Liquor stores, unlike restaurants and bars, sell alcoholic beverages for individuals to purchase and enjoy at home. This type of business is often called wholesaling, and markups and pricing are handled differently than by a restaurant or a bar. Even the laws are different for each. In addition, profits are different for wholesale liquor sales than for restaurants or bars.
Liquor Store Basics
Depending on the state of operation, some liquor stores can sell beer, wine and spirits all in the same store; others are required to separate beer from wine and spirits or in some cases, separate all three. Some states allow the sale of alcohol in grocery stores and gas stations, while others limit it to particular stores that only sell a specific type of alcohol. The state laws can be complicated and can make it difficult to decide which enterprise is more profitable.
Liquor Store Markups
In order to make money, liquor stores charge a markup on the items they sell: an additional charge over the cost at which they received the item from a supplier or distributor. In some states, this markup is fixed by the state government and is the same throughout the state; in other states, markup can vary. In most cases, the markup on liquor is between 25% and 45%. For example, a bottle of liquor purchased from a distributor at $10 per bottle would then be sold to the customer at a price between $12.50 and $14.50.
The average markup for bottles of wine is usually around 50%, and in this case, a bottle of wine the distributor sold for $10 would then cost the customer $15. In states that allow it, markups on wine can vary widely, however, based on regional preferences and competitor sales. Beer, on the other hand, is usually marked up at around 20% to 30%, although the rarer and more expensive craft beers can see markups up to 40% to 50% in some cases. Again, unless the markup is determined by the state, liquor stores can experiment with markups and discounts to ensure that offerings stay profitable.
Profit Margin in a Liquor Business
Liquor stores are not very profitable — owners take home on average only 1.7% of total sales. This is because nearly all of the money earned by sales is reinvested back into stocking the shelves and is spent on employee wages, building costs and licenses and fees. Most owners’ salaries fall between $20,000 and $50,000 annually. While profitability may be lower when compared to other small-business opportunities, the plus side is that the liquor sales industry is relatively stable and somewhat independent of any economic downturns that may occur, so while the salary of an owner might be relatively low, it’s also relatively reliable.
The profitability of a liquor store will depend on the size of the business, the target market and the ability for that market to sustain the level of markups the store needs to stay in business. Overall, liquor stores can return between 20% and 30% in profits; much of this, again, goes to a number of other expenses. In states where markup is controlled, profits are normally lower, but again, it can be more stable than other industries that may be affected by economic uncertainty. In states where markup can be adjusted, liquor stores have to balance their own desire for profitability with their ability to stay competitive within their local market.
Liquor stores can improve their profitability through local marketing, especially during holidays (when sales usually increase). They can also use local events, manufacturer or distributor rebates or occasional discounts to increase foot traffic. Hosting events like a tasting party or a new flavor launch can also help bring customers through the doors.
Danielle Smyth is a writer and content marketer from upstate New York. She has been writing on business-related topics for nearly 10 years. She owns her own content marketing agency, Wordsmyth Creative Content Marketing (www.wordsmythcontent.com) and she works with a number of small businesses to develop B2B content for their websites, social media accounts, and marketing materials. In addition to this content, she has written business-related articles for sites like Sweet Frivolity, Alliance Worldwide Investigative Group, Bloom Co and Spent.