Special features and challenges of liquor stores' inventory management

Alcohol is an integral category in grocery stores of almost any type and format – from small convenience stores to huge hypermarkets. The growth of incomes of the urban population, along with natural shifts in the cultural paradigm of modern society, leads to an annual increase in sales and expansion of the range of this specific product. It is not surprising that recently liquor stores – specialized points of sale of spirits drinks, where you can find not only alcoholic beverages for every taste, but also a lot of related products – have become more and more popular among buyers. 

Today we will talk about the specific features in managing the inventory of this category of stores.

First of all, it should be noted that if customers come to buy in a wine store, they are more likely to find the widest range of goods they are interested in. In addition to drinks, this category is always accompanied by related products. For example, cheese or chocolate is often bought with wine, beer is often accompanied by snacks or smoked meats, and gin is most likely to be sold with tonic.

Secondly, buyers can find in this category of stores not only a wide selection of goods, but also a variety of price points. They can also count on regular special offers and promotions. You can also buy large quantities of alcohol at liquor stores for various events, holidays or just a weekend with friends. 

Therefore, liquor stores are often characterized by both wholesale sales and extraordinary demand. For example, when someone buys three boxes of wine for their birthday, when, on average, no more than one bottle per day is sold.

It goes without saying that, more than other goods, alcohol is seasonal. The demand for this category increases a lot before and during the holidays, when alcohol is bought in large quantities not only for personal consumption, but also for gifts. Also, sales of alcoholic beverages have a pronounced weekly sales spike – on weekends sales are significantly higher than on weekdays.

A large share of imported goods, the order and delivery of which have their own specifics, is another significant feature of the alcohol category compared to other product categories.

As a result of the COVID-19 pandemic, online shopping has gone from being a current trend to being essential for the survival of almost any retail business. And liquor stores are no exception. Recently, retailers have witnessed an extreme growth in online orders, not only for medium and economy segment goods, but also for elite alcohol.

Liquor stores have their own challenges in terms of inventory management. Let's consider them in more detail in the context of the above features.

1. Significant breadth and variety of product range

One of the biggest challenges that liquor stores face is that retailers often have to balance between providing the expected range to the customer and maintaining high turnover. If the retailer sacrifices the first, it will result in lost sales; if the retailer misses the second, it will freeze significant funds in the accumulated stocks. Both will inevitably result in a loss of profit. A feature of manual inventory management is that category managers, as a rule, pay more attention to the most popular product, leaving “candidates for exclusion from the range” unattended. Due to this, the assortment is filled with a significant number of category D products, which also leads to a worsened turnover and a loss of profit.

Fortunately, modern machine learning and artificial intelligence technologies are coming to the aid of retailers in overcoming this challenge. Powerful analytical systems allow you to analyze the product range, quickly identify low-turnover goods and goods with lost sales, track KPI dynamics by company, category, supplier and individual employees. Automatic assortment rotation support procedures are able to provide full transparency in terms of introducing goods into the process and their withdrawal from the assortment.

“The Leafio Inventory Optimization system automatically tracks and manages the process of withdrawing SKUs based on stock levels across the supply chain, and is able to automatically predict initial demand for new items,” says Helen Schepanyk, Product Director of LEAFIO AI Retail Solutions. 

“For example, one of our clients, a chain of liquor stores, who decided to implement the Leafio Retail Platform during the expansion phase, managed to increase turnover by 17% even at the stage of connecting the first stores only by revising the assortment and reducing the share of category D products.”

Related: Inventory Automation - Increases Sales, Reduce Costs

2. Big part of promotion

Regardless of the reason for the promotional activity, whether it is a seasonal attraction of customers, a sale of the old stock or participation in a bonus program from a vendor, the goal of any retailer is to get a significant increase in sales and maximum profit from the promotion. This becomes problematic if the retailer makes a mistake in forecasting and the purchasing department does not provide enough of the promotional product or, conversely, at the end of the promotion the company has excess stock.

All this ceases to be a problem if the retailer has a system for automating inventory management and sales promotion, which is capable of:

• predicting sales for a future advertising campaign;
• calculating the order time for timely preparation for the start of the promotion in each store: not earlier and not later than necessary;
• quickly and accurately performing replenishment for promotional sales;
• effectively completing promotions in accordance with their strategy, evaluating the effectiveness of promotions.

Moreover, the effectiveness of promotions and the ability to make timely adjustments are directly affected by both the number of promotional activities and suppliers, as well as the size of the chain and the number of SKUs. To adequately respond to this challenge, the LEAFIO Promotion Intelligence system, for example, provides a convenient promotional calendar with all past, current and future promotions, as well as key promotional indicators.

3. Pronounced seasonality

In this category two main types of seasons can be distinguished: the holiday season and other typical seasonal changes in sales during the year. To prepare for the holiday season, it is necessary to predict and purchase an increased volume of goods in advance. When forecasting sales, it is also important to take into account promotions planned for the holiday period. To prepare for anticipated yearly seasonal sales fluctuations, it is necessary to predict the coefficients of growth and decline in sales for a soft start and exit from the season. When working with seasonal sales trends, the difficulty lies not only in the correct calculation of the sales forecast and coefficients, but also in the correct application of them when calculating orders against delivery schedules.

Modern AI-based technologies can automatically calculate and apply seasonality factors for regular assortments (for which demand may fluctuate during the season) and specific seasonal products that are added to the assortment matrix only for a limited time. This greatly relieves the burden on managers and allows them to concentrate on more strategic tasks.

In addition, each sub-category has its own “seasonal periods" that the retailer must know about and understand in order to prepare an offer in a timely manner. This means that the inventory management system must be ready in advance in order to not miss the season and not lose money, and to exit without sales and write-offs after the season.

Modern machine learning solutions (which include the LEAFIO AI RETAIL PLATFORM) offer managers a set of scenarios that can be applied depending on the market situation.

4. Wholesale and extraordinary demand

As we said earlier, in contrast to the quite predictable seasonal demand, liquor stores are also characterized by so-called “extraordinary demand,” which cannot be accurately predicted. In this case, on the one hand, average sales and orders obviously increase. On the other hand, if they are not recognized, there is a risk of lost sales and lost profits. For example, if a store is located near a football stadium that regularly has games, it’s important to plan for an increase in sales and to keep track of the calendar for football games when planning purchases. In addition, you can take into account minor holidays, the appearance of potential wholesale buyers, the opening of new facilities nearby and competitors' stores.

Related: Guide to Demand-Driven Inventory Replenishment Planning

However, seasonality, together with unpredictability, means that it is impossible to put every variable completely into the system. An ideal option is to automate the replenishment of stocks and put the management of the coefficients under the control of a professional team. Thus, your specialists will be able to balance purchases simply by fine-tuning the system parameters.

“Your stocks are in your hands, and an inventory management system will help you achieve maximum results. It’s a fast growing market and, to put it simply, if you don’t make your liquor store inventory management system efficient, your business can suffer”, Maryna Makarchuk says, Head of Implementation of LEAFIO AI Retail Solutions. 

5. Development of omnichannel

For efficient inventory management with consideration of the omnichannel sales approach, it is important to have a residual stock reserve for each sales channel and fix sales in each channel. You should also store the history of inventory movements, balances and sales in these areas and take into account various marketing activities. In many companies the implementation of these processes presents a problem that further leads to a manual, time-consuming inventory management process.

First of all, it is important for a retailer to accurately accumulate data across channels and then automate the inventory management process. Deep analytics, replenishing inventory in the right channel, in the right amount, at the right time and in an automated way helps retailers reduce stockouts, increase sales and improve customer service.

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6. A large percentage of imported goods

Longer delivery lead times are typical in the liquor category – goods are ordered less often and in large quantities. Also, the frequency of orders often depends on how the demand for various imported products arises per container (if it is your own import).

As a result, the retail chain may become slower to respond to changes in demand for imported goods, which can lead to stock shortages, lost sales and lost customers.

The multi-echelon forecasting algorithms used in modern systems allow you to accurately assess the current demand and predict future demand for goods, considering lead times, delivery times and supplier schedules, which will protect your profits and customer loyalty.

“I must admit, I have never seen such involvement of a provider in obtaining a specific financial effect for a client before. The fruitful work of the LEAFIO team and our managers resulted in the following:

• inventory turnover decreased by 36% (from 87 to 64 days);
• lost sales reduced by 5%;
• 56% sales growth;
• fully automated order generation process;
• access to the tools for effective inventory management”, says a representative of the White&Dry company, a national liquor store retail chain, which already successfully uses the LEAFIO product.

Conclusion

The alcohol category has a number of unique features that need to be taken into account when managing inventory. In this article, we've highlighted many challenges that liquor store retailers face. But these challenges can be easily overcome with the help of modern inventory management technologies. More than 160 companies around the world are already successfully using the LEAFIO AI Retail Platform.