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Liquor Store Profit Margins
In the United States, there are approximately 45,000 liquor stores. The majority of these stores are consistently profitable cash businesses that are recession- and pandemic-proof. It’s no surprise that liquor stores are in high demand as a desirable business opportunity to a variety of business buyers. Next to restaurants, liquor stores are one of the most popular businesses sold in the United States. Those with real estate are in even greater demand.
Liquor store profitability depends on the business size, location, and what the local market will tolerate in terms of product mark-ups which tend to range between 10-50%. Overall, in California product mark-ups are usually adjusted to balance profitability with local market competitiveness. The less competition for the product, the greater the mark-up, the greater the competition, then the lower the mark-up to remain competitive.
The average liquor store profit margin in the Unites States is 8.1% according to the Business Reference Guide which is considered the premiere resource guide for valuing US small businesses.
Profit should be 15% to 20% for a $1.0 million store or above. This assumes a store that operates daily with an inventory level of $250,000, surveillance cameras, drug and background checks for employees, and an extensive selection of wine and liquors.
Additionally, liquor store profit margins are also determined by benchmark measures. One of the most significant benchmarks is location to populated neighborhoods. The greater the foot traffic, the greater the sales. Establishments in populated neighborhoods near commercial zones with ample parking tend to fare much better than retail stores in mostly commercial areas.
Another benchmark is that the store’s gross margins are 25-35% or better. Liquor store owners should strive to keep their lease amount less than 7% of gross sales. They should also keep payroll at less than 10% as well.
How to optimize liquor store profit margins
A number of factors influence liquor store profit margins. Location, overhead and, of course, gross sales have a huge impact on the bottom line. Leveraging variable costs is the key way to optimize your liquor store profit margins. Fixed costs are those that are set and don’t regularly vary such as lease expenses. Owning the commercial real estate is a huge benefit in controlling occupancy cost.
Variable costs provide the liquor store owner to reduce expenses in order to maximize gain. Changing vendors or buying in bulk are classic ways to reduce cost to maximize profit.
Additionally, the liquor store owner can also optimize profits via another variable cost which should go up to increase sales and profits. Liquor store owners should invest in marketing.
Marketing is a catch-all concept to indicate advertising, promotions, digital marketing, social media marketing, etc. Depending on budget, marketing can be performed in a variety of ways to generate new sales, enhance branding, secure customer loyalty, etc. Without a doubt, investing in smart marketing is the surest way to increase sales and profits.
Liquor stores can improve their profitability through local marketing, particularly during the holiday season which is when liquor store sales increase.
Additionally, liquor store owners can use promotional events, manufacturer rebates or special discounts to increase foot traffic. Promotional events like hosting a tasting party can also help bring in new customers.
Likely the best bang for the marketing buck is through digital marketing. Making sure you have a welcoming, modern and mobile-optimized website is great way to promote your branding. Also investing in local digital marketing to capture online search for the most commercial search terms is one of the best ways to expand awareness of your store and increase sales.
Inexperienced liquor store owners struggle with tight liquor store profit margins. These owners without much retail experience or industry knowledge should strongly consider hiring an industry consultant to optimize their profits, particularly if their store is grossing over 1 million in annual revenue.
With experience and smooth operations, liquor store owners should seek to own 3 or more locations to maximize efficiencies and systematize procedures and processes. Consolidating processes and costs among several units is an optimal way to maximize profits. When the capital is available, buying additional units offers the owner the advantage of increasing margins by buying bulk specials when offered by distributors.
Owning a liquor store requires skill and talent to successfully in managing inventory. Frequent inventory turns is a sure sign of a successful shop. Inventory turns is also a key performance metric that liquor store buyers should look at to determine how successful the liquor store is operating.
According to the National Association of Convenience Stores, the top-performing liquor stores have an average inventory turnover of 13.07 per year. Higher turnover categories included packaged beverages (26.21), beer/wine (16.84), and cigarettes (15.76).