must contact at least some of your vendors. The suppliers are keenly interested in advertising their brand while the store owners are looking for promoting the store. This will help improve your relationship with the brands you sell and lower your investment.