David v Goliath – The Alco Wars

This article endeavours to highlight the realities of running a small off-licence business and the uphill challenge it faces to stay above the red.

The recent Jack Daniels whiskey promotion run by Tesco stores which ended on the 15th of December 2009, created quite a whirlwind. Normally, a 70cl bottle of the Tennessee tipple retails for 17 GBP. The promotion was for 2 bottles at 25 GBP which works out at exactly 12.50 GBP a bottle. Its relevance will be explored below.

Big stores like Tesco, Asda or Sainsbury’s buy alcohol in such large quantities that small stores, in particular family run corner stores, are struggling to make ends meet. In the past, small stores would buy most of their alcohol stock from wholesale retailers like Bookers or Makro and then sell them on in their own off-licences. Small stores were able to make some profit off the top from this arrangement.

Today the situation has changed. Let’s use the 3 for 10 GBP’ wine promotions regularly run by the big three mentioned in the preceding paragraph. For our example, we use Blossom Hill’s White Grenache 75cl which retails on its own for 5.34 GBP at Asda. 3 bottles cost 16.02 GBP. With the promotion, Asda is impliedly saying that ‘we will knock 6.02 GBP off your bill if you buy 3 bottles at one go.’ As a result, you get a bottle of wine at 3.34 GBP after a 2 GBP discount. To the consumer, this means savings and a lot more wine to drink for less. To big stores, this means that consumers will be more likely to visit them and that they move a lot more wine in sales than will small stores.

Let’s consider the small stores then. Booker retails 6 bottles of the same wine at 19.99 GBP ex VAT as of 18th December 2009. With VAT, that works out to about 22.99 GBP. Therefore, each bottle costs 3.83 GBP keeping in mind that Booker is running a ‘special promotion’ and that VAT is set to increase by 2.5% in the New Year. Small stores must sell each bottle at least at 4.23 GBP to realise a 10% profit margin. There is no way they will be able to match the big stores promotions without making a loss. Small stores must sell 3 bottles at a minimum of 11.49 GBP just to get back what they’ve spent on buying the wine. Note we have not included incidental costs such as fuel for the delivery van or delivery fees if not self-driven nor overheads involved in running a small business.

Small stores do not move as much wine a day as do big chain stores. In order to stay afloat, small stores have to resort to aggressive shopping. If you were to walk in to a large Tesco, it is very likely that the man with 20 bottles of Smirnoff vodka, 10 cases of Fosters beer and 8 bottles of Jack Daniels whiskey in his shopping trolley will be shopping for a small off-licence store somewhere. It can be said that they now rely on the big stores to make a living and they have no choice but to reduce their profit margins. The big challenge they face on a daily basis is why Joe Everyday should come into little corner stores to buy alcohol when he could get more bubble for his buck at the big 3. Small stores in your community no doubt know their customers on a more personal level but the bottom line is there is no business survivability if there is no money to be made.

The Jack Daniel’s promo whirlwind saw small store owners scrambling over the last few bottles on Tesco shelves. Given the low price, it is easy to see why. A bottle bought for 12.50 GBP would then be sold for at least 18 GBP in small stores a massive 44% margin. Nonetheless, promotions like these come few and far between and small store owners are now more likely to fail if they do not form their own retail networks or connections for the latest information on where promotions and sales are being held.

Before consumers think that big stores have their best interests at heart by bringing down costs, it is pertinent to note these concerns. First, consumers must buy in bulk before they can enjoy savings. Second, where they lure you in with one good deal, you may end up paying more for another item in store that you may or may not need. Can’t have 3 bottles of wine without frozen dinner meals or a big bag of nachos and a side of spicy salsa which may not by any means be discounted. Third, by buying in massive quantities directly from the manufacturer, the big stores are able to buy alcohol at such a steep discount, sell at what seems to be a good deal to the consumer and yet make a profit. Small stores cannot buy directly from manufacturers as manufacturers will not see the same profit margins or sale volumes should they cater individually to small retailers.

Ultimately it is a matter of choice for the consumer where they decide to shop but the implications of small businesses being run out are detrimental to a country’s economy and should not be overlooked.

share this Article

Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp
Share on email

Recent Articles