As we slowly emerge from the recession, would you think that we’ve been drinking more or less over the past three or four years?
Industry sources say that over the five years leading up to 2012, the uncertainty and unemployment that affected our budgets caused us to drink differently, not necessarily more or less. During this period, Americans saved money by buying more alcoholic beverages from retail outlets in the ‘beer, wine and liquor stores’ industry than going out to restaurants and bars.
So what makes up this industry sector? Nationwide, there are over 41,000 specialty and non-specialty stores that are licensed specifically to sell alcoholic beverages for off-premise consumption. These stores employ nearly 175,000 across the U.S. The ‘beer, wine and liquor stores’ sector takes in $46 billion annually in revenue and has seen annual growth of about 1 percent over the 2007-2012 period.
This industry is considered the quintessential small-business sector: In 2012, for example, 97% of businesses employ fewer than 20 people, and none employ more than 50. Many stores are family owned and operated. The industry is very fragmented, with no major players, largely due to state regulations that prohibit vertical and horizontal integration. In fact, the top 50 companies account for 20% of sales.
One of the central issues the industry faces is intensifying competition—from a variety of sources. First, industry forecasts are that as we recover from the recession, we’ll use a part of our rising incomes to go out and enjoy ourselves again. So the restaurants and bars that may have lost business as people stayed home more are expected to provide more competition to sellers of beer, wine and liquor.
Not only that, think about all the different places you can buy alcohol—among them, supermarkets, and convenience stores, both standalone and those attached to gas stations. And there’s a new competitive twist. Laws governing the sale of beer, wine and liquor vary by state and historically have separated distillers/brewers, distributors and sellers. But now, some states have begun deregulating, which lifts some of the traditional constraints. Which also means that large chains—like Costco, who was a leader in pushing for deregulation— will be able to purchase in bulk, changing not only the face of competition but of the industry overall.
Earlier this summer, reporter Brad Tuttle wrote in Time about how our drinking habits are changing. Wine has been ‘democratized,’ he reported, having lost a lot of its snobbiness. And it’s the drink of choice of a lot of moms and women in general. So it’s not a surprise that Americans drinking at home drink more wine than liquor, but beer still dominates. While as recently as the 80s, liquor store purchases were led by liquor, wine has now left liquor in the dust! But liquor also appears to have picked up some steam in the last couple of years.
Tuttle also reported that while prices at liquor stores have declined 39% over the last 30 years due to more efficient production, drinks ordered in bars and restaurants have increased a whopping 79% during the same period! So it goes without saying that your dollar goes a lot further when you’re drinking at home.
So what do small business owners in the industry continue to be concerned about—and what about entering the industry? Richard Parker, President of The Business for Sale Buyer Resource CenterTM and author of How to Buy a Good Business At a Great Price, says that while owning a liquor store is generally thought to be a stable sector of the retail landscape, you need to weigh a number of factors into the decision to buy a liquor store. Chief among them, perhaps: This is not a good ‘hands-off’ business.
In addition, Parker advises potential liquor store buyers/owners to pay particular attention to the following areas:
- Licensing issues, which have become increasingly complicated over the past several years.
- Inventory – More may not be more here, since inventory should be turning over 8 to 10 times every year.
- Absentee no-no—A high percentage of cash sales, long hours and coveted merchandise are just a few of the reasons Parker says you need to be hands-on.
- Changing landscape – Evolving tastes and entertainment trends necessitate a good product mix.
- Location—Not as important as in other retail businesses, but it can be a competitive factor.
- Books and records—Parker says the industry is notorious for poor record-keeping. It might be difficult, but take the time and make the effort to ensure that everything’s in order financially.