Promoting from Within

Control state agencies involved in the retail sale of beverage alcohol in their states, the ones that run their own stores or supervise liquor agents, face hurdles that other retailers just don’t. Most often, a control state agency doesn’t get to pick what products it will put on sale, if it can even have sales. Instead, most agencies can only pass along a discounted price on a product, if the supplier decides to offer one. Even with these specials, some agencies can’t advertise – or even, in some cases, use the word “sale” on signs and price tags in their stores. Often, agencies are limited in the size of floor displays they or the brands’ reps can build in stores and the signage they can use on them.  And until very recently, it was illegal to open a bottle of product in a store in some states – so, on-site tastings were out of the question.

Control state agencies face these restrictions because, unlike ordinary retailers, they are government agencies whose retail operations fulfill a triple role: they provide access to beverage-alcohol products for legal consumers but they also keep that access under control, to prevent underage drinking and alcohol abuse, even while they are generating revenue for their states.

Still, control state liquor agencies, both large and small, with state stores, agencies or a combination of both, find ways to present their customer/citizens with the most pleasant and productive shopping experience possible.

The Pennsylvania Liquor Control Board (PLCB) is, with 621 state stores, the largest control state agency in the country. And it has begun using information gleaned from its new $25-million enterprise resource planning (ERP) system for “promotion optimization,” which means having only the best, most productive, most consumer-friendly sales and specials in its stores.

Too Much of a Good Thing

Before, the PLCB had so many products on sale – in some cases, over 900 different items at a time – that “we had an overwhelming number of yellow [sale] tags in the stores. People joked that we should just tag the items not on sale,” said Lars Kegerreis, executive assistant to Jim Short, the PLCB’s director of marketing.

“We would accept [the discounts] submitted by suppliers and pass the savings onto our customers,” said Short, “but we found that the sales items were often cannibalizing each other.” By analyzing its sales using its ERP system, the PLCB has discovered that if it reduces the number of items it has on sale and times those sales carefully, its customers will actually buy more and save more.

“People ask if we aren’t raising our prices by doing this, but when we begin to choose products competitively, suppliers go slightly deeper with their discounts,” said Kegerreis, “and in the first ten weeks, our market-basket analysis showed that people are buying more than they used to.”

Jim Short explained, “A lot of the clutter has been removed, making it easier to shop. People can take advantage of our sales because they are better able to distinguish what the good deals are.”

The timing of the sales is also of surprising importance. Analyzing the data from the ERP system showed Short and his staff what merchandise sold best during what time period but also what time period would be the best to put that item on sale. These two time periods are often different. “The big sales month for Irish whiskey, for instance, is March, with St. Patrick’s Day,” pointed out Kegerreis, “but putting it on sale then doesn’t increase how much is sold, because people were going to buy it anyway. The best month for putting brown spirits on discount, we’ve found, is September.”

The timing of sales can also affect customers’ perception of the state’s prices in general – and that perception can be either positive or negative. “Most suppliers want to put their deepest discounts in December, during the holiday season,” said Kegerreis, “but holiday shopping is a time when people plan their shopping trips and what they are going to buy. If they encounter sale prices then, it will reset their perception of what the prices of those products usually are. When they come back in February or March to shop with us, they will think the regular prices they encounter are expensive.” On the other hand, Kegerreis explained, if customers encounter a sales price when they’re not expecting one, they might pick up an impulse purchase of that product – and the sales price will not reset their perception of how much that product usually costs. In fact, what will linger in their minds is that they saved money at the state store.

The PLCB has reduced the number of products it has on sale in its stores at any one time by about 44%. According to Short, last September, the PLCB had 965 items on sale, while this September, it had 549. “Yet, there was a huge increase in the net discount, by almost a million dollars, that customers enjoyed,” said Short. “We reduced the clutter so that they were better able to see and take advantage of the deals they were interested in.”

The PLCB is using another strategy to reduce the clutter in its stores even further, what it calls “Merchandising Optimization.” Basically, again referencing ERP data, the PLCB has begun to decide, at headquarters, what each of its 600+ stores will have on display. While the decision is being made centrally, the decision is different for each store. “Ten or twelve years ago, we had one floor plan for all of our stores,” said Short, “and we knew that was a bad idea. So we started thinking of our stores in terms of clusters – stores with similar demographics and sales. Initially, we had eight different clusters, then five. Now, we’re trying to see if we can do even better, by making store-specific plans.”

This strategy is in its infancy. Right now, it is being tested in seven stores. But even after only two weeks, sales, both in terms of dollars and of number of items, have grown more in the test stores than in the PLCB’s other stores. For instance, dollar sales are up by 73% in the test stores compared to a growth rate of 52% in the other stores.

An overall goal of this promotion optimization strategy is also to reduce visual clutter. For instance, instead of displaying products as stack-outs, the products still in their cases, the top case cut open, these stores have endcap shelving. The feedback from the store employees has been positive. “Managers loved it. There is less clutter, confusion and noise in the store,” reported Amy Schwenk, special projects coordinator for the PLCB.

The PLCB has another new strategy in the works. Starting in November, it is launching a pilot, allowing its own in-store wine specialists in five of its stores to hold their own tastings, in addition to the tastings currently being done by brokers. For these new tastings, the wine specialists will be choosing the wines, rather than just going with supplier requests. “They can choose wines they know their customers will like or that they themselves are passionate about,” said Short. “We think they can do a better job matching wines to their customers.”

Of course, the PLCB is the largest control system in the country, with a multi-million dollar computer system analyzing its operations. But other, smaller control systems – and even single stores within a control state operation – have found ways to enhance their customers’ shopping experiences. The Idaho State Liquor Division runs 66 state stores and works with 97 contract agencies. Tastings are not allowed. “There can be no open bottles in the stores,” explained Tom Legerski, deputy director for retail operations. “Even our listing committee has to go off-site  to sample new products.”

But the division is always looking for ways to enhance the customers’ experience and to add value. It does, for example, allow supplier reps to offer give-aways, on-packs, couponing and mail-in rebates to customers.

And it allows the staffs of individual stores to come up with their own in-store promotional ideas. One store in particular, located in the small town of Weiser (pronounced “Weezer”), ID, for instance, goes out of its way to offer customers its own homemade on-packs during the town’s National Oldtime Fiddlers’ Contest, held in June. During this weeklong contest, the town’s population swells from about 5,000 to over 40,000. To prepare, store manager Jim Felton and his staff scour yard sales during the year, looking for plain glassware. They bring that glassware to the contest’s sponsors who have it etched with the contest’s name and logo, then the store’s staff uses those glasses, Idaho spirits brands and decorative items like baskets and burlap to create gift packs that are then sold to customers – for the price of the spirit alone.

Even control state agencies that don’t run their own stores get into the spirit of customer service, by helping their agents and the brokers and representatives of brands in their state. The Vermont Department of Liquor Control (VDLC), which supervises 79 contract agencies in the state, has been allowing spirits tastings in its agencies since 2009. Though it is not required, most of the agents work with brokers or distillery reps on these tastings. “We really encourage brokers because it is a great way to get the public to try something new,” said Marcia Lawrence, marketing/customer service supervisor for the VDLC. The VDLC also posts news of the tastings on its own website.

The VDLC also puts out a good-looking price guide – in a magazine format, with articles – to give away to potential customers. These price guides contain advertising – the ads pay for the actual printing – while the VDLC pays for the editorial and design work, done by McLean Communications, based in New Hampshire. The guide contains a listing of all the Vermont contract agents, with a map, as well as a calendar of events and is given away for free.

Though the Virginia Department of Alcoholic Beverage Control (VDABC) faces some of the same constraints that other control state agencies do, it has come up with some clever work-arounds. For instance, like most control states, the VDABC does not choose what items to put on sale, but simply passes along the discounts, given by suppliers, to its customers. And like others, it cannot order in extra product to build large product displays.

What it can do, however, is allocate floor space carefully. In its 330+ state stores, only products that meet a certain minimum price point are displayed in what Wilson Jones, assistant director of the VDABC’s wholesale/retail operations division, refers to as the stores’ “premium locations,” including the front part of the store and other high-traffic areas. Generally, a product must be priced at $10.50 or higher for a 750 ml, $12.60 or higher for a liter and $17.85 for a 1.75. And these minimum prices are higher during the holiday season. “Our displays are set up to increase our sales and to get customers to trade up,” Jones explained. “We would rather have people buy better than to buy more.”

The VDABC has also come up with a simple way to allow vendors to build eye-catching displays without bringing in a lot of extra product that, then, might not sell through quickly. Their solution? Empty cases. “We will replenish stock for sales but not to build displays,” said Jones, “but we will give vendors, or allow them to bring in, empty cases.”

The Virginia DABC has also been offering in-store tastings for a little over a year. In fact, they’ve gone in for tastings in a big way. “In November, we have 400 in-store tastings on the schedule,” said Jones, who reports that the sampled products often experience a “significant lift” in sales during the tasting itself.

Try It, You’ll Like It

Until this year, it had been illegal to open a bottle in a state, contract or tribal liquor store in the state of Washington. But that law was changed in a recent legislative session and the Washington State Liquor Control Board (WSLCB) is testing the use of spirits tastings in a year-long pilot program involving 30 stores, of all three types, located across the state.

The tastings started in September. They are held during the busiest two-hour window the stores have.  “We actually looked that up,” said Debby Besser, the WSLCB’s director of purchasing and the executive sponsor of this pilot. Those windows are Fridays and Saturdays, from 4 to 6 pm.

The tastings are sponsored by and run by suppliers. The suppliers’ people have to attend a mandatory training session about the tastings in particular, hold a Mandatory Alcohol Server Training (MAST) permit, the same permit Washington State bartenders and servers are required to have, and have an agent license. Up to four spirits can be sampled. The serving size is ? ounce and each person can have a maximum of four samples. Products that are over 110 proof must be diluted. “We have good controls in place,” said Besser. “We know the products are being served responsibly.”

The WSLCB has other requirements regarding what products are sampled. The same products can’t be sampled over and over again, for instance. Also, “since one of the goals of these tastings is to encourage people to trade up,” explained Besser, sampled products must cost more than the average price in their category. The products must be listed or one-time order (such as a limited-edition or a holiday product), making them readily available in stores. They cannot be special-order items.

The New Hampshire Liquor Commission (NHLC) has also recently begun offering in-store tastings, of both wine and spirits. Most of its 77 state stores can hold these tastings; the only exceptions are its four major highway stores.

The tastings, offered two Thursdays and two Saturdays a month, feature a few innovations. For instance, a customer who buys one of the sampled products during the tasting gets a $2 per bottle discount. Also, licensees, such as restaurants, are encouraged to participate, by providing food items that pair with the sampled products. In fact, one of the NHLC’s newest stores, located in Nashua, features a full gourmet kitchen onsite, which the licensees can use for the tastings. And licensees that do participate receive a 10-percent discount on their next purchase.

“It’s the ‘see, feel, touch’ selling method,” said Joe Mollica, NHLC’s chairman, “not to mention smell and taste. People are more apt to buy something if they can taste it and if they get it at a discount.”

Three months ago, the NHLC hired its own mixologist. While she will be working with on-premise operators, the plan is also to have her participate in the spirits tastings, by demonstrating how different cocktails are made and offering a sample taste.

The NHLC, which serves over 9 million customers a year, has some purchasing power. It uses that power to get specially priced products to offer to its customers. Its Outlet Power Buy program offers deep discounts, of up to 70%, on quality wines. “We will not offer a wine [in this program], unless it is at a discount of at least 50% and it offers extraordinary value in the bottle,” said Mollica, a restaurateur with 30 years of experience and a wine collector himself. In the 15 months that the program has been running, it has already made $5 million in profit for the NHLC, which also offers the Commission Signature Selection, which is both wines and spirits. “These tend to be higher-end products we’re offering at a 20% to 30% discount,” explained Mollica.

Virtual Promotions

In this age of the Internet, the concept of “in-store” is rather flexible.  The New Hampshire Liquor Commission offers customers who access its website the chance to sign up to receive exclusive coupons and advanced notice, of, for example, the availability of an allocated wine, at its stores.

It has also signed up with a company called Ping4Deals. Ping4Deals offers a free smart-phone app that customers can set to go off, when they pass a store with products and prices they have expressed an interest in, including New Hampshire state liquor stores. The app will “ping” to alert the phone user that they are nearing such a store, can act like a GPS to get them to that store and can display product specials. “And if you’re not enticed by what sales our store is currently having, the app will bring you to our website where you can see what else we offer,” said Mollica. “We get significant sales from our neighboring states and from tourists. If people know the price they regularly pay for their favorite brands – and most people do – then they will be impressed with our prices.”

What are the benefits of in-store promotions? They allow suppliers to tell people about their products, especially their new products. For customers, they allow them to see and learn and, in an increasing number of states, taste things they might be interested in.

And for the control states themselves? “It’s the people of New Hampshire who benefit,” said Mollica firmly. “Not only do we offer them significant savings, but all our profits go to the state’s general fund.”


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