From Mal Higgs, Project Manager – ALSA Retail Insights.

Many retailers have worked out that they can make a great deal more profit margin selling private label products – especially wine. It is not uncommon to hear stories of a four or five percent increase in gross profit margin across the entire wine category just by selling four or five dozen private label wines in a week. Of course, there is a double whammy effect here as well – as the competitive nature of the retail market means that many major brands have to be sold at extremely low profit margins in order to compete. So, the first question is – can you blame a retailer for wanting to increase his/her profit margin? We live in an environment where our costs of doing business are constantly increasing, usually at a faster rate than our sales and gross profit can keep up with. This is especially true in the current climate, with retail turnover values flat, at best.

There are a number of factors that a retailer will take into consideration when deciding whether to go down the private label path in their liquor store. Obviously, at the top of the list is the profit opportunity. However, sometimes it is not as straight forward as it appears, as usually the retailer has to work harder to sell these ‘unknown’ brands. Of course, if they choose the product carefully, particularly wine, and if the quality is there, then it can be very easy to recommend it to a customer. We have seen a proliferation of products come onto the market over recent years and consumers are becoming more and more adventurous when choosing what they want to buy. This is true in all categories, in fact. The fragmentation of the market leaders market share has been ultimately driven by consumers, who are often looking for something different to try.

Of course, most retailers recognise that they cannot sell only private label products in their liquor store, as they need to stock and range products that consumers recognise and are ‘comfortable’ with. After all, many retailers believe that their role is to satisfy the demand created by the brand owner. The importance of this cannot be underestimated. There are plenty of examples of products and categories that consumers expect to see in a liquor store and want to buy.

Brands are critical to the liquor store owner. Using them to attract customers is part of the art of retailing. The challenge, or ‘trick’, if you like, is the skill of the retailer in choosing which brands in which categories he/she needs to or wants to stock and support. This decision is often based on a blend of experience, gut feel, sometimes emotion and most importantly, customer awareness. As almost every liquor store relies on its regular customer base for its success, listening to, talking to and understanding what those customers are looking for is the key.