Control state agencies regularly revisit questions about the stock in their stores or warehouses. How much space should be devoted to each category, brand or product? And when should they add a new item, or delist an existing one?
This task of overseeing Stock Keeping Units (SKUs) is greatly aided by the wealth of stats now available in the digital age. Control states have tapped into data to monitor sales figures, category trends, customer profiles and more.
Armed with the right information, control states can provide customers a broadly appealing selection of wine and spirits, while maximizing profits for their states.
Today’s customers are increasingly knowledgeable and adventurous about their tastes for alcohol. Especially among Millennials, they purchase based on experimentation and connoisseurship.
Accordingly, the Virginia Department of Alcohol Beverage Control tries to avoid “unnecessary product proliferation that makes it harder for the customer to find what they want,” says Becky Gettings, Communications Director at the VABC.
This requires determining what is and isn’t clutter. When opening a new store, “We target by demographics,” Gettings says. “If a new store has a similar demographic [to another] we perform sales analysis to see what that group has been buying in the most recent 12 months and we make an assortment for the new store based on that result.”
For existing stores, “We continuously monitor consumer and sales trends to make sure that we are offering what our customers want,” she adds. “Bourbon is hot right now.”
The New Hampshire Liquor Commission also relies heavily upon digital tracking, and insight from business representatives.
Working with customized analytics designed specifically for the NHLC’s purchasing habits, industry experts called “Category Management Captains” — enlisted from Constellation Brands, and Southern Wine and Spirits of New England — create shelf sets for the state stores.
Naturally, there are checks and balances. The shelf sets are looked over by a committee of local brokers, which reviews for “accuracy, fairness and logical sense,” says Richard D. Gerrish, NHLC Director of Sales, Marketing, Merchandising and Distribution. The NHLC retains final approval on SKUs. In this way, each store set is refreshed every year.
Follow the Trends
Among the most important data to monitor is customer purchases. It is critical that agencies stay up to date on the ebb and flow of consumer trends.
“A few years ago, confectionary flavored vodkas were trending up, and our selection of those products increased with the increased sales,” recalls Stacy Kriedeman, Director of External Affairs for the Pennsylvania Liquor Control Board. “However, now flavored whiskeys are on the rise and so are the number of flavored whiskeys on our shelves.”
Failure to recognize declining categories may result in unsold stock sitting on shelves. That space could have gone to more-popular, better-selling products. And if agencies are slow to respond to upward trends, they may miss out on profit.
The Wyoming Liquor Division, which operates only the warehouse side of the business, keeps “approximately three months worth of product in our warehouse to accommodate any increase and to avoid out-of-stock issues,” explains Angie Lebeda, WLD purchasing manager.
Staying on top of positive trends has paid dividends for other agencies.
“When Pinot Noir experienced a surge in sales nationwide, the NHLC was able to increase the number of different brands of Pinot Noir in stock and expand shelf space to accommodate the category’s increase in sales,” Gerrish remembers. “Similarly, the latest trends in wine include Prosecco and Moscato, and as they become more popular, those products will experience an upturn in our stores as well.”
To Add or Not to Add?
Like other states, Pennsylvania holds several listing periods each year. The agency accepts requests from vendors to stock new products.
Category managers review the submissions. They assign one of four “category roles” to each potentially new SKU: mature, maintain, growing, or emerging. Submissions are further broken down by price segments: value, standard, premium, super-premium, and ultra-premium.
“When we open the listing period, the buyer’s focus is on the growing and emerging categories, and we ask vendors to keep that in mind when submitting a listing,” Kriedeman explains.
Once the listing period closes, buyers go through the categorized submissions to determine what products interest the agency.
“They make decisions based on category roles and marketing support,” Kriedeman says. “We factor in the dollars the supplier is going to spend in our market to promote the product.”
This includes advertising in the agency’s Taste magazine, holding in-store tastings and handing out coupons.
“If a product is in a growing or emerging category, but doesn’t have much marketing support, we may not request another meeting to discuss that item,” Kriedeman says. “If a product is in a mature or maintain category, and has a lot of marketing support, we may request a meeting to discuss the product, especially if that product is unique.”
Products under consideration are discussed and taste-tested with the suppliers. If the PCLB team believes a customer need exists, or that an item will sell well, they recommend the product to the PLCB board, which maintains final approval.
In New Hampshire, recently added SKUs are placed in select outlet stores for six months to determine if they can meet the required gross profit requirement. Based on the performance of each product, they will be listed either as Full Distribution (all outlet locations), Specialty Distribution (top 33 locations) or Limited Distribution (top 15).
Since other agencies operate with similar objectives and mechanisms when adding SKUs, it makes sense for states to stay aware of which new products have sold well elsewhere.
“We have access to NABCA sales data to see how products are performing in other states, and many times we check the initial sales of a new item,” Gettings says. “If its sales are extremely high, Virginia ABC will put it into more locations quickly.”
The Date of Delisting
As customer palates evolve, products and categories can fall out of favor. This requires adjusting stock, so that poor sellers do not continue to clog up valuable space.
Wyoming runs warehouse inventory reports before each listing period, with detailed criteria to determine which SKUs are worth removing. Distilled spirits must average one layer/tier or at least $500 per month. Both domestic and imported wines are held to the same standard of one layer/tier per month, but must sell $1,000 in that time. Special consideration is given to items with low sales in categories with limited options.
Products not meeting the agency’s criteria are put on watch. WLD reps then have six months to either let these items become delisted, or increase the sales enough to save the listing. The reps, in conjunction with suppliers, also have opportunity during these six months to swap a poor-performing item for a new one that they also represent.
“This system of checks and balances helps us stay relevant with trending items and categories, which allows us to offer a wide variety of products for our Wyoming retailers,” Lebeda explains.
Virginia removes items quarterly, after assessing unit sales, dollar sales and profit. “We notify suppliers of our intent to delist products, and they have the opportunity to appeal and make a case for why an item should remain in distribution,” Gettings says.
“If an item is one-of-a-kind, we may keep it as a customer service, even if it does not meet the sales and profit threshold,” she adds. “We also consider whether the item is a Virginia product, or has high licensee sales.”
New Hampshire will transition items into delisting if they do not meet gross profit requirements. “All gross profit numbers tallied are the direct result of sales,” Gerrish explains. “It is our customers who really choose what will succeed and what will fail.”
“In the past, the largest spirit category was blended American whiskey, but this has now dwindled to only four codes,” he adds. “Currently, vodka represents 30% of retail sales, and domestic wine represents 49% of the total wine sales.”
A Special Case for Luxury
While some agencies run identical listing and delisting processes regardless of price point, others tweak their systems for the luxury category.
Pennsylvania sells luxury products primarily in its “Premium Collection” stores. The purchasing process is different.
“Our luxury buyers meet with suppliers regularly and buy wines in much smaller quantities,” Kriedeman says. “These buyers try to source the best products based on hot categories that are trending, seasonal as needed, or top-shelf allocated wines.”
Virginia also alters its buying process for luxury SKUs.
“We are more likely to take a chance on higher-end items if the category shows growth in that price tier,” Gettings says. “For example, high-end tequilas and Scotches are big sellers. We have listed more high-end tequilas lately, and they are doing fairly well.”
Not all scotches sell so consistently, but the department “needs a good assortment of high-end single malts for our discerning customers,” Gettings says. “Virginia ABC takes a group of high-end single malt Scotch products in smaller allocations to fill this need, without placing it in 100 stores and collecting dust in 80 of them. We place them in a few stores with high-end sales histories.”
Regardless of the price point, the consumer data remains essential.