Liquor Store Profit Margins

If you're a liquor store owner or are thinking about opening one, you may be wondering exactly how much to charge customers in order to have sustainable liquor store profit margins. In our complete guide, we explain what goes into price-setting and what a healthy liquor store profit margin could look like for your business.

Not quite at this stage of your business journey yet? Check out our how to open a liquor store first!

Identify your costs

Every business has start-up and ongoing costs that you'll need to offset with the amount of revenue you earn from liquor sales. You can do this, in part, by wisely setting your retail prices.

Before you can decide what prices to set, and how much profit margin you'll need to have in order to stay afloat and succeed in the liquor store market, you need to understand your costs.

Typically, you'll have at least some (if not all) of the following operating costs to recoup:

• Inventory (the items on the shelves)
• Utilities
• Rent/mortgage
• Business taxes
• Employee wages/benefits/taxes
• Liquor licence fees/renewals
• Other specialised licences/permits (depending on your state)

Once you know what your overhead costs are, you can start to figure out selling prices and profit margins. To do this, you first need to figure out your cost per unit.

Cost per unit

This tells you how much each bottle, 12-pack, or other individual product you sell costs you, beyond just the wholesale price you've paid for it. The cost per unit should take all the factors listed above into financial account.

A simple formula for calculating cost per unit takes your total fixed costs plus your total variable costs and divides that number by the total units produced.

Cost per unit = (Total fixed costs + Total variable costs) / Total units produced

As a retail liquor store, you're not going to be actually producing any units, so we can replace that with the total bottles of wine or 12-packs of beer purchased.

Let's say you've determined that your fixed costs (taxes, salaries, rent, etc.) and your total variable costs (inventory, etc.) total $30,000 and you're selling 5,000 cases of beer. Your unit cost (or cost per unit) would be $6 per case.

Now that you know how much each case of beer is costing you, you can set a reasonable retail price based on your desired (or allowed) profit margin and location.

Typical liquor store profit margins

On average, liquor stores tend to have an overall profit margin of between 20% and 30% annually. You can aim for a 50% profit margin if you choose (and are allowed to by your state). 

There are pros and cons to aiming for higher profit margins since you'll need to charge customers higher prices for your products, which might not make your store as appealing as a lower-priced competitor.

Of course, the profit margins your store has are going to vary greatly depending on the types of alcohol you choose to sell, the type of business you have, and your location. We take a closer look at each below.

Types of businesses

Grocery stores and gas stations that sell alcohol may be able to handle smaller profit margins from alcohol sales than liquor stores because they're not relying solely on alcohol for their profits.

Restaurants and bars can get away with a much higher profit margin for alcoholic beverages since they're selling by the drink/glass and not typically selling an entire bottle or 12-pack to the consumer.

Normally, restaurants have profit margins of around 80% for each drink they sell because they're looking at "pour cost," not wholesale cost. Pour cost refers to the cost incurred by a restaurant or bar to pour or serve a single drink. It takes into account not only the wholesale cost of the ingredients used in making the drink but also other expenses such as labour, overhead, and wastage. For example, if a cocktail costs $1.50 in ingredients (wholesale cost) and $0.50 in other expenses (labour, overhead, wastage, etc.), then the pour cost would be $2.00.

And bars tend to have the highest margins of all, sometimes marking up alcohol by 200% or more.

So, a simple liquor store (no groceries, gas, sit-in bar areas, or cooked food) will tend to have lower profit margins than restaurants and bars but may have higher margins than grocery stores and gas stations that are involved in the sale of alcohol.

Types of alcohol

Beer, wine, and hard liquor are generally marked up at different rates. It's typical to charge a 20-30% markup on beer. If you're working with craft brewers or hard-to-come-by products, you could have profit margins as high as 40-50%.

If you're selling a national brand, for example, you might pay $16 for a 24-pack of beer. You could sell that 24-pack for $19.20 at 20% markup, or $20.80 at 30% markup. 

For wines, you can typically get away with 50% markup (or higher, depending on the brand/rarity of the wine).For example, if a bottle of wine costs you $15, you could sell that bottle for $30 at 50% markup.

Be aware that some states determine the wholesale cost and/or limit the amount you're allowed to charge customers, and it may not be up to you as the owner to determine how much of a markup you'd like to place on each product you sell. These states may also have strict regulations regarding the distribution and sale of alcohol that you must follow.

Market saturation

As with any business, location makes a difference. If you're competing with several other liquor stores within a short distance of yours, you may have to accept smaller profit margins in order to stay competitive.

If you're a small business located near a warehouse-type seller that can offer discount pricing because they have such high volume, you may have to drop your prices just to remain competitive, which means smaller profit margins, as well.

However, if you're the only liquor store in town (or in your area), you can probably get away with higher profit margins without losing customers.

Even if you're surrounded by other liquor stores, if your store offers something unique that your competitors don't, you should be able to maintain average to above-average profit margins since you're providing something your customers can't find anywhere else. 

For example, you could offer wine-pairing classes or specialised selections of alcoholic beverages that aren't sold in nearby stores. You may even want to think about alcohol delivery to your customers if you live in a state that allows this.

Again, if you live in one of the states that control alcohol pricing in some way, you may be limited on how much you can charge customers, or have other pricing limitations placed on your liquor store.

The bottom line is that a liquor store in the right location, with a business owner who knows their market and can properly price their beverages, is a great business opportunity. Just don't forget one key ingredient for your liquor store business—a powerful point of sale (POS) system.

Effective cost management

In the pursuit of sustainable profit margins, effective cost management is key for liquor store owners. By diligently controlling expenses and optimising resource allocation, businesses can reduce operating costs, mitigate financial risks and enhance profitability.

One key aspect of cost management is identifying areas where expenses can be reduced or eliminated without compromising operational efficiency or customer satisfaction. This may involve renegotiating supplier contracts, implementing energy-saving measures to reduce utility bills, or exploring cost-effective staffing solutions.

Moreover, leveraging technology, such as a robust POS system, can streamline operations and reduce administrative overhead (we'll get on to this in our next section).

Furthermore, investing in employee training and development can improve productivity and customer service quality, ultimately driving sales and enhancing the overall customer experience. By empowering staff members with the knowledge and skills they need to excel in their roles, liquor retailers can cultivate a motivated workforce that contributes to business success.

How can a liquor store POS system help make your liquor store profitable?

Implementing a robust POS system in your liquor store can significantly impact your profit margins and overall business efficiency. Here's how:

• Streamlining inventory management: A liquor store POS system can help you effectively manage your inventory by tracking stock levels, monitoring sales trends, and providing real-time updates on popular products. By efficiently managing inventory, you can reduce instances of overstocking or understocking, ensuring that you're optimising your purchasing decisions and minimising wastage resulting in a successful liquor store business.
• Price optimisation: Most retail POS systems are equipped with advanced analytics tools that provide insights into pricing strategies. By analysing customer purchasing patterns and competitor pricing, you can adjust your prices dynamically to maximise profitability while remaining competitive in the market.
• Automating purchase orders: Automating purchase orders through your POS system can streamline the procurement process. By setting up automatic reorder points based on sales data, you can ensure that you never run out of popular products while avoiding excess inventory that ties up capital.
• Rewards programs: Utilising rewards programs to boost customer loyalty through a Liquor Store POS System is paramount. By implementing incentives such as discounts, exclusive offers, or points for purchases, these programs encourage repeat patronage, fostering stronger bonds between the store and its clientele. This heightened loyalty not only drives sales but also ensures sustained profitability and growth within the liquor retail business.
• Efficient sales processing: A liquor store POS system facilitates speedy and accurate transactions, reducing wait times for customers and improving overall service. Features such as barcode scanning and integrated payment processing ensure smooth checkout experiences, increasing customer satisfaction and loyalty.
• Compliance management: Liquor sales are subject to strict regulatory requirements, including age verification and compliance with licensing laws. A POS system with built-in compliance features (or via POS integrations) can help automate these processes, ensuring that you remain compliant with legal regulations and avoiding costly fines or penalties.
• Reporting and analytics: Comprehensive reporting and analytics features from your POS software enable you to track sales performance, monitor profitability, and identify areas for improvement. By gaining actionable insights from your POS data, you can make informed decisions for liquor stores to optimise operations, refine product offerings, and maximise revenue potential. Check our functional reports provided by Epos Now POS guides for some inspiration.

Pouring up our final thoughts

In conclusion, understanding and managing liquor store profit margins is essential for the success of any liquor retailer. By carefully considering overhead costs, market dynamics, and regulatory requirements, liquor store owners can establish sustainable profit margins that support business growth and longevity.

Remember, leveraging tools such as a liquor store POS system can further enhance profitability by streamlining operations, optimising pricing, and improving customer experiences. Ultimately, a combination of strategic planning, effective cost management, and the right technological solutions can help liquor retailers navigate challenges and capitalise on opportunities in a competitive market, making their liquor store ventures not only financially viable but also thriving and profitable enterprises.

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